UNITED STATES
SECURITIES & 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 30, 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 0-27748
OCAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4544569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14538 KESWICK STREET
VAN NUYS, CALIFORNIA 91405
(Address of principal executive offices)
(818) 782-0711
(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 shorter periods 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 [ ]
The number of outstanding shares of the Registrant's Common
Stock, par value $.001 per share, was 5,770,000 at August 1, 1997.
<PAGE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
______________________ _____________________
1997 1996 1997 1996
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net sales $ 6,350 $ 6,011 $ 11,877 $ 11,732
Cost of goods sold 4,590 4,120 8,543 8,020
_________ _________ _________ _________
Gross margin 1,760 1,891 3,334 3,712
Selling, general and administrative expenses 1,108 1,021 2,217 1,914
_________ _________ _________ _________
Operating income 652 870 1,117 1,798
Interest expense 53 56 106 153
Interest income (63) (85) (127) (94)
_________ _________ _________ _________
Income before income taxes 662 899 1,138 1,739
Provision for income taxes 260 360 450 560
_________ _________ _________ _________
Net income $ 402 $ 539 $ 688 $ 1,179
Pro forma net income $ 1,038
Average common and common equivalent
shares outstanding 5,780 5,733 5,780 4,663
Net income per share $ 0.07 $ 0.09 $ 0.12 $ 0.25
Pro forma net income per share $ 0.22
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1996
____________ ____________
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 6,315 $ 6,619
Accounts receivable, net 2,661 2,580
Inventories 7,495 6,947
Prepaid expenses and other current assets 128 171
Prepaid income taxes 224 -
Deferred income taxes 222 293
____________ ____________
Total current assets 17,045 16,610
Property, plant and equipment, at cost 2,991 2,809
Less accumulated depreciation and amortization 1,422 1,285
____________ ____________
Net property and equipment 1,569 1,524
Other assets 97 148
____________ ____________
Total Assets $ 18,711 $ 18,282
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 976 $ 1,167
Accrued expenses 842 588
Income taxes payable - 37
Distributions payable - stockholders - 300
Current portion of notes payable - stockholders 1,500 1,500
____________ ____________
Total current liabilities 3,318 3,592
Other Liabilities
Long-term notes payable - stockholders 1,757 1,757
Deferred income taxes 266 218
____________ ____________
Total other liabilities 2,023 1,975
Stockholders' Equity
Capital Stock
Preferred stock - -
Common stock 6 6
Additional paid-in capital 10,675 10,708
Retained earnings 2,689 2,001
____________ ____________
Total stockholders' equity 13,370 12,715
____________ ____________
Total Liabilities and Stockholders' Equity $ 18,711 $ 18,282
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands)
(Unaudited)
<CAPTION>
1997 1996
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 688 $ 1,179
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 155 147
Deferred income taxes 119 100
Changes in assets and liabilities:
Accounts receivable, net (81) 352
Inventories (548) 854
Prepaid expenses and other 94 (130)
Accounts payable (191) (508)
Accrued expenses 254 73
Income taxes payable (261) (106)
_________ _________
Net cash provided by operating activities 229 1,961
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (200) (58)
Repayment of loan to stockholder - 1,645
_________ _________
Net cash provided by (used in) investing activities (200) 1,587
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable - bank - (5,802)
Net proceeds from sales (repurchases) of
common stock (33) 10,490
Distribution of S corporation retained earnings
to prior S corporation stockholders (300) (4,600)
Additions to notes payable - stockholders - 3,000
_________ _________
Net cash provided by (used in) financing activities (333) 3,088
_________ _________
Net increase (decrease) in cash and cash equivalents (304) 6,636
Cash and cash equivalents at beginning of period 6,619 127
_________ _________
Cash and cash equivalents at end of period $ 6,315 $ 6,763
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 98 $ 280
Income taxes $ 589 $ 358
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
OCAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying condensed consolidated financial statements of
Ocal, Inc. ("Ocal" or the "Company") and its subsidiaries are
unaudited and have been prepared in conformity with generally
accepted accounting principles for interim financial reporting
and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the accompanying financial statements reflect all
adjustments (of a normal recurring nature) necessary to provide a
fair statement of the results for the interim periods presented.
The interim financial statements should be read in conjunction
with the financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1996. The results of operations for the three and six months
ended June 30, 1997 are not necessarily indicative of the results
of operations that may be expected for the full year ending
December 31, 1997.
2. BASIS OF PRESENTATION
Concurrent with the closing of the Company's initial public
offering ("IPO") of common stock on March 18, 1996, all of the
outstanding capital stock of OCAL, Incorporated ("Ocal Alabama"),
Occidental Coating Company ("Occidental"), Ocal Data Company
("Ocal Data"), and Ocal Transport Co. ("Ocal Transport") was
acquired by the Company through capital contributions by their
respective prior stockholders in exchange for an aggregate of
3,250,000 shares of the Company's common stock (the
"Reorganization"). The Company's Chairman, CEO and President was
the sole or majority stockholder of each of the contributed
companies and is the 53.1% stockholder of the Company as of June
30, 1997.
The accounts of Ocal Alabama, Occidental, Ocal Data and Ocal
Transport are included in the accompanying consolidated financial
statements of the Company on their historical basis. All
significant intercompany accounts and transactions have been
eliminated in consolidation. Certain previously reported amounts
have been reclassified to conform to the current period
presentation.
3. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is prepared on a basis
consistent with pro forma information appearing in the
Registration Statement and Prospectus dated March 12, 1996
related to the Company's IPO. The pro forma financial information
includes an adjustment to provide related income taxes as if all
of the Company's income prior to the IPO had been taxed at C
corporation rates based upon income before income taxes. A
reconciliation between historical and pro forma results of
operations for the six months ended June 30, 1996 follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
___________ ___________ ___________
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Income before income taxes $ 1,739 $ 1,739
Provision for income taxes 560 $ 141 701
________ ________ ________
Net income $ 1,179 $ (141) $ 1,038
Net income per share $ 0.25 $ 0.22
</TABLE>
4. INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
____________ ____________
<S> <C> <C>
Raw materials $ 3,245 $ 3,038
Finished goods 4,250 3,909
_________ _________
7,495 6,947
</TABLE>
5. REVOLVING BANK LINE OF CREDIT
At June 30, 1997, there were no borrowings outstanding under
the bank line of credit. The bank line provides for maximum
borrowings of $6,500,000 (subject to certain specified
percentages of the Company's accounts receivable and
inventories). Interest is payable at the bank's prime rate
plus .75% (9.25% at June 30, 1997).
6. TRANSACTIONS WITH RELATED PARTIES
As part of the Reorganization on March 18, 1996, Ocal Alabama
declared a distribution to its then stockholders in an amount of
$4,600,000, which was an estimate of all of its undistributed S
corporation retained earnings as of that date. The estimated
distribution was paid in March 1996 in the form of cash and
notes payable issued to the stockholders of Ocal Alabama.
The amount of undistributed S corporation retained earnings as
of March 18, 1996 was finalized as $4,900,000 after Ocal Alabama's
income tax return for the period from January 1, 1996 through
March 18, 1996 was completed. The additional $300,000
undistributed S corporation retained earnings was paid in cash to
the stockholders in February 1997.
7. INCOME TAXES
Through March 18, 1996, the date of the Reorganization and the
IPO, Ocal Alabama and Ocal Data had elected to be taxed as S
corporations under the provisions of the Internal Revenue Code.
Pursuant to such elections, stockholders of these companies
included their proportionate share of the taxable income of these
companies in their personal tax returns. Accordingly, no
provision for federal income taxes was required or provided for
the operations of Ocal Alabama and Ocal Data through March 18,
1996.
As of March 18, 1996, as a result of the Reorganization, the
Company and all of its subsidiaries became C corporations subject
to state and federal income taxes at statutory rates. Such
income taxes are provided on the results of operations in the
accompanying consolidated statements of income for all periods
subsequent to March 18, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995
which involve risk and uncertainties. The Company's actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including, without limitation, competition, changes in product
pricing and gross margin, nominal growth in the industry,
dependence on suppliers, and risks due to potential future
acquisitions, as well as those factors set forth in the Company's
1996 Annual Report on Form 10-K, and under the caption "Risk
Factors" in the Company's Registration Statement on Form S-1
declared effective on March 12, 1996.
RESULTS OF OPERATIONS
Overview
________
On March 18, 1996, the Company completed an initial public
offering ("IPO") of its stock. Concurrent with the closing of
the Company's IPO, all of the outstanding capital stock of OCAL,
Incorporated ("Ocal Alabama"), Occidental Coating Company
("Occidental"), Ocal Data Company ("Ocal Data"), and Ocal
Transport Co. ("Ocal Transport") was acquired by the Company
through capital contributions by the respective stockholders in
exchange for an aggregate of 3,250,000 shares of the Company's
common stock (the "Reorganization").
As part of this Reorganization, Ocal Alabama declared a
$4,600,000 distribution to its former stockholders, which
represented estimated undistributed S corporation retained
earnings, and the total amount of the distribution was finalized
as $4,900,000 upon completion of the final tax return for Ocal
Alabama. The estimated distribution was paid in March 1996 in
the form of cash of $1,600,000 and notes payable of $3,000,000.
The additional $300,000 of undistributed S corporation retained
earnings was paid in cash to the stockholders in February of
1997.
Prior to the IPO, Ocal Alabama and Ocal Data had elected to be
taxed as S corporations under the provisions of the Internal
Revenue Code. Pursuant to such elections, stockholders of these
companies included their proportionate share of the taxable
income of these companies in their personal tax returns.
Accordingly, no provision for federal taxes was required or
provided for the operations of these entities through March 18,
1996.
Three Months Ended June 30, 1997 and 1996
_________________________________________
Net sales. The Company's net sales for the second quarter 1997
of $6,350,000 increased $339,000 (5.6%) over second quarter net
sales in the prior year. The modest increase in sales is due to
a combination of increased volumes and higher prices. During the
latter part of the quarter, the Company implemented a price
increase of approximately 2.5%, following actions taken by its
competitors.
Gross margin. The Company's gross margin for the second quarter
of 1997 was $1,760,000, which represented a decrease of $131,000
(6.9%) compared to gross margin of the same period of 1996. The
Company's gross margin as a percentage of sales decreased to
27.7% in 1997 from 31.5% in 1996 due primarily to increased labor
costs. The Company implemented salary increases of approximately
20% to factory personnel at the beginning of the second quarter
of 1997 in order to remain competitive with wages paid by other
local employers and to reduce employee turnover.
Selling, general and administrative ("SG&A"). SG&A expenses for
the second quarter of 1997 were $1,108,000, which represented an
increase of $87,000 (8.5%) compared to the same period of the
prior year. The increase was due to salaries of employees in
marketing and office functions who joined the Company in the
third quarter of 1996, as well as to expenses associated with the
Company's first annual report.
Interest income. Interest income for the second quarter of 1997
was $63,000, which represented a decrease of $22,000 (25.9%),
compared to the same period of the prior year. During the fourth
quarter of 1996, the Company decided to invest excess cash in
federally tax-free instruments. These instruments have a higher
net after-tax yield than taxable investments, but have caused a
decrease in pre-tax interest income.
Income tax expense. The Company's effective income tax rate for
the second quarter of 1997 was 39.3%, compared to 40.0% in the
same period of the prior year. The slight decrease in the
effective rate is due to the tax-free interest income described
above.
Net income. Net income for the second quarter of 1997 was
$402,000, which represented a decrease of $137,000 (25.4%)
compared to the same period of the prior year. The decrease was
due primarily to reduced gross margin and higher selling, general
and administrative expenses.
Six Months Ended June 30, 1997 and 1996
_______________________________________
Net sales. The Company's net sales for the six months ended June
30, 1997 of $11,877,000 increased $145,000 (1.2%) compared to the
same period of 1996. The nominal increase in net sales is the
result of modest increases in volumes and prices compared to the
same period of the prior year.
Gross margin. The Company's gross margin for the six months
ended June 30, 1997 was $3,334,000, which represented a decrease
of $378,000 (10.2%) compared to gross margin of the same period
of 1996. The Company's gross margin as a percentage of sales
decreased to 28.1% in 1997 from 31.6% in 1996 due primarily to
increased labor costs and, to a lesser extent, to certain
material cost increases which were not passed on to customers
during the first quarter of 1997. The Company implemented salary
increases of approximately 20% to factory personnel at the
beginning of the second quarter of 1997 in order to remain
competitive with wages paid by other local employers and to
reduce employee turnover.
Selling, general and administrative ("SG&A"). SG&A expenses for
the six months ended June 30, 1997 were $2,217,000, which
represented an increase of $303,000 (15.8%) compared to the same
period of the prior year. The increase was due primarily to
salaries of employees in marketing and office functions who
joined the Company in the second and third quarters of 1996, and
expenses associated with the Company's first annual report.
Interest expense. Interest expense for the six months ended June
30, 1997 was $106,000, which represented a decrease of $47,000
(30.7%) compared to the same period in the prior year. The
reduction was due to the absence of bank debt in 1997 as a result
of cash generated by the IPO.
Interest income. Interest income for the six months ended June
30, 1997 was $127,000, which represented an increase of $33,000
(35.1%) compared to the same period of the prior year. The
increase was due to higher cash balances which resulted from the
Company's IPO.
Income tax expense. The Company's effective income tax rate for
the six months ended June 30, 1997 was 39.5%, compared to 32.2%
in the same period of the prior year. As described in the
Overview section above, Ocal Alabama and Ocal Data were not
subject to state and federal income taxes at statutory rates
until after the Reorganization.
Net income. Net income for the six months ended June 30, 1997
was $688,000, which represented a decrease of $491,000 (41.6%)
compared to the same period of the prior year. The decrease was
due primarily to reduced gross margin and higher selling, general
and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
In March and April of 1996, the Company completed its IPO of
2,530,000 shares of its common stock, which resulted in net
proceeds, after deduction of underwriters' discounts,
commissions, and expenses, of $10,000,000. A portion of the
expenses, $490,000, was paid in 1995. The net proceeds of the
offering were used principally to pay off the $3,948,000 balance
remaining on the Company's note payable to its lending bank and
to pay the $1,600,000 cash portion of Ocal Alabama's distribution
of its S corporation retained earnings to its former
stockholders. The balance of the proceeds were added to the
Company's working capital during March and April of 1996.
As described in the Overview section above, Ocal Alabama declared
a distribution to its then stockholders in an amount of
$4,600,000, which was an estimate of all its undistributed S
corporation retained earnings as of the date of the
Reorganization. The distribution amount was finalized as
$4,900,000 after Ocal Alabama's final income tax return was
completed. On March 25, 1996, $1,600,000 of the distribution was
paid in cash to the former stockholders and notes payable bearing
interest at the rate of 6.5% per annum were established for the
$3,000,000 unpaid portion of the distribution, with $1,500,000
due on September 18, 1997 and $1,500,000 due on March 18, 1999.
The additional $300,000 of undistributed S corporation retained
earnings, classified as a distribution payable at December 31,
1996, was paid in cash to the former stockholders in February
1997.
At June 30, 1997, the Company's debt totaled $3,257,000, which
consisted of $3,000,000 in notes payable to former stockholders
of Ocal Alabama and $257,000 of notes payable to the Company's
major shareholder. The portion of debt due within the next
twelve months and therefore classified as current is $1,500,000.
The Company has a revolving bank line of credit which provides
for maximum borrowings of $6,500,000 (subject to certain
specified percentages of the Borrower's accounts receivable and
inventories). Interest is payable at the bank's prime interest
rate plus .75% (9.25% at June 30, 1997). There were no
borrowings outstanding under this line at June 30, 1997.
The Company believes that cash provided by operating activities,
existing cash and cash equivalents, and available credit will be
sufficient to fund future operating and capital cash needs for at
least the next 12 to 18 months. The Company intends to pursue a
strategy of growth by selective acquisitions that complement the
Company's strengths in the electrical conduit industry. Such
acquisitions may necessitate the issuance of additional debt or
equity securities of the Company. The Company intends to pursue
this strategy with careful regard for profitability, the need for
liquidity, and the potential dilutive effect of any additional
issuance of equity securities. There can be no assurance,
however, that any acquisitions will occur or that an acquisition
that does occur will not adversely affect the Company's net
income or liquidity.
Working capital increased to $13,727,000 at June 30, 1997 from
$13,018,000 at December 31, 1996, an increase of $709,000 (5.4%).
The increase was due primarily to an increase in the level of
inventory and prepayments of federal and state income taxes.
The Company generated net cash of $229,000 and $1,961,000 from
operating activities in the six month periods ended June 30, 1997
and 1996, respectively. The primary sources of operating cash
in the six months ended June 30, 1997 were the Company's net
income and an increased level of accrued expenses, offset by an
increase in the level of inventory and prepayment of income
taxes. During the six months ended June 30, 1996, the primary
sources of operating cash were the Company's net income and
reductions in the levels of inventory and accounts receivable,
partially offset by a decrease in accounts payable.
Net cash used by investing activities was $200,000 in the six
month period ended June 30, 1997, compared to net cash provided
by investing activities of $1,587,000 in the same period of the
prior year. The Company's capital expenditures for the six
months ended June 30, 1997 were $200,000, compared to $58,000
for the same period of the prior year. During March of 1996, in
conjunction with the Reorganization, the Company's major
stockholder repaid a loan of $1,645,000 to the Company. The loan
was originally made in 1995 in order to allow the primary
stockholder to furnish a personally owned certificate of deposit
as security on the Company's revolving line of credit.
Net cash used by financing activities during the six months ended
June 30, 1997 was $333,000, which consisted of the February 1997
payment of the previously undistributed S corporation earnings
after the finalization of Ocal Alabama's March 18, 1996 tax
return, and the Company's repurchase of 10,000 shares of its
common stock. During the same period in 1996, the Company
generated $3,088,000 of net cash from financing activities,
consisting of proceeds from the IPO of $10,490,000 offset in part
by repayment of the note to the bank of $5,802,000 and the
distribution of $1,600,000 of Ocal Alabama's S corporation
earnings to the former stockholders (net of notes payable issued
to the former stockholders).
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURE
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.
OCAL, INC.
(Registrant)
Date: August 13, 1997 By: /s/Lida R. Frankel
__________________
Lida R. Frankel
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,315
<SECURITIES> 0
<RECEIVABLES> 2,661
<ALLOWANCES> 0
<INVENTORY> 7,495
<CURRENT-ASSETS> 17,045
<PP&E> 2,991
<DEPRECIATION> 1,422
<TOTAL-ASSETS> 18,711
<CURRENT-LIABILITIES> 3,318
<BONDS> 1,757
0
0
<COMMON> 6
<OTHER-SE> 13,364
<TOTAL-LIABILITY-AND-EQUITY> 18,711
<SALES> 11,877
<TOTAL-REVENUES> 11,877
<CGS> 8,543
<TOTAL-COSTS> 8,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 1,138
<INCOME-TAX> 450
<INCOME-CONTINUING> 688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 688
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0
</TABLE>
