<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 JULY 1, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-27482
XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2310781
(State of Incorporation) (I.R.S. Employer ID Number)
2105 GRACY FARMS LANE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [x] No [ ]
As of the close of business on July 5, 2000, 9,533,388 shares of the
registrant's common stock, par value $.0001 per share, were outstanding.
<PAGE> 2
XETEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements (unaudited)
<TABLE>
<S> <C>
Balance Sheets as of July 1, 2000 and April 1, 2000 3
Statements of Operations for the three months ended
July 1, 2000 and June 26, 1999 4
Statements of Cash Flows for the three months ended
July 1, 2000 and June 26, 1999 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8k 13
SIGNATURES 14
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 1, April 1,
2000 2000
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,388 $ 7,398
Trade accounts receivable, net 26,638 24,464
Inventories 34,519 23,074
Prepaid expenses and other 1,879 1,918
-------- --------
Total current assets 70,424 56,854
Property and equipment, net 6,481 6,367
Deferred tax asset 1,500 1,500
-------- --------
TOTAL ASSETS $ 78,405 $ 64,721
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 24,970 $ 21,643
Current portion of long-term debt 7,040 7,120
Accrued expenses and other liabilities 3,357 3,402
-------- --------
Total current liabilities 35,367 32,165
Deferred income taxes 133 133
Long-term debt, net of current portion 16,443 7,591
Commitments
Stockholders' equity:
Common stock, $0.0001 par value, 25,000,000 shares authorized,
9,533,388 and 9,482,431 shares issued and 9,527,390 and
9,476,433 shares outstanding, respectively 22,282 22,228
Retained earnings 4,185 2,625
Deferred compensation (5) (21)
-------- --------
Total stockholders' equity 26,462 24,832
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 78,405 $ 64,721
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE> 4
XETEL CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 42,697 $ 31,992
Cost of sales 38,597 29,759
-------- --------
GROSS PROFIT 4,100 2,233
Selling, general and administrative
expenses 1,899 1,619
(Recoveries) (724) --
-------- --------
INCOME FROM OPERATIONS 2,925 614
Other expense, net (409) (228)
-------- --------
INCOME BEFORE INCOME TAXES 2,516 386
Provision for income taxes 956 147
-------- --------
NET INCOME $ 1,560 $ 239
======== ========
Basic earnings per share $ 0.16 $ 0.03
======== ========
Basic weighted average
shares outstanding 9,513 9,255
======== ========
Diluted earnings per share $ 0.16 $ 0.02
======== ========
Diluted weighted average
shares outstanding 9,773 9,625
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements. 4
<PAGE> 5
XETEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,560 $ 239
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 489 505
Deferred compensation 16 35
Gain on disposal of equipment -- (1)
Changes in operating assets and liabilities:
Trade accounts receivable (2,174) (3,204)
Inventories (11,445) 5,054
Prepaid expenses and other 39 26
Trade accounts payable 3,327 (1,549)
Accrued expenses and other
liabilities (45) (708)
-------- --------
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (8,233) 397
Cash flows from investing activities:
Purchases of property and equipment (603) (171)
Proceeds from sale of equipment -- 1
-------- --------
CASH USED IN INVESTING ACTIVITIES (603) (170)
Cash flows from financing activities:
Net borrowings (repayments) under
debt agreements 8,772 (325)
Proceeds from stock options
exercised -- 2
Cash proceeds from stock issued
under employee stock purchase
plan 54 130
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,826 (193)
Increase (decrease) in cash and cash
equivalents (10) 34
Cash and cash equivalents, beginning
of period 7,398 7,330
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,388 $ 7,364
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
<PAGE> 6
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BUSINESS
XeTel Corporation (the "Company") provides comprehensive and customized
manufacturing solutions to original equipment manufacturers primarily in the
networking, telecommunications and computer industries. The Company incorporates
advanced design and prototype services and complex electronics manufacturing
assembly capabilities together with materials and supply base management,
advanced testing, systems integration services and order fulfillment to provide
turnkey solutions for its customers.
NOTE 2 BASIS OF PRESENTATION
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 the 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
of a normal recurring nature considered necessary to present fairly the
financial position, results of their operations and cash flows for those periods
presented. The results of operations for the period ended July 1, 2000 are not
necessarily indicative of the results that may be expected for any other interim
period or for the fiscal year ending March 31, 2001. The accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto for the fiscal year ended April 1, 2000 as presented in the Company's
10K filed with the SEC.
NOTE 3 RECOVERIES
The components of Recoveries included in the Statements of Operations and
Statements of Cash Flows for the three months ended July 1, 2000 are as follows
(unaudited, in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
------------
<S> <C>
Recoveries of doubtful accounts $ 99
Recoveries of obsolete inventory 625
-----
$ 724
=====
</TABLE>
NOTE 4 TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable, net consist of the following (in thousands):
<TABLE>
<CAPTION>
July 1, April 1,
2000 2000
----------- ---------
(unaudited)
<S> <C> <C>
Trade accounts receivable $ 29,587 $ 27,512
Less: allowance for doubtful accounts (2,949) (3,048)
--------- ---------
$ 26,638 $ 24,464
========= =========
</TABLE>
6
<PAGE> 7
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
July 1, April 1,
2000 2000
----------- ---------
(unaudited)
<S> <C> <C>
Raw materials $ 25,805 $ 19,203
Work in progress 8,451 3,602
Finished goods 263 269
--------- ---------
$ 34,519 $ 23,074
========= =========
</TABLE>
As of July 1, 2000 and April 1, 2000, the Company had allowances for obsolete
raw materials of approximately $1,409,000 and $2,235,000, respectively. Cost of
sales for the three months ended July 1, 2000 and June 26, 1999 include
provisions to the allowance for obsolete materials of $0 in both periods.
NOTE 6 BORROWINGS
On March 31, 2000, the company entered into a new $35 million commercial bank
credit facility. The credit agreement has a three-year term with automatic
renewals for successive terms of equal duration thereafter. The bank revolving
credit facility bears interest at LIBOR plus 2.25% to 3.00%, depending upon
certain financial ratios, or prime or prime plus one-half of one percent (such
rate determined based upon the amounts, financial ratios and period of loans),
matures March 30, 2003 and is secured by certain assets of the Company. The bank
facility requires the payment of a monthly commitment fee equal to one-quarter
of one percent (0.25% per annum) on the unused balance, and borrowings are
limited based upon certain collateral availability requirements.
NOTE 7 EARNINGS PER COMMON SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted average number of common shares for the
year. Diluted EPS is similar to Basic EPS except that the weighted average of
common shares outstanding is increased to include the number of common share
equivalents, when inclusion is dilutive. Common share equivalents are comprised
of stock options. The number of common share equivalents outstanding relating to
stock options is computed using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per
share (unaudited, in thousands, except per share amounts):
7
<PAGE> 8
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Basic earnings per share:
Weighted average shares
outstanding 9,513 9,255
======== ========
Net income $ 1,560 $ 239
======== ========
Basic earnings per share $ 0.16 $ 0.03
======== ========
Diluted earnings per share:
Weighted average shares
outstanding 9,513 9,255
Common stock equivalents:
stock options 260 370
-------- --------
9,773 9,625
======== ========
Net income $ 1,560 $ 239
======== ========
Diluted earnings per share $ 0.16 $ 0.02
======== ========
</TABLE>
NOTE 8 RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 will be effective no
later than the fourth fiscal quarter of all fiscal years beginning after
December 15, 1999. The application of SAB No. 101 is not expected to have a
material impact on the financial statements of the Company.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in this document contains trend analyses 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 that involve risks and uncertainties, such as statements concerning:
growth and future operating results; developments in our markets and strategic
focus; new products and services and product technologies and future economic,
business and regulatory conditions. Such forward-looking statements are
generally accompanied by words such as "plan", "estimate," "expect," "believe,"
"should," "would," "could," "anticipate," "may" or other words that convey
uncertainty of future events or outcomes. These forward-looking statements and
other statements made elsewhere in this report are made in reliance on the
Private Securities Litigation Reform Act of 1995. The section below entitled
"Certain Factors That May Affect Future Results, Financial Condition and Market
Price of Securities" sets forth certain factors that could cause actual results
to differ materially from these statements and elsewhere.
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three month period ended July 1, 2000, are
not necessarily indicative of the results that may be expected for the full
fiscal year.
OVERVIEW
Founded in 1984, the Company offers highly customized and comprehensive
electronics manufacturing solutions to Fortune 500 and emerging original
equipment manufacturers primarily in the networking, telecommunications and
computer industries. The Company provides advanced design and prototype
services, manufactures sophisticated surface mount assemblies and supplies
turnkey solutions to original equipment manufacturers. The Company incorporates
design and prototype services and assembly capabilities, together with materials
and supply base management, advanced testing, system integration and order
fulfillment services to provide total solutions for its customers. The Company
employs approximately 570 people and is headquartered in Austin, Texas with
manufacturing services operations in Austin and Dallas, Texas and San Ramon,
California.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of net
sales represented by certain items in the Company's statement of operations.
<TABLE>
<CAPTION>
Three Months Ended
-------------------
July 1, June 26,
2000 1999
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 90.4 93.0
-------- --------
Gross margin 9.6 7.0
Selling, general and administrative
expenses 4.4 5.1
(Recoveries) (1.7) --
-------- --------
Income from operations 6.9 1.9
Other expense, net (1.0) (0.7)
-------- --------
Income before income taxes 5.9 1.2
Provision for income taxes 2.2 0.5
-------- --------
Net income 3.7% 0.7%
======== ========
</TABLE>
9
<PAGE> 10
NET SALES
Net sales for the first quarter ended July 1, 2000 was $42.7 million, 33% above
sales in the comparable prior year period of $32.0 million. The higher sales
levels mainly reflected new customers' programs primarily in the networking
segment of the electronics market. Sales to the Company's three largest
customers during the quarter represented 19%, 11% and 11% respectively.
GROSS PROFIT
Gross profit is affected by, among other factors, the level of sales, product
mix, component costs and the level of capacity utilization at the Company's
facilities. Gross profit for the three months ended July 1, 2000 was $4.1
million versus $2.2 million for the three months ended June 26, 1999. The
Company's gross margin, gross profit as a percentage of net sales, increased to
9.6% in the first quarter of fiscal 2001, versus 7.0% in the first quarter of
fiscal 2000. The improvement in gross profit margin reflected the higher sales
levels and increased utilization of manufacturing assets.
OPERATING EXPENSES
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 were $1.9 million versus $1.6 million in the
comparable year period. SG&A expenses were 4.4% of sales for the three months
ended July 1, 2000 versus 5.1% to sales for the three month period ended June
26, 1999 as a result of the higher sales levels and cost management. Recoveries
totaling $724,000 were realized from a work out plan with a customer. The work
out plan calls for the issuance of certain warrants of the customer's common
stock and the recovery of amounts due the Company in the form of interest,
accounts receivable and inventory. Due to the uncertainty of realization, a
value has not been recorded for such warrants. Interest is being applied to
amounts due the Company and then subsequently to interest income at such time,
if ever, amounts due are fully recovered.
OTHER EXPENSE, NET
Other expense, net for the three months ended July 1, 2000 increased to $409,000
compared to $228,000 for the three months ended June 26, 1999. The change in
other expense, net was due to increased interest expense incurred on higher
borrowings.
INCOME TAXES
The provision for income taxes of $956,000 and $147,000 for the three months
ended July 1, 2000 and June 26, 1999, respectively, reflect an effective tax
rate of 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $8.2 million in cash flows from operating activities for the
three ended July 1, 2000. Cash flows used in operating activities during the
first quarter primarily resulted from higher inventories and accounts receivable
balances associated with higher sales levels; these were partially offset by
other changes in operating working capital.
Working capital was $35.1 million and $24.7 million at July 1, 2000 and April 1,
2000 respectively. In addition to the Company's working capital as of July 1,
2000, which included cash and cash equivalents of $7.4 million, the Company also
had approximately $6.6 million in unused credit facilities under its bank and
equipment lines.
Capital expenditures during the three months ended July 1, 2000 and June 26,
1999 were $603,000 and $171,000, respectively. Management anticipates capital
expenditures in fiscal 2001 will increase from the level of capital expenditures
made in fiscal 2000.
The Company's expenditures on research and development remained relatively
consistent for the three months ended July 1, 2000 and June 26, 1999 at $44,000
and $46,000, respectively.
The Company does not hold or issue derivative financial instruments in the
normal course of business.
10
<PAGE> 11
As of July 1, 2000, the Company had $51 million in credit lines and equipment
financing facilities, as follows: (i) a three-year revolving loan facility for
$35 million with commercial banks and (ii) an equipment financing facility for
$16 million from a financial services company of which $3.5 million was unused
at July 1, 2000. There was $23.5 million and $14.7 million outstanding under
these commercial bank lines of credit at July 1, 2000 and April 1, 2000,
respectively.
On March 31, 2000, the Company entered into a $35 million asset-based revolving
loan facility. The credit agreement has a three-year term with automatic
renewals for successive terms of equal duration thereafter. The bank revolving
credit facility bears interest at LIBOR plus 2.25% to 3.00% depending upon
certain financial ratios or prime or prime plus one-half of one percent (such
rate determined based upon the amounts, financial ratios and period of loans),
matures March 30, 2003 and is secured by certain assets of the Company. The bank
facility requires the payment of a monthly commitment fee equal to one-quarter
of one percent (0.25% per annum) on the unused balance, and borrowings are
limited based upon certain collateral availability requirements. 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 others, require maintenance of minimum
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 fiscal year 2001. However, any material acquisitions of complementary
businesses, products or technologies could require additional equity or debt
financing. There can be no assurance that such financing will be available on
acceptable terms, if at all.
BACKLOG
The Company's backlog as of July 1, 2000 was approximately $138.4 million
compared to approximately $107.8 as of April 1, 2000 and approximately $68.2
million as of June 26, 1999. 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 in the future result in
substantial fluctuation in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
financial results. For a discussion of these factors affecting the Company's
business and prospects, see "Certain Factors That May Affect Future Results,
Financial Condition and Market Price of Securities".
EMPLOYEES
As of July 1, 2000, the Company had approximately 570 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND MARKET
PRICE OF SECURITIES
FLUCTUATIONS IN OPERATING RESULTS. XeTel's operating results are affected by a
number of factors, including the 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
11
<PAGE> 12
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.
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. Due to the factors noted above and elsewhere in this filing and
other filings by XeTel with the Securities and Exchange Commission, the
Company's future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Past financial performance should
not be considered a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends in future
periods. Any shortfall in revenue and earnings from the levels anticipated by
securities analysts could have an immediate and significant effect on the
trading price of the Company's common stock in any given period. Also, the
Company participates in a highly dynamic industry, which often results in
volatility of the Company's common stock price.
CONCENTRATION OF CUSTOMERS. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 19%, 11% and
11%, respectively, of net sales for the three months ended July 1, 2000. For the
three months ended June 26, 1999, the Company's three largest customers
accounted for approximately 15%, 11% and 9%, of its net sales. 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. In addition, the Company's objective is to develop new and expand
existing relationships with leading and emerging OEM's in the electronics
industry. Such emerging growth and technology companies tend to have limited
operating histories, and also may have changes in management and limited
capitalization. As a result, the Company may experience difficulties in
maintaining long-term relationships with these customers and in receiving
payment for services rendered to them. To the extent that any significant
customers of the Company terminate their relationship with the Company, or the
Company is unable, for any reason, to receive payment for its services, the
Company's business, financial condition and results of operations likely would
be materially and adversely affected.
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
these 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 customer supplied
or are in short supply generally within the electronics industry. Component
shortages or price fluctuations, to the extent not absorbed by customers under
their 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
12
<PAGE> 13
procured and, in certain circumstances, charges associated with such
cancellation, reduction or delay. 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, have adversely affected the
Company's business, financial condition and results of operations in the past
and could have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
MANAGEMENT OF GROWTH AND EXPANSION. The Company's design, prototype, assembly
and turnkey business has grown rapidly in recent years and the Company has
expanded its operations to multiple locations primarily through acquisitions.
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 additional geographic expansion and acquisitions, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company invests its cash in money market funds or instruments which meet
high credit quality standards specified by the Company's investment policy. The
Company does not use financial instruments for trading or other speculative
purposes. The Company's financing facilities are subject to interest rate
fluctuations.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three month
period ended July 1, 2000.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XETEL CORPORATION
Date: August 15, 2000 By: /s/ Angelo A. DeCaro, Jr.
---------------------------
Angelo A. DeCaro, Jr.
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Richard S. Chilinski
------------------------
Richard S. Chilinski
Senior Vice President, Chief Financial Officer and Assistant Secretary
(Principal Financial and Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
