Namtai writes off the Albatronics acquisition with the possibility of liquidation. Anybody have any comments? -- Dick Martin
Nam Tai Electronics, Inc. Announces Fourth Quarter Results Albatronics Provision
Results In $7.7 Million Loss
PR Newswire, Monday, February 08, 1999 at 01:16
VANCOUVER, British Columbia, Feb. 8 /PRNewswire/ -- Nam Tai Electronics,
Inc. ("Nam Tai" or the "Company") (NASDAQ:NTAIF and NTAWF) today announced
fourth quarter and unaudited year end results for the period ended
December 31, 1998. Net sales for the fourth quarter were $20.9 million, down
31% from 1997 fourth quarter sales of $30.0 million. Operating income
decreased 77% to $793,000 compared to 1997 fourth quarter operating income of
$3.5 million. Non-operating items in the fourth quarter of 1998 included
interest income of $1.7 million, income from Group Sense (International) Ltd.
of $534,000 and nearly $10 million in charges related to Albatronics
(Far East) Company Limited ("Albatronics"). On November 30, 1998 Nam Tai
acquired Albatronics by subscribing for slightly over 50% of the outstanding
shares of Albatronics for $9.98 million including transaction fees. Nam Tai's
charges relating to Albatronics include all of Albatronics' losses during
December 1998 of $1.71 million and an $8.27 million provision for impairment
in Nam Tai's carrying value of the Albatronics investment. In the fourth
quarter of 1997 Nam Tai reported non-operating income of $5.2 million. As a
result of the Albatronics' charges, the Company recorded a fourth quarter
1998 loss of $7.7 million compared to net income of $8.8 million in the fourth
quarter of 1997. Basic and diluted earnings per share for the fourth quarter
of 1998 were a loss of $0.78 compared to earnings per share of $0.93 for the
prior year period.
"Although Nam Tai's sales in the fourth quarter dropped significantly as a
result of the Asian economic turmoil, we are pleased to show an operating
profit and maintain a strong gross profit margin", commented Nam Tai's
Chairman, Mr. Murakami. "By aggressively seeking increased business from both
existing and new customers we hope to see a strong rebound in Nam Tai's sales
in 1999 while achieving our target gross profit exceeding 20%."
Net sales for the year ended December 31, 1998 decreased 24% to
$101.6 million compared to $132.9 million for 1997. Operating income
decreased 48% to $9.8 million compared with $19.0 million for the year ended
December 31, 1997. Net income decreased 89% to $3.5 million compared to
$30.8 million for the year ended December 31, 1997. Basic earnings per share
and diluted earnings per share decreased to $0.34 and $0.34, respectively
compared to $3.70 and $3.68 for the prior year period.
The earnings per share calculations for the year of 1998 take into account
the significant increase in the weighted average common shares outstanding
from 8.32 million (diluted 8.39 million) for 1997 to 10.32 million (diluted
10.35 million) for 1998.
Even with the increased competitive environment, the Company's operating
performance remains healthy with higher gross profit margins in the fourth
quarter of 1998 compared to the same period in 1997 (24.7% vs. 24.5%).
Year-end results for 1998 compared to 1997 show a decrease in gross profit
margin (24.3% vs. 26.1%).
Despite the fourth quarter loss, at December 31, 1998, the Company
maintained a strong financial position, with cash per share of $7.26, and book
value per share of $13.01, based upon the 9,812,523 shares outstanding on
December 31, 1998. The Company had a cash to current liabilities ratio of
3.7:1, a total assets to total liabilities ratio of 7.5:1, no long term debt,
and ended the year with more than $71 million cash on hand.
Calculator sales accounted for 42% of total sales in the fourth quarter of
1998 compared to 52% in the fourth quarter of 1997. The sales of personal
organizers and linguistic products accounted for 21% of total sales in the
fourth quarter of 1998 compared to 19% in the fourth quarter of 1998. Sales
by region in the fourth quarter of 1998 versus 1997 were to North America
35% versus 43%, Japan 13% versus 27%, Europe 14% versus 13%, and others
38% versus 17%.
Impact of Albatronics Acquisition
When it announced the completion of the Albatronics acquisition on
December 2, 1998, Nam Tai indicated that it would take steps to support
Albatronics depending on the results of a comprehensive study investigating
opportunities for corporate restructuring and streamlining of overhead
expenses in Albatronics. Since that time, results from Albatronics year end
audit show a company in financial difficulty with a deficiency in
shareholders' equity of $45.2 million, up from the $22.6 million adjusted
deficiency in shareholders' equity reported in Albatronics' unaudited
August 31, 1998 accounts. The deficiency increased despite the capital
injection from Nam Tai's share subscription, reflecting Albatronics'
continuing losses, which in December 1998 were $1.71 million.
Despite Nam Tai's cash investment, Albatronics' financial position has
weakened dramatically since the agreement to invest in Albatronics was signed
in September 1998. The major reason attributed by Albatronics for its
additional losses through December 31 1998 is the worsening market conditions
that have adversely affected certain of Albatronics' customers and business
partners resulting in additional bad debt write-offs for uncollectable
accounts receivable and loans receivable. In addition, Albatronics suffered
investment losses. Currently, Nam Tai is seeking to work together with
Albatronics' major trade creditor, and Albatronics' bankers to try to support
Albatronics. If any of these three parties refuses to provide the necessary
support, Albatronics' directors will consider all available options including
putting Albatronics into liquidation.
Under ordinary circumstances, Nam Tai, as the controlling shareholder,
would consolidate Albatronics' financial statements with Nam Tai's. Due to
the troubled financial condition of Albatronics at December 31, 1998, and the
possibility of Albatronics being wound up within a relatively short period,
Nam Tai has not consolidated Albatronics' financial statements in, or at
December 31,1998. Instead, Nam Tai recorded as separate line items on its
Consolidated Statements of Income all of Albatronics' December 1998 losses of
$1.71 million as "Share of losses of unconsolidated subsidiary" and also made
a "Provision for impairment of value" of $8.27 million against the remaining
carrying value of this investment. As a result, the carrying value of
Nam Tai's investment in Albatronics has been recorded on Nam Tai's
Consolidated Balance Sheet at December 31, 1998 at nominal value as
"Investment in unconsolidated subsidiary (less provision for impairment of
value)."
"Albatronics reported losses of $38 million for the six month period ended
September 30, 1998. Although we expected certain losses when we first agreed
to invest in Albatronics, the recent adverse market conditions have resulted
in losses exceeding our expectations and revealed additional problems at
Albatronics. As a result, the Company is disappointed at having to include
the $8.27 million provision for the impairment in value of its recent
investment in Albatronics; however, it is a prudent action to take given
Albatronics' deteriorating financial situation, and additional risks
identified in the course of Nam Tai's ongoing comprehensive study of
Albatronics" commented Mr. Murakami. "Although we have already written off
the investment, we are hoping that the Albatronics' restructuring agreement
with the bankers and major supplier will be accepted, which would allow
Nam Tai the opportunity to support Albatronics' return to profitability."
Nam Tai's financial statements disclosed and discussed in this press
release may be restated if before Nam Tai files its 1998 Form 20F (which it
expects to do by March 31, 1999) a restructuring agreement for Albatronics is
reached or is probable and Nam Tai continues with its investment in
Albatronics. Under those circumstances, Nam Tai would restate its fourth
quarter and 1998 financial statements to consolidate Albatronics' results
since December 1, 1998 and its balance sheet as at December 31, 1998 with
Nam Tai's financial statements for the year ended December 31, 1998. Although
Nam Tai's 1998 net income would not change materially from $3.5 million
(i.e., the provision for impairment in value of $8.27 million would not be
reversed irrespective of consolidation), all of Albatronics' sales and
expenses during December 1998 of $17.6 million and $19.3 million,
respectively, would be included in Nam Tai's statements of income for the
quarter and year ended December 31, 1998. In addition, Nam Tai's Consolidated
Balance Sheet at December 31, 1998 would be materially altered to include
Albatronics' assets and liabilities. Other financial ratios and measures,
including gross profit margin, net profit margin, cash to current liabilities,
total assets to total liabilities, and the amount of long-term debt, would be
materially adversely affected upon a consolidation of results.
Investment in Group Sense (International) Limited ("Group Sense")
On May 27, 1998 Nam Tai announced that it acquired approximately 20% of
the outstanding shares of Group Sense. On November 23, 1998 Group Sense
released its operating results for the six months ended September 30, 1998
showing profits of approximately $4.6 million. Nam Tai's portion of Group
Sense's net income of $534,000 is included in Nam Tai's net income for the
quarter and year ended December 31, 1998.
New Recognition for Nam Tai's Shenzhen Manufacturing Subsidiary
On January 8, 1999, following the completion of an appraisal by a panel of
specialists, the Shenzhen, China government awarded Nam Tai the recognition of
"High and New Technology Enterprise". The major benefits of achieving this
difficult to obtain recognition include various tax advantages such as the
lowering of corporate tax rate by half to 7.5% until January 7, 2004, lower
value added tax rates, property tax concessions and employee income tax
benefits.
Update on Shares Outstanding
On January 22, 1999 Nam Tai redeemed and canceled 138,500 shares
registered in the name of Tele-Art Inc. at a price of $11.19 per share to
offset substantially all of the debt, interest and legal costs of
approximately $1.6 million owing by Tele Art Inc. to Nam Tai. As a result the
number of shares outstanding as at February 8, 1999 is reduced to 9,674,023.
On January 7, 1999 the Company announced an extension of its share
repurchase program to July 2, 1999. Under the program that was initially
announced on January 13, 1998 the Company is aiming to repurchase a total of
2 million shares. As of February 8, 1999 the Company has repurchased
1,407,500 at an average price $15.10. The Company, in an attempt to achieve
its 2,000,000 target will continue to buy-back shares from time to time at
market prices in the open market in accordance with SEC Rule 10b-18, unless
extended or shortened by the Board of Directors.
Analyst Conference Call
The Company's analysts-only conference call will be held on Monday,
February 8, 1999, at 12:00 noon Eastern Time for analysts to discuss fourth
quarter results with management. Other interested individuals can listen in
by dialing 1-212-271-4786 just prior to 12:00 noon Eastern Time, and
registering with the conference call operator.
Except for the historical information contained herein, matters discussed
in this press release are forward-looking statements involving risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. For example, the Company's
hope of seeing a strong rebound in Nam Tai's sales in 1999 while achieving a
target gross profit exceeding 20% is a forward looking statement the result of
which may fluctuate depending on many factors including customer orders, the
company's sales mix, competitive pressures, material costs, and currency
fluctuations. Other factors that might cause differences in this and other
forward looking statements include, but are not necessarily limited to those
discussed in the Company's reports filed with the Securities and Exchange
Commission from time to time, such as the factors set forth in Item 1.
"Description of Business - Risk Factors" in the Company's Annual Report on
Form 20-F for the year ended December 31, 1997, and in particular the section
titled Risks from Possible Acquisitions.
Nam Tai Electronics, Inc. is a consumer electronics design and
manufacturing service provider to some of the world's leading original
equipment manufacturers. Products manufactured by Nam Tai include personal
organizers, personal digital assistants, linguistic products, calculators,
smart card readers, and various components which are used in telecommunication
products, electronic toys, and household appliances. Further information is
available from Nam Tai's web site at www.namtai.com.
NAM TAI ELECTRONICS, INC.
Consolidated Statements of Income
For the Periods Ended December 31, 1998 and 1997
(In Thousands of U.S. Dollars except share data)
Unaudited Unaudited Audited
Three months ended Twelve months ended
December 31 December 31
1998 1997 1998 1997
Net sales $ 20,853 $ 30,013 $ 101,649 $ 132,854
Cost of sales 15,712 22,665 76,939 98,130
Gross profit 5,141 7,348 24,710 34,724
Costs and expenses
Selling, general and
administrative expenses 3,495 3,010 13,190 13,799
Research and development
expenses 853 835 1,691 1,909
4,348 3,845 14,881 15,708
Income from operations 793 3,503 9,829 19,016
Net gain/(loss) on
disposal of property,
plant and equipment (9) 2,686 766 4,350
Provision for impairment
of value (8,271) 0 (8,271) 0
Other income/(loss) - net 92 1,655 (182) 5,944
Interest income - net 1,735 870 5,046 1,808
Unusual item 0 0 (1,445) 0
Income before income taxes (5,660) 8,714 5,743 31,118
Income tax
(expense)/benefit (869) 41 (1,040) (279)
$ (6,529) $ 8,755 $ 4,703 $ 30,839
Share of results of
associated company 534 0 534 0
Share of losses of
unconsolidated subsidiary (1,708) 0 (1,708) 0
Net income (loss) $ (7,703) $ 8,755 $ 3,529 $ 30,839
Net income (loss)
per share
Basic $ ( 0.78) $ 0.93 $ 0.34 $ 3.70
Diluted $ ( 0.78) $ 0.93 $ 0.34 $ 3.68
Weighted average number
of shares ('000')
Basic 9,819 9,395 10,317 8,324
Diluted 9,913 9,422 10,351 8,391
NAM TAI ELECTRONICS, INC.
Consolidated Balance Sheets
As at December 31, 1998 and 1997
(In Thousands of U.S. Dollars)
Unaudited Audited
December 31 December 31
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 71,215 $ 102,411
Accounts receivable, net 16,138 16,985
Inventories 4,355 9,838
Marketable investments 513 0
Prepaid expenses and deposits 4,794 3,788
Total current assets 97,015 133,022
Long term investments 0 833
Investment in unconsolidated subsidiary
(less provision for impairment of value) 1 0
Investment in associated company 16,223 0
Property, plant and equipment, at cost 48,116 44,295
Less: accumulated depreciation and amortization (15,671) (11,853)
32,445 32,442
Other assets 1,544 1,491
Total assets $ 147,228 $ 167,788
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 329 $ 1,814
Accounts payable and accrued expenses 18,377 17,551
Dividend payable 665 0
Income tax payable 105 187
Total current liabilities 19,476 19,552
Deferred tax liabilities 56 0
Shareholders' equity:
Common shares 98 112
Additional paid-in capital 80,044 80,044
Stock option grants 0 0
Retained earnings 47,509 68,050
Foreign currency translation adjustment 45 30
Total shareholders' equity 127,696 148,236
Total liabilities and shareholders' equity $ 147,228 $ 167,788
NAM TAI ELECTRONICS, INC.
Consolidated Statements of Cash Flows
For 12 Months Ended December 31, 1998
(In Thousands of U.S. Dollars)
Unaudited Audited
Twelve months Twelve months
ended Dec 31 ended Dec 31
1998 1997
CASH FLOWS FROM OPERATIONS
Net income $ 3,529 $ 30,839
Add/(deduct) adjustments to net income:
Depreciation of fixed assets 4,258 4,331
(Gain)/loss on disposal of fixed assets (766) (4,350)
Unrealised (gain)/loss on write-down of
marketable investments 468 0
Gain on disposal of Deswell shares (1,299) (5,488)
Share of GSL's (income) less dividend
received and goodwill (404) 0
Share of Albatronics' loss and provision
for write-down 9,979 0
Changes in current assets and liabilities:
Accounts receivable 824 (396)
Inventories 5,483 673
Prepayments and deposits (1,006) (2,020)
Notes payable (1,485) (3,372)
Accounts payable 826 1,330
Income taxes payable and deferred taxes (26) 156
16,852 (9,136)
Net cash flows from operations 20,381 21,703
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of Deswell Shares 2,132 8,717
Long-term investment in Albatronics (9,980) 0
Proceeds on disposal of land in Hong Kong 815 5,750
Proceeds on disposal of fixed assets 382 1,916
Additions to fixed assets (4,699) (3,602)
Other assets (53) (246)
Addition to marketable investments (981) 0
Addition to long term investments (15,819) (12)
Net cash flow from investing (28,203) 12,523
CASH FLOWS FROM FINANCING ACTIVITIES
Share buy-back (21,255) (10)
Additional shares issued, net 0 3,501
Proceeds from shares issued on rights
offering, net 0 47,700
Dividend paid (2,141) (749)
Net cash flow from financing (23,396) 50,442
Foreign currency translation adjustments 22 2
Net change in cash and cash equivalents (31,196) 84,670
Cash and cash equivalents, beginning of period 102,411 17,741
Cash and cash equivalents, end of period 71,215 102,411
SOURCE Nam Tai Electronics, Inc.
-0- 02/08/99
/CONTACT: Mark Waslen, Treasurer of Nam Tai Electronics, 604-669-7800, or
800-661-8831, or fax, 604-669-7816, or investor@namtal.com/
/Web site: namtai.com
Companies or Securities discussed in this article:
Symbol
Name
NASDAQ:NTAIF
Nam Tai Electrs Inc
NASDAQ:NTAWF |
