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OMB APPROVALOMB
Number: 3235-0288Expires:
April 30, 2008Estimated
average burden hours per response..2630.00
   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, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to .
 Commission File Number: 001-31583
 
 Nam Tai Electronics, Inc.
 (Exact name of registrant as specified in its charter)
 British Virgin Islands
(Jurisdiction of incorporation or organization)
Unit C, 17 Floor Edificio Comercial Rodrigues
599 da Avenida da,
Praia Grande, Macao
(Address of principal executive offices)
     o þ
 o þ
  þ o
  o þ o
 o þ
  o
 o þ




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Table of Contents
 FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
    
    
    3INTRODUCTION
    
    
    3PART I
    
    
    3ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    3ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3. KEY INFORMATION
    
    
    3ITEM 4. INFORMATION ON THE COMPANY
    
    
    23ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    40ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    41ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
    
    
    56ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    63ITEM 8. FINANCIAL INFORMATION
    
    
    64ITEM 9. THE LISTING
    
    
    69ITEM 10. ADDITIONAL INFORMATION
    
    
    70ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    79ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    81PART II
    
    
    81ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    81ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    81ITEM 15. CONTROLS AND PROCEDURES
    
    
    81Report of Management on Internal Control Over Financial Reporting
    
    
    81Attestation Report of the Registered Public Accounting Firm
    
    
    82ITEM 16. [RESERVED]
    
    
    83ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    83ITEM 16 B. CODE OF ETHICS
    
    
    83ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    83ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    84ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS
    
    
    84PART III
    
    
    84ITEM 17. FINANCIAL STATEMENTS
    
    
    84ITEM 18. FINANCIAL STATEMENTS
    
    
    84Index to Consolidated Financial Statements
    
    
    84ITEM 19. EXHIBITS
    
    
    85SIGNATURE
    
    
    88EXHIBIT 4.15EXHIBIT 4.16EXHIBIT 4.17EXHIBIT 4.18EXHIBIT 4.19EXHIBIT 4.20EXHIBIT 4.21EXHIBIT 4.22EXHIBIT 4.23EXHIBIT 4.24EXHIBIT 4.25EXHIBIT 4.26EXHIBIT 4.27EXHIBIT 4.28EXHIBIT 4.29EXHIBIT 4.30EXHIBIT 4.31EXHIBIT 4.32EXHIBIT 4.33EXHIBIT 4.34EXHIBIT 4.35EXHIBIT 4.36EXHIBIT 4.37EXHIBIT 4.38EXHIBIT 4.39EXHIBIT 4.40EXHIBIT 4.41EXHIBIT 4.42EXHIBIT 4.43EXHIBIT 4.44EXHIBIT 4.45EXHIBIT 4.46EXHIBIT 4.47EXHIBIT 4.48EXHIBIT 4.49EXHIBIT 4.50EXHIBIT 4.51EXHIBIT 4.52EXHIBIT 4.53EXHIBIT 4.54EXHIBIT 12.1EXHIBIT 12.2EXHIBIT 13.1EXHIBIT 25.1
    2




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FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
  
 INTRODUCTION
  
    
    we, us, our company, our, the Company and Nam Tai refer to Nam Tai
Electronics, Inc. and, in the context of describing our operations, also include
our PRC operating companies;
    
    shares refer to our common shares, $0.01 par value;
    
    China or PRC refers to the Peoples Republic of China, excluding Taiwan,
Hong Kong and Macao;
    
    Hong Kong refers to the Hong Kong Special Administrative Region of the
Peoples Republic of China;
    
    Macao refers to the Macao Special Administrative Region of the Peoples
Republic of China, and
    
    all references to Renminbi, RMB or yuan are to the legal currency of
China; all references to U.S. dollars, dollars, $ or US$ are to the legal
currency of the United States.
 Bluetooth ®
 
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
  3




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Year ended December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands, except per share data)Consolidated statements of income data:Net sales  third parties
    
    $
    385,524
    
    
    $
    499,680
    
    
    $
    791,042
    
    
    $
    870,174
    
    
    $
    780,822Net sales  related party
    
    
    20,782
    
    
    
    34,181
    
    
    
    6,195
    
    
    
    
    
    
    
    Total net sales
    
    
    406,306
    
    
    
    533,861
    
    
    
    797,237
    
    
    
    870,174
    
    
    
    780,822Cost of sales
    
    
    340,016
    
    
    
    457,385
    
    
    
    704,314
    
    
    
    783,953
    
    
    
    693,804Gross profit
    
    
    66,290
    
    
    
    76,476
    
    
    
    92,923
    
    
    
    86,221
    
    
    
    87,018Gain on disposal of asset held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,258
    
    
    
    Operating costs and expenses:Selling, general and administrative
    
    
    24,866
    
    
    
    28,053
    
    
    
    33,057
    
    
    
    30,668
    
    
    
    36,550Research and development
    
    
    4,037
    
    
    
    5,045
    
    
    
    7,210
    
    
    
    7,866
    
    
    
    9,798Losses arising from the judgment to reinstate
redeemed shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,465
    
    
    
    Total operating expenses
    
    
    28,903
    
    
    
    33,098
    
    
    
    40,267
    
    
    
    52,999
    
    
    
    46,348Income from operations
    
    
    37,387
    
    
    
    43,378
    
    
    
    52,656
    
    
    
    42,480
    
    
    
    40,670Other (expenses) income  net
    
    
    (815
    )
    
    
    (1,012
    )
    
    
    (125
    )
    
    
    (1,265
    )
    
    
    2,219Dividend income received from marketable
securities and investment
    
    
    3,714
    
    
    
    18,295
    
    
    
    579
    
    
    
    
    
    
    
    Gain on sale of subsidiaries shares
    
    
    1,838
    
    
    
    77,320
    
    
    
    10,095
    
    
    
    
    
    
    
    390Gain on disposal of an affiliated company
    
    
    
    
    
    
    
    
    
    
    3,631
    
    
    
    
    
    
    
    Gain (loss) on disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    (3,686
    )
    
    
    
    
    
    
    43,815Impairment loss on marketable securities
    
    
    
    
    
    
    (58,316
    )
    
    
    (6,525
    )
    
    
    
    
    
    
    Loss on marketable securities
arising from split share structure reform
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,869
    )
    
    
    Interest income
    
    
    788
    
    
    
    1,110
    
    
    
    3,948
    
    
    
    8,542
    
    
    
    9,163Interest expense
    
    
    (121
    )
    
    
    (195
    )
    
    
    (438
    )
    
    
    (602
    )
    
    
    (452
    )Income from continuing operations before income
tax expenses, minority interests and equity in income (loss) of affiliated companies
    
    
    42,791
    
    
    
    80,580
    
    
    
    60,135
    
    
    
    47,286
    
    
    
    95,805Income taxes expenses
    
    
    (399
    )
    
    
    (879
    )
    
    
    (651
    )
    
    
    (377
    )
    
    
    (4,030
    )Income
before minority interests and equity income (loss) of affiliated companies
    
    
    42,392
    
    
    
    79,701
    
    
    
    59,484
    
    
    
    46,909
    
    
    
    91,775Minority interests
    
    
    (1,067
    )
    
    
    (6,010
    )
    
    
    (7,992
    )
    
    
    (6,153
    )
    
    
    (22,272
    )Income after minority interests
    
    
    41,325
    
    
    
    73,691
    
    
    
    51,492
    
    
    
    40,756
    
    
    
    69,503Equity in income (loss) of affiliated companies
    
    
    498
    
    
    
    (6,806
    )
    
    
    (186
    )
    
    
    
    
    
    
    Net income
from continuing operations
    
    
    41,823
    
    
    
    66,885
    
    
    
    51,306
    
    
    
    40,756
    
    
    
    69,503Discontinued operation
    
    
    1,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    43,802
    
    
    
    66,885
    
    
    
    51,306
    
    
    
    40,756
    
    
    
    69,503Earnings per share:Basic
    
    $
    1.09
    
    
    $
    1.57
    
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.56Diluted
    
    $
    1.07
    
    
    $
    1.57
    
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.55
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At December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands, except per share data)Consolidated balance sheet data:Cash and cash equivalents
    
    $
    61,827
    
    
    $
    160,649
    
    
    $
    213,843
    
    
    $
    221,084
    
    
    $
    272,459Working capital
    
    
    93,474
    
    
    
    218,243
    
    
    
    234,674
    
    
    
    238,105
    
    
    
    266,306Land use right and property, plant and equipment, net
    
    
    77,647
    
    
    
    97,441
    
    
    
    100,741
    
    
    
    105,394
    
    
    
    98,599Total assets
    
    
    297,695
    
    
    
    460,473
    
    
    
    520,011
    
    
    
    529,235
    
    
    
    544,818Short-term
debt, including current portion of long-term debt
    
    
    3,004
    
    
    
    4,955
    
    
    
    9,400
    
    
    
    6,266
    
    
    
    6,570Long-term debt, less current portion
    
    
    1,688
    
    
    
    5,163
    
    
    
    2,850
    
    
    
    1,100
    
    
    
    1,558Total debt
    
    
    4,692
    
    
    
    10,118
    
    
    
    12,250
    
    
    
    7,366
    
    
    
    8,128Shareholders equity
    
    
    217,118
    
    
    
    305,053
    
    
    
    310,391
    
    
    
    317,094
    
    
    
    330,181Common shares
    
    
    412
    
    
    
    426
    
    
    
    435
    
    
    
    438
    
    
    
    448Total dividend per share
    
    
    1.00
    
    
    
    0.48
    
    
    
    1.32
    
    
    
    1.52
    
    
    
    0.84Total number of common shares issued
    
    
    41,231
    
    
    
    42,665
    
    
    
    43,506
    
    
    
    43,787
    
    
    
    44,804Total number of common shares to be issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,017
    
    
    
    
 
 Note: Working Capital represents the excess of current assets over current liabilities. 5




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Risk Factors
  We are dependent on a few large customers, the loss of any of which could substantially harm our
business and operating results.
  Our quarterly and annual operating results are subject to significant fluctuations as a result of 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;
    
    variability in our manufacturing yields;
    
    long lead times and advance financial commitments for our factories and
equipment expenditures;
    
    long lead times and advance financial commitments for components required to
complete anticipated customer orders
    
    our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components;
    
    changes in the specific products or quantities our customers order; and
    
    price reductions due to competitive pressure.
  6




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We face increasing competition, which has had and may continue to have, an adverse effect on our
gross margins.
   
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We may not be able to compete successfully with our competitors, many of which have substantially
greater resources than we do. We will face intense competition when we begin large-scale production
of flexible printed circuit, or FPC, boards and FPC subassemblies.
  Product/Service
    
    CompetitorEMS
    
    Celestica, Inc.Flextronics International Ltd.Hon Hai Precision Industry Co., Ltd.Jabil Circuit, IncSanmina-SCI CorporationImage capturing devices and their modules
    
    Altus Technology Inc (controlled by Foxconn)Lite-On Technology CorporationLogitech International S.A.The Primax GroupMobile phone accessories
    
    Balda-Thong Fook Solutions Sdn., Bhd.Celestica, Inc.Elcoteq Network Corp.Flextronics International Ltd.Foster CorporationFoxlink GroupMerry Electronics Co. Ltd.WKK International (Holdings) Ltd.RF modules
    
    Wavecom SAWKK International (Holdings) Ltd.Liquid crystal display, or LCD, panels
    
    Elec & Eltek International Holdings LimitedTruly International Holdings Ltd.Varitronix International Ltd.Telecommunication subassemblies and components
    
    Flextronics International Ltd.LG. Philips LCD Co., Ltd.Samsung ElectronicsVaritronix International Ltd.Consumer
electronic products (calculators, personal organizers and linguistic products)
    
    Computime Limited
Inventec Co. Ltd.Kinpo Electronics, Inc.VTech Holdings Limited
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Our inability to utilize capacity at facilities that we have planned for expansion could materially
and adversely affect our business and operating results.
  Delays in constructing our new factories could adversely affect our operating results.
  Cancellations or delays in orders could materially and adversely affect our gross margins and
operating results.
  9




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Our customers face numerous competitive challenges, such as rapid technological change and short
life cycles for their products, which may materially adversely affect their business, and also
ours.
  
    
    The inability of our customers to adapt to rapidly changing technology and
evolving industry standards, which result in short product life cycles.
    
    The inability of our customers to develop and market their products, some of
which are new and untested, the potential that our customers products may become
obsolete or the failure of our customers products to gain widespread commercial
acceptance.
    
    Recessionary periods in our customers markets.
    
    Increased competition among our customers and their respective competitors which
may result in a loss of business, or a reduction in pricing power, for our
customers.
    
    New product offerings by our customers competitors may prove to be more
successful than our customers product offerings.
  Our business has been characterized by a rapidly changing mix of products and customers.
  There may not be a sufficient market for new products that our customers or we develop.
  We must spend substantial amounts to maintain and develop advanced manufacturing processes and
engage additional engineering personnel in order to attract new customers and business.
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
    
    utilization of advances in technology;
    
    development of new or improved manufacturing processes for our customers
products;
    
    delivery of efficient and cost-effective services; and
    
    timely completion of the manufacture of new products.
 Our business is capital intensive and the failure to generate sufficient cash could require that we
curtail capital expenditures.
  We generally have no written agreements with suppliers to obtain components and our margins and
operating results could suffer from increases in component prices.
  Our business and operating results would be materially and adversely affected if our suppliers of
needed components fail to meet our needs.
  Labor shortages in Southern China has adversely affected our gross margins and will likely continue
to do so in the future.
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Recent changes in the PRCs labor law restricts Nam Tais ability to reduce its workforce in the
event of an economic downturn.
  Factors affecting the electronics industry in general and our customers in particular have harmed
our operations and could do so again in the future.
    12




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We are exposed to impact of global business trends in the mobile phone industry, which could result
in even lower gross margins on the mobile phone components and subassemblies we manufacture.
  Our customers are dependent on shipping companies for delivery of our products and interruptions to
shipping could materially and adversely affect our business and operating results.
  Our products are sold internationally and the effect of business, legal and political risks
associated with international operations could significantly harm us.
  
    
    changes in economic and political conditions and in governmental policies;
    
    changes in international and domestic customs regulations;
    
    wars, civil unrest, acts of terrorism and other conflicts;
    
    changes in tariffs, trade restrictions, trade agreements and taxation;
    
    limitations on the repatriation of funds because of foreign exchange controls;
    
    exposure to political and financial instability;
    
    currency exchange losses, collection difficulties or other country-specific
losses;
    
    exposure to fluctuations in the value of local currencies;
    
    changes in value-added tax, or VAT, reimbursement;
    
    imposition of currency exchange controls; and
    
    delays from customs brokers or government agencies.
  Our operating results could be negatively impacted by seasonality.
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Our results could be adversely affected with intensifying environmental regulations.
   The recent reorganization of our group structure may not result in the expected synergies or
benefits or justify the expenses incurred to effect it.
  Our insurance coverage may not be sufficient to cover the risks related to our operations and
losses.
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We have suffered material losses from litigation involving claims against Tele-Art Inc.(Tele-Art)
and related proceedings.
   We could become involved in intellectual property disputes.
  We depend on our executive officers and skilled personnel.
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Changes in the economic and political environment in China and policies adopted by the PRC
government to regulate its economy may adversely affect our business, operating results and
financial condition.
  The PRC legal system has inherent uncertainties that could materially and adversely impact our
ability to enforce the agreements governing our factories and to do business.
  Political
or trade controversies between China and the United States could harm our operating
results or depress our stock price.
  A deterioration of relations between China and Japan may harm our business.
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The economy of China has been experiencing significant growth, leading to some inflation. If the
government tries to control inflation by traditional means of monetary policy or returns to planned
economic techniques, our business will suffer a reduction in sales growth and expansion
opportunities.
  Changes to PRC tax laws and heightened efforts by the Chinas tax authorities to increase revenues
are expected to subject us to greater taxes.
   Payment of dividends by our subsidiaries in the PRC to us is subject to restrictions under PRC law.
The new PRC tax law could force us to reduce the amount of dividends we have historically paid to
our shareholders or possibly eliminate them or we may decide not pay
dividends in the future.
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We may have been a passive foreign investment company for 2007 or may become a passive foreign
investment company for the current taxable year of 2008, which could result in adverse U.S.
federal income tax consequences to U.S. investors.
    Changes in foreign exchange regulations of China could adversely affect our operating results.
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Our financial results have been affected by changes in currency exchange rates. Changes in currency
rates involving the Japanese yen or renminbi could increase our expenses.
  
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Power shortages in China could harm our operations.
  A recurrence of SARS or the threat of an avian flu outbreak in China, or similar widespread public
health developments may materially and adversely affect our business and operating results.
  Actual or perceived health risks associated with the use of mobile phone handsets or other
communications equipment could negatively affect our business.
  The market price of our shares will likely be subject to substantial price and volume fluctuations.
    Regulatory initiatives in the United States , such as the Sarbanes-Oxley Act and other rules and
regulations may increase the time and costs of certain activities.
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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.
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
    
    there is no doubt to the authenticity of the judgment documents and the
understanding of the judgment;
    
    pursuant to the law of the place of judgment, the judgment is final and
conclusive;
    
    the judgment was not obtained by fraud or the matter in relation to the judgment
is not within the exclusive jurisdiction of Macao courts;
    
    the judgment will not be challenged on the ground that the relevant matter has
been adjudicated by the Macao court, except matters which have first been
adjudicated by courts outside Macao;
    
    pursuant to the law of the place of the judgment, the defendant has been
summoned and the proceedings in which the judgment was obtained were not contrary
to natural justice; and
    
    the enforcement of the judgment will not cause any orders that may result in
apparent public disorder.
  Future issuances of preference shares could materially and adversely affect the holders of our
common shares or delay or prevent a change of control.
  Our status as a foreign private issuer in the United States exempts us from certain of the
reporting requirements under the Securities Exchange Act of 1934 and corporate governance standards
of the New York Stock Exchange, or NYSE limiting the protections and information afforded to
investors.
  
    
    the rules under the Securities Exchange Act of 1934 requiring the filing with
the SEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual
reports on Form 10-K;
    
    the sections of the Securities Exchange Act of 1934 regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under
the Securities Exchange Act of 1934;
    
    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).
  22




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ITEM 4. INFORMATION ON THE COMPANY
 Corporate Information
  Major Events During 2007 to Date
 Disposition of TCL Interest
  Transactions in Securities of our Hong Kong Listed-Subsidiaries
   Developments in Planned Expansion
  23




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The 2007 Reorganization
  Nam Tais effective percentageshareholdingsBefore 2007
    
    After 2007Reorganization
    
    ReorganizationNTEEP Group
    
    
    73.18
    
    
    
    73.18JIC Group
    
    
    74.99
    
    
    
    74.99Zastron Group
    
    
    100.00
    
    
    
    73.18
    
    
    We acquired 100% of Jetup Electronic (Shenzhen) Co. Ltd. (Jetup) from JIC in
exchange for the cash payment by the Company to JIC of approximately $48.9 million;
    
    JIC acquired 100% of Shenzhen Namtek Co., Ltd (Shenzhen Namtek) and Namtek
Japan Company Limited (Namtek Japan) from NTEEP in exchange for the cash payment
by JIC to NTEEP of approximately $10.3 million;
    
    NTEEP acquired 100% of both Jetup and the Zastron Group from us in exchange for
the delivery to us (i) cash in the amount of approximately $41.7 million and (ii)
an unsecured shareholders loan in
 24




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##### Table of Contents



the principal amount of approximately $311.4
million payable by NTEEP to us over a 12-period in equal annual installments of
principal plus interest at the rate of 3.9% per annum.
  Our 2008 Sale of JIC
   Capital Expenditures
  Year ended December 312005
    
    2006
    
    2007Property, plant and equipment (net)
    
    $
    32,166,000
    
    
    $
    23,793,000
    
    
    $
    13,785,000
  
    
    $4.8 million for machinery used mainly for bonding and testing;
    
    $4.0 million for machinery used mainly for LCD products;
    
    $2.4 million for project of FPC board manufacturing in existing site; and
    
    $2.6 million for other capital equipment.
  
    
    $1.4 million for machinery used mainly for COG products;
    
    $7.2 million for machinery used mainly for production of LCD modules;
    
    $11.7 million for project of FPC board manufacturing in existing site; and
    
    $3.5 million for other capital equipment.
  
    
    $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 subassemblies; and
    
    $7.8 million for other capital equipment.
  
    
    $5.8 million for the expansion in LCD factory;
    
    $15.5 million for machinery used mainly for LCD modules production;
    
    $53.6 million for new factory construction in Wuxi;
 25




---



##### Table of Contents




    
    $6.0 million for an office building in Japan;
    
    $9.4 million for machinery used for surface mount technology; and
    
    $1.8 million for other capital equipment.
  Business Overview
  Our Customers
  Year ended December 31,2005
    
    2006
    
    2007Wuxi Sharp Electronic Components Co., Ltd.
    
    
    10.1
    %
    
    
    22.5
    %
    
    
    *Sharp Corporation
    
    
    32.3
    %
    
    
    18.8
    %
    
    
    20.2
    %Epson Imaging Device Corporation (1)
    
    
    15.3
    %
    
    
    16.3
    %
    
    
    15.9
    %GN Netcom
    
    
    *
    
    
    
    *
    
    
    
    10.8
    %
 
 *
    
    Less than 10% of our total net sales.(1)
    
    Formerly known as Sanyo Epson Imaging Device  Customer
    
    ProductsGN Netcom
    
    Headset accessory containing Bluetooth wireless technologyHikari Alphax Co., Ltd.
    
    LCD modulesLeapFrog Enterprise, Inc.
    
    FLY Fusion TM Pentop ComputersRyoyo Electro Hong Kong Limited
    
    LCD panelsEpson Imaging Device Corporation (1)
    
    LCD modules for cellular phones and FPC subassembliesSharp Corporation
    
    FPC subassemblies, calculators, PDAs and dictionariesSony Computer Entertainment Europe Ltd.
    
    Home entertainment productsSony Ericsson Mobile Communications AB
    
    Mobile phone digital camera accessories, headset
accessory containing Bluetooth wireless technology and
flashlight for mobile phoneTexas Instruments Incorporated
    
    CalculatorsUniden HK Ltd.
    
    LCD panels
 
 (1)
    
    Formerly known as Sanyo Epson Imaging Device 26




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##### Table of Contents



Our Products
  Year ended December 31,2005
    
    2006
    
    2007Dollars (US$)
    
    Percent
    
    Dollars (US$)
    
    Percent
    
    Dollars (US$)
    
    PercentCECP
    
    
    169,056
    
    
    
    21
    %
    
    
    178,320
    
    
    
    21
    %
    
    
    283,757
    
    
    
    36
    %TCA
    
    
    570,069
    
    
    
    72
    
    
    
    627,199
    
    
    
    72
    
    
    
    413,199
    
    
    
    53LCDP
    
    
    58,112
    
    
    
    7
    
    
    
    64,655
    
    
    
    7
    
    
    
    83,866
    
    
    
    11Total
    
    
    797,237
    
    
    
    100
    %
    
    
    870,174
    
    
    
    100
    %
    
    
    780,822
    
    
    
    100
    %
  Consumer Electronic and Communication Products, or CECP
  
    
    Mobile phone accessories such as headsets containing Bluetoothwireless technology, snap-on portable music speaker, phone cradle, snap-on FM
radio adaptors, and snap-on GPS adaptors;
    
    Entertainment devices such as USB web cam for interactive games, USB microphone
and converter box Karaoke, and a buzzer gaming device for music quiz games;
    
    Educational products such as digital pens, calculators and electronic
dictionaries;
    
    Optical devices such as CMOS sensor modules, camera modules for notebook
computers and mobile phones and recording cameras for the automotive industry; and
    
    Software development services principally for electronic dictionary products for
major Japanese customers. In addition, car navigation products were also developed
for potential customers.
 
 27




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##### Table of Contents



Telecommunication Component Assembly, or TCA
  
    
    Color and monochrome LCD modules to display information as part of
telecommunication products such as mobile phones and telephone systems. Our LCD
modules could be manufactured for use in most other hand-held consumer electronic
devices, such as electronic games and digital cameras.
    
    RF modules for integration into mobile phones. RF modules are partially finished
circuits that can be incorporated into larger products or components. They include
receivers, transmitters, and transceivers. 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 digital audio
broadcasting components that are used in digital radio products such as home
tuners, kitchen radios, in-car receivers, CD players, clock radios, boom boxes,
midi-systems and handheld portable devices.
    
    FPC subassemblies for integration into various LCD modules
    
    FPC board manufacturing for vertical integration to FPC subassembly business,
this could be used for mobile phone, PDAs, office automation, laptop computers and
other products which require interface connectivity.
    
    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 Products, 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, 2007, we had 16 COF
machines. These machines connect
the bump of large scale integrated,
or LSI, driver onto FPC pattern
with anisotropic conductive film,
or ACF. These COF machines have the
ability to pitch fine to 38
micrometers and a total production
capacity of up to 4,400,000 chips
per month.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, 2007, we had 23 COG
lines in our principal
manufacturing facilities. These
machines provide an LCD of
dimension of up to 200 millimeters
(length)x 150 (width)x 2.2
(height), a process time of five
seconds per chip, a pin pitch fine
to 38 micrometers and a total
production capacity of up to
4,200,000 chips per month. During
2005, our subsidiary, Jetup also
started manufacturing COG LCD
modules. As of December 31, 2007,
Jetup had 18 COG lines and is
capable of bonding 5 million units
of COG LCD modules a month. They
are able to bond LCD panels up to
sizes of 200 millimeters x 200
millimeters x 2.2 millimeters
thick, with an accuracy of five
microns tolerance, in a cycle time
of 12-15 seconds per piece.
 28




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##### Table of Contents



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, 2007, we had 53COB
aluminum bonding machines which
provide a high speed chip bonding
time of 0.25 second per 2
millimeters wire, a bond pad fine
to 75 micrometers and a total
production capacity of up to
3,829,000 (150 wires/board) per
month. We use COB aluminum bonding
in the assembly of consumer
products such as digital pen,
calculators, electronic
dictionaries, , audio products. We
also had 3COB gold ball bonding
machines which provide a high speed
chip bonding time of 0.072 second
per 2 millimeters wire, a bond pad
fine to 50 micrometers and a total
production capacity of up to
500,000 (150 wires/board) per
month. We use COB gold ball bonding
in the CMOS camera module, which
use in USB camera, notebook
computer, mobile phone and digital
pen.Outer Lead Bonding, Or OLB
    
    is an advanced technology used to
connect PCBs and large-scale
integrated circuits with a large
number of connectors. We use this
technology to manufacture complex
miniaturized products, such as
high-memory PDAs. As of December
31, 2007, 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, 2007, we had 24
systems of TAB with ACF machines.
The machines provide process time
of 10 to 25 seconds per component,
a pin pitch fine up to 150
micrometers and a total production
capacity of up to 4,936,000
components per month. During 2005,
Jetup also started manufacturing
TAB LCD modules. As of December 31,
2007, Jetup had four TAB lines and
is capable of bonding 2,000,000
pieces of TAB LCD modules a month.
They are able to bond LCD panels up
to sizes of 120 millimeters x 120
millimeters x 2.2 millimeters
thick, with an accuracy of 10
microns tolerance in a cycle time
of 20-25 seconds per piece.Fine Pitch Heat Seal Technology, Or 
FPHS Technology
    
    allows us to connect LCD displays
to PCBs produced by COB and outer
lead bonding that enables very thin
connections. This method is highly
specialized and is used in the
production of finished products
such as PDAs. As of December 31,
2007, 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
mobile display module and
electronic linguistic devices. As
of December 31, 2007, we had 37 SMT
productions lines. The production
time per chip ranges from 0.055
second per chip to 0.8 second per
chip and high precision ranging
from +/-0.05 millimeter to +/-0.1
millimeter. The components size
ranges from 0.4 millimeter
(length)x 0.2 millimeter (width) to
55 millimeters (length)x 55
millimeters (width). Ball grid
array, or BGA, ball pitch is 0.4
millimeter and ball diameter is 0.2
millimeter. Flip Chip, our smallest
lead/bump pitch, is 250/240UM and
our smallest components spacing is
0.15 micrometers. The total
production capacity is over 1
billion resistor capacitor chips
per month.Super-Twisted Nematic, Or STN, 
Displays
    
    is a type of monochrome passive
matrix LCD capable of
providing higher information
content to display systems and are
typically found in applications
such as cordless phones, mobile
phones, MP3 players, pocket games
and PDAs. Our JIC. group began
producing STN LCDs in 2002. During
2005, our JIC group upgraded its
two existing twisted nematic, or TN
type, LCD lines to STN LCD lines.
TN displays rotate the director of
the liquid crystal by 90°,
but STN LCD displays employ up to a
270°rotation. This extra
rotation gives the crystal a much
steeper voltage-brightness response
curve and also widens the angle at
which the display can be viewed
before losing much contrast.As of
December 31, 2007, our JIC group
was using three automated STN lines
capable of producing both TN and
STN type LCDs with capacity of
150,000 pairs of glass (each sheet
of glass of 360 millimeters x 400
millimeters in size) panels per
month.Lcd Back-End
    
    is a main manufacturing process for
LCD panels, and is regarded as part
of the process for its finished
product LCD modules. It includes
the precise pure water cleaning
process, scribing of LCD glass,
liquid crystal insertion, sealing
process and breaking process, then
turns the LCD mother glass into LCD
panels. Our machines can cope with
0.2millimeters + 0.2millimeters LCD
mother glass up to dimension 550
millimeters x 670 millimeters, with
cutting tolerance +/-0.1
millimeters. Nam Tai started mass
production from September 2006,
with monthly maximum production
capacity of 1,800,000 units.
 29




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##### Table of Contents



FPC boards and FPC Subassemblies
 Flexible Printed Circuit Subassemblies.
 Flexible Printed Circuits
  Quality Control
   30




---



##### Table of Contents



Our Suppliers
   
    
    Integrated circuits or chips, most of which we purchase presently from
Cambridge Silico Radio Plc Ltd., Ricoh Company Ltd, ATI Technologies Ltd, Rohm
Electronics (HK) Co., Ltd., Samsung Electronics., Ltd., Sharp Electronics (M)
SDN.BHD and certain of their affiliates;
    
    LCD panels, which are available from many manufacturers. In 2007, we purchased
LCD panels from Suzhou Epson Co. Ltd., Safaring Technology Co. Ltd., Toshiba
Matsushita Display Co. Ltd., Shantou Goworld Display (Plant II) Co. Ltd., and VBest
Electronics Ltd.;
    
    FPC boards, which consist of copper conductive patterns that have been etched or
printed while affixed to flexible substrate materials such as polyimide or
polyester, are mainly used to provide connections for electronic components and as
a substrate to support these electronic devices. In 2007, we purchased FPC boards
mainly from Sony Chemical Co., Ltd., Nitto Denko (HK) Co. Ltd. and NOK Mektec Corp.
Ltd.;
    
    Light-emitting diodes, or LEDs, are semiconductor devices that emit incoherent
narrow-spectrum light when electrically biased in the forward direction. This
effect is a form of electroluminescence. LEDs are small extended sources with extra
optics added to the chip, which emit a complex intensity spatial distribution. We
purchase LEDs primarily from Nichia Corporation; and
    
    CMOS imaging sensors, which we purchase mainly from Omnivision Technologies
Inc., Micron Technology Inc. and Magnachip Semiconductor Ltd. Solar cells and
batteries, which are standard off-the-shelf items that we generally purchase in
Hong Kong from agents of Japanese manufacturers or directly from companies in
China; various mechanical components such as plastic parts, cables, rubber keypads,
PCBs, indium tin oxide, or ITO, glass used in the production of LCD panels, and
packaging materials from various local suppliers in China; and various acoustic
components, which we mainly sourced from Minami Acoustics Limited, Vansonic
Enterprise co. Ltd., BSE Group, Ole Wolff Elektronik A/S and Lexin (Japan) Ltd.
where the manufacturing base is principally in China.
 31




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##### Table of Contents



Production Scheduling
      32




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##### Table of Contents



Sales and Marketing
   Seasonality
  Transportation
  Competition
  Product/Service
    
    CompetitorEMS
    
    Ø Celestica, Inc.Ø Flextronics International Ltd.Ø Hon Hai Precision Industry Co., Ltd.Ø Jabil Circuit, IncØ Sanmina-SCI CorporationImage capturing devices and their modules
    
    Ø Altus Technology Inc (controlled by Foxconn)Ø Lite-On Technology CorporationØ Logitech International S.A.Ø The Primax Group
 33




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##### Table of Contents



Product/Service
    
    CompetitorMobile phone accessories
    
    Ø Balda-Thong Fook Solutions Sdn., Bhd.Ø Celestica, Inc.Ø Elcoteq Network Corp.Ø Flextronics International Ltd.Ø Foster CorporationØ Foxlink GroupØ Merry Electronics Co. Ltd.Ø WKK International (Holdings) Ltd.RF modules
    
    Ø Wavecom SAØ WKK International (Holdings) Ltd.Liquid crystal display, or LCD, panels
    
    Ø Elec & Eltek International Holdings LimitedØ Truly International Holdings Ltd.Ø Varitronix International Ltd.Telecommunication subassemblies and
components
    
    Ø Flextronics International Ltd.Ø LG. Philips LCD Co., Ltd.Ø Samsung ElectronicsØ Varitronix International Ltd.Consumer electronic products (calculators, personal organizers and
    
    Ø Computime Limitedlinguistic products)
    
    Ø Inventec Co. Ltd.Ø Kinpo Electronics, Inc.Ø VTech Holdings Limited
   Research and Development
   34




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##### Table of Contents



Patents, Licenses and Trademarks
  Organizational Structure
  The remainder of this page left blank intentionally
 35




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##### Table of Contents








---



##### Table of Contents



Nam Tai Electronic & Electrical Products Limited
 Namtai Electronic
(Shenzhen) Co., Ltd.(Namtai
Shenzhen) was
originally
established as Baoan
(Nam Tai) Electronic
Co. Ltd. in June 1989
as a contractual
joint venture company
with limited
liability pursuant to
the laws of China.
Originally, the
equity of Baoan (Nam
Tai) Electronic Co.
Ltd. was 70% owned by
Nam Tai Electronic &
Electrical Products
Limited, a Hong Kong
subsidiary of Nam
Tai, and 30% owned by
a PRC company. In
1992, the PRC company
transferred all of
its equity interest
in the contractual
joint venture to Nam
Tai Electronic &
Electrical Products
Limited and Baoan
(Nam Tai) Electronic
Co. Ltd. changed its
name to Namtai
Electronic (Shenzhen)
Co., Ltd. In December
2003, the equity
interest in Namtai
Shenzhen was
transferred from Nam
Tai Electronic &
Electrical Products
Limited (Hong Kong)
to NTEEP and it
became NTEEPs wholly
owned subsidiary. Its
business was
unaffected by the
2007 Reorganization
and it continues to
engage in the
manufacture and sale
of consumer
electronic and
telecommunications
products.
Nam Tai
Investments
Consultant (Macao
Commercial Offshore)
Company Limitedwas established
in August 2003 by the
Company. In March
2004, the Company
transferred the
equity interest to
NTEEP and this
company then became a
wholly owned
subsidiary of NTEEP.
Its principal
business is to
provide consultancy,
administrative and
data processing
services to other
companies in the
NTEEP group.
    
    First Rich
Holdings Limited
(First Rich)
incorporated on
November 2, 2007 in
the British Virgin
Islands and prior to
the 2007
Reorganization was a
wholly owned
subsidiary of JIC. It
and its subsidiaries
became part of the
NTEEP Group in the
2007 Reorganization.Top Eastern
Investment
Limited (Top
Eastern) incorporated
in November 6, 2007
in Hong Kong. It
continues as the
wholly owned
subsidiary of First
Rich and the holding
company of Jetup.Jetup Electronic
(Shenzhen) Co.
Ltd. (Jetup) was
incorporated in 1993
in China and handles
the manufacturing and
processing production
of LCD panels and
modules through its
factories in Baoan
County, Shenzhen and
was formerly in the
JIC Group. Its
business remains
unaffected by the
2007 Reorganization
and it continues to
engage in the
manufacture and sale
of liquid crystal
display products, now
part of the NTEEP
Group as a
consequence of the
2007 Reorganization.
    
    Zastron
Precision-Tech
Limited (ZPT)
was incorporated in
June 2003 in the
Cayman Islands. It is
a wholly-owned
subsidiary of NTEEP
and the holding
company of
subsidiaries engage
in the manufacture
and sale of liquid
crystal display
modules, FPCs and FPC
subassemblies. ZPT
and its subsidiaries
became part of the
NTEEP Group in the
2007 Reorganization.Zastron
Electronic (Shenzhen)
Co. Ltd.
(Zastron Shenzhen)
was organized as
Zastron Plastic &
Metal Products
(Shenzhen) Ltd. in
March 1992 as a
company with limited
liability company
began producing
metallic parts and
PVC plastic products,
much of which is used
in the products
manufactured in our
principal
manufacturing
facilities. In August
2002, Zastron
Plastic & Metal
Products (Shenzhen)
Ltd. changed its name
to Zastron Electronic
(Shenzhen) Co. Ltd.
and expanded the
nature of its
business to include
manufacturing of
telecommunication
products, LCD
modules, TFT LCD
modules and other products. It is one
of our principal
manufacturing arms,
becoming part of the
NTEEP Group in the
2007 Reorganization.Zastron (Macao
Commercial Offshore)
Company Limited
(Zastron Macao) was
established in March
2004 in Macao, China
and is a wholly owned
subsidiary of ZPT.
Its principal
business is the
provision of
consultancy,
administrative and
data processing
services to other
companies in the
Zastron group of
companies and became part of the NTEEP Group in the 2007
Reorganization.Zastron
Precision-Tech (Wuxi)
Co. Ltd.was
established in
November 2006 as a
wholly owned foreign
investment enterprise
with limited
liability and
pursuant to the
relevant laws of
China. The Company
will be engaged in
the manufacturing and
trading of LCD
modules and other
products and became
part of the NTEEP
Group in the 2007
Reorganization.Zastron
Precision-Flex (Wuxi)
Co. Ltd. was
established in
November 2006 as a
wholly owned foreign
investment enterprise
with limited
liability and
pursuant to the
relevant laws of
China. The Company
will be engaged in
the manufacturing and
trading of FPC boards
and FPC subassemblies
and became part of
the NTEEP Group in
the 2007
Reorganization.
 37




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##### Table of Contents



Property, Plant and Equipment
  Owned(1) orApproximate
    
    
    
    
    leaseSquare
    
    
    
    
    expirationLocation
    
    
    
    Footage
    
    
    Principal Use
    
    dateHong Kong
    
    
    
    
    3,482
    
    
    Administration
    
    
    2008Macao
    
    
    
    
    2,479
    
    
    Administration
    
    
    2009Shenzhen, China
    
    
    
    
    557,835
    
    
    Principal manufacturing facilities
    
    
    2043/2049
    (2)87,462
    
    
    Administration
    
    
    2043/2049
    (2)350,585
    
    
    Dormitories
    
    
    2043/2049
    (2)41,528
    
    
    Cafeteria
    
    
    204333,826
    
    
    Recreational
    
    
    2049Other existing facilitiesShenzhen, China
    
    
    
    
    383,547
    
    
    Manufacturing LCD panels and modules
    

    
    201232,005
    
    
    Administration231,262
    
    
    Dormitories22,259
    
    
    Cafeteria14,548
    
    
    RecreationalShekou, Shenzhen, China
    
    
    
    
    12,374
    
    
    Software development
    
    
    2008Tokyo, Japan
    
    
    
    
    904
    
    
    Software development and marketing
    
    
    2009Planned new manufacturing
facilitiesWuxi, Jiangsu Province, China
    
    (3)
    
    
    
    
    
    FPC boards and subassemblies
    
    
    2056(3)
    
    
    
    
    
    LCD modules and other products
    
    
    2056Guangming, Shenzhen, China
    
    (3)
    
    
    
    
    
    LCD modules and other products
    
    
    2057
 
 (1)
    
    Only the PRC government and peasant collectives may own land in China. Our principal
manufacturing facilities are located on land in which we have entered into a land lease
agreement with the PRC government that gives us the right to use the land for 50 years.
Similarly, the land which we have acquired in Wuxi, and will be acquiring the land in
Guangming Shenzhen, will be by 50-year land lease. Our understanding of the practice as it
exists today; at the expiration of the land lease, we may be given the right to renew the
lease. For our other facilities, we have entered into factory building lease agreements with
peasant collectives or other companies for 10 years or less.(2)
    
    Our principal manufacturing facilities occupy two pieces of land with 50-year land leases
that we acquired in 1993 and 1999, respectively.(3)
    
    Raw land.  38




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##### Table of Contents



Hong Kong
   Macao
  Shenzhen, China
 Principal Manufacturing Facilities
   LCD Factory
  39




---



##### Table of Contents



Software Development
  Future Expansion
    
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  40




---



##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
   Operating Results
 Overview
   Net Sales and Cost of Sales
   Gross Margins
   41




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##### Table of Contents



Income Taxes
       Rate under EIT for enterprises
    
    Rate under EIT for enterprisesTax Year
    
    previously subject to 15% tax rate
    
    previously subject to 24% tax rate2008
    
    
    18
    %
    
    
    25
    %2009
    
    
    20
    %
    
    
    25
    %2010
    
    
    22
    %
    
    
    25
    %2011
    
    
    24
    %
    
    
    25
    %2012
    
    
    25
    %
    
    
    25
    %
  42




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##### Table of Contents



Year Ended December 31,2005
    
    2006
    
    2007Applicable statutory tax rates
    
    
    15
    %
    
    
    15
    %
    
    
    15
    %Effect of
loss/income for which no income tax benefit/expense is receivable/payable
    
    
    (8
    %)
    
    
    (5
    %)
    
    
    (4
    %)Tax holidays and incentives
    
    
    (4
    %)
    
    
    (3
    %)
    
    
    (4
    %)Effect of
China tax concessions, giving rise to no China tax liability
    
    
    (4
    %)
    
    
    (4
    %)
    
    
    Defer tax credit
    
    
    
    
    
    
    
    
    
    
    (3
    %)Other items
which are not deductible (assessable) for tax purposes
    
    
    2
    %
    
    
    (2
    %)
    
    
    Effective tax rates
    
    
    1
    %
    
    
    1
    %
    
    
    4
    %
 Strategic Investments
  Alpha Star/JCT
 TCL group .
    43




---



##### Table of Contents



Year ended December 31,2005
    
    2006
    
    2007Income (loss) from Investments Stated at Fair ValueDividend income received from TCL Corporation:(Loss) Gain on disposal of marketable securities
    
    
    (3,686
    )
    
    
    
    
    
    
    43,815Impairment loss on marketable securities
    
    
    (6,525
    )
    
    
    
    
    
    
    Loss on marketable securities arising from split
share structure reform
    
    
    
    
    
    
    (1,869
    )
    
    
    Gain on disposal of an affiliated company
    
    
    3,631
    
    
    
    
    
    
    
    Equity in loss of an affiliated company
    
    
    (186
    )
    
    
    
    
    
    
    
 Critical Accounting Policies and Estimates
   Marketable Securities
   44




---



##### Table of Contents



Valuation of long-lived assets, including purchased intangible assets and valuation of goodwill
      Accruals and provisions for loss contingencies
   Summary of Results
   45




---



##### Table of Contents



Year Ended December 31,
    
    
    % increase/(decrease)2005
    
    
    2006
    
    
    2007
    
    
    2006 vs 2005
    
    
    2007 vs 2006Net sales
    
    $
    797,237
    
    
    $
    870,174
    
    
    $
    780,822
    
    
    
    9.1
    %
    
    
    (10.3
    %)Gross profit
    
    
    92,923
    
    
    
    86,221
    
    
    
    87,018
    
    
    
    (7.2
    %)
    
    
    0.9
    %Operating income
    
    
    52,656
    
    
    
    42,480
    
    
    
    40,670
    
    
    
    (19.3
    %)
    
    
    (4.3
    %)Net income
    
    
    51,306
    
    
    
    40,756
    
    
    
    69,503
    
    
    
    (20.6
    %)
    
    
    70.5
    %Basic earnings per share
    
    
    1.19
    
    
    
    0.93
    
    
    
    1.56
    
    
    
    (21.8
    %)
    
    
    67.7
    %Diluted earnings per share
    
    
    1.19
    
    
    
    0.93
    
    
    
    1.55
    
    
    
    (21.8
    %)
    
    
    66.7
    %
 Key Performance Indicators
  Three Months EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2006
    
    2006
    
    2006
    
    2006Sales cycle (1)
    
    4 days
    
    5 days
    
    11 days
    
    10 daysInventory turnover (2)
    
    14 days
    
    15 days
    
    14 days
    
    13 daysDays in accounts receivable (3)
    
    49 days
    
    55 days
    
    49 days
    
    51 daysDays in accounts payable (4)
    
    59 days
    
    65 days
    
    52 days
    
    54 days
 2007
    
    2007
    
    2007
    
    2007Sales cycle (1)
    
    6 days
    
    11 days
    
    9 days
    
    12 daysInventory turnover (2)
    
    17 days
    
    17 days
    
    19 days
    
    16 daysDays in accounts receivable (3)
    
    45 days
    
    53 days
    
    48 days
    
    52 daysDays in accounts payable (4)
    
    56 days
    
    59 days
    
    58 days
    
    56 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 is 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 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. Results of Operations
  46




---



##### Table of Contents



Year Ended December 31,2005
    
    2006
    
    2007Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    88.3
    
    
    
    90.1
    
    
    
    88.9Gross profit
    
    
    11.7
    
    
    
    9.9
    
    
    
    11.1Gain on disposal of asset held for sale
    
    
    
    
    
    
    1.1
    
    
    
    Selling, general and administrative expenses
    
    
    (4.2
    )
    
    
    (3.5
    )
    
    
    (4.7
    )Research and development expenses
    
    
    (0.9
    )
    
    
    (0.9
    )
    
    
    (1.2
    )Losses arising from judgment to reinstate redeemed shares
    
    
    
    
    
    
    (1.7
    )
    
    
    Income from operations
    
    
    6.6
    
    
    
    4.9
    
    
    
    5.2Other (expense) income, net
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    0.3Dividend income from marketable securities and investments
    
    
    0.1
    
    
    
    
    
    
    
    Gain on sale of subsidiaries shares
    
    
    1.3
    
    
    
    
    
    
    
    0.1Gain on disposal of an affiliated company
    
    
    0.4
    
    
    
    
    
    
    
    Impairment loss on marketable securities
    
    
    (0.8
    )
    
    
    
    
    
    
    Loss on
marketable securities arising from split share structure reform
    
    
    
    
    
    
    (0.2
    )
    
    
    (Loss) gain on disposal of marketable securities
    
    
    (0.5)
    
    
    
    
    
    
    
    5.6Interest income
    
    
    0.5
    
    
    
    1.0
    
    
    
    1.2Interest expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Income before income taxes, minority interests and equity in loss of an affiliated company
    
    
    7.5
    
    
    
    5.4
    
    
    
    12.3Income taxes
    
    
    (0.1
    )
    
    
    0.0
    
    
    
    (0.5
    )Income before minority interests and equity in loss of
an affiliated company
    
    
    7.4
    
    
    
    5.4
    
    
    
    11.8Minority interests
    
    
    (1.0
    )
    
    
    (0.7
    )
    
    
    (2.9
    )Equity in loss of an affiliated company
    
    
    0.0
    
    
    
    
    
    
    
    Net income
    
    
    6.4
    %
    
    
    4.7
    %
    
    
    8.9
    %
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Net Sales.
  Year ended December 31,2006
    
    
    
    
    
    2007
    
    
    
    
    
    2007 vs 2006Dollars
    
    Percent
    
    Dollars
    
    Percent
    
    PercentCECP
    
    $
    178,320
    
    
    
    21
    %
    
    $
    283,757
    
    
    
    36
    %
    
    
    59.1
    %TCA
    
    
    627,199
    
    
    
    72
    %
    
    
    413,199
    
    
    
    53
    %
    
    
    (34.1
    %)LCDP
    
    
    64,655
    
    
    
    7
    %
    
    
    83,866
    
    
    
    11
    %
    
    
    29.7
    %Total
    
    
    870,174
    
    
    
    100
    %
    
    
    780,822
    
    
    
    100
    %
    
    
    (10.3
    %)
 47




---



##### Table of Contents



TM
   Gross Profit
 Selling, General and Administrative Expenses
 Research and Development Expenses.
 Provision of losses arising from the judgment to reinstate the redeemed shares.
 Other Income (Expenses) Net.
 Gain on Sale of Subsidiaries Shares
 Loss on marketable securities arising from split share structure reform.
 Gain on disposal of marketable securities.
 Interest Income.
 Interest Expense
 Income Taxes
 Minority Interests
 48




---



##### Table of Contents



Net Income.
 Year ended December 31,2005

    
    
    
    2006

    
    
    2007CECP
    
    $
    16.8
    
    
    
    33
    %
    
    $
    12.3
    
    
    
    30
    %
    
    $
    54.5
    
    
    
    78
    %TCA
    
    
    35.2
    
    
    
    69
    %
    
    
    31.4
    
    
    
    77
    %
    
    
    16.0
    
    
    
    23
    %LCDP
    
    
    3.2
    
    
    
    6
    %
    
    
    2.6
    
    
    
    6
    %
    
    
    1.3
    
    
    
    2
    %Corporate
    
    
    (3.9
    )
    
    
    (8
    %)
    
    
    (5.5
    )
    
    
    (13
    %)
    
    
    (2.3
    )
    
    
    (3
    %)Total
    
    $
    51.3
    
    
    
    100
    %
    
    $
    40.8
    
    
    
    100
    %
    
    $
    69.5
    
    
    
    100
    %
      Net Sales.
 Year Ended December 31,2005
    
    
    2006
    
    2006 vs 2005Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent
    
    
    PercentCECP
    
    $
    169,056
    
    
    
    21
    %
    
    $
    178,320
    
    
    
    21
    %
    
    
    5.5
    %TCA
    
    
    570,069
    
    
    
    72
    %
    
    
    627,199
    
    
    
    72
    %
    
    
    10
    %LCDP
    
    
    58,112
    
    
    
    7
    %
    
    
    64,655
    
    
    
    7
    %
    
    
    11.3
    %Total
    
    $
    797,237
    
    
    
    100
    %
    
    $
    870,174
    
    
    
    100
    %
    
    
    26.8
    %
    49




---



##### Table of Contents



Gross Profit.
 Selling, General and Administrative Expenses.
 Research and Development Expenses.
 Other Expenses Net.
 Gain on Sale of Subsidiaries Shares
 Loss on marketable securities arising from split share structure reform.
 Provision of losses arising from the judgment to reinstate the redeemed shares.
 Interest Income.
 Interest Expense
 Income Taxes
 Minority Interests
 Equity in Loss of Affiliated Companies
 50




---



##### Table of Contents



Net Income.
     Liquidity and Capital Resources
 Liquidity
      Year Ended December 31,2005
    
    2006
    
    2007Net cash provided by operating activities
    
    $
    70,825
    
    
    $
    79,811
    
    
    $
    71,050Net cash provided by (used in) investing activities
    
    
    18,740
    
    
    
    (8,430
    )
    
    
    26,610Net cash used in financing activities
    
    
    (36,165
    )
    
    
    (65,071
    )
    
    
    (47,098
    )Net increase in cash and cash equivalents
    
    
    53,400
    
    
    
    6,310
    
    
    
    50,562
 51




---



##### Table of Contents



Privy Council Judgment/Bank of China Litigation
   52




---



##### Table of Contents



Capital Resources
    Outstanding
    
    Outstandingbalance at
    
    balance atOriginal
    
    
    
    
    
    Amount per
    
    
    
    
    
    December
    
    DecemberDate of
    
    drawn
    
    No. of
    
    installments
    
    
    
    First
    
    31,2006
    
    31, 2007draw down
    
    (in million)
    
    installments
    
    (in millions)
    
    Interest rate
    
    repayment
    
    (in millions)
    
    (in millions)Term 
Loan 1
    
    Jul-07
    
    $
    1.1
    
    
    
    12
    
    
    $
    0.1
    
    
    0.55%
over
LIBOR
    
    Oct-07
    
    $
    
    
    
    $
    1.0Aug-07
    
    $
    0.5
    
    
    
    12
    
    
    $
    0.1
    
    
    0.55%
over
LIBOR
    
    Nov-07
    
    $
    
    
    
    $
    0.5Sep-07
    
    $
    1.1
    
    
    
    12
    
    
    $
    0.1
    
    
    0.55%
over
LIBOR
    
    Dec-07
    
    $
    
    
    
    $
    1.0Term 
Loan 2
    
    Apr-04
    
    $
    1.6
    
    
    
    16
    
    
    $
    0.1
    
    
    0.75%
over
LIBOR
    
    Jul-04
    
    $
    0.6
    
    
    
    $0.2Jun-04
    
    $
    3.6
    
    
    
    16
    
    
    $
    0.2
    
    
    0.75%
over
LIBOR
    
    Sep-04
    
    $
    1.4
    
    
    
    $0.4Dec-04
    
    $
    1.8
    
    
    
    16
    
    
    $
    0.1
    
    
    0.75% 
over
LIBOR
    
    Mar-05
    
    $
    0.9
    
    
    
    $0.4Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2.9
    
    
    $
    3.5
  53




---



##### Table of Contents



Payments (in thousands) due by period2012 andContractual Obligation
    
    Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    thereafterLong-term bank borrowing
    
    $
    3,548
    
    
    $
    1,990
    
    
    $
    890
    
    
    $
    668
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    6,837
    
    
    
    1,789
    
    
    
    1,449
    
    
    
    1,428
    
    
    
    1,532
    
    
    
    639
    
    
    
    Capital expenditures
    
    
    3,116
    
    
    
    3,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    97,085
    
    
    
    97,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    110,586
    
    
    $
    103,890
    
    
    $
    2,339
    
    
    $
    2,096
    
    
    $
    1,532
    
    
    $
    639
    
    
    $
    
  Impact of Inflation
  Exchange Controls
  Recent Changes in Accounting Standards
 Fair Value Measurement
 The Fair Value Options for Financial Assets
and Financial Liabilities"
 Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards
 54




---



##### Table of Contents



Business Combinations
 Noncontrolling Interest in Consolidated
Financial Statements Consolidated
Financial Statements
 Research and Development
  Trend Information
     55




---



##### Table of Contents



Off-balance Sheet Arrangement
  
 ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
 Directors and Senior Managers
  Name
    
    Age
    
    Position with Nam Tai or its SubsidiariesM. K. Koo
    
    
    63
    
    
    Chairman of the Board of Nam Tai, NTEEP GroupMasaaki Yasukawa
    
    
    48
    
    
    Chief Executive Officer of Nam Tai and NTEEP GroupJohn Q. Farina
    
    
    54
    
    
    President and Chief Financial Officer of Nam Tai and Chief Financial Officer of NTEEP GroupL. P. Wang
    
    
    51
    
    
    Chief Operating Officer of Nam Tai and NTEEP GroupKarene Wong
    
    
    44
    
    
    Chief Executive Officer of NTEEP Business UnitPatinda Lei
    
    
    41
    
    
    Chief Executive Officer of Zastron Business UnitIvan Chui
    
    
    49
    
    
    Chief Executive Officer of Jetup Business UnitPeter R. Kellogg
    
    
    65
    
    
    Member of the Board of DirectorsDr. Wing Yan
(William) Lo
    
    
    47
    
    
    Member of the Board of DirectorsCharles Chu
    
    
    51
    
    
    Member of the Board of DirectorsMark Waslen
    
    
    47
    
    
    Member of the Board of Directors
 M.K. Koo.
 Masaaki Yasukawa
 56




---



##### Table of Contents



John Q. Farina.
 L.P. Wang
 Karene Wong.
 Patinda Lei.
 Ivan Chui
 Peter R. Kellogg.
 57




---



##### Table of Contents



Dr. Wing Yan (William) Lo
 Charles Chu.
 Mark Waslen
  Compensation of Directors and Senior Management
     58




---



##### Table of Contents



Board Practices
  Corporate Governance Guidelines
  
 shareholder@namtai.com
 NYSE Listed Company Manual Disclosure
  Committee Charters and Independence
  59




---



##### Table of Contents



Board Committees
 Audit Committee
   Compensation Committee
   Nominating / Corporate Governance Committee
   Stock Options of Directors and Senior Management
  Number ofcommon shares
    
    Exercisesubject
    
    price
    
    ExpirationName
    
    to options
    
    per share($)
    
    DateM.K. Koo
    
    
    15,000
    
    
    
    22.25
    
    
    June 8, 200915,000
    
    
    
    12.42
    
    
    June 7, 2010John Quinto Farina
    
    
    40,000
    
    
    
    12.13
    
    
    May 13, 201150,000
    
    
    
    9.856
    
    
    Feb. 5, 2011Masaaki Yasukawa
    
    
    
    
    
    
    
    
    
    

    
    L.P. Wang
    
    
    
    
    
    
    
    
    
    

    
    Karene Wong
    
    
    
    
    
    
    
    
    
    

    
    Patinda Lei
    
    
    
    
    
    
    
    
    
    

    
    Ivan Chui
    
    
    
    
    
    
    
    
    
    

    
    Peter R. Kellogg
    
    
    15,000
    
    
    
    21.62
    
    
    June 6, 200815,000
    
    
    
    22.25
    
    
    June 8, 2009
 60




---



##### Table of Contents



Number ofcommon shares
    
    Exercisesubject
    
    price
    
    ExpirationName
    
    to options
    
    per share($)
    
    Date15,000
    
    
    
    12.42
    
    
    June 7, 2010Wing Yan (William) Lo
    
    
    15,000
    
    
    
    21.62
    
    
    June 6, 200815,000
    
    
    
    22.25
    
    
    June 8, 2009Charles Chu
    
    
    15,000
    
    
    
    12.42
    
    
    June 7, 201015,000
    
    
    
    21.62
    
    
    June 6, 200815,000
    
    
    
    22.25
    
    
    June 8, 2009Mark Waslen
    
    
    15,000
    
    
    
    12.42
    
    
    June 7, 201015,000
    
    
    
    21.62
    
    
    June 6, 200815,000
    
    
    
    22.25
    
    
    June 8, 2009
 Employee Stock Option Plans
     Employees
  61




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##### Table of Contents



As at December 31,Geographic Location
    
    Main Category of Activity
    
    2005
    
    
    2006
    
    
    2007Shenzhen, PRC
    
    Manufacturing
    
    
    4,800
    
    
    
    5,630
    
    
    
    6,220Research and development
    
    
    342
    
    
    
    316
    
    
    
    360Quality control
    
    
    471
    
    
    
    439
    
    
    
    558Engineering
    
    
    281
    
    
    
    305
    
    
    
    337Administration
    
    
    407
    
    
    
    417
    
    
    
    445Marketing
    
    
    75
    
    
    
    89
    
    
    
    101Support*
    
    
    258
    
    
    
    246
    
    
    
    298Total Shenzhen
    
    
    
    
    6,634
    
    
    
    7,442
    
    
    
    8,319Hong Kong
    
    Administration
    
    
    14
    
    
    
    10
    
    
    
    13Marketing
    
    
    
    
    
    
    
    
    
    
    Support*
    
    
    
    
    
    
    
    
    
    
    Total Hong Kong
    
    
    
    
    14
    
    
    
    10
    
    
    
    13Macao
    
    Administration
    
    
    12
    
    
    
    16
    
    
    
    13Marketing
    
    
    
    
    
    
    
    
    
    
    Support*
    
    
    
    
    
    
    
    
    
    
    Total Macao
    
    
    
    
    12
    
    
    
    16
    
    
    
    13Japan
    
    Administration
    
    
    1
    
    
    
    2
    
    
    
    1Marketing
    
    
    1
    
    
    
    1
    
    
    
    2Research & Development
    
    
    
    
    
    
    1
    
    
    
    1Support*
    
    
    
    
    
    
    
    
    
    
    Total Japan
    
    
    
    
    2
    
    
    
    4
    
    
    
    4British Virgin Islands**
    
    Administration
    
    
    1
    
    
    
    1
    
    
    
    Total British Virgin Islands
    
    
    
    
    1
    
    
    
    1
    
    
    
    0Grand Total
    
    
    
    
    6,663
    
    
    
    7,473
    
    
    
    8,349
 
 *
    
    Employees categorized in support include personnel engaged in procurement, customs, shipping
and warehouse services.**
    
    We closed our BVI office on January 1, 2007.  62




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Shares and Options Ownership of Directors, Senior Management and Principal Shareholders
  Shares beneficially owned(1)Name
    
    Number
    
    
    
    
    
    PercentPeter R. Kellogg
    
    
    5,841,180
    (3)
    
    
    (2
    )
    
    
    13.0M. K. Koo
    
    
    5,705,786
    
    
    
    (3
    )
    
    
    12.8I.A.T. Reinsurance Syndicate Ltd.
    
    
    5,224,800
    (3)
    
    
    (2
    )
    
    
    11.7PowerShares Capital Management
LLC and its parent Invesco Ltd.
    
    
    3,182,715
    
    
    
    (4
    )
    
    
    7.1Ivan Chui
    
    
    545,870
    
    
    
    
    
    
    
    1.2Masaaki Yasukawa
    
    
    
    
    
    
    
    
    
    
    John Quinto Farina
    
    
    90,000
    
    
    
    (5
    )
    
    
    *L. P. Wang
    
    
    1,516
    
    
    
    (6
    )
    
    
    *Kazuhiro Asano
    
    
    
    
    
    
    
    
    
    
    Karene Wong
    
    
    37,100
    
    
    
    
    
    
    
    *Patinda Lei
    
    
    26,400
    
    
    
    
    
    
    
    *Charles Chu
    
    
    47,500
    
    
    
    (7
    )
    
    
    *Wing Yan (William) Lo
    
    
    45,000
    
    
    
    (8
    )
    
    
    *Mark Waslen
    
    
    55,000
    
    
    
    (9
    )
    
    
    *
 
 *
    
    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 44,803,735 common shares outstanding as of February 29, 2008.(2)
    
    Mr. Kellogg holds directly 571,380 common shares and options to purchase 45,000 common shares
exercisable within 60 days of February 29, 2008. Indirectly, through I.A.T. Reinsurance
Syndicate Ltd., Mr. Kellogg holds 5,224,800 common shares. I.A.T. Reinsurance Syndicate Ltd.
is a Bermuda corporation of which Mr. Kellogg is the sole holder of its voting stock. Mr.
Kellogg disclaims beneficial ownership of these shares.(3)
    
    Mr. Koo beneficially owned 5,690,786 common shares jointly with Ms. Cho Siu Sin, Mr. Koos
wife. He also holds directly options to purchase 30,000 common shares exercisable within 60
days of February 29, 2008.(4)
    
    Based on a Schedule 13G filed by Invesco Ltd. with the SEC on February 13, 2008.(5)
    
    Consists of 40,000 options to purchase common shares exercisable within 60 days of May 14,
2008 and 50,000 options to purchase common shares exercisable within 60 days of February 29,
2008.(6)
    
    Includes 1,516 common shares and that are registered to Jean
S. Tsai, Mr. Wangs wife.(7)
    
    Includes 2,500 common shares and options to purchase 45,000 common shares exercisable within
60 days of February 29, 2008. 63




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##### Table of Contents



(8)
    
    Consists of options to purchase common shares exercisable within 60 days of February 29,
2008.(9)
    
    Includes 10,000 common shares and options to purchase 45,000 common shares exercisable within
60 days of February 29, 2008.    Percentage Ownership(1)March 1,
    
    February 29,2006
    
    2007
    
    2008M. K. Koo
    
    
    13.1
    
    
    
    12.7
    
    
    
    12.7Peter R. Kellogg (2)
    
    
    13.1
    
    
    
    13.0
    
    
    
    12.9I.A.T. Reinsurance Syndicate Ltd.
    
    
    11.7
    
    
    
    11.7
    
    
    
    11.7PowerShares Capital Management LLC and its parent
    
    
    
    
    
    
    
    
    
    
    7.1
 
 (1)
    
    Based on 43,505,586, 44,803,735 and 44,803,735 common shares outstanding on March 1, 2006,
March 1, 2007 and February 29, 2008, respectively.(2)
    
    Includes shares registered in the name of I.A.T. Reinsurance Syndicate Ltd., of which Mr.
Kellogg disclaims beneficial ownership.  Certain Relationships and Related Transactions
  
 ITEM 8. FINANCIAL INFORMATION
 Financial Statements
  Legal Proceedings
  Tele-Art and Related Litigation
   64




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
    
    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 First Redemption, 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.
   65




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66




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67




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Previously Reported Class Actions
   Export Sales
  December 31,Geographic Areas
    
    2005
    
    
    2006
    
    
    2007China (excluding Hong Kong)
    
    
    19
    %
    
    
    31
    %
    
    
    22
    %Europe
    
    
    17
    
    
    
    15
    
    
    
    16Japan
    
    
    2
    
    
    
    2
    
    
    
    3United States
    
    
    4
    
    
    
    9
    
    
    
    15Hong Kong
    
    
    48
    
    
    
    30
    
    
    
    33North America (excluding United States)
    
    
    
    
    
    
    
    
    
    
    1Korea
    
    
    7
    
    
    
    6
    
    
    
    4Other
    
    
    3
    
    
    
    7
    
    
    
    6100
    %
    
    
    100
    %
    
    
    100
    %
 Dividends
  68




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Year ended December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Total dividends declared (in thousands)
    
    $
    37,584
    
    
    $
    20,424
    
    
    $
    56,324
    
    
    $
    66,497
    
    
    $
    37,635Regular dividends per share
    
    $
    0.20
    
    
    $
    0.48
    
    
    $
    1.32
    
    
    $
    1.44
    
    
    $
    0.84Special dividends
    
    $
    0.80
    
    
    $
    
    
    
    $
    
    
    
    $
    0.08
    
    
    $
    Total dividends per share
    
    $
    1.00
    
    
    $
    0.48
    
    
    $
    1.32
    
    
    $
    1.52
    
    
    $
    0.84
     
 ITEM 9. THE LISTING
   2005
    
    2006
    
    2007Average Daily
    
    
    
    
    
    
    
    
    
    Average Daily
    
    
    
    
    
    
    
    
    
    Average DailyTrading
    
    
    
    
    
    
    
    
    
    Trading
    
    
    
    
    
    
    
    
    
    TradingHigh
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)First Quarter
    
    $
    28.36
    
    
    $
    17.25
    
    
    
    376,920
    
    
    $
    24.27
    
    
    $
    21.31
    
    
    
    224,826
    
    
    $
    15.28
    
    
    $
    12.70
    
    
    
    222,472Second Quarter
    
    
    27.80
    
    
    
    19.70
    
    
    
    302,367
    
    
    
    23.10
    
    
    
    21.46
    
    
    
    173,659
    
    
    
    14.38
    
    
    
    11.92
    
    
    
    244,741Third Quarter
    
    
    26.65
    
    
    
    22.50
    
    
    
    219,858
    
    
    
    22.56
    
    
    
    11.43
    
    
    
    504,411
    
    
    
    13.58
    
    
    
    11.76
    
    
    
    248,325Fourth Quarter
    
    
    25.88
    
    
    
    21.27
    
    
    
    238,459
    
    
    
    16.95
    
    
    
    12.57
    
    
    
    317,697
    
    
    
    13.69
    
    
    
    11.02
    
    
    
    236,070
 
 (1)  Determined by dividing the sum of the reported daily volume for the quarter by the number of
trading days in the quarter.  Year ended
    
    High
    
    Low
    
    Daily Trading Volume(1)December 31, 2007
    
    $
    15.28
    
    
    $
    11.02
    
    
    
    238,018December 31, 2006
    
    
    24.27
    
    
    
    11.43
    
    
    
    305,468December 31, 2005
    
    
    28.36
    
    
    
    17.25
    
    
    
    283,482December 31, 2004
    
    
    34.24
    
    
    
    13.99
    
    
    
    532,568December 31, 2003
    
    
    42.48
    
    
    
    6.94
    
    
    
    597,858
 
 (1)  Determined by dividing the sum of the reported daily volume for the year by the number of trading
days in the year. 69




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DailyTradingMonth ended
    
    High
    
    Low
    
    Volume(1)February 29, 2008
    
    $
    9.91
    
    
    $
    8.87
    
    
    
    322,325January 31, 2008
    
    
    11.92
    
    
    
    8.37
    
    
    
    440,571December 31, 2007
    
    
    11.96
    
    
    
    11.19
    
    
    
    252,715November 30, 2007
    
    
    12.49
    
    
    
    11.02
    
    
    
    197,467October 31, 2007
    
    
    13.69
    
    
    
    12.05
    
    
    
    256,843September 30, 2007
    
    
    13.58
    
    
    
    12.58
    
    
    
    232,479
 
 (1)  Determined by dividing the sum of the reported daily volume for the month by the number of trading
days in the month. 
 ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
        
    
    Continue to be entitled to one vote for each whole share on all matters to be
voted upon by shareholders, including the election of directors;
    
    Continue not to have cumulative voting rights in the election of directors; and
    
    Continue to be entitled to receive dividends if and when declared by our board
of directors out of funds legally available under British Virgin Islands law.
  
    
    all of common shares are equal to each other with respect to liquidation and
dividend rights;
    
    in the event of our liquidation, all assets available for distribution to the
holders of our common shares are distributable among them according to their
respective holdings; or
 70




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
    
    holders of our common shares have no preemptive rights to purchase any
additional, unissued common shares.
  
    
    to restrict the rights or powers of our shareholders to amend the Memorandum or
the Articles;
    
    to change the percentage of shareholders required to pass a resolution of
shareholders to amend the Memorandum or the Articles; or
    
    in circumstances where the Memorandum or the Articles cannot be amended by the
Shareholders; or
    
    to change the rights of our shareholders as described in any of the bulleted
provisions set forth above in this Report.
                71




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Transfer Agent
  Material Contracts
           72




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73




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74




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75




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Exchange Controls


Taxation
 United States Federal Income Tax Consequences
  General
  
    
    a dealer in securities or currencies;
    
    a trader in securities that elects to use a market-to-market method of
accounting for its securities holdings;
    
    a financial institution or a bank;
    
    an insurance company;
    
    a tax-exempt organization;
    
    a person that holds our common shares in a hedging transaction or as part of a
straddle or a conversion transaction;
    
    a person whose functional currency for United States federal income tax purposes
is not the U.S. dollar;
    
    a person liable for alternative minimum tax;
    
    a person that owns, or is treated as owning, 10% or more, by voting power or
value, of our common shares;
    
    certain former U.S. citizens and residents deemed to have expatriated to avoid
U.S. taxation; or
    
    a person who receives our shares pursuant to the exercise of employee stock
options or otherwise as compensation.
 U.S. Holders
 76




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
    
    an individual United States citizen or resident alien of the United States (as
specifically defined for United States federal income tax purposes);
    
    a corporation, or other entity treated as a corporation for United States
federal income tax purposes, created or organized in or under the laws of the
United States, any State or the District of Columbia;
    
    an estate whose income is subject to United States federal income tax regardless
of its source; or
    
    a trust (x) if a United States court can exercise primary supervision over the
trusts administration and one or more United States persons are authorized to
control all substantial decisions of the trust or (y) if it was in existence on
August 20, 1996, was treated as a United States person prior to that date and has a
valid election in effect under applicable Treasury regulations to be treated as a
United States person.


Distributions on Our Common Shares






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);


77



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
    
    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
    Non-U.S. Holders
  Distributions on Our Common Shares
  
    
    you conduct a trade or business in the United States and
    
    the distributions are effectively connected with the conduct of that trade or
business (and, if an applicable income tax treaty so requires as a condition for
you to be subject to U.S. federal income tax on a net income basis in respect of
income from our common shares, such distributions are attributable to a permanent
establishment that you maintain in the United States).
    
    If you meet the two tests above, you generally will be subject to tax in respect
of such dividends in the same manner as a U.S. Holder, as described above. In
addition, any effectively connected dividends received by a non-U.S. corporation
may also, under certain circumstances, be subject to an additional branch profits
tax at a 30 percent rate or such lower rate as may be specified by an applicable
income tax treaty.
 78




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Sale, Exchange or Other Disposition of Our Common Shares
  
    
    your gain is effectively connected with a trade or business that you conduct in
the United States (and, if an applicable income tax treaty so requires as a
condition for you to be subject to U.S. federal income tax on a net income basis in
respect of gain from the sale or other disposition of
our common shares, such gain is attributable to a permanent establishment maintained
by you in the United States), or
    
    you are an individual Non-U.S. Holder and are present in the United States for
at least 183 days in the taxable year of the sale or other disposition, and certain
other conditions exist.
  Backup Withholding and Information Reporting
  
    
    you are a corporation or other exempt recipient, or
    
    you provide your correct United States federal taxpayer identification number
and certify, under penalties of perjury, that you are not subject to backup
withholding.
  British Virgin Islands Tax Considerations
   Documents on Display
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Currency Fluctuations and Foreign Exchange Risk
    79




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Equivalent U.S. Dollar holdings atDecember 31,2006
    
    2007Currencies included in cash and cash equivalentsUnited States dollars
    
    
    205,648,000
    
    
    
    157,032,000Chinese renminbi
    
    
    8,552,000
    
    
    
    56,313,000Japanese yen
    
    
    3,851,000
    
    
    
    2,005,000Hong Kong
    
    
    3,026,000
    
    
    
    57,095,000Macao Patacas
    
    
    7,000
    
    
    
    14,000
 Interest Rate Risk
 Short-term interest rate risk
   Long-term interest rate risk
  80




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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
 Disclosure Controls and Procedures
  
 Report of Management on Internal Control Over Financial Reporting
   81




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Attestation Report of the Registered Public Accounting Firm
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FIRM
  Internal
Control  Integrated Framework
    Internal
Control  Integrated Framework
   
 82




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Changes in internal control over financial reporting
  
 ITEM 16. [RESERVED]
 
 ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
   
 ITEM 16 B. CODE OF ETHICS
  
 shareholder@namtai.com
 
 ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   2006
    
    
    2007(in thousands)Audit Fees (1)
    
    $
    1,116
    
    
    $
    1,573Audit-related Fees (2)
    
    
    42
    
    
    
    452Tax Fees (3)
    
    
    23
    
    
    
    8All Other Fees (4)
    
    
    42
    
    
    
    156Total
    
    $
    1,223
    
    
    $
    2,189
 
 (1)
    
    Audit Fees consist of fees billed for the annual audit of our consolidated financial
statements and the statutory financial statements of our subsidiaries. They also include fees
billed for other audit services, which are those services that only the independent registered
public accounting firm reasonably can provide, and include the provision of attestation
services relating to the review of documents filed with the SEC.(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.(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, 83




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##### Table of Contents



tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or
technical advice from tax authorities; tax planning services; and expatriate tax compliance,
consultation and planning services.(4)
    
    All Other Fees includes a business advisory service fee. Audit Committee Pre-approval Policies and Procedures
     
 ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
 
 Index to Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Statements of Income for the years ended December 31, 2005, 2006 and 2007
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2007
    
    F-3Consolidated Statements of Shareholders Equity and Comprehensive Income for the years ended
December 31, 2005, 2006 and 2007
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007
    
    F-5Notes to Consolidated Financial Statements
    
    F-7Schedule 1 - Nam Tai Electronics, Inc.  condensed financial information as of December 31, 2006 and 2007 and for the
years ended December 31, 2005, 2006 and 2007
    
    F- 37
  84




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##### Table of Contents



ITEM 19. EXHIBITS
  ExhibitNo.
    
    Exhibit1.1
    
    Memorandum and Articles of Association, as
amended on June 26, 2003 (incorporated by
reference to Exhibit 1.1 to the
registrants Form 8-A/A filed with the
Securities and Exchange Commission (SEC)
on December 13, 2007).4.1
    
    Sale and Purchase Agreement dated March 9,
2006 between Nam Tai Group Management
Limited, as seller, and Top Ease (H.K.)
Limited, as purchaser, for the sale of the
15th Floor and car park space no. 96 on
6th Floor, China Merchants Tower, Shun Tak
Centre, No. 168-200 Connaught Road
Central, Hong Kong (incorporated by
reference to Exhibit 4.8.1 to the
registrants Form 20-F filed with the
Securities and Exchange Commission (SEC)
on March 19, 2007)4.2
    
    Assignment dated April 13, 2006 from Nam
Tai Group Management Limited, as seller,
to Top Ease (H.K.) Limited, as purchaser
(incorporated by reference to Exhibit
4.8.2 to the registrants Form 20-F filed
with the SEC on March 19, 2007)4.3
    
    Investment Agreement dated March 14, 2006
between Zastron Electronic (Shenzhen) Co.
Ltd and Shenzhen Baoan District High and
New Technology Industrial Park Development
and Investment Co., Ltd. (incorporated by
reference to Exhibit 4.9 to the
registrants Form 20-F filed with the SEC
on March 19, 2007)4.4
    
    Banking facilities letter dated July 17,
2006 The Hongkong and Shanghai Banking
Corporation Limited to Zastron Electronic
(Shenzhen) Co. Ltd. (incorporated by
reference to Exhibit 4.10 to the
registrants Form 20-F filed with the SEC
on March 19, 2007)4.5
    
    Banking Facilities Letter dated July 17,
2006, The Hongkong and Shanghai Banking
Corporation Limited to Jetup Electronic
(Shenzhen) Co. Ltd. (incorporated by
reference to Exhibit 4.11 to the
registrants Form 20-F filed with the SEC
on March 19, 2007)4.6
    
    Guaranty dated July 21, 2006 by the
Company in favor of The Hongkong and
Shanghai Banking Corporation Limited
(incorporated by reference to Exhibit 4.12
to the registrants Form 20-F filed with
the SEC on March 19, 2007)4.7
    
    Cooperation Agreement dated October 26,
2006 between Zastron Precision-Tech
Limited and the Administration Committee
of Wuxi National High and New Technology
Industry Development District (incorporated
by reference to Exhibit 4.13 to the
registrants Form 20-F filed with the SEC
on March 19, 2007)4.8
    
    Cooperation Agreement dated October 26,
2006 between Zastron Precision-Tech
Limited and the Administration Committee
of Wuxi National High and New Technology
Industry Development District (incorporated
by reference to Exhibit 4.14 to the
registrants Form 20-F filed with the SEC
on March 19, 2007)4.9
    
    Land Use Transfer Agreement dated December
25, 2006 between Wuxi Municipal Bureau of
State Land and Resources and Zastron
Precision-Tech (Wuxi) Co. Ltd.
(incorporated by reference to Exhibit 4.15
to the registrants Form 20-F filed with
the SEC on March 19, 2007)4.10
    
    Land Use Transfer Agreement dated December
31, 2006 between Wuxi Municipal Bureau of
State Land and Resources and Zastron
Precision-Flex (Wuxi) Co. Ltd.
(incorporated by reference to Exhibit 4.16
to the registrants Form 20-F filed with
the SEC on March 19, 2007)4.11
    
    2006 Stock Option Plan of Nam Tai
Electronics, Inc adopted February 10, 2006
and approved on June 9, 2006 (incorporated
by reference to Exhibit A attached to
Exhibit 99.1 of the Form 6-K furnished to
the SEC on May 15, 2006).4.12
    
    Amendment to 2006 Stock Option Plan
(incorporated by reference to Exhibit
4.1.1 to the Companys Registration
Statement on Form S-8 File No. 333-136653
included with the Company Form 6-K
furnished to the SEC on November 13,
2006).4.13
    
    Amended 2001 Option Plan dated July 30,
2004 (incorporated by reference to Exhibit
4.18 to the Companys Form 20-F for the
year ended December 31, 2004 filed with
the SEC on March 15, 2005).4.14
    
    Amendment to 2001 Stock Option Plan
(incorporated by reference to Exhibit
4.1.1 to the Companys Registration
Statement on Form S-8 File No. File No.
333-76940 included with Companys Form 6-K
furnished to the SEC on November 13,
2006).4.15
    
    Consultancy Agreement dated February 6,
2007 between Nam
Tais subsidiary, Zastron Precision-Flex
(Wuxi) Co. Ltd. and Rider Levett Buchnall
Limited (formerly known as Levett and
Bailey Quantity Surveyors Limited)4.16
    
    Supplemental Rental Agreement dated May 1,
2007 between Nam Tais subsidiary, Jetup
Electronic (Shenzhen) Co., Ltd and a
local collective committee of Shenzhen
Baoan District**
 85




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##### Table of Contents



ExhibitNo.
    
    Exhibit4.17
    
    Consultancy Agreement dated May 31, 2007
between Nam Tais subsidiary, Zastron
Precision-Tech Limited and the Hong Kong
Productivity Council4.18
    
    Banking Facilities Letter dated June 7, 2007 between Nam Tais subsidiary,
Namtai Electronic (Shenzhen) Co., Ltd. and
HSBC Bank (China) Company Limited4.19
    
    Guaranty dated June 7, 2007 by Nam Tais
subsidiary, Nam Tai Electronic &
Electrical Products Limited signed a
guarantee in favor of HSBC Bank (China)
Company Limited4.20
    
    Banking Facilities Letter dated June 7,
2007 between Nam Tais subsidiary, Zastron
Electronic (Shenzhen) Co. Ltd. and HSBC
Bank (China) Company Limited4.21
    
    Banking Facilities Letter dated June 7,
2007 between Nam Tais subsidiary, Jetup
Electronic (Shenzhen) Co. Ltd. and HSBC
Bank (China) Company Limited4.22
    
    Guaranty dated June 7, 2007 by Nam Tais
subsidiary, J.I.C. Technology Company
Limited in favor of
HSBC Bank (China) Company Limited with
maximum liability of approximately $14.1
million (i.e.HK$110,000,000) for the
banking facilities of Jetup Electronic
(Shenzhen) Co., Ltd. This guarantee was
terminated on December 31, 2007 and
replaced by a new Guarantee by Nam Tai
Electronic & Electrical Products Limited
with same terms and conditions as a part
of Nam Tais 2007 Reorganization4.23
    
    Guaranty dated June 22, 2007 by Nam Tai
in favor of HSBC Bank (China) Company
Limited. This guarantee was terminated on
December 31, 2007 and replaced by a new
guarantee signed by Nam Tai Electronic &
Electrical Products Limited with same
terms and conditions as a part of Nam
Tais reorganization.4.24
    
    Assignment dated June 30, 2007 by Shenzhen
Municipal Bureau of State Land and
Resources pursuant to Land Use Transfer
Agreement and Supplemental Agreement of
the land use right of No. A614-0377 Plot
located in Shenzhen Guangming Hi-Tech
Industrial Park to Nam Tais subsidiary,
Zastron Electronic (Shenzhen) Co. Ltd.**4.25
    
    Summary of Design Consultancy Agreement
dated July 30, 2007 by Zastron Precision
-Tech Limited, a company incorporated
under the laws of the Cayman Island and
Parsons Brinckerhoff (Asia) Ltd, a company
incorporated under the laws of the Hong
Kong SAR*4.26
    
    Summary of Project Management Agreement
dated July 30, 2007 by Zastron Precision-Flex
(Wuxi) Company Limited, a
company incorporated under the laws of the
PRC; and (2) Parsons Brinckerhoff
Constructors (Shanghai) Company Limited ,
a company incorporated under the laws of
the PRC.*4.27
    
    Supplemental Loan Agreement dated
September 5, 2007, between Nam Tais two
subsidiaries, Zastron Precision Tech
Limited and Zastron Electronic (Shenzhen)
Co. Ltd**4.28
    
    Supplemental Loan Agreement dated
September 5, 2007, between Nam Tais two
subsidiaries, Zastron Precision Tech
Limited and Zastron Electronic (Shenzhen)
Co. Ltd**4.29
    
    Supplemental Loan Agreement dated
September 5, 2007, between Nam Tais two
subsidiaries, Zastron Precision Tech
Limited and Zastron Electronic (Shenzhen)
Co. Ltd**4.30
    
    Supplemental Loan Agreement dated
September 5, 2007, between Nam Tais two
subsidiaries, Zastron Precision Tech
Limited and Zastron Electronic (Shenzhen)
Co. Ltd**4.31
    
    Sales and Purchase Agreement dated
September 24, 2007, between Nam Tai and
its subsidiary, J.I.C. Technology Company
Limited4.32
    
    Sales and Purchase Agreement dated
September 24, 2007, between Nam Tai and
its subsidiary, Nam Tai Electronic &
Electrical Products Limited4.33
    
    Supplemental Sales and Purchase Agreement
dated October 5, 2007, between Nam Tai and
its subsidiary, J.I.C. Technology Company
Limited4.34
    
    Sales and Purchase Agreement dated October
5, 2007, between Nam Tais two
subsidiaries Nam Tai Electronic &
Electrical Products Limited and J.I.C.
Technology Company Limited4.35
    
    External Loan Agreement Agreement dated
November 6, 2007, between Nam Tais two
subsidiaries, J.I.C. Technology Company
Limited and Jetup Electronic (Shenzhen)
Co. Ltd**4.36
    
    External Loan Agreement dated November 15,
2007, between Nam Tais two subsidiaries,
J.I.C. Technology Company Limited and
Jetup Electronic (Shenzhen) Co. Ltd.**4.37
    
    Supplemental Sales and Purchase Agreement
dated November 28, 2007, between Nam Tai
and its subsidiary, J.I.C. Technology
Company Limited4.38
    
    Supplemental Sales and Purchase Agreement dated
November 28, 2007, between Nam Tais two
subsidiaries Nam Tai Electronic &
Electrical Products Limited and J.I.C.
Technology Company Limited
 86




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##### Table of Contents



ExhibitNo.
    
    Exhibit4.39
    
    Supplemental Sales and Purchase Agreement
dated November 28, 2007, between Nam Tai and its subsidiary, JIC Technology Company Limited4.40
    
    Professional Service Agreement, SAP
Software End-User Value License Agreement
dated November 30, 2007, between Nam Tais
subsidiary, Zastron Precision-Tech Limited
and SAP Hong Kong Co. Limited4.41
    
    Sales and Purchase Agreement dated
November 30, 2007, between Nam Tais two
subsidiaries Nam Tai Electronic &
Electrical Products Limited and Best Whole
Holdings Limited**4.42
    
    Sales and Purchase Agreement dated
November 30, 2007, between Nam Tais two
subsidiaries J.I.C. Technology Company
Limited and Top Eastern Investment Limited**4.43
    
    Letter of Commitment dated December
18, 2007, between Nam Tais subsidiary,
Zastron Electronic (Shenzhen) Co. Ltd. and
Shenzhen Baoan District High and New
Technology Industrial Park Development
Committee**4.44
    
    Loan Agreement dated December 28, 2007, between Nam Tais two
subsidiaries, Nam Tai Electronic & Electrical Product Limited and
Top Eastern Investment Limited4.45
    
    Deed of Assignment Agreement dated December 31, 2007, between Nam
Tais three subsidiaries, J.I.C. Technology Company Limited, Top
Eastern Investment Limited and Jetup Electronic (Shenzhen) Co.
Ltd.4.46
    
    Deed of Release Agreement dated December 31, 2007, between Nam
Tais two subsidiaries, J.I.C. Technology Company Limited and Top
Eastern Investment Limited4.47
    
    Deed of Release Agreement dated December 31, 2007, between Nam
Tais two subsidiaries, Nam Tai Electronic & Electrical Products
Limited and Best Whole Holdings Limited4.48
    
    Banking Facilities Letter Agreement
dated January 2, 2008,
between Nam Tais subsidiary, Jetup Electronic (Shenzhen) Co.,
Ltd. and HSBC Bank (China) Company Limited4.49
    
    Guaranty dated December 31, 2007, by Nam Tais
subsidiary, Nam Tai Electronic & Electrical Products Limited in
favor of HSBC Bank (China) Company Limited4.50
    
    Banking Facilities Letter dated January 2, 2008,
between Nam Tais subsidiary, Zastron Electronic (Shenzhen) Co.
Ltd and HSBC Bank (China) Company Limited4.51
    
    Guaranty dated December 31,
2007, by Nam Tai Electronics & Electrical
Products Limited in favor of HSBC Bank
(China) Company Limited4.52
    
    Banking Facilities Letter dated
December 31, 2007 among Nam Tais subsidiaries,
Nam Tai Electronics & Electrical Products
Limited and Jetup Electronic (Shenzhen)
Co. Ltd. and Shanghai Commercial Bank Ltd**4.53
    
    Exclusivity Agreement dated February 6,
2008 between Hong Kong Energy (Holdings) Limited
and Nam Tai relating to
the potential sale of Nam Tais entire
equity interest in JIC.4.54
    
    Share Purchase Agreement dated February 26, 2008 between Nam Tai as the Vendor, and HKC (Holdings) Limited as
the Purchaser relating to Nam Tais entire equity interest in JIC8.1
    
    Diagram of Companys subsidiaries. See the Section headed
Organization Structure under Item 4 of this Report at page 36.11.1
    
    Code of Ethics (incorporated by reference to Exhibit 14.1 to the
Companys Form 20-F for the year ended December 31, 2004 filed
with the SEC on March 15, 2005)12.1
    
    Certification pursuant to Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    Certification pursuant to Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.25.1
    
    Consent of Deloitte Touche Tohmatsu.
 
 *
    
    The agreement is written in Chinese and a Summary is provided in accordance with Form 20-F
Instructions to Exhibits and Rule 12b-12(d) under the Exchange Act).**
    
    The agreement is written in Chinese and an English Translation is provided in accordance with
Form 20-F Instructions to Exhibits and Rule 12b-12(d) under the Exchange Act). 87




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##### Table of Contents



SIGNATURE
  NAM TAI ELECTRONICS, INC.By:
    /s/ John Q. FarinaJohn Q. FarinaPresident and Chief Financial Officer




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##### Table of Contents



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




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)
 Year ended December 31,2005
    
    
    2006
    
    
    2007Net sales  third parties
    
    $
    791,042
    
    
    $
    870,174
    
    
    $
    780,822Net sales  related party
    
    
    6,195
    
    
    
    
    
    
    
    Total net sales
    
    
    797,237
    
    
    
    870,174
    
    
    
    780,822Cost of sales
    
    
    (704,314
    )
    
    
    (783,953
    )
    
    
    (693,804
    )Gross profit
    
    
    92,923
    
    
    
    86,221
    
    
    
    87,018Gain on disposal of asset held for sale
    
    
    
    
    
    
    9,258
    
    
    
    Selling, general and administrative expenses
    
    
    (33,057
    )
    
    
    (30,668
    )
    
    
    (36,550
    )Research and development expenses
    
    
    (7,210
    )
    
    
    (7,866
    )
    
    
    (9,798
    )Losses arising from the judgment to reinstate redeemed shares
    
    
    
    
    
    
    (14,465
    )
    
    
    Total operating expenses
    
    
    (40,267
    )
    
    
    (52,999
    )
    
    
    (46,348
    )Income from operations
    
    
    52,656
    
    
    
    42,480
    
    
    
    40,670Other (expenses) income, net
    
    
    (125
    )
    
    
    (1,265
    )
    
    
    2,219Dividend income received from marketable securities and investment
    
    
    579
    
    
    
    
    
    
    
    Gain on sales of subsidiaries shares
    
    
    10,095
    
    
    
    
    
    
    
    390Gain on disposal of an affiliated company
    
    
    3,631
    
    
    
    
    
    
    
    (Loss) gain on disposal of marketable securities
    
    
    (3,686
    )
    
    
    
    
    
    
    43,815Loss on marketable securities arising from split share structure reform
    
    
    
    
    
    
    (1,869
    )
    
    
    Impairment loss on marketable securities
    
    
    (6,525
    )
    
    
    
    
    
    
    Interest income
    
    
    3,948
    
    
    
    8,542
    
    
    
    9,163Interest expense
    
    
    (438
    )
    
    
    (602
    )
    
    
    (452
    )Income before income taxes and minority interests
    
    
    60,135
    
    
    
    47,286
    
    
    
    95,805Income taxes
    
    
    (651
    )
    
    
    (377
    )
    
    
    (4,030
    )Income before minority interests and equity in loss of an affiliated company
    
    
    59,484
    
    
    
    46,909
    
    
    
    91,775Minority interests
    
    
    (7,992
    )
    
    
    (6,153
    )
    
    
    (22,272
    )Equity in loss of an affiliated company
    
    
    (186
    )
    
    
    
    
    
    
    Net income
    
    $
    51,306
    
    
    $
    40,756
    
    
    $
    69,503Basic earnings per share
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.56Diluted earnings per share
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.55
  F-2




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)
 December 31,2006
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    221,084
    
    
    $
    272,459Marketable securities
    
    
    24,360
    
    
    
    Accounts receivable, less allowance for doubtful accounts of $152
and $53 at December 31, 2006 and 2007, respectively
    
    
    117,561
    
    
    
    95,802Inventories
    
    
    30,894
    
    
    
    32,356Prepaid expenses and other receivables
    
    
    2,503
    
    
    
    5,803Income taxes recoverable
    
    
    4,316
    
    
    
    5,483Deferred tax assets  current
    
    
    
    
    
    
    54Total current assets
    
    
    400,718
    
    
    
    411,957Property, plant and equipment, net
    
    
    102,721
    
    
    
    94,669Land use right
    
    
    2,673
    
    
    
    3,930Deposits for property, plant and equipment
    
    
    609
    
    
    
    536Prepayment for land use right
    
    
    2,880
    
    
    
    9,019Goodwill
    
    
    18,476
    
    
    
    20,296Deferred tax assets  non-current
    
    
    
    
    
    
    3,192Other assets
    
    
    1,158
    
    
    
    1,219Total assets
    
    $
    529,235
    
    
    $
    544,818LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Notes payable
    
    $
    4,516
    
    
    $
    4,580Long term bank loans  current portion
    
    
    1,750
    
    
    
    1,990Accounts payable
    
    
    125,893
    
    
    
    107,326Accrued expenses and other payables
    
    
    13,649
    
    
    
    21,690Dividend payable
    
    
    16,639
    
    
    
    9,509Income taxes payable
    
    
    166
    
    
    
    556Total current liabilities
    
    
    162,613
    
    
    
    145,651Long tem bank loans  non-current portion
    
    
    1,100
    
    
    
    1,558Total liabilities
    
    
    163,713
    
    
    
    147,209Minority interests
    
    
    48,428
    
    
    
    67,428Commitments and contingencies (Note 15)Shareholders equity:Common shares ($0.01 par value  authorized 200,000,000 shares)
    
    
    438
    
    
    
    448Reinstatement of redeemed shares
    
    
    17,159
    
    
    
    Additional paid-in capital
    
    
    264,393
    
    
    
    281,895Retained earnings
    
    
    25,030
    
    
    
    47,846Accumulated other comprehensive income (loss)
    
    
    10,074
    
    
    
    (8
    )Total shareholders equity
    
    
    317,094
    
    
    
    330,181Total liabilities and shareholders equity
    
    $
    529,235
    
    
    $
    544,818
  F-3




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
 Accumulated
    
    
    TotalCommon
    
    
    Common
    
    
    Reinstatement
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Share-Shares
    
    
    Shares
    
    
    of redeemed
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holders
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    shares
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at January 1, 2005
    
    
    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
    
    
    $
    310,391Shares issued on exercise of options
    
    
    281,000
    
    
    
    3
    
    
    
    
    
    
    
    5,436
    
    
    
    
    
    
    
    
    
    
    
    5,439Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    790
    
    
    
    
    
    
    
    
    
    
    
    790Reinstatement of redeemed shares
(note 9(e))
    
    
    
    
    
    
    
    
    
    
    17,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,159Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,756
    
    
    
    
    
    
    
    40,756
    
    
    $
    40,756Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,983
    
    
    
    8,983
    
    
    
    8,983Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73
    
    
    
    73Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,812Cash dividends ($1.52 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,497
    )
    
    
    
    
    
    
    (66,497
    )Balance at December 31, 2006
    
    
    43,786,586
    
    
    $
    438
    
    
    $
    17,159
    
    
    $
    264,393
    
    
    $
    25,030
    
    
    $
    10,074
    
    
    $
    317,094Reinstatement of redeemed shares
    
    
    1,017,149
    
    
    
    10
    
    
    
    (17,159
    )
    
    
    17,149
    
    
    
    
    
    
    
    
    
    
    
    Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    353Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,503
    
    
    
    
    
    
    
    69,503
    
    
    $
    69,503Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,451
    
    
    
    17,451
    
    
    
    17,451Disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,381
    )
    
    
    (27,381
    )
    
    
    (27,381
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (152
    )
    
    
    (152
    )Reserve shared by minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,052
    )
    
    
    
    
    
    
    (9,052
    )
    
    
    (9,052
    )Comprehensive
income
    $
    50,369Cash dividends ($0.84 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,635
    )
    
    
    
    
    
    
    (37,635
    )Balance at December 31, 2007
    
    
    44,803,735
    
    
    $
    448
    
    
    $
    
    
    
    $
    281,895
    
    
    $
    47,846
    
    
    $
    (8
    )
    
    $
    330,181
  F-4




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2005
    
    
    2006
    
    
    2007Cash flows from operating activities:Net income
    
    $
    51,306
    
    
    $
    40,756
    
    
    $
    69,503Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization of property, plant and equipment
    
    
    16,824
    
    
    
    19,024
    
    
    
    21,501Amortization and impairment loss of intangible assets
    
    
    459
    
    
    
    
    
    
    
    Gain on disposal of property, plant and equipment
    
    
    (563
    )
    
    
    (317
    )
    
    
    (66
    )Gain on disposal of assets held for sale
    
    
    
    
    
    
    (9,258
    )
    
    
    Loss on marketable securities arising from split share structure reform
    
    
    
    
    
    
    1,869
    
    
    
    Loss arising from the judgment to reinstate redeemed shares
    
    
    
    
    
    
    14,465
    
    
    
    Impairment loss on marketable securities  TCL Communication
Technology Holdings Limited (TCL Communication)
    
    
    6,525
    
    
    
    
    
    
    
    Loss (gain) on disposal of marketable securities
    
    
    3,686
    
    
    
    
    
    
    
    (43,815
    )Gain on disposal of an affiliated company
    
    
    (3,631
    )
    
    
    
    
    
    
    Gain on sale of a subsidiarys shares  Nam Tai Electronic & Electrical
Products Limited (NTEEP)
    
    
    (8,165
    )
    
    
    
    
    
    
    (325
    )Gain on sale of a subsidiarys shares  J.I.C. Technology Company
Limited (JIC Technology)
    
    
    
    
    
    
    
    
    
    
    (65
    )Gain on sale of a subsidiarys shares  Namtek Software Development
Company Limited (Namtek Software)
    
    
    (1,930
    )
    
    
    
    
    
    
    Share-based compensation expenses
    
    
    
    
    
    
    873
    
    
    
    389Equity in loss of an affiliated company less dividend received
    
    
    186
    
    
    
    
    
    
    
    Others
    
    
    206
    
    
    
    (931
    )
    
    
    (813
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    (3,246
    )Minority interests
    
    
    7,992
    
    
    
    6,153
    
    
    
    22,272Changes in current assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (35,300
    )
    
    
    8,101
    
    
    
    21,704Decrease in amount due from a related party
    
    
    66
    
    
    
    
    
    
    
    (Increase) decrease in inventories
    
    
    (8,648
    )
    
    
    850
    
    
    
    (1,462
    )Decrease (increase) in prepaid expenses and other receivables
    
    
    377
    
    
    
    (1,013
    )
    
    
    (3,303
    )Decrease (increase) in income taxes recoverable
    
    
    3,895
    
    
    
    (1,645
    )
    
    
    (1,167
    )Increase (decrease) in notes payable
    
    
    2,733
    
    
    
    (297
    )
    
    
    79Increase (decrease) in accounts payable
    
    
    32,038
    
    
    
    4,285
    
    
    
    (18,567
    )Increase (decrease) in accrued expenses and other payables
    
    
    2,786
    
    
    
    (3,104
    )
    
    
    8,041(Decrease) increase in income taxes payable
    
    
    (17
    )
    
    
    
    
    
    
    390Total adjustments
    
    
    19,519
    
    
    
    39,055
    
    
    
    1,547Net cash provided by operating activities
    
    $
    70,825
    
    
    $
    79,811
    
    
    $
    71,050
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NAM TAI ELECTRONICS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2005
    
    
    2006
    
    
    2007Cash flows from investing activities:Purchase of property, plant and equipment
    
    $
    (32,166
    )
    
    $
    (23,793
    )
    
    $
    (13,785
    )Decrease in deposits for property, plant and equipment
    
    
    6,451
    
    
    
    641
    
    
    
    73Increase in prepayment for land use rights
    
    
    
    
    
    
    (2,880
    )
    
    
    (7,532
    )Proceeds from disposal of assets held for sale
    
    
    
    
    
    
    20,170
    
    
    
    (Increase) decrease in other assets
    
    
    (40
    )
    
    
    142
    
    
    
    (61
    )Proceeds from disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    53,914Proceeds from disposal of an affiliated company  Alpha Star
Investments Limited (Alpha Star)
    
    
    6,494
    
    
    
    
    
    
    
    Proceeds from disposal of marketable securities  TCL Communication
    
    
    10,995
    
    
    
    
    
    
    
    Acquisition of additional shares in subsidiaries
    
    
    
    
    
    
    (3,130
    )
    
    
    (13,808
    )Proceeds from partial disposal of subsidiaries  JIC Technology
and NTEEP
    
    
    25,218
    
    
    
    
    
    
    
    7,287Proceeds from disposal of property, plant and equipment
    
    
    1,788
    
    
    
    420
    
    
    
    522Net cash provided by (used in) investing activities
    
    
    18,740
    
    
    
    (8,430
    )
    
    
    26,610Cash flows from financing activities:Cash dividends paid
    
    
    (51,984
    )
    
    
    (65,923
    )
    
    
    (47,796
    )Repayment of bank loans
    
    
    (5,375
    )
    
    
    (8,067
    )
    
    
    (1,972
    )Proceeds from bank loans
    
    
    4,774
    
    
    
    3,480
    
    
    
    2,670Proceeds from shares issued on exercise of options
    
    
    16,420
    
    
    
    5,439
    
    
    
    Net cash used in financing activities
    
    
    (36,165
    )
    
    
    (65,071
    )
    
    
    (47,098
    )Net increase in cash and cash equivalents
    
    
    53,400
    
    
    
    6,310
    
    
    
    50,562Cash and cash equivalents at beginning of year
    
    
    160,649
    
    
    
    213,843
    
    
    
    221,084Effect of exchange rate changes on cash and cash equivalents
    
    
    (206
    )
    
    
    931
    
    
    
    813Cash and cash equivalents at end of year
    
    $
    213,843
    
    
    $
    221,084
    
    
    $
    272,459Supplemental schedule of cash flow information:Interest paid
    
    $
    438
    
    
    $
    602
    
    
    $
    452Income taxes (received) paid, net
    
    
    (3,335
    )
    
    
    (1,904
    )
    
    
    7,697
  F-6




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)
 1.
    
    Company InformationNam Tai Electronics, Inc. and subsidiaries (the Company or Nam Tai) is an electronics
manufacturing and design services provider to a selected group of the worlds leading
original equipment manufacturers, or OEMs, of telecommunication and consumer electronic
products. Through its electronics manufacturing services operations, the Company
manufactures electronic components and sub-assemblies, including liquid crystal display
(LCD) panels, LCD modules, radio frequency modules, flexible printed circuit
sub-assemblies, digital audio broadcast modules, image sensors modules and printed circuit
board assembles for headsets containing Bluetooth wireless technology. These components are
used in numerous electronic products, including mobile phones, laptop computers, digital
cameras, electronic toys and handheld video game devices. The Company also manufactures
finished products, including 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 Macao and
Hong Kong, which provide it access to Macaos and Hong Kongs infrastructure of communication
and banking facilities. As of December 31, 2007, one of the Companys subsidiaries also
maintained an office in Japan. The Companys principal manufacturing operations are
conducted in the PRC. The PRC resumed sovereignty over Hong Kong and Macao effective July 1,
1997 and December 20, 1999, respectively, and politically, Hong Kong and Macao are integral
parts of 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.The Company operates primarily in three reportable segments consisting of consumer
electronics and communication products (CECP), telecommunication components assembly
(TCA) and LCD products (LCDP).2.
    
    Summary of Significant Accounting Policies
 (a)
    
    Principles of consolidationThe consolidated financial statements include the financial statements of the Company
and all of its subsidiaries. The Company consolidates companies in which it has
controlling interest of over 50%. All significant intercompany accounts, transactions
and cash flows have been eliminated on consolidation.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.(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).
 F-7




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (d)
    
    InventoriesInventories are stated at the lower of cost or market value. Cost is determined on
the first-in, first-out basis. Write down of potentially obsolete or slow-moving
inventory are recorded based on managements analysis of inventory levels.For the Companys CECP and TCA reporting units, the Company orders inventory from its
suppliers based on firm customer orders for products that are unique to each customer.
The inventory is utilized in production as soon as all the necessary components are
received. The only reason that inventory would not be utilized within six months is
if a specific customer deferred or 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 remains
unused for six months. The Company does not generally write down its inventories as
usually, the customers are held to their purchase commitments. However, there are
cases where customers are contractually obligated to purchase the unused inventory
from the Company, but the Company may elect not to immediately enforce such
contractual right for business reasons. In this connection, the Company will consider
writing down these inventory items which remained unused for over six months at the
Companys own cost. Prior to writing down, management would determine if the
inventory can be utilized in other products.For the Companys LCDP segment, due to the nature of the business, LCDP customers do
not always place orders advance enough to enable the Company to order inventory from
suppliers based on firm customer orders. Nonetheless, management reviews its
inventory balance on a regular basis and writes down all inventory over six months old
if it is determined that the relevant inventory can not be utilized in the foreseeable
future.(e)
    
    Property, plant and equipment and land use rightProperty, plant and equipment and land use right are recorded at cost and include
interest on funds borrowed to finance construction, if applicable. No interest was
capitalized for the years ended December 31, 2005, 2006 and 2007. The cost of major
improvements and betterments is capitalized whereas the cost of maintenance and
repairs is expensed in the year incurred. Assets under construction are not
depreciated until construction is completed and the assets are ready for their
intended use. Gains and losses for the disposal of property, plant and equipment and
land use right are included in income.The majority of the land in Hong Kong is owned by the government of Hong Kong which
leases the land at public auction to non-governmental entities. All of the Companys
leasehold land in Hong Kong has 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 yearsBuildings
    
    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-8




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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. 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
of goodwill was identified in 2005, 2006 and 2007.(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.
 Revenue from sales of products is recognized when the title is passed to customers
upon shipment and when collectibility is assured. The Company does not provide its
customers with the right of return (except for quality), price protection, rebates or
discounts. There are no customer acceptance provisions associated with the Companys
products, except for quality. All sales are based on firm customer orders with fixed
terms and conditions, which generally cannot be modified.Certain of the Companys subsidiaries are subject to value-added tax of 17% on the
revenue earned for goods and services sold in the PRC. The Group presents revenue net
of such value-added tax which amounted to $4,406, $99 and nil for the years ended
December 31, 2005, 2006 and 2007, respectively.
 F-9




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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, 2005, 2006, and 2007, shipping and handling costs
classified as costs of sales were $561, $593 and $523, respectively. During the years
ended December 31, 2005, 2006 and 2007, shipping and handing costs classified as
selling expenses were $847, $910 and $1,027, 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 $377,
$127 and $137 for the years ended December 31, 2005, 2006 and 2007, respectively.(l)
    
    Staff retirement plan costsThe Companys costs related to the staff retirement plans (see note 11) are charged to
the consolidated statement of income as incurred.(m)
    
    Income taxesFor the years ended December 31, 2005 and 2006, PRC tax paid by subsidiaries operating
in the PRC during the year was recorded as an amount recoverable at the balance sheet
date when management had filed or had the definite intention to file an application
for reinvestment of profits and a refund was expected unless there was an indication
from the PRC tax authority that the refund, or a portion of which, would be refused.
For the year ended December 31, 2007, tax refund for reinvestment of profits under the
capital reinvestment scheme may be removed under the new income tax law in the PRC and
therefore the PRC tax paid by subsidiaries operating in the PRC during the year ended
December 31, 2007 is expensed.Deferred income taxes are provided using the asset and liability method. Under this
method, deferred income taxes are recognized for all significant temporary differences
at enacted rates and classified as current or non-current based upon the
classification of the related asset or liability in the financial statements. A
valuation allowance is provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all, the deferred tax asset
will not be realized.Effective January 1, 2007, the Company adopted the Financial Accounting Standard Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements. The interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48
also provides accounting guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. There is no
material impact of FIN 48 on the Companys consolidated financial statements.
 F-10




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (n)
    
    Foreign currency transactions and translationsAll transactions in currencies other than functional currencies during the year are
translated at the exchange rates prevailing on the respective transaction dates.
Monetary assets and liabilities existing at the balance sheet date denominated in
currencies other than functional currencies are re-measured 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 Statement of Financial Accounting Standard (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
7.7546, 7.7747 and 7.7998 as of December 31, 2005, 2006 and 2007, respectively.(o)
    
    Earnings per shareBasic 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 share that would have been
outstanding if the dilutive potential common shares had been issued.(p)
    
    Stock optionsThe Company has a stock-based employee compensation plan, as more fully described in
note 9(b). Prior to 2006, the Company did 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. Prior to 2006, the Company accounted for
stock-based compensation arrangements under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employeesand provided additional
financial statement disclosure in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation". However, the Company would recognize 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 9.The following table illustrates the effect on net income and earnings per share as if
the Company had applied the fair value recognition in year 2005
 Year ended December 31, 2005Net income, as reported
    
    
    $
    51,306Less: Stock-based compensation costs under
fair value based method for all awards
 
    
    (7,500
    )Net income, pro forma
    
    
    $
    43,806Basic earnings per share
    As reported
    
    $
    1.19Pro forma
    
    $
    1.02Diluted earnings per share
    As reported
    
    $
    1.19Pro forma
    
    $
    1.01
 F-11




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (p)
    
    Stock options  continuedThe Company has adopted SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No.
123R) in 2006. This statement is a revision to SFAS No. 123 and supersedes 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.Upon adoption, the Company applied the modified-prospective 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.(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 principally 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.
 F-12




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (t)
    
    Recent changes in accounting standardsIn September 2006, the FASB issued SFAS No.
157, Fair Value Measurement. SFAS No. 157 addresses standardizing the measurement
of fair value for companies who are required to use a fair value measure for
recognition or disclosure purposes. The FASB defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. The Company is evaluating the
impact, if any, of the adoption of SFAS No. 157. It is not expected to have a
material impact on the Companys financial position, results of operations and cash
flows.In February 2007, the FASB issued SFAS No. 159, The Fair Value Options for Financial
Assets and Financial Liabilities". SFAS No. 159 permits an entity, on a
contract-by-contract basis, to make an irrevocable election to account for certain
types of financial instruments and warranty and insurance contracts at fair value,
rather than historical cost, with changes in the fair value, whether realized or
unrealized, recognized in earnings. SFAS No. 159 is effective for financial year
beginning on or after November 15, 2007. The Company is evaluating the impact, if
any, of the adoption of SFAS No. 159. It is not expected to have a material impact on
the Companys financial position, results of operations and cash flows.In June 2007, the Emerging Issues Task Force (EITF) of FASB ratified EITF Issue
06-11 Accounting for the Income Tax Benefits of Dividends on Share-Based Payment
Awards (EITF 06-11). EITF 06-11 provides that tax benefits associated with
dividends on share-based payment awards be recorded as a component of additional
paid-in capital. EITF 06-11 is effective, on a prospective basis, for fiscal years
beginning after December 15, 2007. The Company is currently assessing the impact of
EITF 06-11 on its consolidated financial position and results of operations.In 2007, the EITF of FASB issued EITF Issue 07-3, Accounting for Nonrefundable
Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities (EITF 07-3). EITF reached a consensus that nonrefundable
advance payments to acquire goods or pay for services that will be consumed or
performed in a future period in conducting research and development activities on
behalf of the entity should be recorded as an asset when the advance payments are
made. Capitalized amounts should be recognized as expense when the related goods are
delivered or services are performed, that is, when the goods without alternative
future use are acquired or the service is rendered. EITF 07-3 is effective for fiscal
years beginning after December 15, 2007. The Company is evaluating the impact, if
any, of the adoption of EITF 07-3. It is not expected to have a material impact on
the Companys financial position, results of operations or cash flows.In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141R). The objective of SFAS No. 141R is to improve the relevance,
representational faithfulness, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its effects.
SFAS No. 141R is effective for financial statements issued for fiscal years beginning
on or after December 15, 2008. The Company is evaluating the impact, if any, of the
adoption of SFAS No. 141R. It is not expected to have a material impact on the
Companys financial position, results of operations and cash flows.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements. SFAS No. 160 amends Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. SFAS No. 160 defines a noncontrolling interest, sometimes called a
minority interest, is the portion of equity in a subsidiary not attributable, directly
or indirectly, to a parent. The objective of SFAS No. 160 is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements. SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. The Company is evaluating the impact, if any, of the
adoption of SFAS No. 160.
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##### Table of Contents



3.
    
    InventoriesInventories consist of the following:
 At December 31,
    
    2006
    
    
    2007Raw materials
    
    $
    24,800
    
    
    $
    25,262Work-in-progress
    
    
    4,753
    
    
    
    3,715Finished goods
    
    
    1,341
    
    
    
    3,379$
    30,894
    
    
    $
    32,356
 4.
    
    Property, Plant and Equipment, netProperty, plant and equipment, net consist of the following:
 At December 31,
    
    2006
    
    
    2007At cost:Buildings
    
    $
    49,929
    
    
    $
    50,266Machinery and equipment
    
    
    106,120
    
    
    
    121,009Leasehold improvements
    
    
    23,798
    
    
    
    27,503Furniture and fixtures
    
    
    2,095
    
    
    
    2,513Automobiles
    
    
    1,274
    
    
    
    1,199Tools and molds
    
    
    145
    
    
    
    178Total
    
    
    183,361
    
    
    
    202,668Less: accumulated depreciation and amortization
    
    
    (88,399
    )
    
    
    (108,682
    )Construction in progress
    
    
    7,759
    
    
    
    683Net book value
    
    $
    102,721
    
    
    $
    94,669
 As at December 31, 2007, the Company has entered into commitments for capital expenditure for
property, plant and equipment of approximately $3,116, which are expected to be disbursed
during the year ending December 31, 2008.5.
    
    GoodwillGoodwill consists of the following:
 CECP
    
    LCDPreporting
    
    reportingunit
    
    unit
    
    TotalBalance at January 1, 2006
    
    $
    1,232
    
    
    $
    15,836
    
    
    $
    17,068Goodwill upon acquisition of additional 3.31% interest
in JIC Technology
    
    
    
    
    
    
    1,408
    
    
    
    1,408Balance at December 31, 2006
    
    $
    1,232
    
    
    $
    17,244
    
    
    $
    18,476Exchange difference
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Goodwill upon acquisition of additional 1.46% interest
in JIC Technology
    
    
    
    
    
    
    417
    
    
    
    417Goodwill upon acquisition additional 6.18% interest
in NTEEP
    
    
    1,853
    
    
    
    
    
    
    
    1,853Goodwill release related to disposal of 1.41% interest
in JIC Technology
    
    
    
    
    
    
    (310
    )
    
    
    (310
    )Goodwill release related to disposal of 3.31% interest
in NTEEP
    
    
    (134
    )
    
    
    
    
    
    
    (134
    )Balance at December 31, 2007
    
    $
    2,951
    
    
    $
    17,345
    
    
    $
    20,296
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##### Table of Contents



6.
    
    Investments
 (a)
    
    Investment in Affiliated Companies, Equity Method
 Alpha 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
manufactured wireless communication terminals and related modules for JCT. The
Company recorded an equity in loss of Alpha Star of $186 for 2005.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.For the year ended December 31, 2005, the Company recognized net sales of $6,195 to
JCT and purchased raw materials of $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.(b)
    
    Investments in available-for-sale marketable securitiesThe Company had various investments in TCL Group of companies in the form of
available-for-sale marketable securities. The Company has not incurred any material
operating revenue or expenses from the TCL Group of companies for the years ended
December 31, 2005, 2006 and 2007.TCL CorporationIn January 2002, the Company acquired a 6% equity interest in TCL Holdings Corporation
Ltd., now known as TCL Corporation, for a consideration of $11,968. TCL Corporation,
an enterprise established in the PRC, is the parent company of the TCL Group of
companies. TCL Corporations scope of business includes the import and export of raw
materials, the design, manufacturing and sales and marketing of telephones, VCD
players, color television sets, mobile phones and other consumer electronic products.
TCL Corporation changed from a limited liability company to a company limited by
shares in April 2002 (the Establishment Date).In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at
RMB4.26 (equivalent to US$0.52) per A-share. The Companys interest in TCL
Corporation 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, based on a comparable companies analysis and taking into account of a
liquidity discount, determined the fair value of these shares as of December 31, 2005
and recognized an unrealized gain of $947 based on an estimated fair value of $13,330.In April 2006, pursuant to the Split Share Structure Reform (SSR) of TCL
Corporation, the Companys interest in TCL Corporation has been changed from
95,516,112 promoter shares to 80,600,173 A-shares diluting its interest from 3.69% to
3.12%. As a result of the reduction in the number of shares in TCL Corporation, the
Company recorded a loss of $1.3 million ($1.9 million before sharing with minority
interests). The A-shares became tradable on the Shenzhen Stock Exchange after the
expiration of 12 months from April 20, 2006, which was the first trading day after the
SSR was formally implemented. As at December 31, 2006, investment in TCL corporation
was valued at market price with an estimated fair value of $24,360.
 F-15




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##### Table of Contents



6.
    
    Investments  continued
 (b)
    
    Investments in available-for-sale marketable securities  continuedTCL Corporation -continuedIn April 2007, the Company disposed of its entire interest in the A-shares of TCL
Corporation through the Shenzhen Stock Exchange. The net proceeds from the disposal
were $54 million (net of commission, expenses and stamp duty), resulting in a gain of
approximately US$43.8 million.Huizhou TCLThe Company had a 9% direct interest in Huizhou TCL Mobile Communication Co., Ltd.
(Huizhou TCL). In August 2004, as part of the preparation for TCL Communication
Technology Holdings Limited (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 June 30, 2005,
the Company 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.(c)
    
    Investments in SubsidiariesSubsidiaries
 Percentage of ownershipPlace of
    
    Principal
    
    as at December 31,incorporation
    
    activity
    
    2006
    
    2007Consolidated principal subsidiaries:Best Whole Holdings Limited
    
    Hong Kong
    
    Investment Holding
    
    
    
    
    
    
    74.99
    %First Rich Holdings Limited
    
    BVI
    
    Investment Holding
    
    
    
    
    
    
    73.18
    %JIC Technology
    
    Cayman Islands
    
    Investment holding
    
    
    74.94
    %
    
    
    74.99
    %J.I.C.  Enterprises (Hong Kong)
Limited
    
    Hong Kong
    
    Inactive
    
    
    74.94
    %
    
    
    74.99
    %Jetup Electronic (Shenzhen)
Co., Ltd. (Jetup)
    
    PRC
    
    Manufacturing and
trading
    
    
    74.94
    %
    
    
    73.18
    %J.I.C. (Macao Commercial
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    74.94
    %
    
    
    74.99
    %Joy Holdings Limited
    
    BVI
    
    Investment holding
    
    
    
    
    
    
    74.99
    %NTEEP
    
    Cayman Islands
    
    Investment holding
    
    
    70.31
    %
    
    
    73.18
    %Nam Tai Group Management 
Limited
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Nam Tai Investments Consultant
(Macao Commercial Offshore) 
Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    70.31
    %
    
    
    73.18
    %Nam Tai Telecom (Hong Kong) 
Company Limited
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Nam Tai Trading Company
Limited (NTTC)
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Nam Tai Electronic (Shenzhen)
Co., Ltd. (NTSZ)
    
    PRC
    
    Manufacturing and
trading
    
    
    70.31
    %
    
    
    73.18
    %Namtek Japan Company Limited
(Namtek Japan)
    
    Japan
    
    Provision of sales
co-ordination and
marketing services
    
    
    70.31
    %
    
    
    74.99
    %
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##### Table of Contents



6.
    
    Investments  continued
 (c)
    
    Investments in Subsidiaries  continued
 Percentage of ownershipPlace of
    
    Principal
    
    as at December 31,incorporation
    
    activity
    
    2006
    
    2007Shenzhen Namtek Co., Ltd.
(Shenzhen Namtek)
    
    PRC
    
    Software development
    
    
    70.31
    %
    
    
    74.99
    %Top Eastern Investment Limited
    
    Hong Kong
    
    Investment holding
    
    
    
    
    
    
    73.18
    %Zastron Electronic (Shenzhen)
Co. Ltd. (Zastron)
    
    PRC
    
    Manufacturing and
trading
    
    
    100
    %
    
    
    73.18
    %Zastron Precision-Tech
Limited (ZPTL)
    
    Cayman Islands
    
    Investment holding
    
    
    100
    %
    
    
    73.18
    %Zastron (Macao Commercial 
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    100
    %
    
    
    73.18
    %Zastron Precision-Tech (Wuxi)
Co., Ltd.
    
    PRC
    
    Manufacturing and
trading
    
    
    100
    %
    
    
    73.18
    %Zastron Precision-Flex (Wuxi)
Co., Ltd.
    
    PRC
    
    Manufacturing and
trading
    
    
    100
    %
    
    
    73.18
    %
 Significant transactions
 (i)
    
    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 Limited (Asano
Company), a company owned by the management of Namtek Software, 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 goodwill of $1,277 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.In August and September 2006, the Company acquired a total of 7,152,000 ordinary
shares of NTEEP for cash consideration of $1,010 resulting in 70.31% equity
interest held in NTEEP as of December 31, 2006.In May 2007, the Company further acquired a total of 54,514,000 ordinary shares
of NTEEP for cash consideration of $13,054. In June 2007, the Company disposed
of a total of 29,199,000 ordinary shares of NTEEP for cash considerations of
approximately $6,586. The disposal resulted in a net gain on partial disposal
of a subsidiary of approximately $325 after deducting the releasing of goodwill
of $134. The acquisition and disposal resulted in 73.18% equity interest held
in NTEEP as of December 31, 2007.
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##### Table of Contents



6.
    
    Investments  continued
 (c)
    
    Investments in Subsidiaries  continuedSignificant transactions  continued
 (ii)
    
    In December 2007, the Company completed its reorganization of internal structure involving the structure of its two Hong Kong Stock Exchange (SEHK) listed
subsidiaries, NTEEP and JIC Technology (Reorganization). The purpose of the
reorganization is for the Company to centralize all electronic manufacturing
services (EMS) business into NTEEP and non-EMS business into JIC Technology.
The result is to turn NTEEP into a flagship EMS provider.Pursuant to the Reorganization, NTEEP acquired 100% equity interests in ZPTL and
100% equity interests in Jetup from the Company while JIC Technology acquired
100% equity interest in both Namtek Shenzhen and Namtek Japan (Namtek group).Upon the completion of the Reorganization, the Companys effective shareholding
in Namtek group increased from 73.18% to 74.99% while the effective shareholding
in ZPTL and Jetup decreased from 100% to 73.18%, and 74.99% to 73.18%,
respectively. The Company continues to own 73.18% and 74.99% equity interest in
NTEEP and JIC Technology respectively as at December 31, 2007.
 Retained earnings and reserves
  7.
    
    Accrued expenses and other payablesAccrued expenses and other payables consisted of the following:
 At December 31,
    
    2006
    
    2007Accrued salaries
    
    $
    3,537
    
    
    $
    4,795Accrued bonus
    
    
    1,537
    
    
    
    4,278Accrued tooling and equipment charges
    
    
    643
    
    
    
    2,563Accrued professional fees
    
    
    1,216
    
    
    
    2,919Others
    
    
    6,716
    
    
    
    7,135$
    13,649
    
    
    $
    21,690
 F-18




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##### Table of Contents



8.
    
    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, 2006 and
2007, these facilities totaled $36,161 and $35,237, of which $31,645 and $30,657 were unused
at December 31, 2006 and 2007, 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,
    
    2006
    
    2007Trust receipts
    
    $
    4,514
    
    
    $
    4,580Usance bills pending maturity
    
    
    2
    
    
    
    Total banking facilities utilized
    
    
    4,516
    
    
    
    4,580Less: Outstanding letters of credit
    
    
    
    
    
    
    Notes payable and short term bank loans
    
    $
    4,516
    
    
    $
    4,580
   - 2008
    
    $
    1,990- 2009
    
    
    890- 2010
    
    
    668$
    3,548
 9.
    
    Shareholders Equity
 (a)
    
    The Company has only one class of common shares authorized, issued and
outstanding.(b)
    
    Stock OptionsIn May 2001 (and amended in July 2004), the Board of Directors approved a stock option
plan which would grant 15,000 options to each non-employee director of the Company
elected at each annual general meeting of shareholders, and might grant options to key
employees, consultants or advisors of the Company or any of its subsidiaries to
subscribe for its shares in accordance with the terms of this stock option plan based
on past performance and/or expected contributions to the Company. The maximum number
of shares to be issued pursuant to the exercise of options granted was 3,300,000
shares. The options granted under this plan generally have a term of two to three
years, subject to the discretion of the Board of Directors, but cannot exceed ten
years.In February 2006, the Board of Directors approved another stock option plan, and
subsequently approved by the shareholders at the 2006 annual general meeting of
shareholders, with the same terms and conditions. However, the maximum number of
shares to be issued pursuant to exercise of options granted was 2,000,000 shares.
 F-19




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##### Table of Contents



9.
    
    Shareholders Equity  continued
 (b)
    
    Stock Options  continuedA summary of stock option activity during the three years ended December 31, 2007 is
as follows:
 Number of
    
    
    Weighted averageoptions
    
    
    fair value per optionOutstanding at January 1, 2005
    
    
    737,050
    
    
    $
    6.83Granted
    
    
    1,105,000
    
    
    
    6.79Exercised
    
    
    (841,050
    )
    
    
    6.74Outstanding at December 31, 2005
    
    
    1,001,000
    
    
    $
    6.86Granted
    
    
    90,000
    
    
    
    6.64Exercised
    
    
    (281,000
    )
    
    
    7.01Expired
    
    
    (30,000
    )
    
    
    6.94Outstanding at December 31, 2006
    
    
    780,000
    
    
    $
    6.78Granted
    
    
    115,000
    
    
    
    2.80Expired
    
    
    (600,000
    )
    
    
    6.77Outstanding at December 31, 2007
    
    
    295,000
    
    
    $
    5.24
  Number of
    
    
    
    Exerciseoptions granted
    
    Vesting period
    
    price
    
    Exercisable periodIn 20051,000,000
    
    100% vested at date of grant
    
    $
    20.84
    
    
    February 4, 2005 to February 4, 2007105,000
    
    100% vested at date of grant
    
    $
    21.62
    
    
    June 6, 2005 to June 6, 2008In 200690,000
    
    100% vested at date of grant
    
    $
    22.25
    
    
    June 9, 2006 to June 8, 2009In 200775,000
    
    100% vested at date of grant
    
    $
    12.42
    
    
    June 8, 2007 to June 7, 201040,000
    
    100% will vest one year
after date    of grant
    
    $
    12.13
    
    
    May 14, 2008 to May 13, 2011
   Weighted averageNumber
    
    remaining contractualExercise prices
    
    of options
    
    life in months$21.62
    
    
    90,000
    
    
    
    5.2$22.25
    
    
    90,000
    
    
    
    17.3$12.13
    
    
    40,000
    
    
    
    40.5$12.42
    
    
    75,000
    
    
    
    30.3295,000
    
    
    
    20.1
 F-20




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##### Table of Contents



9.
    
    Shareholders Equity  continued
 (b)
    
    Stock Options  continuedThe weighted average remaining contractual life of the stock options outstanding at
December 31, 2005, 2006 and 2007 was approximately 13, 6 and 20 months, respectively.
The weighted average fair value of options granted during 2005, 2006 and 2007 was
$6.79, $6.64 and $2.80, respectively, using the Black-Scholes option-pricing model
based on the following assumptions:
 Year ended December 31,
    
    2005
    
    2006
    
    2007Risk-free interest rate
    
    3.56% to 3.59%
    
    
    4.96
    %
    
    4.63% to 5.03%Expected life
    
    
    2 to 3 years
    
    
    3 years
    
    
    3 to 4 yearsExpected volatility
    
    62.62% to 71.14%
    
    
    57.71
    %
    
    37.22% to 55.09%Expected dividend per quarter
    
    $
    0.33
    
    
    $
    0.38
    
    
    $
    0.21
 (c)
    
    Share Buy  backNo shares were repurchased during the years ended December 31, 2005, 2006 and 2007.(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 Inc.
(Tele-Art) at a price of $3.73 per share for $1,549 (see note 15(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 15(b)).No shares have been redeemed since August 12, 2002.On November 20, 2006, judgment was rendered by the Lords of the Judicial Committee of
the Privy Council of the United Kingdom (the Privy Council), declaring that the
redemptions by the Company of its common shares beneficially owned by Tele-Art on
January 22, 1999 and August 12, 2002 were nullities and that the register of members
of the Company (i.e. the Companys shareholders register) should be rectified to
reinstate the redeemed shares together with any other shares which have since accrued
by way of exchange or dividend.(e)
    
    Reinstatement of redeemed sharesFollowing the November 20, 2006 judgment, the Company received the order from the
Privy Council on January 9, 2007 to rectify the share register of Nam Tai by
registering such 1,017,149 (after adjustment of the 1 for 10 stock dividend on
November 7, 2003) shares (the Redeemed Shares) in the name of Bank of China (Hong
Kong) Limited (Bank of China). In March 2007, the Company issued the 1,017,149
common shares. However, as the court judgment was determined in 2006, the Company
accounted for the obligation to reinstate the Redeemed Shares at their fair value
(i.e. market closing price) on November 20, 2006, the date of the judgment (see note
15(b)).
 F-21




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##### Table of Contents



10.
    
    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, 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
  Weightedaverage number
    
    Per shareYear ended December 31, 2006
    
    Income
    
    of shares
    
    amountBasic earnings per share
    
    $
    40,756
    
    
    
    43,702,135
    
    
    $
    0.93Effect of dilutive securities
- Stock options
    
    
    
    
    
    
    39,364
    
    
    
    Effect of reinstatement of redeemed shares
    
    
    
    
    
    
    116,088
    
    
    
    Diluted earnings per share
    
    $
    40,756
    
    
    
    43,857,587
    
    
    $
    0.93
  Weightedaverage number
    
    Per shareYear ended December 31, 2007
    
    Income
    
    of shares
    
    amountBasic earnings per share
    
    $
    69,503
    
    
    
    44,583,585
    
    
    $
    1.56Effect of dilutive securities
- Stock options
    
    
    
    
    
    
    963
    
    
    
    Effect of reinstatement of redeemed shares
    
    
    
    
    
    
    220,150
    
    
    
    Diluted earnings per share
    
    $
    69,503
    
    
    
    44,804,698
    
    
    $
    1.55
  F-22




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##### Table of Contents



11.
    
    Staff Retirement PlansThe Company operates a retirement benefit scheme (RBS) for all qualifying employees in
Macao and a Mandatory Provident Fund (MPF) scheme for all qualifying employees in Hong
Kong. The RBS and MPF are defined contribution schemes and the assets of the schemes are
managed by the trustees independent to the Company.Both the RBS and MPF are available to all employees aged 18 to 64 and with at least 60 days
of service under the employment of the Company in Macao and Hong Kong. Contributions are
made by the Company at 5% based on the staffs relevant income. The maximum relevant income
for contribution purpose per employee is $3 per month. Staff members are entitled to 100% of
the Companys contributions together with accrued returns irrespective of their length of
service with the Company, but the benefit can be withdrawn by the employees in Macao at the
end of employment contracts while the benefits are required by law to be preserved until the
retirement age of 65 for employees in Hong Kong.According to the applicable laws and regulations in the PRC, prior to July 2006, the Company
was required to contribute 8% to 9% of the stipulated salary set by the local government of
Shenzhen, the PRC, to the retirement benefit schemes to fund the retirement benefits of their
employees. With effect from July 2006, the applicable percentages were adjusted to 10% to
11%. The principal obligation of the Company with respect to these retirement benefit
schemes is to make the required contributions under the scheme. No forfeited contributions
may be used by the employer to reduce the existing level of contributions.The cost of the Companys contribution to the staff retirement plans in Macao, Hong Kong and
PRC amounted to $1,510, $1,534 and $1,800 for the years ended December 31, 2005, 2006 and
2007, respectively.12.
    
    Income TaxesThe components of income before income taxes and minority interest are as follows:
 Year ended December 31,
    
    2005
    
    2006
    
    2007PRC, excluding Hong Kong and Macao
    
    $
    36,138
    
    
    $
    23,372
    
    
    $
    78,318Hong Kong, Macao and other jurisdictions
    
    
    23,997
    
    
    
    23,914
    
    
    
    17,487$
    60,135
    
    
    $
    47,286
    
    
    $
    95,805
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##### Table of Contents



12.
    
    Income Taxes  continuedPursuant to the old PRC Tax Law, since the Shenzhen PRC subsidiaries
have agreed to operate for a minimum of 10 years in the PRC, a
two-year tax holiday from the first profit making year is available,
following which in the third through fifth years there is a 50%
reduction to 7.5%. In any event, for FIEs such as NTSZ, Zastron and
Shenzhen Namtek which export 70% or more of the production value of
their products, a reduction in the tax rate is available; in all cases
apart from the years in which a tax holiday and tax incentive is
available, there is an overall minimum tax rate of 10%. The following
details the tax concessions received for the Companys Shenzhen PRC
subsidiaries under the old PRC Tax Law:
 
    
    In 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 2006, NTSZ paid $1,566 and received a tax refund of $746 for being an
export-oriented enterprise for the year 2005. In 2007, NTSZ paid $9,145 and received a
tax refund of $544 for being an export-oriented enterprise for the year 2006, and $431
from reinvestment of profit for the year 2005.
    
    On May 13, 2004, 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 2004. 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 year 2006,
Zastron has applied and is waiting for tax refund for year 2005. In 2007, Zastron paid
$354 and received a tax refund of $191 and $494 from reinvestment of profits for years
2005 and 2006, respectively.
    
    In 2005, 2006 and 2007, Shenzhen Namtek is entitled to a 5% tax refund for being an
export-oriented enterprise.
    
    During 2005, Jetup received a refund of $233 and $346 from reinvestment of profit for
2003 and 2005, respectively. In 2006, Jetup received a tax refund of $211 for being
export-oriented enterprises for the year 2005. In 2007, Jetup received a tax refund of
$137 for being an export-oriented enterprise for the year 2006. Besides, Jetup also
received $98 and $258 from reinvestment of profits for the years 2005 and 2006,
respectively.
    F-24




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##### Table of Contents



12.
    
    Income Taxes  continuedIn accordance with its normal practice, the Hong Kong tax authorities selected the Company and one of its wholly owned subsidiaries, NTTC,
for a tax audit. The Hong Kong tax authorities have made certain estimated assessments, in relation to fiscal years 1996 through 1999, for
public revenue protection purposes to prevent the assessments, if any, from becoming time barred. The Hong Kong tax authorities did not
provide concrete grounds for the assessments until a determination dated October 31, 2007 was given which indicated the disallowance of tax
deductions for certain management fee expenses and professional expenses paid by NTTC to the Company. The amount of additional tax relating
to fiscal years 1996 to 1999 demanded by the Hong Kong tax authorities was approximately $2,928. The Company and NTTC have objected to these
estimated assessments. The Company believes it has good grounds of appeal and accordingly has launched an appeal to the Board of Review
against the determination issued by the Hong Kong tax authorities. The appeal is expected to be heard in June 2008. The Company has assessed
this tax position and believed NTTC has good technical merits. Accordingly, no provision for tax liability in this respect is considered to
be necessary.The current and deferred components of the income tax expense appearing in the consolidated statements of income are as follows:
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007Current tax
    
    $
    (651
    )
    
    $
    (377
    )
    
    $
    (7,276
    )Deferred tax
    
    
    
    
    
    
    
    
    
    
    3,246$
    (651
    )
    
    $
    (377
    )
    
    $
    (4,030
    )
  December 31,
    
    2006
    
    2007Net operating losses
    
    $
    1,647
    
    
    $
    1,040Allowance for obsolete inventories
    
    
    
    
    
    
    45Allowance for doubtful accounts
    
    
    
    
    
    
    9Property, plant and equipment
    
    
    
    
    
    
    3,192Total deferred tax assets
    
    
    1,647
    
    
    
    4,286Less: valuation allowance
    
    
    (1,647
    )
    
    
    (1,040
    )$
    
    
    
    $
    3,246
  December 31,
    
    2005
    
    2006
    
    2007At the beginning of the year
    
    $
    1,026
    
    
    $
    1,560
    
    
    $
    1,647Current year addition (reduction)
    
    
    534
    
    
    
    87
    
    
    
    (607
    )At the end of year
    
    $
    1,560
    
    
    $
    1,647
    
    
    $
    1,040
   F-25




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##### Table of Contents



12.
    
    Income Taxes  continuedA reconciliation of the income tax expense to the amount computed by applying the current tax rate to the income before income taxes in the consolidated statements of
income is as follows:
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007Income before income taxes and minority interests
    
    $
    60,135
    
    
    $
    47,286
    
    
    $
    95,805PRC tax rate
    
    
    15
    %
    
    
    15
    %
    
    
    15
    %Income tax expense at PRC tax rate on income before
income tax
    
    $
    (9,020
    )
    
    $
    (7,093
    )
    
    $
    (14,371
    )Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income
    
    
    196
    
    
    
    (149
    )
    
    
    132Effect of income for which no income tax expense is payable, net
    
    
    4,813
    
    
    
    2,709
    
    
    
    3,418Tax holidays and tax incentives
    
    
    2,103
    
    
    
    1,381
    
    
    
    3,902Effect of PRC tax concessions, giving rise to no PRC tax
liability
    
    
    2,667
    
    
    
    1,794
    
    
    
    Effect of change in tax law on deferred tax assets
    
    
    
    
    
    
    
    
    
    
    3,246Net change in valuation allowance
    
    
    (534
    )
    
    
    (87
    )
    
    
    607Tax benefit (expense) arising from items which are not
assessable (deductible) for tax purposes:Gain on disposal of land in Hong Kong
    
    
    82
    
    
    
    
    
    
    
    Gain on disposal of asset held for sale
    
    
    
    
    
    
    1,620
    
    
    
    Exempted interest income
    
    
    17
    
    
    
    52
    
    
    
    124Exempted exchange gain
    
    
    
    
    
    
    
    
    
    
    984Non-deductible legal and professional fees
    
    
    (317
    )
    
    
    (75
    )
    
    
    (332
    )Non-deductible and non-taxable other items
    
    
    (744
    )
    
    
    (470
    )
    
    
    (672
    )Underprovision of income tax expense in prior years
    
    
    (41
    )
    
    
    (67
    )
    
    
    (877
    )Others
    
    
    127
    
    
    
    8
    
    
    
    (191
    )$
    (651
    )
    
    $
    (377
    )
    
    $
    (4,030
    )
 No income tax arose in the United States of America in any of the periods presented.
 Additional tax that would otherwise have been payable without tax holidays and tax
concessions amounts to approximately $4,770, $3,175 and $3,902 in the years ended December
31, 2005, 2006 and 2007, respectively (representing a decrease in the basic earnings and
diluted earnings per share of $0.11, $0.07 and $0.08 in the years ended December 31, 2005,
2006 and 2007, respectively).13.
    
    Related Party Balance and TransactionsFor the year ended December 31, 2005, the Company recognized net sales of $6,195 to JCT and
purchased raw materials of $5,766 from JCT and its related companies. There were no sales to
or purchases from JCT and its related companies in the years ended December 31, 2006 and
2007.
 F-26




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##### Table of Contents



14.
    
    Financial InstrumentsThe Companys financial instruments that are exposed to concentrations of credit risk consist
primarily of its cash and cash equivalents and trade receivables.The Companys cash and cash equivalents are high-quality deposits placed with banking
institutions with high credit ratings. This investment policy limits the Companys exposure
to concentrations of credit risk.The trade receivable balances largely represent amounts due from the Companys principal
customers who are generally international organizations with high credit ratings. Letters of
credit are the principal security obtained to support lines of credit or negotiated contracts
from a customer. As a consequence, concentrations of credit risk are limited. Allowance for
doubtful debts was $152 and $53 as of December 31, 2006 and 2007, respectively. There were
no other movements in the allowance for doubtful accounts.The Companys financial instruments reported in current assets or current liabilities in the
consolidated balance sheet at carrying amounts approximate their fair values due to the short
term nature of these instruments. The Companys financial instruments reported as
non-current liabilities, such as its long term bank loans, approximate their fair values due
to the variable nature of the interest calculations.15.
    
    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 $1,546, $1,855 and $1,877 in the years ended December 2005, 2006
and 2007, respectively.At December 31, 2007, the Company was obligated under operating leases, which relate
to land and buildings, requiring minimum rentals as follows:
  - 2008
    
    $
    1,789- 2009
    
    
    1,449- 2010
    
    
    1,428- 2011
    
    
    1,532- 2012
    
    
    639$
    6,837
 (b)
    
    Significant legal proceedingsTele-ArtIn June 1997, the Company filed a petition in BVI for the winding up of Tele-Art on
account of an unpaid judgment debt owed to the Company. The High Court of Justice of
BVI granted an order to wind up Tele-Art in July 1998. Tele-Art appealed to the Court
of Appeal of BVI 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.In 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. On August 9, 2002, the High Court delivered its decision on the First
Inquiry and awarded the Company damages of approximately $34,000.
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##### Table of Contents



15.
    
    Commitments and Contingencies  continued
 (b)
    
    Significant legal proceedings  continuedTele-Art- continuedFollowing 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
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 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 the
Company 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 by the court 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. 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 from 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
the 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 final appellate court in the BVI, on February 3,
2006. The application for leave to appeal was heard by the Court of Appeal on May 8,
2006. The Court delivered its judgment on May 9, 2006 dismissing the Companys
application for leave on the ground that the matter was not one of great public
importance and therefore did not merit the consideration of the Privy Council. The
Company was ordered to pay Mr. Hagues costs of the application, such costs were to be
assessed in default of an agreement.The Company, being dissatisfied with the judgment of the Court of Appeal denying its
application for leave to apply for appeal directly to the Privy Council, on November
3, 2006 the Company applied to the Privy Council for special leave to appeal to the
Privy Council. This application was heard by the London based Privy Council on March
29, 2007 and dismissed with costs.
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15.
    
    Commitments and Contingencies  continued
 (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 was
ordered to return the redemption proceeds and dividends payable on the redeemed shares
to the liquidator. David Hague obtained leave to appeal to the Privy Council on
September 21, 2004 the Court of Appeal finding that the redemption by the Company was
efficacious.The Bank of China, which had been 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 redeemed by Nam Tai and all withheld dividends to be paid to the
liquidator of Tele-Art rather than the Bank of China despite a finding by the BVI
court that the Bank of China was a secured creditor of Tele-Art. 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.The Privy Council heard David Hagues appeal on October 9, 2006 and judgment was
delivered on November 20, 2006 (the Judgment). In the Judgment, the Privy Council
allowed Mr. Hagues appeal and declared that the Companys redemptions of the
Tele-Arts Nam Tai shares of January 22, 1999 and August 12, 2002 were nullities and
ordered the Company to rectify its register of members, i.e. shareholders registry, to
reinstate the shares it had redeemed, together with any other shares which have
accrued by way of exchange or dividend since the redemptions. It also declared in the
Judgment that the Bank of China be registered as owner of the reinstated shares. In
addition, the Company was ordered to pay the costs incurred by Mr. Hague and the Bank
of China in the appeal to the Privy Council. Under the terms of the Judgment, the
Bank of China is entitled to have Tele-Arts debt to Bank of China and its associated
expenses in relation to the Privy Council proceedings paid from proceeds of the sale
of the Companys reinstated shares.On January 8, 2007, the Bank of China wrote to the Company demanding that it comply
with the Judgment by (a) rectifying its share register to reflect the fact that the
Bank of China is the owner of 1,017,149 shares; (b) issuing to the Bank of China a
share certificate for the shares effective as of the dates they were redeemed and the
dates of issue for shares attributable to the redeemed shares as a consequence of the
Companys 3 for 1 stock split of June 30, 2003 and 1 for 10 stock dividend of November
7, 2003; and (c) sending the share certificates to the Bank of Chinas address stated
in the Judgment. The Bank of China also demanded payment of dividends on the redeemed
shares which the Bank of China calculated at $5,595, such demand being on the basis
that as Bank of China, as the registered owner of the shares, was entitled to the
payment of these dividends.
 F-29




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##### Table of Contents



15.
    
    Commitments and Contingencies  continued
 (b)
    
    Significant legal proceedings  continuedTele-Art- continuedThe Company responded on January 23, 2007 confirming that it intended to take all
necessary steps to comply with the Judgment and to this end, was in the process of
finalizing advice from its U.S. Securities lawyers on the proper method of reinstating
the shares to the Bank of China. The Companys common shares are listed on the New
York Stock Exchange (NYSE) and accordingly applied to the NYSE to list on the NYSE
the 1,017,149 shares to be reinstated and delivered to the Bank of China in accordance
with the Judgment. The Company subsequently received notice from the NYSE that such
shares had been approved for listing subject to official notice of reinstatement. The
Company thereafter proceeded to issue instructions to its transfer agent to reinstate
these shares and to register them in the name of the Bank of China. These instructions
were duly carried out and the Bank of China became the registered owner of the
1,017,149 shares.The Company however disputed the Bank of Chinas claim for payment of the dividends on
the ground that this was contrary to what the Bank of China had argued in the Privy
Council and in any event was not part of the Judgment.The Company has not paid dividends on the Redeemed Shares since 1997 and at September
4, 2007 (the day immediately preceding the date Bank of China sold a portion of the
Redeemed Shares to satisfy its claim against Tele-Art, as discussed below), the amount
that would have accrued on the Redeemed Shares had such shares not been redeemed
totaled approximately $5,595. Although the Privy Council did not address the issue of
entitlement to post redemption dividends in the Judgment, following the Judgment, the
Bank of China has made claim to such dividends, a claim that the Company has denied.
The Bank of China, however, subsequently abandoned this claim upon receipt of payment
of their debt from the proceeds of the sale of a portion of the Redeemed Shares in
September 2007.The Bank of China forwarded the share certificates in respect of 477,319 shares to Mr.
Glenn Harrigan, the liquidator of Tele-Art, on September 18, 2007. In
forwarding these shares, the Bank of China informed the liquidator that these shares
represented the balance of the shares remaining after they had liquidated 539,830
shares, from which the Bank of China had received sale proceeds of the sum of
approximately $6,937. Thereafter, the Bank of China, by its letter of November 1,
2007, purported to give an account as to the application of such sale proceeds.The sale proceeds retained by the Bank of China included a provision of approximately
$900 as its legal costs for related litigation. The Company has been advised by its
legal advisers that such retention is wrongful. The Company intends to commence legal
proceedings against the Bank of China for such wrongful retention and for a true
accounting of the sale proceeds retained by the Bank of China in payment of the
amounts allegedly owing to it. Also, the Bank of China had made claims related to the
liquidation of Tele-Art against the Company in the High Court of Hong Kong, which
claims the Company is now defending. Furthermore, investigations by the Company as
the assignee of certain rights of actions of the liquidator of Tele-Art to recover the
assets of Tele-Art are still continuing. The liquidation case of Tele-Art is
therefore not expected to be completed soon but will continue for quite some time.
Therefore, the cash dividends through September 4, 2007 attributable to the 539,830
Redeemed Shares that were sold by the Bank of China and the cash dividends accruing to
date and attributable to the remaining Redeemed Shares have been deposited into a
segregated account. Similarly, future cash dividends attributable to the remaining
Redeemed Shares will be, until such shares are liquidated, deposited in such
segregated account, as will the net proceeds from the remaining shares when
liquidated. From the funds so deposited, all future legal costs and other expenses
relating to the liquidation of Tele-Art will be paid until the Tele-Art liquidation is
completed and finalized.
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15.
    
    Commitments and Contingencies  continued
 (b)
    
    Significant legal proceedings  continuedTele-Art- continuedOn August 25, 2005, the liquidator filed his summons in the High Court of BVI seeking
for approval of his fourth liquidator report. The report sought the courts approval
of his recommendation of the amount of debt owed by Tele-Art to the Company of
approximately $38,900, 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 was eligible to
claim any amounts 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. It is expected that in
light of the Judgment of November 20, 2006, the liquidator may seek to have the issues
raised in its summons adjudicated by the BVI court, but up to March 14, 2008, the
Company has not received any information to this effect or otherwise as such status of
this proceeding remained unchanged.On April 11, 2005, Bank of China also filed a summons to the BVI Court seeking orders
to force Nam Tai to pay the redemption price and dividends ordered by the Court of
Appeal on the appeal of the Priority Summons to Bank of China. Nam Tai filed an
affidavit of evidence in response on July 19, 2005. A determination by the court of
this proceeding has now been rendered moot by the Judgment and although the Company
expects that the Bank of China will now withdraw or abandon its prosecution. As of
March 14, 2008, the Company has not received any information to that effect or
otherwise.The losses the Company incurred of $14,465 at and through the Companys year ended
December 31, 2006 arising from the Judgment ordering reinstatement of the Redeemed
Shares were determined by taking into account the fair value (i.e. market closing
price) of the Companys shares on November 20, 2006 (the date of the Judgment); the
estimated costs and expenses of the Bank of China and David Hague that the Company
expects will be claimed in connection with the Privy Council litigation proceedings;
and a reversal of the $3,890 provision previously made by the Company in 2003 with
respect to these proceedings.The Company has continued to vigorously pursue all legal alternatives available 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 has also instituted proceedings in the
BVI against UBS PaineWebber, or UBS, on June 20, 2005, for breach of trust with
respect to 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 subsequently filed an application
challenging the jurisdiction of the Court. On July 25, 2006 however, the Court, upon
the application of UBS, made an Order staying the BVI court proceedings pending the
outcome of the New York Court proceedings which in effect dealt with almost identical
matters as the BVI proceedings. This stay remains in place and awaits the outcome of
the New York matter which the Company understands continues to proceed to trial.(* Subsequent to November 7, 2003, the number of shares was adjusted to 457,050 to
reflect the 1-for-10 stock dividend effective on that date.)(** Subsequent to November 7, 2003, the number of shares was adjusted to 560,099 to
reflect the 1-for-10 stock dividend effective on that date.)
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##### Table of Contents



15.
    
    Commitments and Contingencies  continued
 (b)
    
    Significant legal proceedings  continuedShareholders ActionsThe Company and certain of its directors are defendants in consolidated class actions
entitled Rocco vs. Nam Tai Electronics et al.,Lead Case No. 03-cv-01148-JES,
originally commenced on February 20, 2003 and pending in the United States District
Court in the Southern District of New York. The named plaintiffs purport to represent
a putative class of persons who purchased our common shares from July 29, 2002 through
February 18, 2003. The plaintiffs asserted 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 the Companys LCDP segment.
The Company filed an answer to the amended and consolidated complaint and oral
argument on the plaintiffs most recent motion for class certification was held on
February 1, 2007. Following that hearing, on August 21, 2007, the court denied the
plaintiffs motion for class certification.A conference with the court was held on January 17, 2008 wherein the plaintiff
indicated that he wished to proceed with his case as an individual, notwithstanding
the denial of class certification. The court ordered that the parties to begin
discovery within the next six months and to appear for a pretrial conference on
September 16, 2008. In February 2008, the parties reached an agreement in principle on
a possible settlement of the individual action; however, as of March 14, 2008, the
agreement has yet been concluded. The damages sought by the plaintiff in an
individual capacity are not material to the Companys financial condition or results
of operations and accordingly, the Company does not intend to provide further
disclosure on this litigation unless an event occurs during its course that it
believes would be material.
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##### Table of Contents



16.
    
    Segment InformationThe Company operates in three segments: CECP, TCA and LCDP. These segments are operated and
managed as strategic business units. The chief operating decision maker evaluates the net
income of each segment in assessing performance and allocating resources between segments.The following table provides operating financial information for the three reportable
segments.
 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, 2006
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalNet sales  third parties
    
    $
    178,320
    
    
    $
    627,199
    
    
    $
    64,655
    
    
    $
    
    
    
    $
    870,174Cost of sales
    
    
    (148,013
    )
    
    
    (582,052
    )
    
    
    (53,888
    )
    
    
    
    
    
    
    (783,953
    )Gross profit
    
    
    30,307
    
    
    
    45,147
    
    
    
    10,767
    
    
    
    
    
    
    
    86,221Gain on disposal of asset held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,258
    
    
    
    9,258Selling, general and administrative
expenses
    
    
    (10,026
    )
    
    
    (11,960
    )
    
    
    (5,167
    )
    
    
    (3,515
    )
    
    
    (30,668
    )Research and development expenses
    
    
    (3,285
    )
    
    
    (3,064
    )
    
    
    (1,517
    )
    
    
    
    
    
    
    (7,866
    )Losses arising from the judgment to
reinstate redeemed shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,465
    )
    
    
    (14,465
    )Other income (expenses), net
    
    
    954
    
    
    
    577
    
    
    
    
    
    
    
    (2,796
    )
    
    
    (1,265
    )Loss on marketable securities arising
from split share structure reform
    
    
    (1,869
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,869
    )Interest income
    
    
    1,638
    
    
    
    809
    
    
    
    84
    
    
    
    6,011
    
    
    
    8,542Interest expense
    
    
    
    
    
    
    
    
    
    
    (602
    )
    
    
    
    
    
    
    (602
    )Income (loss) before income taxes
and minority interests
    
    
    17,719
    
    
    
    31,509
    
    
    
    3,565
    
    
    
    (5,507
    )
    
    
    47,286Income taxes
    
    
    (214
    )
    
    
    (85
    )
    
    
    (78
    )
    
    
    
    
    
    
    (377
    )Income (loss) before minority interests and
equity in loss of an affiliated company
    
    
    17,505
    
    
    
    31,424
    
    
    
    3,487
    
    
    
    (5,507
    )
    
    
    46,909Minority interests
    
    
    (5,251
    )
    
    
    
    
    
    
    (904
    )
    
    
    2
    
    
    
    (6,153
    )Equity in (loss) profit of an
affiliated company
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    8
    
    
    
    Net income (loss)
    
    $
    12,254
    
    
    $
    31,424
    
    
    $
    2,575
    
    
    $
    (5,497
    )
    
    $
    40,756
 F-33




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##### Table of Contents



16.
    
    Segment Information  continued
 Year ended December 31, 2007
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalNet sales  third parties
    
    $
    283,757
    
    
    $
    413,198
    
    
    $
    83,867
    
    
    $
    
    
    
    $
    780,822Cost of sales
    
    
    234,729
    
    
    
    384,443
    
    
    
    74,632
    
    
    
    
    
    
    
    693,804Gross profit
    
    
    49,028
    
    
    
    28,755
    
    
    
    9,235
    
    
    
    
    
    
    
    87,018Selling, general and administrative
expenses
    
    
    (15,269
    )
    
    
    (10,831
    )
    
    
    (6,331
    )
    
    
    (4,119
    )
    
    
    (36,550
    )Research and development expenses
    
    
    (4,144
    )
    
    
    (3,941
    )
    
    
    (1,713
    )
    
    
    
    
    
    
    (9,798
    )Other income (expenses), net
    
    
    4,851
    
    
    
    561
    
    
    
    (121
    )
    
    
    (3,072
    )
    
    
    2,219Gain on partial disposal of subsidiaries
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    390Gain on disposal on marketable securities
    
    
    43,815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,815Interest income
    
    
    3,609
    
    
    
    1,055
    
    
    
    30
    
    
    
    4,469
    
    
    
    9,163Interest expense
    
    
    (24
    )
    
    
    
    
    
    
    (452
    )
    
    
    24
    
    
    
    (452
    )Income (loss) before income taxes
and minority interests
    
    
    81,866
    
    
    
    15,599
    
    
    
    648
    
    
    
    (2,308
    )
    
    
    95,805Income taxes
    
    
    (5,655
    )
    
    
    350
    
    
    
    1,275
    
    
    
    
    
    
    
    (4,030
    )Income (loss) before minority interests
    
    
    76,211
    
    
    
    15,949
    
    
    
    1,923
    
    
    
    (2,308
    )
    
    
    91,775Minority interests
    
    
    (21,693
    )
    
    
    
    
    
    
    (458
    )
    
    
    (121
    )
    
    
    (22,272
    )Net income (loss)
    
    $
    54,518
    
    
    $
    15,949
    
    
    $
    1,465
    
    
    $
    (2,429
    )
    
    $
    69,503
 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
 Year ended December 31, 2006
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalDepreciation and amortization
    
    $
    6,484
    
    
    $
    8,488
    
    
    $
    4,052
    
    
    $
    
    
    
    $
    19,024Capital expenditures
    
    $
    1,992
    
    
    $
    19,864
    
    
    $
    1,937
    
    
    $
    
    
    
    $
    23,793Identifiable assets
    
    $
    181,634
    
    
    $
    170,129
    
    
    $
    58,172
    
    
    $
    119,300
    
    
    $
    529,235
 Year ended December 31, 2007
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalDepreciation and amortization
    
    $
    6,815
    
    
    $
    10,453
    
    
    $
    4,230
    
    
    $
    3
    
    
    $
    21,501Capital expenditures
    
    $
    5,609
    
    
    $
    4,996
    
    
    $
    4,568
    
    
    $
    94
    
    
    $
    15,267Identifiable assets
    
    $
    212,098
    
    
    $
    150,963
    
    
    $
    64,628
    
    
    $
    117,129
    
    
    $
    544,818
 There were no material inter-segment sales for the years ended December 31, 2005, 2006 and
2007. The Company charges 100% of its corporate level related expenses to its reportable
segments.
 F-34




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##### Table of Contents



16.
    
    Segment Information  continuedA summary sets forth the percentage of net sales of each of the Companys product lines of each segment for the years ended December 31,
2005, 2006 and 2007, is as follows:
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007Product lineCECP:- Assembling- Consumer electronics and communication products
    
    
    20
    %
    
    
    20
    %
    
    
    36
    %- Software development services
    
    
    1
    %
    
    
    1
    %
    
    
    21
    %
    
    
    21
    %
    
    
    36
    %TCA
    
    
    72
    %
    
    
    72
    %
    
    
    53
    %LCDP:- Parts and components- LCD products
    
    
    7
    %
    
    
    7
    %
    
    
    11
    %100
    %
    
    
    100
    %
    
    
    100
    %
 A summary of net sales, net income and long-lived assets by geographic areas is as follows:By geographical area:
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007Net sales from operations within:- Hong Kong and Macao:Unaffiliated customers
    
    $
    58,112
    
    
    $
    
    
    
    $
    Intercompany sales
    
    
    670
    
    
    
    
    
    
    
    58,782
    
    
    
    
    
    
    
    - PRC, excluding Hong Kong and Macao:Unaffiliated customers
    
    
    732,930
    
    
    
    870,174
    
    
    
    780,822Related parties
    
    
    6,195
    
    
    
    
    
    
    
    Intercompany sales
    
    
    
    
    
    
    418
    
    
    
    253739,125
    
    
    
    870,592
    
    
    
    781,075- Intercompany eliminations
    
    
    (670
    )
    
    
    (418
    )
    
    
    (253
    )Total net sales
    
    $
    797,237
    
    
    $
    870,174
    
    
    $
    780,822Net income within:- PRC, excluding Hong Kong and Macao
    
    $
    31,354
    
    
    $
    18,743
    
    
    $
    52,338- Hong Kong and Macao
    
    
    19,952
    
    
    
    22,013
    
    
    
    17,165Total net income
    
    $
    51,306
    
    
    $
    40,756
    
    
    $
    69,503
 F-35




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##### Table of Contents



16.
    
    Segment Information  continued
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007Net sales to customers by geographical area:- Hong Kong
    
    $
    383,138
    
    
    $
    258,774
    
    
    $
    255,569- Europe
    
    
    138,974
    
    
    
    131,763
    
    
    
    128,800- United States
    
    
    33,259
    
    
    
    76,620
    
    
    
    113,352- PRC (excluding Hong Kong)
    
    
    151,788
    
    
    
    272,916
    
    
    
    169,395- Japan
    
    
    14,858
    
    
    
    19,259
    
    
    
    20,827- North America (excluding United States)
    
    
    492
    
    
    
    1,999
    
    
    
    11,328- Korea
    
    
    53,979
    
    
    
    49,434
    
    
    
    34,731- Other
    
    
    20,749
    
    
    
    59,409
    
    
    
    46,820Total net sales
    
    $
    797,237
    
    
    $
    870,174
    
    
    $
    780,822
 As of December 31,
    
    2005
    
    
    2006
    
    
    2007Long-lived assets by geographical area:- PRC, excluding Hong Kong and Macao
    
    $
    100,372
    
    
    $
    105,123
    
    
    $
    98,441- Hong Kong and Macao
    
    
    369
    
    
    
    271
    
    
    
    158Total long-lived assets
    
    $
    100,741
    
    
    $
    105,394
    
    
    $
    98,599
 Intercompany sales arise from the transfer of finished goods between subsidiaries operating
in different areas. These sales are generally at prices consistent with what the Company
would charge third parties for similar goods.The Companys sales to customers which accounted for 10% or more of its sales are as follows:
 Year ended December 31,
    
    2005
    
    
    2006
    
    
    2007A
    
    $
    257,595
    
    
    $
    195,476
    
    
    $
    N/AB
    
    
    121,369
    
    
    
    163,712
    
    
    
    157,891C
    
    
    80,354
    
    
    
    141,977
    
    
    
    123,858D
    
    
    N/A
    
    
    
    N/A
    
    
    
    84,555$
    459,318
    
    
    $
    501,165
    
    
    $
    366,304
 16.
    
    Subsequent eventOn February 26, 2007, the Company entered into a share purchase agreement with an independent
third party, pursuant to which the Company agreed to sell its entire interest in JIC
Technology to this independent third party for a cash consideration of approximately $51,100.
The sale was completed on March 4, 2008.
 F-36




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF INCOME
(In thousands of US dollars)
 Year ended December 31,2005
    
    
    2006
    
    
    2007General and
administrative expenses*
    
    $
    (3,551
    )
    
    $
    (3,459
    )
    
    $
    (4,115
    )Other expense, net
    
    
    (2,805
    )
    
    
    (2,798
    )
    
    
    (3,078
    )Gain on sales of subsidiaries shares
    
    
    10,095
    
    
    
    
    
    
    
    390Gain on disposal of an affiliated company
    
    
    3,631
    
    
    
    
    
    
    
    Losses arising from judgement to reinstate redeemed shares
    
    
    
    
    
    
    (14,465
    )
    
    
    Interest income
    
    
    4,660
    
    
    
    7,247
    
    
    
    4,493Income (loss) before income taxes
    
    
    12,030
    
    
    
    (13,475
    )
    
    
    (2,310
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    Income (loss) before equity loss of an affiliated company and
share of net profits of subsidiaries, net of taxes
    
    
    12,030
    
    
    
    (13,475
    )
    
    
    (2,310
    )Equity loss of an affiliated company
    
    
    (186
    )
    
    
    
    
    
    
    Share of net profits of subsidiaries, net of taxes
    
    
    39,462
    
    
    
    54,231
    
    
    
    71,813Net income
    
    $
    51,306
    
    
    $
    40,756
    
    
    $
    69,503
 
 *
    
    Amount of share-based conpensation expense included in
general and administrative expenses      $                     $597                   $268 F-37




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
BALANCE SHEETS
(In thousands of US dollars)
 December 31,2006
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    117,632
    
    
    $
    74,049Prepaid expenses and other receivables
    
    
    989
    
    
    
    11Loan to a subsidiary  current
    
    
    
    
    
    
    25,953Amounts due from subsidiaries
    
    
    44
    
    
    
    44Total current assets
    
    
    118,665
    
    
    
    100,057Equipments, net
    
    
    2
    
    
    
    4Loan to a subsidiary  non-current
    
    
    
    
    
    
    285,478Investments in subsidiaries
    
    
    219,648
    
    
    
    (41,992
    )Other assets
    
    
    239
    
    
    
    264Total assets
    
    $
    338,554
    
    
    $
    343,811LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accrued expenses and other payables
    
    $
    2,069
    
    
    $
    2,682Dividend payable
    
    
    16,639
    
    
    
    9,509Amounts due to subsidiaries
    
    
    2,752
    
    
    
    1,439Total liabilities
    
    
    21,460
    
    
    
    13,630Shareholders equity:Common shares ($0.01 par value  authorized 20,000,000 shares)
    
    
    438
    
    
    
    448Reinstatement of redeemed shares
    
    
    17,159
    
    
    
    Additional paid-in capital
    
    
    264,393
    
    
    
    281,895Retained earnings
    
    
    25,030
    
    
    
    47,846Accumulated other comprehensive income (loss)
    
    
    10,074
    
    
    
    (8
    )Total shareholders equity
    
    
    317,094
    
    
    
    330,181Total liabilities and shareholders equity
    
    $
    338,554
    
    
    $
    343,811
 F-38




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENT OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)


Accumulated
    
    
    TotalCommon
    
    
    Common
    
    
    Reinstatement
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Share-Shares
    
    
    Shares
    
    
    of redeemed
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holders'
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    shares
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at January 1, 2005
    
    
    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
    
    
    $
    51,306Share of subsidiaries equity transactions:Unrealized 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
    
    
    $
    310,391Shares issued on exercise of options
    
    
    281,000
    
    
    
    3
    
    
    
    
    
    
    
    5,436
    
    
    
    
    
    
    
    
    
    
    
    5,439Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597
    
    
    
    
    
    
    
    
    
    
    
    597Reinstatement of redeemed shares
    
    
    
    
    
    
    
    
    
    
    17,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,159Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,756
    
    
    
    
    
    
    
    40,756
    
    
    $
    40,756Share of subsidiaries equity transactions:Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,983
    
    
    
    8,983
    
    
    
    8,983Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73
    
    
    
    73Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,812Cash dividends ($1.52 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,497
    )
    
    
    
    
    
    
    (66,497
    )Balance at December 31, 2006
    
    
    43,786,586
    
    
    $
    438
    
    
    $
    17,159
    
    
    $
    264,393
    
    
    $
    25,030
    
    
    $
    10,074
    
    
    $
    317,094Reinstatement of redeemed shares
    
    
    1,017,149
    
    
    
    10
    
    
    
    (17,159
    )
    
    
    17,149
    
    
    
    
    
    
    
    
    
    
    
    Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    268Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,503
    
    
    
    
    
    
    
    69,503
    
    
    $
    69,503Share of subsidiaries equity transactions:Equity-settled share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Reserve shared by minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,052
    )
    
    
    
    
    
    
    (9,052
    )
    
    
    (9,052
    )Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,451
    
    
    
    17,451
    
    
    
    17,451Disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,381
    )
    
    
    (27,381
    )
    
    
    (27,381
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (152
    )
    
    
    (152
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50,369Cash dividends ($0.84 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,635
    )
    
    
    
    
    
    
    (37,635
    )Balance at December 31, 2007
    
    
    44,803,735
    
    
    $
    448
    
    
    $
    
    
    
    $
    281,895
    
    
    $
    47,846
    
    
    $
    (8
    )
    
    $
    330,181 F-39




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2005
    
    
    2006
    
    
    2007Cash flows from operating activities:Net income
    
    $
    51,306
    
    
    $
    40,756
    
    
    $
    69,503Adjustments to reconcile net income to net cash provided
by operating activities:Share of net profit of subsidiaries, net of taxes
    
    
    (39,462
    )
    
    
    (54,231
    )
    
    
    (71,813
    )Dividend income from subsidiaries
    
    
    11,349
    
    
    
    13,596
    
    
    
    17,116Gain on disposal of subsidiaries
    
    
    (10,095
    )
    
    
    
    
    
    
    (390
    )Depreciation
    
    
    1
    
    
    
    1
    
    
    
    1Equity in loss of an affiliated company less dividend received
    
    
    186
    
    
    
    
    
    
    
    Loss arising from the judgment to reinstate redeemed shares
    
    
    
    
    
    
    14,465
    
    
    
    Share-based compensation expenses
    
    
    
    
    
    
    597
    
    
    
    268Gain on
disposal of an affiliated company
    
    
    (3,631
    )
    
    
    
    
    
    
    Impairment of intangible assets
    
    
    459
    
    
    
    
    
    
    
    Changes in current assets and liabilities:(Increase) decrease in prepaid expenses and other receivables
    
    
    (128
    )
    
    
    (626
    )
    
    
    978(Decrease) increase in accrued expenses and other payables
    
    
    (20
    )
    
    
    (67
    )
    
    
    613Net cash provided by operating activities
    
    
    9,965
    
    
    
    14,491
    
    
    
    16,276Cash flows from investing activities:Proceeds on disposal of subsidiaries
    
    
    25,219
    
    
    
    
    
    
    
    49,002Proceeds on
disposal of an affiliated company
    
    
    6,494
    
    
    
    
    
    
    
    Acquisition of subsidiaries shares
    
    
    
    
    
    
    (3,130
    )
    
    
    (62,755
    )Decrease in amounts due from subsidiaries
    
    
    27,669
    
    
    
    41,824
    
    
    
    Purchase of equipment
    
    
    
    
    
    
    
    
    
    
    (3
    )(Increase) decrease in other assets
    
    
    (40
    )
    
    
    143
    
    
    
    (25
    )Net cash provided by (used in) investing activities
    
    
    59,342
    
    
    
    38,837
    
    
    
    (13,781
    )Cash flows from financing activities:Increase (decrease) in amounts due to subsidiaries
    
    
    10,774
    
    
    
    (8,022
    )
    
    
    (1,313
    )Proceeds from shares issued on exercise of options
    
    
    16,420
    
    
    
    5,439
    
    
    
    Dividend paid
    
    
    (47,622
    )
    
    
    (64,215
    )
    
    
    (44,765
    )Net cash used in financing activities
    
    
    (20,428
    )
    
    
    (66,798
    )
    
    
    (46,078
    )Net increase (decrease) in cash and cash equivalents
    
    
    48,879
    
    
    
    (13,470
    )
    
    
    (43,583
    )Cash and cash equivalents at beginning of year
    
    
    82,223
    
    
    
    131,102
    
    
    
    117,632Cash and cash equivalents at end of year
    
    $
    131,102
    
    
    $
    117,632
    
    
    $
    74,049
 F-40




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
NOTE TO SCHEDULE 1
(In thousands of US dollars)
   F-41