<PAGE> 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 June 29, 1996,
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)
2525 BROCKTON DRIVE
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 August 2, 1996: 8,784,638.
<PAGE> 2
XETEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Interim Financial Statements
Balance Sheet as of June 29, 1996 and March 30, 1996.........................................................3
Statement of Operations for the three months ended June 29, 1996 and July 1, 1995............................4
Statement of Changes in Stockholders' Equity for the three months ended June 29, 1996........................5
Statement of Cash Flows for the three months ended June 29, 1996 and July 1, 1995............................6
Notes to Financial Statements................................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................................13
Item 6. Exhibits and Reports on Form 8-K...........................................................................13
Signatures.................................................................................................14
</TABLE>
<PAGE> 3
XETEL CORPORATION
BALANCE SHEET
IN THOUSANDS, EXCEPT SHARE DATA
ASSETS
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
-------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,283 $5,142
Trade accounts receivable, net of
allowance for doubtful accounts
of $240,000 and $240,000, respectively 16,797 19,547
Inventories 11,040 14,721
Prepaid expenses and other 837 1,220
------- -------
Total current assets 33,957 40,630
Property and equipment, net 4,334 4,488
Land held for investment 38 38
------- -------
Total assets $38,329 $45,156
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9,249 $14,601
Accrued federal income tax 497 2,674
Accrued expenses and other liabilities 2,635 2,795
------- -------
Total current liabilities 12,381 20,070
Deferred income taxes 164 164
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
8,554,293 and 8,542,168 shares
issued and 8,535,543 and 8,523,418
shares outstanding, respectively 19,442 19,430
Retained earnings 6,393 5,547
Deferred compensation (51) (55)
------- -------
Total stockholders' equity 25,784 24,922
------- -------
Total liabilities and
stockholders' equity $38,329 $45,156
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
XETEL CORPORATION
STATEMENT OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
June 29, July 1,
1996 1995
---------- --------
<S> <C> <C>
Net sales $28,262 $21,132
Cost of sales 25,356 18,459
------- -------
Gross profit 2,906 2,673
Selling, general and administrative
expenses 1,602 1,231
------- -------
Income from operations 1,304 1,442
Other income (expense), net 51 (139)
------- -------
Income before income taxes 1,355 1,303
Provision for income taxes 509 469
------- -------
Net income $ 846 $ 834
======= =======
Net income per share $ 0.09 $ 0.12
======= =======
Weighted average 9,503 6,646
shares outstanding ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
XETEL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
IN THOUSANDS
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Deferred Retained Stockholders'
Shares Amount Comp Earnings Equity
------ ------ -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 30, 1996 8,523 $19,430 $ (55) $5,547 $24,922
Stock options exercised 13 15 -- -- 15
Amortization of deferred
compensation -- -- 4 -- 4
Net income -- -- -- 846 846
Other -- (3) -- -- (3)
----- ------- ----- ------ -------
Balance, June 29, 1996 8,536 $19,442 $ (51) $6,393 $25,784
===== ======= ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
XETEL CORPORATION
STATEMENT OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 29, July 1,
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 846 $ 834
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 421 314
Loss on disposal of equipment -- 94
Changes in operating assets and liabilities:
(Increase) decrease in --
Trade accounts receivable 2,750 (1,296)
Inventories 3,681 (4,087)
Prepaid expenses and other 383 239
Increase (decrease) in --
Trade accounts payable (5,352) 752
Accrued expenses and other liabilities (2,337) 1,092
------ ------
Cash provided by (used in) operating activities 392 (2,058)
------ ------
Cash flows from investing activities:
Purchases of property and equipment (263) (330)
------ ------
Cash used in investing activities (263) (330)
------ ------
Cash flows from financing activities:
Net borrowings under debt agreements -- 2,376
Proceeds from stock options exercised 15 9
Other (3) --
------ ------
Cash provided by financing activities 12 2,385
------ ------
Increase (decrease) in cash and cash equivalents 141 (3)
Cash and cash equivalents, beginning of period 5,142 1,322
------ ------
Cash and cash equivalents, end of period $5,283 $1,319
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS
As of June 29, 1996, XeTel Corporation ("XeTel" or the "Company") was a 51%
owned subsidiary of Rohm USA, Inc. ("Rohm"), a wholly-owned subsidiary of Rohm
Co. Ltd., Japan. 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 materials
management, advanced testing and systems integration services, 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.
Certain reclassifications have been made to the fiscal year 1996 data to
conform to the fiscal year 1997 presentation.
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. These financial statements should be read in
conjunction with the financial statements, and notes thereto, for the fiscal
year ended March 30, 1996 as presented in the Company's 10-K filed with the
SEC.
NOTE 3 NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
outstanding common stock and common equivalent shares, which includes
preferred stock and stock options, and gives effect to certain
adjustments described below. Common equivalent shares are not included
in the per share calculation where the effect of their inclusion would
be antidilutive, except that, in conformity with the SEC requirements,
stock options issued during the twelve-month period prior to the filing
of the Company's initial public offering have been included in the
calculation as if they were outstanding for all periods, using the
treasury stock method.
NOTE 4 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
-------- ----------
<S> <C> <C>
Raw materials $ 6,425 $11,037
Work in progress 4,288 3,396
Finished goods 327 288
------- -------
$11,040 $14,721
------- -------
</TABLE>
As of June 29, 1996 and March 30, 1996, 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 months ended
June 29, 1996 and July 1, 1995 include provisions to the allowance for obsolete
materials of $28,000 and $ --, respectively.
<PAGE> 8
NOTE 5 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
--------- ---------
<S> <C> <C>
Machinery and equipment $11,483 $11,397
Furniture and fixtures 334 334
Leasehold improvements 409 405
------- -------
12,226 12,136
Less: Accumulated depreciation
and amortization (7,892) (7,648)
------- -------
$ 4,334 $ 4,488
======= =======
</TABLE>
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT
The Company has obtained a revolving line of credit for $3 million from Rohm
and an equipment financing facility for $4 million from a financial services
company. The Company is currently negotiating an additional revolving line of
credit for $7 million from a commercial bank. During the first quarter of
fiscal year 1997, the Company used $2.0 million of its operating lease
equipment financing facility.
The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable on demand and expires March 31, 1997. The
equipment financing facility provides for the leasing of equipment over a
five-year period commencing on the date of acceptance of such equipment. The
$7 million line of credit that is being negotiated with a commercial bank is
expected to bear interest at LIBOR plus 1.25% and/or prime (such rate
determined based upon the amounts and period of loans), matures in two years
and be secured by certain assets of the Company. It is also expected that this
facility will require the payment of a commitment fee equal to one-eighth of 1%
on the unused balance, and borrowings will be limited based upon certain
collateral availability requirements.
The equipment financing facility and the commercial bank line of credit
facility contain certain restrictions which, among other things, require
maintenance of a minimum level of tangible net worth and various other
operating and financial ratios.
Interest paid totaled $-- and $199,000 for the three months ended June 29, 1996
and July 1, 1995, respectively.
NOTE 7 LEASE COMMITMENTS
XeTel leases its operating facility and certain office equipment under
noncancellable operating leases. Rental expense under all operating leases was
approximately $305,000 and $187,000 during the three months ended June 29, 1996
and July 1, 1995, respectively. Future noncancellable minimum rental payments
under all operating leases with initial terms of greater than one year are
$916,000 in the remainder of 1997, $1,221,000 in 1998, $1,253,000 in 1999,
$1,273,000 in 2000, $973,000 in 2001 and an aggregate of $824,000 thereafter.
As of June 29, 1996, Rohm has guaranteed rental payments of $751,000 related to
the lease of the Company's operating facility.
NOTE 8 RELATED PARTY TRANSACTIONS
In addition to the debt arrangements with Rohm described in Note 6 and the
operating facility lease guarantee by Rohm described in Note 7, the Company has
transactions with certain divisions of Rohm Corporation, a wholly-owned
subsidiary of Rohm, during the normal course of business. Purchases from such
divisions were $180,000 and $229,000 for the three months ended June 29, 1996
and July 1, 1995, respectively. Accounts payable to such divisions were
$129,000 and $141,000 as of June 29, 1996 and March 30, 1996, respectively.
Accounts receivable from such divisions were not significant.
<PAGE> 9
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 acquired a controlling interest in the
Company. Since its inception, the Company has manufactured surface mount
assemblies and performed other manufacturing services for original equipment
manufacturers ("OEMs") in the electronics industry. In a number of cases, such
services were and may be rendered during periods in which customers experience
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 and their 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 more highly 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. In an effort
to achieve greater stability and higher gross margins, the Company made a
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 the telecommunications, networking, industrial and
instrumentation segments of the electronics industry..
The development and growth of the Company's business generally has 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 and 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. XeTel recently acquired another company to further establish and
expand its long-term relationships with OEM's of advanced electronic products
by increasing design and prototype centers in targeted geographic areas.
With the addition of new management personnel in 1993, including a new
President in September 1993, the Company has and continues to focus certain of
its resources to establish capabilities in product design, prototype and other
manufacturing services 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. This shift in strategic focus, combined with improved
materials management processes, a restructuring of the Company's management
organization and the establishment of dedicated customer teams, have enabled
the Company to offer additional services to support its customers' products
throughout their life cycles. As a result of these and other factors, the
Company has generally experienced increased shipments, reduced cycle times and
improved manufacturing efficiency. However, there can be no assurance such
historical trends will be indicative of future operating performance.
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 also can 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 typically is 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, as well as 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. The Company believes that backlog may not be a meaningful indicator
of future operating results.
<PAGE> 10
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 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.
Concentration of Customers. The Company's customer base is highly
concentrated. The Company's three largest customers accounted for approximately
17%, 16% and 13%, respectively, of net sales for the three months ended June
29, 1996. The loss of, or a significant curtailment of purchases by, one or
more of these customers, or any other significant customer of the Company,
would 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 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 currently
experiences 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 the customer 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 the three months ended June 29, 1996, certain major customers reduced
significant orders with the Company due to orders which did not materialize 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 has 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 one or more regional
design and prototype 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 June 29, 1996 increased 33.7% to $28.3
million from $21.1 million for the corresponding period of the prior year. The
increase in net sales was primarily due to increased shipments to the Company's
major customers in the telecommunications and networking segments of the
electronics market.
Gross profit for the three months ended June 29, 1996 increased 8.7% to $2.9
million from $2.7 million in the first quarter of fiscal 1996. 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 margin (gross profit as a percentage
of net sales) decreased to 10.3% for the first quarter of the 1997 fiscal year
from 12.6% for the comparable prior year period. The decrease in the Company's
gross margin predominately reflects the effects of higher material content
relating to a reduction of consignment revenue and corresponding increased
percentage of turnkey revenue including system integration and order
fulfillment manufacturing services. Although there can
<PAGE> 11
be no assurance that the Company will maintain its current levels of gross
profit and gross margin in the future, management intends to continue to expand
the range of services it provides and focus on market opportunities where its
capabilities in rendering value added services in a cost effective manner can
improve productivity, product yields and utilization.
Selling, general and administrative ("SG&A") expenses for the three months
ended June 29, 1996 increased 30.1% to $1.6 million from $1.2 million in the
corresponding period in fiscal 1996. 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 represented 5.7% of net sales for the three months
ended June 29, 1996 as compared to 5.8% for the three months ended July 1,
1995. The increase in the dollar amount of SG&A expenses was attributable to
increased expenses primarily associated with higher sales commissions related
to higher sales and increased public company related expenses.
Other income (expense), net for the three months ended June 29, 1996 reflected
income of $51,000 compared to $139,000 of expense in the corresponding period
in fiscal 1996. The change was due to interest earned from an increase in cash
and cash equivalents and a decrease in interest paid resulting from the payment
of all amounts outstanding under the revolving line of credit and notes payable
to Rohm with a portion of the proceeds from the Company's initial public
offering, effective February 14, 1996.
The provision for income taxes of $509,000 and $469,000 reflects an effective
tax rate of 37.5% and 36.0% for the three months ended June 29, 1996 and July
1, 1995, respectively. The lower effective tax rate for the three months ended
July 1, 1995 was primarily due to a reduction in valuation allowance against
net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since 1986 when Rohm acquired a controlling interest in the Company, XeTel has
financed its business through cash generated by operations and a line of credit
and other borrowings provided by Rohm. In February 1996, the Company made an
initial public offering of its common stock. Net proceeds from the offering
were $14.8 million.
During the prior fiscal year, additional borrowings were made from Rohm for
working capital and capital equipment. The Company used a portion of the net
proceeds of its initial public offering, effective February 14, 1996, to repay
all amounts outstanding under the revolving line of credit and notes payable to
Rohm. No amounts were outstanding to Rohm as of June 29, 1996 and March 30,
1996.
Net cash provided by operating activities during the three months ended June
29, 1996 of $392,000 resulted primarily from cash provided by a decrease in
inventory and accounts receivable offset by cash used by decreases in accounts
payable, accrued expenses and other liabilities. Net cash used by operating
activities was $2.1 million for the three months ended July 1, 1995.
As of June 29, 1996 and March 30, 1996, the Company's primary source of
liquidity consisted of cash and cash equivalents of $5.3 million and $5.1
million, respectively. Working capital was $21.6 million and $20.6 million as
of June 29, 1996 and March 30, 1996, respectively.
Capital expenditures during the three months ended June 29, 1996 and July 1,
1995 were $263,000 and $330,000, respectively. Management anticipates that
capital expenditures in each of its 1997 and 1998 fiscal years will exceed the
level of capital expenditures made in fiscal 1996. The Company's expenditures
on research and development in the first quarters of fiscal 1997 and 1996 were
$46,000 and $36,000, respectively.
The Company has obtained a revolving line of credit for $3 million from Rohm
and an equipment financing facility for $4 million from a financial services
company. The Company is currently negotiating an additional revolving line of
credit for $7 million from a commercial bank. During the first quarter of
fiscal year 1997, the Company used $2.0 million of its operating lease
equipment financing facility to upgrade one of its manufacturing lines.
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, 1997. The
equipment financing facility provides for the leasing of equipment over a
five-year period commencing on the date of acceptance of such equipment. The
$7 million line of credit that is being negotiated with a commercial bank is
expected to bear interest at LIBOR plus 1.25% and/or prime (such rate
determined based upon the amounts and period of loans), matures in two years
and be secured by certain assets of the Company. It is also expected that this
facility will require the payment of commitment fees equal to one-eighth of 1%
on the unused balance, and borrowings will be limited based upon certain
collateral availability requirements.
The equipment financing facility and the commercial bank line of credit
facility contain certain restrictions which, among other things, require
maintenance of a minimum level of tangible net worth and various other
operating and financial ratios.
<PAGE> 12
The Company believes that its working capital, together with cash generated
from operations and the net proceeds received from the offering, will be
sufficient to satisfy anticipated sales growth and investment in manufacturing
facilities and equipment through its 1997 fiscal year end.
BACKLOG
The Company's backlog as of June 29, 1996 was approximately $40.1 million
compared to approximately $80.7 million as of March 30, 1996. 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. The Company believes, although there can be no assurance, 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 June 29, 1996, the Company had 498 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.
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings to which it
is a party or to which any of its property is subject that are material to the
Company or its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
Number
<S> <C>
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 3.2 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 USA,
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 XeTel Corporation
and General Electric Capital Corporation.
10.23(2) $3,000,000 Promissory Note between XeTel
Corporation and Rohm USA, Inc.
11.1(3) Computation of Net Income (Loss) 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
</TABLE>
(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.
<PAGE> 14
(2) Incorporated by reference to the like-numbered exhibits
previously filed with the Registrant's 1996 Form 10-K.
(3) Included on page 4 of 10-Q.
(b) Reports on Form 8-K
During the fiscal quarter ended June 29, 1996 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 eport to be signed on its
behalf by the undersigned, thereunto duly authorized.
XETEL CORPORATION
(Registrant)
Date: August 2, 1996 By: /s/ Angelo A. DeCaro, Jr.
-------------------------
Angelo A. DeCaro, Jr.
President
and Chief Executive Officer
Date: August 2, 1996 /s/ Richard S. Chilinski
------------------------
Richard S. Chilinski
Vice President,
Chief Financial Officer
and Assistant Secretary
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
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 3.2 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 USA,
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 XeTel Corporation
and General Electric Capital Corporation.
10.23(2) $3,000,000 Promissory Note between XeTel
Corporation and Rohm USA, Inc.
11.1(3) Computation of Net Income (Loss) 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
</TABLE>
(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) Included on page 4 of 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 5,283
<SECURITIES> 0
<RECEIVABLES> 17,037
<ALLOWANCES> 240
<INVENTORY> 11,040
<CURRENT-ASSETS> 33,957
<PP&E> 12,226
<DEPRECIATION> 7,892
<TOTAL-ASSETS> 38,329
<CURRENT-LIABILITIES> 12,381
<BONDS> 0
<COMMON> 19,442
0
0
<OTHER-SE> 6,342
<TOTAL-LIABILITY-AND-EQUITY> 38,329
<SALES> 28,262
<TOTAL-REVENUES> 28,313
<CGS> 25,356
<TOTAL-COSTS> 1,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,355
<INCOME-TAX> 509
<INCOME-CONTINUING> 846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 846
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
