UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-27482
XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2310781
(State of Incorporation) (I.R.S. Employer ID Number)
2105 GRACY FARMS LANE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
As of the close of business on November 7, 2001, 10,073,945 shares of the
registrant's common stock, par value $.0001 per share, were outstanding.
XETEL CORPORATION
INDEX
<Table>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements (unaudited)
Balance Sheets as of September 29, 2001 and March 31, 2001 3
Statements of Operations for the three and six months ended
September 29, 2001 and September 30, 2000 4
Statements of Cash Flows for the six months ended
September 29, 2001 and September 30, 2000 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 15
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</Table>
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
September 29, March 31,
2001 2001
------------ ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 1,195 $ 1,744
Trade accounts receivable, net 18,954 41,202
Inventories, net 42,356 49,856
Federal income tax receivable 1,633 --
Deferred tax asset -- 1,077
Prepaid expenses and other 1,304 1,505
------------ ------------
Total current assets 65,442 95,384
Property and equipment, net 7,520 7,133
------------ ------------
TOTAL ASSETS $ 72,962 $ 102,517
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 22,166 $ 32,019
Current portion of long term debt 19,853 --
Accrued expenses and other liabilities 4,770 4,947
------------ ------------
Total current liabilities 46,789 36,966
Deferred income taxes 143 143
Long-term debt 423 34,329
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value, 4,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.0001 par value, 25,000,000 shares authorized,
10,001,398 and 9,938,066 shares issued and 9,995,402 and
9,932,070 shares outstanding, respectively 1 1
Additional paid in capital 23,144 23,001
Retained earnings 2,462 8,077
------------ ------------
Total stockholders' equity 25,607 31,079
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 72,962 $ 102,517
============ ============
</Table>
The accompanying notes are an integral part of these financial statements. 3
XETEL CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Six Months Ended
------------------------------ --------------------------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $ 16,070 $ 46,719 $ 55,470 $ 89,416
Cost of sales 19,691 42,957 56,070 81,554
------------ ------------ ------------ ------------
GROSS PROFIT (3,621) 3,762 (600) 7,862
Selling, general and administrative expenses 2,367 1,941 4,744 3,840
Recoveries, net 0 (338) 0 (1,062)
------------ ------------ ------------ ------------
(LOSS)/INCOME FROM OPERATIONS (5,988) 2,159 (5,344) 5,084
Other expense, net (378) (563) (885) (972)
------------ ------------ ------------ ------------
(6,366) 1,596 (6,229) 4,112
(LOSS)/INCOME BEFORE INCOME TAXES
(Benefit)/provision for income taxes (670) 605 (614) 1,561
------------ ------------ ------------ ------------
NET (LOSS)/INCOME $ (5,696) $ 991 $ (5,615) $ 2,551
============ ============ ============ ============
Basic (loss)/earnings per share $ (0.57) $ 0.10 $ (0.56) $ 0.27
============ ============ ============ ============
Basic weighted average shares outstanding 9,992 9,591 9,979 9,552
============ ============ ============ ============
Diluted (loss)/earnings per share $ (0.57) $ 0.10 $ (0.56) $ 0.26
============ ============ ============ ============
Diluted weighted average shares outstanding 9,992 10,206 9,979 9,675
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements. 4
XETEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Six Months Ended
-------------------------------
September 29, September 30,
2001 2000
------------ ------------
Cash flows from operating activities:
Net (loss) income $ (5,615) $ 2,551
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Deferred income taxes 1,077 409
Depreciation and amortization 1,136 974
Deferred compensation -- 21
Loss on disposal of equipment 26 --
Changes in operating assets and liabilities:
Trade accounts receivable 22,248 (6,224)
Inventories 7,500 (17,964)
Prepaid expenses and other (1,432) (216)
Trade accounts payable (8,120) 9,062
Accrued expenses and other liabilities (177) 682
------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 16,643 (10,705)
Cash flows from investing activities:
Purchases of property and equipment (923) (1,291)
Proceeds from sale of equipment 36 --
------------ ------------
CASH USED IN INVESTING ACTIVITIES (887) (1,291)
Cash flows from financing activities:
Net (repayments) borrowings under debt
Agreements (16,448) 11,835
Proceeds from stock options exercised 55 310
Cash proceeds from stock issued under
Employee stock purchase plan 88 54
------------ ------------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (16,305) 12,199
Decrease in cash and cash equivalents (549) 203
Cash and cash equivalents, beginning of period 1,744 7,398
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,195 $ 7,601
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of accounts payable to note payable $ 1,733 $ --
============ ============
Property and equipment financed by capital lease $ 662 $ --
============ ============
</Table>
The accompanying notes are an integral part of these financial statements. 5
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. THE COMPANY AND DESCRIPTION OF BUSINESS ACTIVITIES
XeTel Corporation (the "Company") provides comprehensive and customized
electronics manufacturing solutions to original equipment manufacturers
primarily in the networking, telecommunications and computer industries in the
United States of America. The Company incorporates advanced prototype services
and complex electronics manufacturing assembly capabilities together with
materials and supply base management, advanced testing, systems integration
services and order fulfillment, to provide turnkey solutions for its customers.
NOTE 2. BASIS OF PRESENTATION
These interim financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). All adjustments have been made to the accompanying
interim financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating results
and include all adjustments of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is recommended that these
interim financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 2001. The results of operations for any
interim period are not necessarily indicative of the results of operations for
the entire year.
NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 141, "Business
Combinations." SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. The purchase method of accounting is
required to be used for all business combinations initiated after June 30, 2001.
SFAS No. 141 also defines the criteria for identifying intangible assets for
recognition apart from goodwill. We have adopted SFAS No. 141 effective July 1,
2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 discontinues amortization of acquired goodwill
and instead requires annual impairment testing. Separable intangible assets will
be amortized over their useful economic lives and tested for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." Intangible assets with an indefinite useful economic
life will not be amortized until the life of the asset is determined to be
finite. For goodwill and indefinite-lived intangible assets acquired prior to
July 1, 2001, goodwill will continue to be amortized until adoption of SFAS No.
142 at which time amortization will cease and a transitional goodwill impairment
test will be performed. Any impairment charges resulting from the initial
application of the new rules will be classified as a cumulative effect of change
in accounting principle. We must adopt SFAS No. 142 by April 1, 2002. However,
we do not believe adoption of SFAS No. 142 will have a material impact on our
future earnings or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 retains the
fundamental provisions of existing generally accepted accounting principles with
respect to the recognition and measurement of long-lived asset impairment
contained in SFAS No. 121. However, SFAS No. 144 provides new guidance intended
to address certain significant implementation issues associated with SFAS No.
121, including expanded guidance with respect to appropriate cash flows to be
used to determine whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the impairment. SFAS No.
144 also requires that any net assets to be disposed of by sale be reported at
the lower of carrying value or fair market value less cost to sell, and expands
the reporting of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished from the rest
of the entity. SFAS No. 144 is effective for financial statements issued for
years beginning after December 15, 2001, and interim periods within those fiscal
years. We are currently evaluating the impact, if any, of SFAS No. 144 on our
future earnings and financial position.
6
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4. TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable, net consist of the following (in thousands):
<Table>
<Caption>
SEPTEMBER 29, MARCH 31,
2001 2001
------------- ------------
(UNAUDITED)
Accounts receivable .................................... $ 19,636 $ 41,382
Less: allowance for doubtful accounts .................. (682) (180)
------------ ------------
$ 18,954 $ 41,202
============ ============
</Table>
NOTE 5. INVENTORIES, NET
Inventories, net consist of the following (in thousands):
<Table>
<Caption>
SEPTEMBER 29, MARCH 31,
2001 2001
------------- ------------
(UNAUDITED)
Raw materials .......................................... $ 37,609 $ 42,319
Work in progress ....................................... 3,383 7,981
Finished goods ......................................... 2,165 301
Less: allowance for obsolete raw materials ............. (801) (745)
------------ ------------
$ 42,356 $ 49,856
============ ============
</Table>
NOTE 6. NOTES PAYABLE AND LONG-TERM DEBT
As of September 29, 2001, the Company had a three-year revolving credit
facility for $35 million that was entered into on March 31, 2000. There was
$18.0 million outstanding under the revolving credit facility at September 29,
2001. The Company was eligible to borrow an additional $2.3 million, at
September 29, 2001, pursuant to the revolving credit facility's borrowing
formula. The revolving credit facility provides for automatic renewals for
successive terms of equal duration thereafter unless terminated by either party
prior to the renewal date. Loans under the revolving credit facility bear
interest at either LIBOR plus 2.25% to 3.00% (depending upon certain financial
ratios), prime (6.00% at September 29, 2001), prime plus 0.25% or prime plus
0.50% (such rate determined based upon the amounts, financial ratios and period
of loans), are scheduled to mature on March 30, 2003 and are collateralized by
certain of our assets. The revolving credit facility requires the payment of a
monthly commitment fee equal to one-quarter of one percent (0.25% per annum) of
the unused balance, and borrowings are limited based upon certain collateral
availability requirements on eligible accounts receivable and inventory.
In October 2001, the Company borrowed more money than it was allowed under
the credit facilities borrowing formula (the "Over-advance") and additionally
determined that it might violate a financial covenant in the loan agreement as
of September 29, 2001. In late October, the Company and its' lender amended the
credit facility effective as of October 15, 2001. The amendment i) reduced the
total credit facility from $35 million to $19.5 million, ii) allowed the Company
to exceed the borrowing limitations under the credit facility by $2.255 million
as of October 15, 2001, $1.3 million after the close of business on October 29,
2001, $1.2 million after the close of business on November 5, 2001, $.7 million
after the close of business on November 12, 2001, $0.4 million after the close
of business on November 19, 2001, and after November 26, 2001, the Company must
conform to the borrowing limitations of the credit facility, iii) reduced the
amount of inventory included in the borrowing formula by $1 million per week
beginning on November 13, 2001 for certain inventory as defined in the
amendment, iv) required the Company to retain a consulting firm in November
2001, v) required the Company to pay certain amendment fees to the lender and
vi) waived the Company's requirement to comply with the financial covenant
through November 19, 2001, in anticipation of revising the credit agreement with
new financial covenants if necessary. Since the Company only has a waiver
through November 19, 2001, after which they will be in violation unless/until
they can negotiate an amendment or a further waiver, the debt has been
classified as a current liability.
7
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In July 2001, the Company issued approximately $1.7 million of trade drafts
to a financial company. The proceeds from this transaction were used to pay a
product supplier. The trade drafts matured in late October 2001. Due to the
liquidity issues noted herein, the Company was unable to pay these trade drafts
when due. On November 1, 2001 the Company entered into a Collateral Security
Agreement that extended the maturity of the trade drafts until January 23, 2002
in exchange for granting the financial company a security interest in certain of
the Company's fixed assets and the payment of certain fees on or before November
26, 2001. The Company is currently in compliance with the Collateral Security
Agreement and intends to pay the required fees prior to the due date.
The Company may require additional financing in connection with their
business. They may seek additional funds from time to time through public or
private debt or equity offerings or obtain further bank or lease financing or
off-balance sheet financing. The need for funding and the cost of and access to
additional funds, are dependent on our future operating results, the resolution
of the inventory issues as discussed in Note 7, as well as external conditions.
If the Company is unable to i) obtain adequate financing, ii) resolve customer
inventory issues, iii) remain in compliance with the terms of their loan
agreement, iv) reach satisfactory terms with their facility and equipment
lessors, v) reach agreements to procure required materials and services on
satisfactory terms and vi) reduce or eliminate operating losses, the Company may
be forced to seek protection from its creditors or pursue the sale of the XeTel.
NOTE 7. LITIGATION
One previous customer refused to accept liability for a majority of the
$7.5 million in inventory purchased on their behalf by XeTel, resulting in the
Company filing a lawsuit against the customer in July, 2001. On November 15,
2001, the Company entered into a settlement agreement with this customer which
called for, among other items i) a cash payment to us, ii) the sale of certain
inventory to the former customer and iii) our retention of a portion of the
inventory. At this time the Company does not expect the settlement to result in
a loss and accordingly has not reflected any losses related to the transaction
in the financial statements as of September 29, 2001. The Company intends to try
to liquidate the inventory by i) utilizing the inventory for other customer
requirements, ii) returning it to suppliers or iii) selling it to third parties,
which may result in a gain or a loss.
The Company also has approximately $20 million of inventory on hand for a
current customer and, as a result of a decrease in demand requirements from this
customer, has been working with this customer to have them purchase a large
portion of this inventory. In addition to the on-hand inventory, certain of the
Company's vendors are claiming additional charges for inventory it ordered on
behalf of this customer and have not taken delivery of and/or cancellation
charges in the amount of approximately $12 million. The Company has had numerous
recent discussions with this customer. As of this date, the Company has not been
able to resolve their issues with the customer. While the Company continues to
try to resolve these issues with the customer, it expects to, and are prepared
to, file for arbitration in November 2001. The Company expects to recover the
full amount of recorded assets related to this matter and accordingly, no loss
provision has been recorded at this time.
NOTE 8. INCOME TAXES
As a result of the Company's loss from operations in this quarter, a tax
benefit of $670,000 and a related tax receivable of approximately $1.7 million
were recorded. The Company had taxable income for U.S. Federal tax purposes in
the applicable carryback periods to apply against a portion of the current
period loss. A full valuation allowance for tax benefits and related tax assets
of approximately $1.1 million was provided due to the uncertainty of generating
future taxable income to utilize these assets.
NOTE 9. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share ("EPS") is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the related period. Diluted EPS is similar to basic EPS except
that the weighted average of common shares outstanding is increased to include
the number of common share equivalents, when inclusion is dilutive.
8
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Common share equivalents are comprised of stock options. The number of common
share equivalents outstanding relating to stock options is computed using the
treasury stock method.
The following table sets forth the computation of basic and diluted earnings
(loss) per share (unaudited):
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------------------------- -------------------------------
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Basic earnings per share:
Weighted average shares outstanding ...... 9,992 9,591 9,979 9,552
============ ============ ============ ============
Net income (loss) ........................ $ (5,696) $ 991 $ (5,615) $ 2,551
============ ============ ============ ============
Basic earnings (loss) per share .......... $ (0.57) $ 0.10 $ (0.56) $ 0.27
============ ============ ============ ============
Diluted earnings per share:
Weighted average shares outstanding ...... 9,992 9,591 9,979 9,552
Common stock equivalents:
Stock options ............................ -- 615 -- 123
------------ ------------ ------------ ------------
9,992 10,206 9,979 9,675
============ ============ ============ ============
Net income (loss) ........................ $ (5,696) $ 991 $ (5,615) $ 2,551
============ ============ ============ ============
Diluted earnings (loss) per share ........ $ (0.57) $ 0.10 $ (0.56) $ 0.26
============ ============ ============ ============
</Table>
Options to purchase 1,564,590 and zero shares of common stock were outstanding
at September 29, 2001 and September 30, 2000, respectively, but were not
included in the computation of diluted EPS because the exercise of such options
would be anti-dilutive.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this filing. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including the risks discussed in
"Risk Factors that May Affect Future Results, Financial Condition and Market
Price of Securities" set forth elsewhere in this filing.
All percentage amounts and ratios were calculated using the underlying data
in thousands. Operating results for the three and six months ended September 29,
2001 and September 30, 2000 are not necessarily indicative of the results that
may be expected for the full fiscal year.
OVERVIEW
We were founded in 1984 and, since our inception, have manufactured surface
mount assemblies and performed other manufacturing services for original
equipment manufacturers, or OEMs, in the electronics industry. The development
and growth of our business have generally followed the trend by OEMs in the
electronics industry to outsource all or a portion of their manufacturing
requirements. In view of this trend, we have developed a range of electronics
manufacturing services including product design, development support, advanced
prototyping, materials procurement, supply base management, complex surface
mount assembly, total system assembly and integration, manufacturing in various
production volumes, advanced test engineering and testing, and after-market
support. We have sought to forge long-term relationships with our customers as a
single-source provider of comprehensive electronics manufacturing services.
In recent years we have implemented strategies to diversify our customer
base, improve profitability, advance our manufacturing technologies and
capabilities, broaden our service offerings and expand our manufacturing
capacity. We have continued to adopt advanced technologies, such as flip-chip
and micro-ball grid array, in advance of the continuing emergence and commercial
introduction of more complex electronics devices. In addition, we have expanded
into high growth markets requiring low- to moderate-volume, highly complex
manufacturing solutions, and reorganized our service offerings by establishing
dedicated service centers and broadening our services in total system assembly,
systems integration and order fulfillment.
In the quarter ended September 29, 2001, we derived approximately 49% of our
net sales from telecommunications OEMs, 22% of our net sales from networking
OEMs, 13% from computer OEMs and 15% from OEMs in other industry sectors. The
percentage of net sales derived from our largest customer was 13%, 33%, 32% and
13% of net sales, respectively, in the second quarter of fiscal 2002, first
quarter of fiscal 2002, fourth quarter of fiscal 2001 and the second quarter of
fiscal 2001.
Our results of operations are affected by the level of capacity utilization
of our manufacturing facilities, direct and indirect labor costs and selling,
general and administrative expenses. Accordingly, gross margins and operating
income margins have generally improved during periods of high volume and high
capacity utilization and declined in periods of low volume and low capacity
utilization. Margins also vary based on the type of services we provide.
10
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, statements of
operations data for the three and six month periods ended September 29, 2001 and
September 30, 2000.
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED ENDED
-------------------------------- -------------------------------
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .................................. 122.5 91.9 101.1 91.2
------------ ------------ ------------ ------------
Gross profit ................................... (22.5) 8.1 (1.1) 8.8
Selling, general and administrative expenses ... 14.7 4.2 8.5 4.3
Recoveries, net ................................ 0.0 (0.7) 0.0 (1.2)
------------ ------------ ------------ ------------
(Loss) income from operations .................. (37.2) 4.6 (9.6) 5.7
Other expense, net ............................. (2.4) (1.2) (1.6) (1.1)
------------ ------------ ------------ ------------
(Loss) income before income taxes .............. (39.6) 3.4 (11.2) 4.6
(Benefit) provision for income taxes ........... (4.2) 1.3 (1.1) 1.7
------------ ------------ ------------ ------------
Net (loss) income .............................. (35.4)% 2.1% (10.1)% 2.9%
============ ============ ============ ============
</Table>
NET SALES
Net sales for the quarter ended September 29, 2001 were $16.1 million,
reflecting a decrease of 65.6% from our net sales in the comparable quarter
period of the prior year of $46.7 million. Sales to our three largest customers
during the quarter ended September 29, 2001 represented 13%, 12% and 7% of total
net sales, with no other customer accounting for more than 6% of net sales.
Sales to our three largest customers during the quarter ended September 30, 2000
each represented 13%, 13% and 13% of total net sales.
Net sales for the quarter ended September 29, 2001 included approximately
$2.6 million of sales of excess inventory to customers. Net sales in the
comparable quarter of the prior year included approximately $2.4 million of
sales of excess inventory to customers. The lower sales levels for the three
month period ended September 29, 2001, versus the comparable period of the prior
fiscal year, reflected reduced customer demand in our primary telecommunications
and networking markets and the discontinued contract manufacturing for three
significant customers.
Net sales for the six months ended September 29, 2001 were $55.5 million,
reflecting a decrease of 38.0% from our net sales in the comparable six month
period of the prior year of $89.4 million.
COST OF SALES AND GROSS PROFIT
Cost of sales consists of material costs, direct labor, direct material
and manufacturing overhead (which includes manufacturing and process engineering
expenses). Gross profit is affected by, among other factors, the level of sales,
mix of services, component costs and the level of capacity utilization at our
facilities.
Gross profit for the quarter ended September 29, 2001 was a negative $3.6
million versus a positive $3.8 million for the quarter ended September 30, 2000.
Our gross profit as a percentage of net sales, decreased to a negative 22.5% in
the second quarter of fiscal 2002, versus a profit margin of 8.1% in the second
quarter of fiscal 2001. The decrease in gross profit percentage from the prior
year was due primarily to increased facility and equipment and capacity costs
that were added since last year, the lower sales volume as well as employee
severance charges and inventory write-offs and reserves totaling $1.1 million in
the recent quarter.
Gross profit for the six months ended September 29, 2001 was a negative
$600,000 versus a profit of $7.9 million for the comparable six month period of
the prior year. Our gross profit as a percentage of net sales, decreased to a
negative 1.1% in the first six month period ended September 29, 2001, versus a
profit margin of 8.8% in the comparable six month period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative, or SG&A, expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, outside
services, travel and entertainment, provisions for bad debts and sales
commissions paid to direct sales personnel and independent sales representative
organizations.
SG&A expenses were $2.4 million in the quarter ended September 29, 2001
versus $1.9 million in the comparable quarter of the
11
prior fiscal year. SG&A expenses represented 14.7% of net sales for the quarter
ended September 29, 2001 versus 4.2% of net sales for the quarter ended
September 30, 2000. The increase in SG&A expenses over the comparable quarter of
the prior year was attributable to increased outside services, including legal
expenses, and provisions for bad debt and employee severance of approximately
$500,000. This dollar increase, coupled with lower revenues in the current
quarter, generated a higher SG&A expense as a percentage of net sales versus the
comparable quarter of the prior year.
SG&A expenses were $4.7 million for the six months ended September 29, 2001
versus $3.8 million in the comparable six month period of the prior year. SG&A
expenses represented 8.5% of net sales for the six months ended September 29,
2001 versus 4.3% of net sales for the six months ended September 30, 2000.
RECOVERIES, NET
Recoveries totaling $338,000 and $1.1 million in the quarter and six months
ended September 30, 2000 were realized from a work out plan and forbearance
agreement with a customer.
The work out plan and forbearance agreement was entered into with a customer
related to a provision for certain amounts receivable at the end of fiscal year
1999. As a result of the work out plan, the Company recovered substantially all
of the fiscal 1999 principal amounts reserved. The work out plan also called for
the issuance of warrants to acquire shares of the customer's common stock and
the recovery of amounts due to the Company in the form of interest. These
warrants were exercised and the shares were sold in February 2001.
OTHER EXPENSE, NET
Other expense, net, which consists primarily of interest expenses, for the
quarter ended September 29, 2001 decreased to $378,000 compared to $563,000 for
the quarter ended September 30, 2000. The decrease in other expense, net was due
to lower interest expense incurred as a result of lower average borrowings in
the current fiscal quarter compared to the prior year as well as lower interest
rates associated with the reduction in the prime lending rates during the 2001
calendar year.
Other expense, net for the six months ended September 29, 2001 decreased to
$885,000 compared to $972,000 for the comparable six month period of the prior
year. The decrease in other expense, net was due to lower interest rates
associated with the reduction in the prime lending rates during the 2001
calendar year.
INCOME TAXES
As a result of our loss from operations in this quarter we have recorded a
tax benefit of $670,000 and a related tax receivable of approximately $1.7
million. We have taxable income for U.S. Federal tax purposes in the applicable
carryback periods to apply against a portion of the current period loss. We have
provided a full valuation allowance for tax benefits and related tax assets of
approximately $1.1 million due to the uncertainty of generating future taxable
income to utilize these assets.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital was $18.7 million at September 29, 2001, compared to
$58.4 million at March 31, 2001 and included cash and cash equivalents of $1.2
million. Net cash provided by operating activities was $16.6 million for the six
months ended September 29, 2001. Cash flows provided by operating activities
during the six months ended September 29, 2001 primarily resulted from
reductions in inventories and accounts receivable balances associated with lower
sales levels, accounts receivable collections and the sale of approximately $8.6
million of excess inventory to customers. These cash flows were partially offset
by reductions of trade payables, increases in prepaid expenses and the net loss.
Capital expenditures during the six months ended September 29, 2001 were
$0.9 million. Management anticipates that capital expenditures in fiscal 2002
will decrease from the level of capital expenditures made in fiscal 2001.
As of September 29, 2001, we had a three-year revolving credit facility for
$35 million that was entered into on March 31, 2000. There was $18.0 million
outstanding under the revolving credit facility at September 29, 2001. We were
eligible to borrow an additional $2.3 million, at September 29, 2001, pursuant
to the revolving credit facility's borrowing formula. The revolving credit
facility provides for automatic renewals for successive terms of equal duration
thereafter unless terminated by either party prior to the renewal date. Loans
under the revolving credit facility bear interest at either LIBOR plus 2.25% to
3.00% (depending upon certain financial ratios), prime (6.00% at September 29,
2001), prime plus 0.25% or prime plus 0.50% (such rate determined based upon the
amounts, financial ratios and period of loans), are scheduled to mature on March
30, 2003 and are collateralized by certain of our assets. The revolving credit
facility requires the payment of a monthly commitment fee equal to one-quarter
of one percent (0.25% per
12
annum) of the unused balance, and borrowings are limited based upon certain
collateral availability requirements on eligible accounts receivable and
inventory.
In October 2001, we borrowed more money than we were allowed under the
credit facilities borrowing formula and determined that we might violate a
financial covenant in the loan agreement as of September 29, 2001. In late
October, XeTel and its' lender amended the credit facility effective as of
October 15, 2001. The amendment i) reduced the total credit facility from $35
million to $19.5 million, ii) allowed us to exceed the borrowing limitations
under the credit facility by $2.255 million as of October 15, 2001, $1.3 million
after the close of business on October 29, 2001, $1.2 million after the close of
business on November 5, 2001, $.7 million after the close of business on
November 12, 2001, $0.4 million after the close of business on November 19,
2001, and after November 26, 2001, we must conform to the borrowing limitation
of the credit facility, iii) reduced the amount of inventory included in the
borrowing formula by $1 million per week beginning on November 13, 2001 for
certain inventory as defined in the amendment, iv) required us to retain a
consulting firm in November 2001, v) required us to pay certain amendment fees
to the lender and vi) waived the requirement to comply with the financial
covenant through November 19, 2001, in anticipation of revising the credit
agreement with new financial covenants if necessary. Since we only have a waiver
through November 19, 2001, after which we will be in violation unless/until we
can negotiate an amendment or a further waiver, the debt has been classified as
a current liability.
In July 2001, we issued approximately $1.7 million of trade drafts to a
financial company. The proceeds from this transaction were used to pay a product
supplier. The trade drafts matured in late October 2001. Due to the liquidity
issues noted herein, we were unable to pay these trade drafts when due. On
November 1, 2001 we entered into a Collateral Security Agreement that extended
the maturity of the trade drafts until January 23, 2002 in exchange for granting
the financial company a security interest in certain of our fixed assets and the
payment of certain fees on or before November 26, 2001. We are currently in
compliance with the Collateral Security Agreement and intend to pay the required
fees prior to the due date.
At September 29, 2001, our liquidity was negatively impacted by a high
level of inventory and to a lesser extent accounts receivable. During the
quarter we completed the sale of approximately $2.6 million of excess customer
inventories. However, one previous customer refused to accept liability for a
majority of the $7.5 million in inventory we purchased on their behalf,
resulting in our filing of a lawsuit against the customer in July, 2001. On
November 15, 2001, we entered into a settlement agreement with this customer
which called for, among other items i) a cash payment to us, ii) the sale of
certain inventory to the former customer and iii) our retention of a portion of
the inventory. At this time we do not expect the settlement to result in a loss
and accordingly have not reflected any losses related to the transaction in the
financial statements as of September 29, 2001. We intend to try to liquidate the
inventory by i) utilizing the inventory for other customer requirements, ii)
returning it to suppliers or iii) selling it to third parties, which may result
in a gain or a loss.
We also have approximately $20 million of inventory on hand for a current
customer and, as a result of a decrease in demand requirements from this
customer, have been working with this customer to have them purchase a large
portion of this inventory. In addition to the on-hand inventory, certain of our
vendors are claiming additional charges for inventory we ordered on behalf of
this customer and have not taken delivery of and/or cancellation charges in the
amount of approximately $12 million. We have had numerous recent discussions
with this customer. As of this date, we have not been able to resolve our issues
with the customer. While we continue to try to resolve these issues with the
customer, we expect to, and are prepared to, file for arbitration in November
2001. We expect to recover the full amount of recorded assets related to this
matter and accordingly, no loss provision has been recorded at this time.
Accounts receivable have been reduced by approximately $22.2 million since
March 31, 2001. However, primarily due to negative general economic conditions,
our customers have slowed their payments, resulting in the number of days sales
outstanding to increase from an average of 73 days at June 30, 2001 to 96 days
at September 29, 2001 (using the count-back method). In several instances we
have worked out payment plans or entered into forbearance agreements with
current and former customers extending their payment terms to us. Other than one
former customer that filed bankruptcy in August 2001, these customers are
generally in compliance with the terms of the revised payment plans.
Our reduced borrowing capability has also caused us to delay payment to
many lessors, suppliers and other creditors. We are in discussions with our
lessors about temporary rent abatements and lease restructurings; however, no
agreements have been reached to date and there is no assurance that new
arrangements will be accomplished. As a result of delayed rental payments, we
received one default notice and may receive others while we attempt to work out
revised payment terms. We have also been working with our suppliers to reach
satisfactory payment terms in order to procure goods and services and to date
have been generally able to secure such goods and services.
13
As noted in our Annual Report on Form 10-K for the fiscal year ended March
31, 2001, we have implemented plans to improve our liquidity by i) reducing new
materials purchases, ii) requesting certain customers to either purchase
inventories in excess of short-term manufacturing requirements or to prepay our
purchases of inventories on their behalf and iii) reducing accounts receivable
through increased collections efforts. While we believe that we will be able to
achieve our plans, there is no assurance that our objectives will be met.
Certain of our equipment operating leases contain covenants and restrictions,
which, among other things, require maintenance of minimum financial ratios. At
September 29, 2001, we were in compliance with these lease covenants.
We may require additional financing in connection with our business. We may
seek additional funds from time to time through public or private debt or equity
offerings or obtain further bank or lease financing or off-balance sheet
financing. Our need for funding and the cost of and access to additional funds,
are dependent on our future operating results, the resolution of the inventory
issues noted above, as well as external conditions. If we are unable to i)
obtain adequate financing, ii) resolve customer inventory issues, iii) remain in
compliance with the terms of our loan agreement, iv) reach satisfactory terms
with our facility and equipment lessors, v) reach agreements to procure required
materials and services on satisfactory terms and vi) reduce or eliminate our
operating losses, we may be forced to seek protection from our creditors or
pursue the sale of XeTel.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 141, "Business
Combinations." SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. The purchase method of accounting is
required to be used for all business combinations initiated after June 30, 2001.
SFAS No. 141 also defines the criteria for identifying intangible assets for
recognition apartment from goodwill. We have adopted SFAS No. 141 effective July
1, 2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 discontinues amortization of acquired goodwill
and instead requires annual impairment testing. Separable intangible assets will
be amortized over their useful economic lives and tested for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." Intangible assets with an indefinite useful economic
life will not be amortized until the life of the asset is determined to be
finite. For goodwill and indefinite-lived intangible assets acquired prior to
July 1, 2001, goodwill will continue to be amortized until adoption of SFAS No.
142 at which time amortization will cease and a transitional goodwill impairment
test will be performed. Any impairment charges resulting from the initial
application of the new rules will be classified as a cumulative effect of change
in accounting principle. We must adopt SFAS No. 142 by January 1, 2002. However,
we do not believe adoption of SFAS No. 142 will have a material impact on our
future earnings or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 retains the
fundamental provisions of existing generally accepted accounting principles with
respect to the recognition and measurement of long-lived asset impairment
contained in SFAS No. 121. However, SFAS No. 144 provides new guidance intended
to address certain significant implementation issues associated with SFAS No.
121, including expanded guidance with respect to appropriate cash flows to be
used to determine whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the impairment. SFAS No.
144 also requires that any net assets to be disposed of by sale be reported at
the lower of carrying value or fair market value less cost to sell, and expands
the reporting of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished from the rest
of the entity. SFAS No. 144 is effective for financial statements issued for
years beginning after December 15, 2001, and interim periods within those fiscal
years. We are currently evaluating the impact, if any, of SFAS No. 144 on our
future earnings and financial position.
BACKLOG
Our backlog at September 29, 2001 was approximately $30 million as compared
to approximately $60 million at June 30, 2001, $125 million at March 31, 2001
and approximately $207 million at September 30, 2000. Backlog consists of
purchase orders received by us and customer commitments under scheduled
releases, both of which generally specify delivery dates within twelve months.
Variations in the size and delivery schedules of purchase orders received by us,
as well as changes in customers' delivery requirements or the rescheduling or
cancellation of orders and commitments, have resulted in the past and may result
in the future in substantial fluctuation in backlog from period to period.
Accordingly, backlog may not be a meaningful indicator of our future net sales.
14
EMPLOYEES
As of September 29, 2001, we had approximately 378 full-time employees,
supplemented from time to time by part-time employees. Our employees are not
subject to a collective bargaining agreement and we believe our employee
relations to be satisfactory.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND MARKET
PRICE OF SECURITIES
Factors that could cause actual results or events to differ materially from
those anticipated by forward-looking statements, include, but are not limited
to: 1) our dependence on a limited number of suppliers and the ability to obtain
sufficient components on a timely basis; 2) the loss of any of our major
customers; 3) our ability to manufacture products for our customers on a
cost-effective basis; 4) risk of price increases associated with shortages in
the availability of electronics components; 5) working capital constraints due
to customer inventory requirements or materials shortages; 6) variability in the
volume and timing of our sales; 7) significant customers canceling their orders,
changing production quantities or failing to pay us for our services; 8) the
inability to secure additional financing when needed; 9) the inability to
effectively manage our growth; 10) the expansion of our business and operations
through acquisitions; 11) increased competition which may result in decreased
demand or reductions in prices for our services; 12) our dependence on certain
key personnel; 14) our dependence on the continuing trend by original equipment
manufacturers (OEMs) to outsource their electronics manufacturing services (EMS)
needs; 15) design or manufacturing defects in products we manufacture for our
customers: 16) costs associated with plant closures or relocations and 17)
provisions in our charter documents, stockholder rights plan and agreements with
executives, as well as provisions of Delaware law, which could prevent or delay
a change in control of us and may reduce the market price of our stock.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that represent our expectations or beliefs
concerning future events, including, but not limited to, statements regarding
growth in sales, profit margins and the sufficiency of our cash flow for our
future liquidity and capital resource needs. These forward looking statements
are further qualified by important factors that could cause actual results to
differ materially from those in the forward looking statements (for these
factors, see the preceding paragraph marked "Risk Factors That May Affect Future
Results, Financial Condition and Market Price of Securities" on page twelve of
this document). Results actually achieved may differ materially from expected
results included in these statements as a result of these or other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We invest our cash in money market funds or other instruments which meet
high credit quality standards specified by our investment policy. We do not use
financial instruments for trading or other speculative purposes. Our credit
facilities are subject to market risk by way of interest rate fluctuations. The
carrying amount of our long-term debt approximates fair value due to the
periodic adjustments of our interest rate on the debt to current market rates.
As of September 29, 2001, our long-term debt bore interest at variable
rates, generally tied to a reference rate such as LIBOR or prime rate of
interest of certain lending institutions. Accordingly, our earnings and after
tax cash flow are affected by changes in interest rates. In the event of an
adverse change in interest rates, we would seek to take actions to mitigate our
risk exposure.
15
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on August 8, 2001 in
Irving, Texas, the Company's stockholders voted on the election of directors and
a shareholder proposal. All directors recommended were elected. The Company
proposal was approved.
Proposal 1: Election of Directors
<Table>
<Caption>
Name of Nominee Votes in Favor Votes Against Abstentions
- --------------- -------------- ------------- -----------
Angelo A. Decaro Jr.
(Class III Director) 6,340,054 671,864 --
Ronald W. Guire
(Class III Director) 6,340,054 671,864 --
</Table>
Total shares voted 7,011,918 including broker non-votes.
The following directors terms of office will continue after
the Annual Meeting of Stockholders held on August 8, 2001:
Sam L. Densmore
Angelo A. Decaro, Jr.
Ronald W. Guire
C. Scott Kulicke
Al R. Schuele
Proposal 2: Approval of an Amendment to the Company's 1997 Stock Incentive Plan
to increase the number of shares authorized for issuance thereunder from
2,412,100 to 2,912,100
<Table>
<Caption>
Votes in Favor Votes Against Abstentions
-------------- ------------- -----------
1,546,527 950,617 14,393
</Table>
Total shares voted excluding broker non-votes amounted to 2,511,537.
ITEM 5. OTHER INFORMATION
On August 9, 2001, Alan R. Schuele resigned as a member of our board of
directors. Mr. Schuele had served as a director since August 1998 and was a
member of the audit and compensation committees of the board of directors. Mr.
Schuele resigned for personal reasons and to pursue other professional
interests, not due to any disagreement between Mr. Schuele and XeTel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three month
period ended September 29, 2001.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XETEL CORPORATION
Date: November 19, 2001 By: /s/ Angelo A. DeCaro, Jr.
------------------------------
Angelo A. DeCaro, Jr.
President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ David G. Osowski
------------------------------
David G. Osowski
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
17
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 -- Second Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.2 to our Registration Statement on Form
S-1 (File No. 33-99632))
3.2 -- Restated Bylaws of the Registrant, as amended (Incorporated by
reference to Exhibit 3.3 to our Registration Statement on Form
S-1 (File No. 33-99632))
3.3 -- Registration Rights Agreement, dated June 18, 1986 among the
Registrant, Rohm Corporation, Julian C. Hart, David W. Gault and
Emory C. Garth (Incorporated by reference to Exhibit 3.4 to our
Registration Statement on Form S-1 (File No. 33-99632))
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 -- Specimen Common Stock certificate (Incorporated by reference
to Exhibit 4.2 to our Registration Statement on Form S-1 (File
No. 33-99632))
10.1 -- Form of Indemnification Agreement between the Registrant and
each of its directors and certain executive officers
(Incorporated by reference to Exhibit 10.2 to our Registration
Statement on Form S-1 (File No. 33-99632))
10.2 -- Manufacturing Services Agreement, dated February 22, 1989
between Motorola, Inc., MOS Memory Products Division and the
Registrant, and letter from Motorola, Inc., Fast Static RAM
Module Division related thereto (Incorporated by Reference to
Exhibit 10.20 to our Registration Statement on Form S-1 (File No.
33-99632))
10.3 -- Mobile Communication Standard Terms and Conditions Dated
August 5, 1994 for Westinghouse Electric (Incorporated by
reference to Exhibit 10.21 to our Registration Statement on Form
S-1 (File No. 33-99632))
10.4 -- Master Lease Agreement between the Registrant and General
Electric Capital Corporation (Incorporated by Reference to
Exhibit 10.22 to our Annual Report on Form 10-K for fiscal year
1996)
10.5 -- Lease Agreement between Braker Phase III, Ltd. as Landlord,
and the Registrant, as Tenant (Incorporated by Reference to
Exhibit 10.25 to our Quarterly Report on Form 10-Q for the
quarter ended September 1996)
10.6 -- Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant (Incorporated by reference to Exhibit 10.26
to our Annual Report on Form 10-K for fiscal year 1997)
10.7 -- Letter of Commitment between the Registrant and General
Electric Capital Corporation (Incorporated by reference to
Exhibit 10.28 to our Annual Report on Form 10-K for fiscal year
1997)
10.8 -- Registrant's 1997 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.30 to our Schedule 14A for the 1997
annual meeting of stockholders)
10.9 -- Registrant's Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.31 to our Schedule 14A for the 1997
annual meeting of stockholders)
10.10 -- Lease Agreement between Braker Phase III, Ltd. as Landlord,
and the Registrant, as Tenant (Incorporated by reference to
Exhibit 10.32 to our Quarterly Report on Form 10-Q for the
quarter ended December 1997)
</Table>
18
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.11 -- Amended Letter of Commitment between the Registrant and
General Electric Capital Corporation (Incorporated by reference
to Exhibit 10.35 to our Annual Report on Form 10-K for fiscal
year 1998)
10.12 -- Amendment No. 1 to 1997 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.39 to our Quarterly Report on Form 10-Q
for the quarter ended September 1998)
10.13 -- Stockholders Rights Agreement dated December 31, 1998
(Incorporated by reference to Exhibit 10.40 to our Registration
Statement on Form 8-A filed January 1999)
10.14 -- Loan and Security Agreement between the Registrant and The CIT
Group/Business Credit, Inc, and Chase Bank as participant
(Incorporated by reference to Exhibit 10.41 to our Annual Report
on Form 10-K for fiscal year 2000)
10.15 -- Form of Change of Control Agreement between the Registrant and
certain of its executive officers (Incorporated by reference to
Exhibit 10.15 to our Quarterly Report on Form 10-Q for the
quarter ended December 30, 2000)
10.16 -- Manufacturing Agreement between Registrant and Intel Flash
Products Division (Incorporated by reference to Exhibit 10.16 to
our Quarterly Report on Form 10-Q for the quarter ended December
30, 2000)
10.17 -- Purchase Agreement between Registrant and Cielo
Communications, Inc. (Incorporated by reference to Exhibit 10.17
to our Quarterly Report on Form 10-Q for the quarter ended
December 30, 2000)
10.18 -- Master Manufacturing Agreement between Registrant and
Ericsson, Inc. (Incorporated by reference to Exhibit 10.18 to our
Quarterly Report on Form 10-Q for the quarter ended December 30,
2000)
10.19 -- Manufacturing Services Agreement between Registrant and
Pathlight Technology, Inc. (Incorporated by reference to Exhibit
10.18 to our Quarterly Report on Form 10-Q for the quarter ended
December 30, 2000)
10.20 -- Collateral Security Agreement between Registrant and Actrade,
Inc. (Filed herewith)
10.21 -- Fourth Amendment to the Loan and Security Agreement between
Registrant and The CIT Group/Business Credit, Inc. (Filed
herewith)
10.22 -- Waiver Extension to the Fourth Amendment to the Loan and
Security Agreement between Registrant and the CIT Group/Business
Credit, Inc. (Filed herewith)
</Table>
19