1
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 December 27, 1997,
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 or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification 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 [ ]
Number of shares outstanding of the issuer's common stock, $0.0001 par value, as
of February 4, 1998: 8,987,894.
2
XETEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
Balance Sheet as of December 27, 1997 and March 29, 1997................................................................3
Statement of Operations for the three and nine months ended December 27, 1997 and December 28, 1996.....................4
Statement of Cash Flows for the three and nine months ended December 27, 1997 and December 28, 1996.....................5
Notes to Interim Financial Statements...................................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K......................................................................................12
Signatures......................................................................................................................13
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
December 27, March 29,
1997 1997
---------- ----------
(unaudited)
Current assets:
Cash and cash equivalents $ 5,983 $ 7,032
Trade accounts receivable, net of
allowance for doubtful accounts
of $240 and $240, respectively 16,244 13,886
Inventories 16,169 10,499
Prepaid expenses and other 1,287 1,836
------- -------
Total current assets 39,683 33,253
Property and equipment, net 8,301 5,599
Goodwill 790 950
------- -------
Total assets $48,774 $39,802
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $15,357 $ 9,940
Accrued expenses and other liabilities 3,278 2,929
------- -------
Total current liabilities 18,635 12,869
Deferred income taxes 230 230
Long term debt 2,792 42
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
8,931,146 and 8,816,085 shares
issued and 8,868,650 and 8,795,589
shares outstanding, respectively 21,020 20,998
Retained earnings 6,124 5,996
Deferred compensation ( 27) ( 333)
------- -------
Total stockholders' equity 27,117 26,661
------- -------
Total liabilities and
stockholders' equity $48,774 $39,802
======= =======
The accompanying notes are an integral part of these financial statements.
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XETEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
--------------------------------- --------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------- ------------ ------------ ------------
Net sales $ 27,772 $ 17,979 $ 74,961 $ 66,370
Cost of sales 26,842 17,007 70,015 61,635
------------- ------------- ------------- -----------
Gross profit 930 972 4,946 4,735
Selling, general and administrative
expenses 1,536 1,596 4,790 4,729
------------- ------------- ------------- -----------
(Loss) income from operations (606) (624) 156 6
Other (expense) income, net (20) 84 50 218
------------- ------------ ------------- -----------
(Loss) income before income taxes (626) (540) 206 224
(Benefit) provision for income taxes (238) (206) 78 80
------------- ------------- ------------- -----------
Net (loss) income $ (388) $ ( 334) $ 128 $ 144
============= ============= ============= ===========
Basic (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
============= ============= ============= ===========
Basic weighted average shares 8,840 8,772 8,824 8,683
outstanding ============= ============= ============= ===========
Diluted (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
============= ============ ============ ===========
Diluted weighted average shares 8,840 8,772 9,558 9,332
outstanding ============= ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
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XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------- ------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Cash flows from operating activities:
Net (loss) income $ (388) $ (334) $ 128 $ 144
Adjustments to reconcile net (loss) income to net
cash (used for) provided by operating activities:
Depreciation and amortization 657 533 2,027 1,453
Loss (gain) on disposal of equipment 19 (7) 35 (20)
Change in operating assets and liabilities:
(Increase) decrease in--
Trade accounts receivable (2,092) 1,450 (2,359) 7,823
Inventories (1,048) 716 (5,671) 4,790
Prepaid expenses and other (121) 31 449 86
Increase (decrease) in--
Trade accounts payable 2,539 (360) 5,418 (6,979)
Accrued expenses and other liabilities (531) 186 (9) (2,988)
------- ------- ------- -------
Cash (used for) provided by operating activities (965) 2,215 18 4,309
------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of equipment 9 -- 408 --
Purchases of property and equipment (1,137) (391) (4,998) (1,025)
Acquisition, net of cash acquired-XeTel Dallas -- -- -- (18)
Acquisition, net of cash acquired-XeTel West -- (1,631) -- (1,631)
------- ------- ------- -------
Cash used for investing activities (1,128) (2,022) (4,590) (2,674)
------- ------- ------- -------
Cash flows from financing activities:
Net borrowings under debt agreements 1,250 (31) 3,208 (61)
Cash proceeds from stock issued under
employee stock purchase plan 253 -- 253 --
Proceeds from stock options exercised 25 1 62 55
Other -- -- -- (3)
------- ------- ------- -------
Cash provided (used for) by financing activities 1,528 (30) 3,523 (9)
------- ------- ------- -------
(Decrease) increase in cash and cash equivalents (565) 163 (1,049) 1,626
Cash and cash equivalents, beginning of period 6,548 6,605 7,032 5,142
------- ------- ------- -------
Cash and cash equivalents, end of period $ 5,983 $ 6,768 $ 5,983 $ 6,768
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS
XeTel provides advanced design and prototype services, manufactures
sophisticated surface mount assemblies and supplies turnkey solutions to
original equipment manufacturers primarily in the telecommunications, networking
and computer industries. XeTel incorporates its design and prototype services
and assembly capabilities together with supply chain management, materials
management, advanced testing, systems integration services and order fulfillment
to provide turnkey solutions for its customers.
NOTE 2 BASIS OF PRESENTATION
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations.
In the opinion of management, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, operating results, and cash flows for
those periods presented. The results of operations for the period ended December
27, 1997 are not necessarily indicative of the results of operations for the
fiscal year ending March 28, 1998. These financial statements should be read in
conjunction with the financial statements, and notes thereto, for the fiscal
year ended March 29, 1997 as presented in the Company's 10-K filed with the SEC.
NOTE 3 NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). The
Company adopted SFAS No. 128 in the quarter ended December 27,1997. Earnings per
share have been restated for all periods presented to conform to the
requirements of SFAS No. 128.
NOTE 4 INVENTORIES
Inventories consist of the following (in thousands):
December 27, March 29,
1997 1997
----------- -----------
Raw materials $ 11,913 $ 7,795
Work in progress 3,883 2,567
Finished goods 373 137
----------- -----------
$ 16,169 $ 10,499
=========== ===========
As of December 27, 1997 and March 29, 1997, the Company had allowances for
obsolete raw materials (principally printed circuit board assembly components)
of $490,000 and $490,000, respectively. Cost of sales for the three and nine
months ended December 27, 1997 and December 28, 1996 include provisions to the
allowance for obsolete materials of $0, $126,000, $11,000, and $42,000,
respectively.
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NOTE 5 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
December 27, March 29,
1997 1997
----------- ----------
Machinery and equipment $ 13,319 $ 14,373
Furniture and fixtures 708 335
Leasehold improvements 2,989 409
----------- ----------
17,016 15,117
Less: Accumulated depreciation
and amortization ( 8,715) ( 9,518)
----------- ----------
$ 8,301 $ 5,599
=========== ==========
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT
The Company has obtained a (i) revolving line of credit for $10 million from a
commercial bank, (ii) a term loan facility for $3.3 million, (iii) an equipment
financing facility from a financial services company, and (iv) a revolving line
of credit for $3 million from Rohm U.S.A., Inc. ("Rohm"), which is a
wholly-owned subsidiary of Rohm Co. Ltd., Japan. At December 27, 1997, the
Company had $3.3 million outstanding under the term loan facility, compared to
$-- at March 29, 1997. There were no outstanding balances under the commercial
bank revolving line of credit or the revolving line of credit with Rohm as of
December 27, 1997 and March 29, 1997.
The $10 million line of credit bears interest at LIBOR plus 1.25% or 1.75%
and/or prime (such rate determined based upon the amounts and period of loans),
matures on August 31, 1998 and is secured by certain assets of the Company. The
facility requires payment of a commitment fee equal to one-eighth of 1% (1/8%)
on the unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2%, is
secured by certain assets, and matures on August 31, 2000. The equipment
financing facility provides for the leasing of equipment over a five-year period
commencing on the date of acceptance of such equipment. All equipment leased to
date under this facility has qualified for operating lease treatment. The line
of credit from Rohm is secured by certain equipment, bears interest at LIBOR
plus 1.25%, is payable upon demand and expires on March 31, 1998.
The financing facilities contain certain restrictions which include maintenance
of a minimum level of tangible net worth and other operating and financial
ratios.
Interest paid totaled $100,000, $157,000, $5,900 and $12,500 for the three and
nine months ended December 27, 1997 and December 28, 1996, respectively.
NOTE 7 LEASE COMMITMENTS
XeTel leases its operating facilities and certain manufacturing and office
equipment under noncancellable operating leases. Rental expense under all
operating leases was approximately $790,000, $2.1 million, $395,000 and $1.0
million during the three and nine months ended December 27, 1997 and December
28, 1996, respectively. Future noncancellable minimum rental payments under all
operating leases with initial terms of greater than one year are $3,144,000 in
1998, $3,200,000 in 1999, $3,191,000 in 2000, $2,882,000 in 2001, $1,932,000 in
2002 and an aggregate of $8,510,000 thereafter.
NOTE 8 RELATED PARTY TRANSACTIONS
In addition to the debt arrangements described in Notes 6, the Company has
transactions with certain divisions of Rohm Corporation, a wholly-owned
subsidiary of Rohm, during the normal course of business. Rohm owned
approximately 48% of the Company's outstanding common stock as of December 27,
1997. Purchases from such divisions were $35,000, $171,000, $113,000 and
$434,000 for the three and nine months ended December 27, 1997 and December 28,
1996, respectively. Accounts payable to such divisions were $16,000 and $54,000
as of December 27, 1997 and March 29, 1997, respectively. Accounts receivable
from such divisions were not significant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements throughout this document as a result of the risk
factors set forth below and other risks described in the Company's other filed
SEC documents such as those associated with the Company's initial public
offering and Form 10-K filing.
OVERVIEW
XeTel was founded in 1984. In 1986, Rohm , a diversified electronics company,
acquired a controlling interest in the Company. Since its inception, the Company
has manufactured surface mount assemblies and performed other manufacturing
services for OEMs in the electronics industry. In a number of cases, such
services were rendered during periods in which customers were experiencing
fluctuations in demand for their products. During such periods, the Company's
net sales and operating results were and are subject to significant fluctuations
that often were and are tied to the market demand for its customers' products,
competitive factors and the customers' need to utilize independent manufacturers
to maintain sufficient product supply to meet such demand. In addition, in the
past, the Company's customer base was concentrated within the computer industry.
Due to intense competitive pressures within the computer industry, as well as
fluctuations in overall demand and lower production volumes, the Company
generally experienced lower gross margins.
Gross margins and operating results are also affected by the level of capacity
utilization of manufacturing facilities, indirect labor 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. XeTel generally has idle capacity and reduced operating margins
during periods of lower-volume production.
In an effort to achieve greater stability and higher gross margins, the Company
made the strategic decision in 1993 to reduce its dependence on the computer
industry and expand its service offerings in order to establish long-term
relationships with targeted customers in diversified markets. With the addition
of new management personnel in 1993, including a new President in September
1993, the Company focused certain of its resources to establish capabilities in
product design and prototype, improve materials management processes,
restructure the Company's management organization, establish dedicated customer
teams, and to expand and diversify its customer base. The Company has reduced
its role as a source of additional capacity for OEMs during periods of
fluctuating product demand and has positioned itself to provide a more
comprehensive set of services within the electronics manufacturing services
industry.
The development and growth of the Company's business has generally followed the
trend by OEMs in the electronics industry to outsource certain of their
manufacturing requirements. Recognizing the benefits offered by using
independent manufacturers, OEMs in the electronics industry have increasingly
relied on independent manufacturers not only as a source of additional
manufacturing capacity during periods of fluctuating demand, but as the primary
source for their manufacturing and assembly needs. In addition, the Company has
developed competencies in additional areas where it can add value to its
customers' requirements, such as design, prototype, systems integration and
order fulfillment and has sought to use such competencies to forge long-term
relationships as a single source provider of turnkey solutions for its
customers. During fiscal 1997, XeTel acquired two full-service manufacturing
services centers in Dallas, Texas and San Ramon, California to further establish
and expand its long-term relationships with OEM's of advanced electronic
products.
RISK FACTORS
Fluctuations in Operating Results. XeTel's operating results are affected by a
number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results can also be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may materially
and adversely affect the demand for the Company's services. The Company's
customers generally require short delivery cycles, and a substantial portion of
the Company's backlog is typically scheduled for delivery within 120 days. In
the absence of substantial backlog, quarterly sales and operating results depend
on the volume and timing of bookings received during the quarter which can be
difficult to forecast. Backlog fluctuations affect the Company's ability to plan
production and inventory levels, which could lead to fluctuations in operating
results. Variations in the size and delivery schedules of purchase orders
received by the Company, changes in customers' delivery requirements, or the
rescheduling or cancellation of orders and commitments, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results.
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A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Results of operations in any period should not be considered
indicative of the results for any future period, and fluctuations in operating
results may result in fluctuations in the price of the Company's common stock.
Due to the foregoing factors, among others, the Company's operating results in
some future quarters may be below the expectations of stock market analysts and
investors. In such event, there could be an immediate and significant adverse
effect on the trading price of the common stock of the Company.
Concentration of Customers. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 21%, 11% and
9%, respectively, of net sales for the nine months ended December 27, 1997. The
loss of, or a significant curtailment of purchases by, one or more of these
customers, or any other significant customer of the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company anticipates that a significant portion of its
sales will continue to be concentrated in a relatively small number of customers
for the foreseeable future.
Unavailability of Components and Materials. Components and material used by
XeTel in producing surface mount assemblies and turnkey solutions are purchased
by XeTel from approved suppliers of its customers. Any failure on the part of
suppliers to deliver required components to the Company or any failure of such
components to meet performance requirements could impair the Company's ability
to meet scheduled shipment dates and could delay sales of systems by the
Company's customers and thereby adversely affect the Company's business,
financial condition and results of operations. The Company has in the past
experienced shortages of certain types of electronic components, and may
experience shortages of certain electronic components that are in short supply
generally within the electronics industry. Component shortages or price
fluctuations, to the extent not absorbed by customers under its agreements with
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. Certain components used in a
number of the Company's customer programs are obtained from a single source.
Variability of Customer Requirements; Absence of Long-Term Purchase Orders. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term purchase
orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that it
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
During fiscal 1997, certain major customers reduced significant orders with the
Company due to competitive factors and efforts to rebalance inventories.
Significant or numerous cancellations, reductions or delays in orders by
customers, or inability by customers to pay for services provided by the Company
or to pay for components and materials purchased by the Company on such
customer's behalf, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management of Growth and Expansion. The Company's design, prototype, assembly
and turnkey solutions business and multi-site locations have grown rapidly in
recent years. This growth has increased the Company's fixed costs and required
it to hire additional personnel. Furthermore, the Company plans to establish
additional regional manufacturing services centers which will increase the
Company's fixed costs and will require additional personnel. A continuing period
of rapid growth, including geographic expansions, could place a significant
strain on the Company's management, operations and other resources. The
Company's ability to manage its growth will require it to manage its existing
resources more efficiently, to continue to invest in its operations, including
its financial and management information systems and internal process controls,
and to retain, motivate and manage its employees. If the Company's management is
unable to manage growth effectively, the quality of the Company's services and
its ability to retain key personnel could be materially and adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESULTS OF OPERATIONS
Net sales for the three months ended December 27, 1997 increased 54.4% to $27.8
million from $18.0 million for the same prior year period. Higher sales during
the three months ended December 27, 1997, compared to the same period last year,
primarily reflected increased shipments to the Company's major customers in the
computer and networking segments of the electronics market.
Net sales for the nine months ended December 27, 1997 increased 12.9% to $75.0
million from $66.4 million for the corresponding period of the prior year.
Higher sales during the nine months ended December 27, 1997, compared to the
same period in the prior year, were primarily attributable to increased
shipments to the Company's major customers in the computer segment of the
electronics market.
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Gross profit for the three months ended December 27, 1997 remained relatively
flat at $.9 million compared to the third quarter of last fiscal year. Gross
margin (gross profit as a percentage of net sales) decreased to 3.3% for the
third quarter of fiscal 1998 from 5.4% for the comparable prior year period. The
decrease in gross margin mainly reflects an unfavorable change in product mix,
new program start-up inefficiencies and higher fixed expenses associated with
strategic investments to update and expand facilities and to upgrade equipment
capabilities offered to customers. Gross profit is defined as net sales less
cost of sales. Cost of sales consists of direct labor, direct material and
manufacturing overhead (which includes manufacturing and process engineering
expenses).
Gross profit for the nine months ended December 27, 1997 increased 4.5% to $4.9
million from $4.7 million in the comparable prior year period. Gross margin
decreased to 6.6% versus 7.1% for the comparable prior year period. The decrease
in gross margin for the nine months ended December 27, 1997 primarily reflects
higher fixed costs related to facility and equipment upgrades and new program
start-up costs.
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, and sales
commissions paid to direct sales personnel and independent sales representative
organizations. SG&A expenses for the three months ended December 27, 1997
remained relatively flat at $1.6 million compared to the corresponding period
last year. SG&A expenses represented 5.5% of net sales for the three months
ended December 27, 1997 compared to 8.9% for the three months ended December 28,
1996. The decrease in SG&A expenses as a percentage of sales reflects the effect
of cost controls over the period. SG&A expenses for the nine months ended
December 27, 1997 remained relatively flat at $4.7 million compared to the prior
year period. SG&A expenses represented 6.4% of net sales for the nine months
ended December 27, 1997 compared to 7.1% for the nine months ended December 28,
1996.
Other (expense) income, net for the three months ended December 27, 1997
reflected expense of $20,000 compared to income of $84,000 in the corresponding
period in fiscal 1997. Other (expense) income, net for the nine months ended
December 27, 1997 reflected income of $50,000 compared to income of $218,000 in
the corresponding prior year period. The change in other (expense) income, net
for the three and nine months ended September 27, 1997 is primarily due to
higher interest expense incurred on the term note during the current fiscal
year.
The benefit for income taxes of $238,000 and $206,000 for the three months ended
December 27, 1997 and December 28, 1996 reflect an effective tax rate of 38.0%
and 38.1%, respectively. The provision for income taxes of $78,000 and $80,000
for the nine months ended December 27, 1997 and December 28, 1996, respectively,
reflect an effective tax rate of 37.8% and 35.7% The effective tax rates for the
three and nine month periods ended December 27, 1997 remained relatively flat
with the comparable prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $21.0 million and $20.4 million as of December 27, 1997 and
March 29, 1997, respectively. In addition to the Company's working capital as of
December 27, 1997, which includes cash and cash equivalents of $6.0 million, the
Company has $14.3 million available from unused credit facilities.
Net cash used for operating activities and net cash provided by operating
activities was $965,000 and $18,000 during the three and nine month periods
ended December 27, 1997, respectively . Net cash provided by operating
activities was $2.2 million and $4.3 million during the three and nine month
periods ended December 28, 1996.
Capital expenditures during the three and nine months ended December 27, 1997
and December 28, 1996 were $1.1 million, $5.0 million, $391,000, and $1.0
million, respectively. The increase in capital expenditures was primarily due to
capital investments associated with the Company's new manufacturing and
administrative facilities in Austin, Texas. Management anticipates capital
expenditures in fiscal 1998 will exceed the level of capital expenditures made
in fiscal 1997.
The Company has (i) a revolving line of credit for $10 million from a commercial
bank, (ii) a $3.3 million term loan facility, (iii) an unused equipment
financing facility for $1.3 million from a financial services company, and (iv)
a revolving line of credit for $3 million from Rohm. At December 27, 1997, the
Company had $3.3 million outstanding under the term loan facility, compared to
$-- at March 29, 1997. There were no outstanding balances under the commercial
bank revolving line of credit or the revolving line of credit with Rohm as of
December 27, 1997 and March 29, 1997.
The bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime (such
rate determined based upon the amounts and period of loans), matures August 1998
and is secured by certain assets of the Company. The bank facility requires the
payment of a monthly commitment fee equal to one-eighth of 1% (1/8%) on the
unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2% with a
maturity of August 31, 2000. The line of credit from Rohm is secured by certain
equipment, bears interest at LIBOR plus 1.25%, is payable on demand and expires
on March 31, 1998. The equipment financing facility provides for the leasing of
equipment over a five-year period commencing on the date of acceptance of such
equipment.
11
The financing facilities contain certain restrictions which, among other things,
require maintenance of a minimum level of tangible net worth and other operating
and financial ratios.
The Company believes that its working capital, together with cash generated from
operations and financing facilities, will be sufficient to satisfy anticipated
sales growth and investment in manufacturing facilities and equipment through
its 1998 fiscal year end.
In June 1997, the Financial Accounting Standards Board issued FAS 130 and
FAS 131. Neither FAS will have a material impact on the Company.
The Company is aware of the year 2000 issues and the effects it may have on its
business systems. The Company has assessed its year 2000 issues and believes
that implementation will be completed in a timely manner and that the related
costs will not be material.
BACKLOG
The Company's backlog as of December 27, 1997 was approximately $100.1 million
compared to approximately $76.8 million at September 27, 1997, $68.5 at June 28,
1997 and $66.1 million at March 29, 1997. Backlog consists of purchase orders
received by the Company and 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 the Company, as well as
changes in customers' delivery requirements or the rescheduling or cancellation
of orders and commitments, has resulted in the past and may result in
substantial fluctuation in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results. See "Variability of Customer Requirements" and "Fluctuations
in Operating Results."
EMPLOYEES
As of December 27, 1997, the Company had 625 full-time employees supplemented
from time to time by part-time employees. The employees are not represented by a
union, and the Company believes its employee relations to be satisfactory.
The Company's success depends to an extent upon the continued services of
several key employees. The loss of certain key personnel could have a material
adverse effect on the Company. The Company's business also depends upon its
ability to continue to attract and retain senior managers and skilled employees.
Failure to do so could adversely affect the Company's operations.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
Number
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm
Corporation, Julian C. Hart, David W. Gault and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.1(1) Company's 1992 Stock Option Plan.
10.2(1) Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers.
10.3(1) Lease Agreement dated September 22, 1992 between Mellon Bank, N.A.,
Trustee for the Consolidation Retirement Trust for the LTV Corporation
and Affiliates (the "LTV Trust"), as Landlord, and the Registrant, as
Tenant.
10.4(1) First Amendment to Lease Agreement effective April 1, 1994 between the
LTV Trust, as Landlord, and the Registrant, as Tenant.
10.5(1) Amended and Restated Guaranty of Lease effective April 1, 1994 between
Rohm USA, Inc., as Guarantor, and the LTV Trust, as Landlord.
10.6(1) Waiver of Right of First Refusal dated May 2, 1994 by the Registrant,
as Tenant, and the LTV Trust, as Landlord.
10.7(1) Security Agreement dated October 14, 1992 between the Registrant and
Rohm Corporation.
10.8(1) $570,000 Secured Promissory Note issued October 14, 1992 by the
Registrant in favor of Rohm Corporation.
10.9(1) $110,000 Secured Promissory Note issued October 22, 1992 by the
Registrant in favor of Rohm Corporation.
10.10(1) Security Agreement dated November 4, 1992 between Rohm Corporation, as
Secured Party, and the Registrant.
10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by the
Registrant in favor of Rohm Corporation.
10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the Registrant
in favor of Rohm Corporation.
10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.18(1) Manufacturing Services Agreement dated November 18, 1994 between
Primary Access and the Registrant.
10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
Corporation and the Registrant, as the Consenting Party.
10.20(1) Manufacturing Services Agreement 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.
10.21(1) Mobile Communication Standard Terms and Conditions dated August 5, 1994
for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric
Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce
Bank National Association
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
10.26(4) Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant.
10.27(4) First Amendment to Credit Agreement between the Registrant and Texas
Commerce Bank National Association
10.28(4) Letter of Commitment between the Registrant and General Electric
Capital Corporation.
10.29(4) Amended $3,000,000 Promissory Note between the Registrant and Rohm
U.S.A.
10.30(5) Registrant's 1997 Stock Incentive Plan
10.31(5) Registrant's Employee Stock Purchase Plan
10.32 Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
11.1 Computation of Net Income per Share.
24.1(1) Power of Attorney (see page II-4 of the Registration Statement as filed
on November 20, 1995).
24.2(1) Assistant Secretary's Certificate of Resolutions of the Board of
Directors.
27.1 Financial Data Schedule
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed
with the Securities and Exchange Commission on February 14, 1996.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
13
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 10-K.
(5) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 14-A.
(b) Reports on Form 8-K
During the fiscal quarter ended December 27, 1997 no current
reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
Date: February 9, 1997 By: /s/ Angelo A. DeCaro, Jr.
-------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive Officer
Date: February 9, 1997 /s/ Richard S. Chilinski
-------------------------------
Richard S. Chilinski
Vice President,
Chief Financial Officer
and Assistant Secretary
(Principal Financial and
Accounting Officer)
14
EXHIBIT INDEX
Exhibit Description
Number
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm
Corporation, Julian C. Hart, David W. Gault and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.1(1) Company's 1992 Stock Option Plan.
10.2(1) Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers.
10.3(1) Lease Agreement dated September 22, 1992 between Mellon Bank, N.A.,
Trustee for the Consolidation Retirement Trust for the LTV Corporation
and Affiliates (the "LTV Trust"), as Landlord, and the Registrant, as
Tenant.
10.4(1) First Amendment to Lease Agreement effective April 1, 1994 between the
LTV Trust, as Landlord, and the Registrant, as Tenant.
10.5(1) Amended and Restated Guaranty of Lease effective April 1, 1994 between
Rohm USA, Inc., as Guarantor, and the LTV Trust, as Landlord.
10.6(1) Waiver of Right of First Refusal dated May 2, 1994 by the Registrant,
as Tenant, and the LTV Trust, as Landlord.
10.7(1) Security Agreement dated October 14, 1992 between the Registrant and
Rohm Corporation.
10.8(1) $570,000 Secured Promissory Note issued October 14, 1992 by the
Registrant in favor of Rohm Corporation.
10.9(1) $110,000 Secured Promissory Note issued October 22, 1992 by the
Registrant in favor of Rohm Corporation.
10.10(1) Security Agreement dated November 4, 1992 between Rohm Corporation, as
Secured Party, and the Registrant.
10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by the
Registrant in favor of Rohm Corporation.
10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the Registrant
in favor of Rohm Corporation.
10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.18(1) Manufacturing Services Agreement dated November 18, 1994 between
Primary Access and the Registrant.
10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
Corporation and the Registrant, as the Consenting Party.
10.20(1) Manufacturing Services Agreement 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.
10.21(1) Mobile Communication Standard Terms and Conditions dated August 5, 1994
for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric
Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce
Bank National Association
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
10.26(4) Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant.
10.27(4) First Amendment to Credit Agreement between the Registrant and Texas
Commerce Bank National Association
10.28(4) Letter of Commitment between the Registrant and General Electric
Capital Corporation.
10.29(4) Amended $3,000,000 Promissory Note between the Registrant and Rohm
U.S.A.
10.30(5) Registrant's 1997 Stock Incentive Plan
10.31(5) Registrant's Employee Stock Purchase Plan
10.32 Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
11.1 Computation of Net Income per Share.
24.1(1) Power of Attorney (see page II-4 of the Registration Statement as filed
on November 20, 1995).
24.2(1) Assistant Secretary's Certificate of Resolutions of the Board of
Directors.
27.1 Financial Data Schedule
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed
with the Securities and Exchange Commission on February 14, 1996.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 10-K.
(5) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 14-A.