<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant to Section 1 3 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 28, 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)
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 4, 1997: 8,838,185.
<PAGE> 2
XETEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. INTERIM FINANCIAL STATEMENTS
Balance Sheet as of June 28, 1997 and March 29, 1997..........................................3
Statement of Income for the three months ended June 28, 1997 and June 29,1996.................4
Statement of Cash Flows for the three months ended June 28, 1997 and June 29,1996.............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............................................................................................14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
--------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,294 $ 7,032
Trade accounts receivable, net of
allowance for doubtful accounts
of $240 and $240, respectively 14,287 13,886
Inventories 12,166 10,499
Prepaid expenses and other 1,107 1,836
-------- ----------
Total current assets 33,854 33,253
Property and equipment, net 7,710 5,599
Goodwill 897 950
-------- ----------
Total assets $ 42,461 $ 39,802
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 10,383 $ 9,940
Accrued expenses and other liabilities 3,319 2,929
-------- ----------
Total current liabilities 13,702 12,869
Deferred income taxes 230 230
Long term debt 1,380 42
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
8,838,185 and 8,816,085 shares
issued and 8,817,689 and 8,795,589
shares outstanding, respectively 21,027 20,998
Retained earnings 6,451 5,996
Deferred compensation (329) (333)
-------- ----------
Total stockholders' equity 27,149 26,661
-------- ----------
Total liabilities and
stockholders' equity $42,461 $39,802
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
XETEL CORPORATION
STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
June 28, June 29,
1997 1996
--------- ----------
<S> <C> <C>
Net sales $ 24,467 $ 28,262
Cost of sales 22,171 25,356
--------- ----------
Gross profit 2,296 2,906
Selling, general and administrative
expenses 1,624 1,602
--------- ----------
Income from operations 672 1,304
Interest income (expense), net 61 51
--------- ----------
Income before income taxes 733 1,355
Provision for income taxes 278 509
--------- ----------
Net income $ 455 $ 846
========= ==========
Net income per share $ 0.05 $ 0.09
========= ==========
Weighted average 9,638 9,503
shares outstanding ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
June 28, June 29,
1997 1996
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 455 $ 846
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 647 421
Loss on disposal of equipment 1 ---
Change in operating assets and liabilities:
(Increase) decrease in--
Trade accounts receivable (401) 2,750
Inventories (1,667) 3,681
Prepaid expenses and other 729 383
Increase (decrease) in--
Trade accounts payable 443 (5,352)
Accrued expenses and other liabilities 52 (2,337)
------- ------
Cash provided by operating activities 259 392
------- ------
Cash flows from investing activities:
Proceeds from sale of equipment 399 ---
Purchases of property and equipment (3,102) (263)
------- ------
Cash used in investing activities (2,703) (263)
------- ------
Cash flows from financing activities:
Net borrowings under debt agreements 1,677 ---
Proceeds from stock options exercised 29 15
Other --- (3)
------- ------
Cash provided by financing activities 1,706 12
------- ------
(Decrease) increase in cash and cash equivalents (738) 141
Cash and cash equivalents, beginning of period 7,032 5,142
------- ------
Cash and cash equivalents, end of period $6,294 $5,283
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
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 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 June
28, 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
Earnings per share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding (if dilutive)
during the period. Common share equivalents include stock options. The number
of common share equivalents outstanding relating to stock options is computed
using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128").
The new standard, which is effective for financial statements issued for
periods ending after December 15, 1997, establishes standards for computing and
presenting earnings per share (EPS) and upon adoption requires restatement of
all prior period EPS data presented. The Company will implement this standard
in the third quarter of fiscal 1998. The implementation of the standard will
result in the presentation of a basic EPS calculation in the financial
statements as well as a diluted EPS calculation. Under SFAS No. 128, basic and
diluted earnings per share will not differ materially from the amounts
currently reported.
NOTE 4 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
--------- ---------
<S> <C> <C>
Raw materials $ 8,623 $ 7,795
Work in progress 3,290 2,567
Finished goods 253 137
--------- ---------
$ 12,166 $ 10,499
========= =========
</TABLE>
As of June 28, 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 months ended
June 28, 1997 and June 29, 1996 include provisions to the allowance for
obsolete materials of $-- and $28,000, respectively.
<PAGE> 7
NOTE 5 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
--------- ---------
<S> <C> <C>
Machinery and equipment $ 14,224 $ 14,373
Furniture and fixtures 722 335
Leasehold improvements 1,924 409
-------- --------
16,870 15,117
Less: Accumulated depreciation
and amortization (9,160) (9,518)
-------- --------
$ 7,710 $ 5,599
======== ========
</TABLE>
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 $2.5 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 June 28, 1997, the Company
had $1.7 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 June
28, 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 $23,000 and $-- for the three months ended June 28, 1997
and June 29, 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 $566,000 and $305,000 during the three
months ended June 28, 1997 and June 29, 1996, respectively. Future
noncancellable minimum rental payments under all operating leases with initial
terms of greater than one year are $2,838,000 in 1998, $3,004,000 in 1999,
$2,853,000 in 2000, $2,573,000 in 2001, $1,773,000 in 2002 and an aggregate of
$4,571,000 thereafter. As of June 28, 1997, Rohm has guaranteed rental payments
of $214,000 related to the lease of the Company's Austin facility.
NOTE 8 RELATED PARTY TRANSACTIONS
In addition to the debt arrangements and the operating facility lease guarantee
described in Notes 6 and 7, 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 49% of the Company's outstanding
common stock as of June 28, 1997. Purchases from such divisions were $70,000
and $180,000 for the three months ended June 28, 1997 and June 29, 1996,
respectively. Accounts payable to such divisions were $18,000 and $54,000 as
of June 28, 1997 and March 29, 1997, respectively. Accounts receivable from
such divisions were not significant.
<PAGE> 8
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.
<PAGE> 9
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 34%, 13% and 8%, respectively, of net sales for the three months
ended June 28, 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 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 June 28, 1997 decreased 13.4% to $24.5
million from $28.2 million for the corresponding period of the prior year.
Lower sales during the three months ended June 28, 1997 as compared to the same
period in the prior year were primarily attributable to decreased material
content associated with a change in mix of manufacturing services.
Gross profit for the three months ended June 28, 1997 decreased 21.0% to $2.3
million from $2.9 in the first quarter of fiscal 1997. 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 9.4% for the first quarter of the 1998 fiscal year from 10.3% for
the comparable prior year period. The decrease in the Company's gross margin
reflects the effects of lower sales levels and a lower absorption of fixed
costs.
<PAGE> 10
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 June 28, 1997 remained
relatively flat at $1.6 million as compared to the $1.6 million in the
corresponding period in fiscal 1997. SG&A expenses represented 6.6% of net
sales for the three months ended June 28, 1997 as compared to 5.7% for the
three months ended June 29, 1996. The percentage increase in SG&A for the
three months ended June 28, 1997 as compared to the comparable prior period is
due to the decrease in net sales.
Interest income (expense), net for the three months ended June 28, 1997
reflected income of $61,000 compared to $51,000 of income in the corresponding
period in fiscal 1997. The increase in interest income for the three months
ended June 28, 1997 is due to a higher average cash and cash equivalent balance
during the quarter as compared to the corresponding period of fiscal 1997.
The provision for income taxes of $278,000 and $509,000 reflects an effective
tax rate of 37.9% for the three months ended June 28, 1997 which was
relatively flat with the 37.6% effective tax rate for the three month period
ended June 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $20.2 million and $20.4 million as of June 28, 1997 and
March 29, 1997, respectively. In addition to the Company's working capital as
of June 28, 1997, which includes cash and cash equivalents of $6.3 million, the
Company has $15.6 million available from unused credit facilities.
Net cash provided by operating activities was $259,000 and $392,000 during the
three months ended June 28, 1997 and June 29, 1996, respectively.
Capital expenditures during the three months ended June 28, 1997 and June 29,
1996 were $3.1 million and $263,000, respectively. The increase in capital
expenditures is due to increased capital investments associated with the
Company's new manufacturing 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 $2.5 million term loan facility, (iii) an unused
equipment financing facility for $1.8 million from a financial services
company, and (iv) a revolving line of credit for $3 million from Rohm. At June
28, 1997, the Company had $1.7 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 June 28, 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 one
percent (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.
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.
BACKLOG
The Company's backlog as of June 28, 1997 was approximately $68.5 million
compared to approximately $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."
<PAGE> 11
EMPLOYEES
As of June 28, 1997, the Company had 560 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.
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
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
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.
<PAGE> 13
(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 June 28, 1997 no current reports
on Form 8-K were filed.
<PAGE> 14
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: August 11, 1997
By: /s/ Angelo A. DeCaro, Jr.
--------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer
Date: August 11, 1997 /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 3.1, 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
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.
</TABLE>
<PAGE> 16
<TABLE>
<S> <C>
(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.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
XETEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
June 28, June 29,
1997 1996
---- ----
<S> <C> <C> <C>
Shares issued and outstanding (1) 8,811 8,536
Common Stock Equivalents:
Stock options (2) 827 967
------ ------
Weighted average shares outstanding 9,638 9,503
====== ======
Net income $ 455 $ 846
====== ======
Earnings per share $ .05 $ .09
====== ======
</TABLE>
(1) Shares issued and outstanding based on the weighted average method.
(2) Stock options based on the treasury stock method using average market
price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 6,294
<SECURITIES> 0
<RECEIVABLES> 14,527
<ALLOWANCES> 240
<INVENTORY> 12,166
<CURRENT-ASSETS> 33,854
<PP&E> 16,870
<DEPRECIATION> 9,160
<TOTAL-ASSETS> 42,461
<CURRENT-LIABILITIES> 13,702
<BONDS> 0
0
0
<COMMON> 21,027
<OTHER-SE> 6,122
<TOTAL-LIABILITY-AND-EQUITY> 42,461
<SALES> 24,467
<TOTAL-REVENUES> 24,467
<CGS> 22,171
<TOTAL-COSTS> 23,795
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 733
<INCOME-TAX> 278
<INCOME-CONTINUING> 455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
