UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ________________ to ________________
COMMISSION FILE NUMBER 0-27748
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)
Registrant's telephone number, including area code: (818) 782-0711
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
As of February 28, 1997, the aggregate market value of the
voting stock held by non-affiliates of the registrant, based
upon the last reported sales price of the Common Stock as
reported by Nasdaq, was approximately $8,140,000. Shares of
Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
There were 5,780,000 shares of the Registrant's Common Stock
outstanding as of February 28, 1997.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the Registrant for
the Registrant's 1997 Annual Meeting of Stockholders, which
definitive proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the
Registrant's fiscal year end of December 31, 1996, are
incorporated by reference into Part III.
<PAGE>
This Form 10-K/A amends that certain Form 10-K filed by the
Registrant on March 24, 1997 in order to correct an error that
occurred in the EDGAR transmission with respect to certain items
in the Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1994 in Item 8, Financial Statements and
Supplemental Data.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Ocal, Inc.
We have audited the accompanying consolidated balance sheets
of Ocal, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ocal, Inc. as of December 31, 1996 and
1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
January 20, 1997
Los Angeles, California
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
For the Years Ended December 31,
________________________________
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Net sales $ 25,000 $ 24,885 $ 19,123
Cost of goods sold 17,141 16,645 12,281
________ ________ ________
Gross margin 7,859 8,240 6,842
Operating expenses:
Selling, general and administrative 4,027 3,945 3,537
Stockholders' compensation 313 2,806 1,605
________ ________ ________
Operating income 3,519 1,489 1,700
Interest income (expense), net 17 (386) (308)
________ ________ ________
Income before income taxes 3,536 1,103 1,392
Provision for income taxes 1,180 22 8
________ ________ ________
Net income $ 2,356 $ 1,081 $ 1,384
Average common and common
equivalent shares outstanding 5,224 3,250 3,250
Net income per share $ 0.45 $ 0.33 $ 0.43
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
December 31, December 31,
1996 1995
____________ ____________
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,619 $ 127
Accounts receivable, net of allowance for doubtful
accounts of $122 in 1996 and $109 in 1995 2,580 3,090
Notes receivable - stockholder and related parties - 1,765
Inventories 6,947 7,248
Prepaid expenses and other current assets 171 182
Deferred income taxes 293 -
____________ ____________
Total current assets 16,610 12,412
Property and equipment at cost less accumulated
depreciation and amortization 1,524 1,396
Other assets
Deferred offering costs - 490
Other noncurrent assets 148 -
____________ ____________
Total other assets 148 490
____________ ____________
TOTAL ASSETS $ 18,282 $ 14,298
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,167 $ 2,075
Commissions payable 452 476
Accrued expenses 136 298
Income taxes payable 37 11
Notes payable - bank - 5,802
Distribution payable - stockholders 300 -
Current maturities of notes payable - stockholders 1,500 377
____________ ____________
Total current liabilities 3,592 9,039
Other liabilities
Long-term notes payable - stockholders 1,757 -
Deferred income taxes 218 -
____________ ____________
Total other liabilities 1,975 -
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized,
no shares issued - -
Common stock, $.001 par value, 15,000,000 shares authorized,
issued and outstanding: 5,780,000 shares at 1996 and
3,250,000 shares at 1995 6 3
Additional paid-in capital 10,708 711
Retained earnings 2,001 4,545
____________ ____________
Total stockholders' equity 12,715 5,259
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,282 $ 14,298
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the Years Ended December 31,
____________________________________________
1996 1995 1994
<S> ____________ ____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C> <C>
Net income $ 2,356 $ 1,081 $ 1,384
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 261 306 241
Deferred income taxes (75) - -
Changes in assets and liabilities:
Accounts receivable, net 510 (963) (85)
Inventories 301 (851) (1,422)
Prepaid expenses and other 11 (65) (10)
Accounts payable (908) 808 611
Commissions payable (24) 138 41
Accrued expenses (162) 18 (60)
Income taxes payable 26 11 -
____________ ____________ ____________
Net cash provided by operating activities 2,296 483 700
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (389) (159) (128)
Repayment by (loan to) stockholder and related parties 1,645 (1,645) -
Other items, net (148) - -
____________ ____________ ____________
Net cash provided by (used in) investing activities 1,108 (1,804) (128)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from (repayment of) notes payable - bank (5,802) 4,959 (1,163)
Repayment of notes payable - supplier - (700) -
Borrowings from (repayment of) notes payable -
related parties - (2,400) 655
Net proceeds from (costs of) sale of common stock 10,490 (490) -
Distribution of S corporation retained earnings
to prior S corporation stockholders (4,900) - -
Additions to notes and distribution payable - stockholders 3,300 - -
____________ ____________ ____________
Net cash provided by (used in) financing activities 3,088 1,369 (508)
Net increase in cash and cash equivalents 6,492 48 64
Cash and cash equivalents at beginning of year 127 79 15
____________ ____________ ____________
Cash and cash equivalents at end of year $ 6,619 $ 127 $ 79
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 242 $ 416 $ 99
Income taxes $ 1,229 $ 24 $ 79
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(In thousands)
<CAPTION>
Common Stock Additional
________________ Paid-in Retained
Shares Amount Capital Earnings Total
_______ _______ __________ __________ __________
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,250 $ 3 $ 711 $ 2,080 $ 2,794
Net income 1,384 1,384
_______ _______ __________ __________ __________
Balance at December 31, 1994 3,250 3 711 3,464 4,178
Net income 1,081 1,081
_______ _______ __________ __________ __________
Balance at December 31, 1995 3,250 3 711 4,545 5,259
Shares issued in initial public offering 2,530 3 9,997 10,000
Distributions of S corporation retained
earnings to prior S corporation stockholders (4,900) (4,900)
Net income 2,356 2,356
_______ _______ __________ __________ __________
Balance at December 31, 1996 5,780 $ 6 $ 10,708 $ 2,001 $ 12,715
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation: Concurrent with the closing of
the Company's initial public offering of common stock on March 18,
1996 (Note 3), 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
53.0% stockholder of the Company as of December 31, 1996.
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.
The stockholders' equity section of the consolidated financial
statements for prior periods has been retroactively restated
from that reported in the Registration Statement and Prospectus
related to the Company's initial public offering to reflect the
Company's capital structure and the Reorganization with the
common stock of these entities classified as paid-in capital.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
(B) Description of Business: The Company manufactures PVC-
coated rigid steel conduit, elbows and fittings which are sold
principally in the United States to distributors who resell the
products for ultimate use principally in new construction or as
replacement parts. Ocal Data provides data processing services
to Ocal Alabama and unrelated parties. Ocal Transport and
Occidental have had no operations.
(C) Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(D) Cash and Cash Equivalents: At December 31, 1996, cash
equivalents include highly liquid investments of approximately
$6,200,000 invested primarily in tax-exempt municipal securities
and high-grade commercial paper. These investments are stated
at cost which approximates fair value. The Company considers
all highly liquid instruments purchased with a remaining
maturity of three months or less to be cash equivalents.
(E) Inventories: Inventories are stated at the lower of cost
(first-in, first-out method) or market. Inventories are as
follows:
<TABLE>
<CAPTION>
December 31,
____________
1996 1995
_______ _______
<S> <C> <C>
Raw materials $ 3,038 $ 3,372
Finished goods 3,909 3,876
_______ _______
6,947 7,248
</TABLE>
(F) Property, Plant and Equipment: Property, plant and
equipment are recorded at cost and are depreciated using the
straight-line method over the following estimated useful lives:
Galvanizer 20 years
Other manufacturing equipment and molds 7 years
Office equipment 5-7 years
Vehicles 3 years
Leasehold improvements Remaining life of lease
(G) Revenue Recognition: The Company recognizes revenue from
product sales to customers upon shipment. The Company warrants
its products against defects for one year and has policies
permitting customers to return products under certain
circumstances. In addition, certain of the Company's
distributors and agents are entitled to rebates upon attaining
specified sales levels. Provision is made currently for the
estimated amount of product returns and rebates that may occur
under these programs.
(H) Income Taxes: Prior to the Reorganization, Ocal Alabama
had elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code. Under those provisions, Ocal
Alabama did not pay federal or state corporate income taxes on
its taxable income. Instead, the stockholders were liable for
federal and state income taxes on Ocal Alabama's taxable
income. The State of California adopted the provisions of
the S corporation election but charged a franchise tax at
the corporate level. In connection with its initial public
offering, Ocal Alabama's Subchapter S election was terminated,
and accordingly, the Company is now subject to federal and state
income taxes. For information purposes, the pro forma financial
information (see Note 2) includes pro forma amounts for the
income taxes that would have been recorded if the Company had
historically been a C corporation.
(I) Fair Value of Financial Instruments: The carrying values
of the Company's financial instruments, which consist of cash
and cash equivalents, notes receivable - stockholder and related
parties, notes payable - bank, and notes payable - related
parties, approximate their fair values.
(J) Net Income Per Share: Net income per share is computed by
dividing net income by the weighted average number of common
shares and common equivalent shares outstanding during the
periods, after giving effect to dilutive stock options and
warrants, if any.
(K) Reclassifications: Certain previously reported amounts
have been reclassified to conform to the current period
presentation.
(L) New Accounting Standard: In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation". The
standard encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and related
Interpretations. The Company grants stock options for a fixed
number of shares with an exercise price not less than the fair
value of the shares at the date of grant and accordingly,
recognizes no compensation expense for the stock option grants.
See Note 7.
2. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information is prepared on a basis
consistent with pro forma information appearing in the
Registration Statement and Prospectus related to the Company's
initial public offering. The pro forma financial information
includes adjustments (i) to reflect levels of stockholders'
compensation for certain stockholders whose compensation is
classified as stockholders' compensation in the accompanying
consolidated statements of income (based on the $312,500 of
salaries and bonuses paid to those stockholders for the year
ending December 31, 1996) and (ii) to provide related income
taxes as if all of the Company's income were taxed at
C corporation rates based upon pro forma income before income
taxes. Reconciliations between historical and pro forma results
of operations follow (in thousands except per share amounts):
<TABLE>
<CAPTION>
For the Years Ended December 31,
________________________________
1996 1995
_______ _______
<S> <C> <C>
Income before income taxes $ 3,536 $ 1,103
Pro forma adjustments (described above)
(i) Stockholders' compensation - 2,493
_______ _______
Pro forma income before income taxes 3,536 3,596
(ii) Tax provision (1,420) (1,438)
_______ _______
Pro forma net income $ 2,116 $ 2,158
Pro forma net income per share $ 0.41 $ 0.66
Weighted average shares outstanding 5,224 3,250
</TABLE>
3. INITIAL PUBLIC OFFERING
On March 18, 1996, the Company completed the initial public
offering of 2,200,000 shares of its common stock at a price of
$5.00 per share. On April 25, 1996, the underwriters exercised
their overallotment option by purchasing an additional 330,000
shares of the Company's common stock at a price of $5.00 per
share. After underwriters' discounts, commissions and expenses,
the net proceeds of the offering and overallotment exercise to
the Company were $10,000,000. Expenses of the offering charged
to paid-in capital aggregated $1,390,000, which included
$490,000, principally attorneys and accountants fees, which were
paid in 1995 and reflected as deferred offering costs at
December 31, 1995.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
____________
1996 1995
_______ _______
<S> <C> <C>
Machinery and equipment $ 1,556 $ 1,425
Office equipment 365 264
Leasehold improvements 311 311
Molds 429 346
Vehicles 148 123
_______ _______
2,809 2,469
Less accumulated depreciation and amortization (1,285) (1,073)
_______ _______
Property and equipment - net $ 1,524 $ 1,396
</TABLE>
5. REVOLVING BANK LINE OF CREDIT
Ocal Alabama and Occidental (jointly and severally, the
"Borrower") have 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). The related agreement requires the maintenance
of certain financial ratios and tangible net worth amounts and
provides for various restrictions, including limitations on
capital expenditures, additional indebtedness, salaries of
certain officers of the Company, and payment of dividends by
the Company. The bank has the right to demand the repayment of
the note, thereby terminating the line of credit, with 180 days'
prior written notice. Interest is payable at the bank's prime
interest rate plus .75% (9.0% at December 31, 1996). At December 31,
1995, there were $5,802,000 of borrowings outstanding at an
interest rate of 9.25%. There were no borrowings outstanding at
December 31, 1996. The amount of unused credit available at
December 31, 1996, based upon the Company's collateral, was
$3,978,000.
6. TRANSACTIONS WITH RELATED PARTIES
Notes receivable
Notes receivable - stockholder and related parties consist of
the following:
<TABLE>
<CAPTION>
December 31,
____________
1996 1995
_______ _______
<S> <C> <C>
6.5% unsecured note receivable from the major stockholder
of the Company, receivable on demand $ - $ 1,645
6.5% unsecured note receivable from a partnership in which
the major stockholder of the Company is a partner,
receivable on demand - 120
_______ _______
$ - $ 1,765
</TABLE>
Notes payable
Notes payable - stockholders consist of the following:
<TABLE>
<CAPTION>
December 31,
____________
1996 1995
_______ _______
<S> <C> <C>
6.5% unsecured note payable to the major stockholder
of the Company, payable on demand $ - $ 377
6.5% unsecured note payable to the major stockholder
of the Company, due on March 18, 1999 257 -
6.5% unsecured notes payable due to former stockholders
of Ocal Alabama - see (ii) below 3,000 -
_______ _______
Total $ 3,257 $ 377
Less: portion due within one year 1,500 377
_______ _______
Long-term portion $ 1,757 $ -
</TABLE>
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 distribution
was paid as follows:
(i) $1,600,000 was paid in cash on March 25, 1996; and
(ii) $3,000,000 in notes payable were issued to the
stockholders of Ocal Alabama. These notes bear interest
at the rate of 6.5% per annum and are payable $1,500,000
on September 18, 1997 and $1,500,000 on March 18, 1999.
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
of distribution payable to stockholders is reflected in current
liabilities at December 31, 1996.
Other
The Company's corporate office is leased from a partnership in
which the Company's major stockholder is the general partner,
and the lease expires on December 31, 1998.
Summary
Amounts of these related party transactions charged to expense
are as follows:
<TABLE>
<CAPTION>
December 31,
____________
1996 1995
_______ _______
<S> <C> <C>
Rent expense $ 36 $ 66
Interest expense $ 170 $ 88
</TABLE>
7. CAPITAL STOCK
Preferred Stock
The Company's Board of Directors is authorized to issue up to
5,000,000 shares of preferred stock, in series, to fix dividend
rates, conversion rights, voting rights, terms of redemption,
liquidation preferences, and to increase or decrease the number
of shares in any series. No preferred stock is currently
outstanding, and the Company has no present plans for the
issuance of any preferred stock. Specific rights granted to
future holders of preferred stock could be used to restrict the
Company's ability to merge with, or sell its assets to, a third
party. The ability of the Board of Directors to issue preferred
stock could discourage, delay or prevent a takeover of the
Company, thereby preserving control of the Company by the
current stockholders.
Stock Options
In August 1995, the Board of Directors adopted, and the
stockholders of the Company approved, the Ocal, Inc. 1995 Stock
Option Plan (the "Plan"). The Plan provides for the award of
incentive stock options to employees and the award of non-
qualified stock options to employees, independent contractors,
directors and consultants. The Company has reserved 400,000
shares of Common Stock under the Plan. Options to purchase
Common Stock are generally conditioned upon continued employment
or service to the Company, expire from five to ten years after
the grant date, and become exercisable commencing with the first
anniversary date of the grant. Stock options under the Plan are
granted at prices not less than the fair market value on the
date of the grant.
There were no options outstanding prior to the Company's initial
public offering on March 18, 1996. Activity during the year was
as follows:
<TABLE>
<CAPTION>
Options
Outstanding
(in thousands) Price Range
______________ ______________
<S> <C> <C>
Balance, December 31, 1995 - -
Options granted 108 $3.91 to $5.94
Options canceled or expired (3) $5.00
___
Balance, December 31, 1996 105 $3.91 to $5.94
</TABLE>
At December 31, 1996, options for 10,000 shares were
exercisable.
The Company has adopted the disclosure-only provisions of SFAS
No. 123 and, accordingly, does not recognize compensation cost.
Had the Company elected to recognize compensation cost based on
the fair value of the options granted at the grant date as
prescribed by SFAS No. 123, net income and net income per share
for 1996 would have been reduced to the pro forma amounts
indicated in the table below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
As Reported Pro Forma
___________ _________
<S> <C> <C>
1996 net income $ 2,356 $ 2,310
1996 net income per share $ 0.45 $ 0.44
</TABLE>
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized over the options' vesting
periods. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
Expected dividend yield 0.00%
Expected stock price volatility 46.4%
Risk-free interest rate 6.70%
Expected life of options 5 years
Vesting assumption 33.3% per year
The weighted average fair value of options granted during
1996 is $2.50 per share.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options. The
Company's stock options have characteristics significantly
different from those of traded options such as vesting
restrictions and extremely limited transferability. In
addition, the assumptions used in option valuation models are
highly subjective, particularly the expected stock price
volatility of the underlying stock. Because changes in these
subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its
stock options.
Pro forma net income and net income per share are the same
as reported amounts prior to 1996, as no stock options were
granted until the initial public offering on March 18, 1996.
Accordingly, the pro forma effect on net income of applying SFAS
123 for 1996 is not indicative of the effect for future years,
because it does not reflect a full year of expense.
Warrants
At December 31, 1996, warrants to purchase up to 220,000
shares of Common Stock were outstanding. These warrants are
exercisable for a period of four years commencing March 18, 1997
at an exercise price of $6.50 per share.
8. INCOME TAXES
Through March 18, 1996, the date of the Reorganization and the
Company's initial public offering, 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. The State of California
adopted the provisions of the S corporation election but charged
a franchise tax at the corporate level.
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 statement of income for the period
from March 18, 1996 through December 31, 1996.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
________________________
1996 1995 1994
_______ _______ _______
<S> <C> <C> <C>
Current provision -
Federal $ 960 $ - $ -
State 305 22 8
_______ _______ _______
1,265 22 8
Deferred provision -
Federal (90) - -
State 5 - -
_______ _______ _______
(85) - -
_______ _______ _______
Provision for taxes 1,180 22 8
</TABLE>
The following table reconciles the Company's provision for
income taxes to the statutory federal income tax rate of 34% for
the year ended December 31, 1996:
<TABLE>
<S> <C>
Federal income tax provision at statutory rate based upon the
Company's taxable income subsequent to March 18, 1996 $ 964
State income taxes, net of federal benefit, based upon the
Company's taxable income subsequent to March 18, 1996 180
Other, net 36
_______
$ 1,180
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the reported amounts of assets and
liabilities in the financial statements and the amounts used for
income tax purposes. Significant components of the Company's
deferred tax assets and liabilities at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Receivables valuation $ 126
Inventory valuation 51
State franchise taxes 105
Other 11
_______
Total deferred tax assets 293
Deferred tax liability - depreciation 218
</TABLE>
9. STOCKHOLDERS' COMPENSATION
Stockholders' compensation in 1995 and 1994 includes amounts to
facilitate the payment by certain former stockholders of Ocal
Alabama of their personal income taxes which include the taxable
income of Ocal Alabama for those years as a result of its
election of S corporation status.
10. LEASE COMMITMENTS
The Company leases its manufacturing facilities under an
agreement expiring on December 31, 2001. The lease for the
manufacturing facilities contains certain rent escalation
clauses and provides the Company with an option to extend the
lease through December 31, 2002. The Company's major
stockholder has personally guaranteed the lease obligation for
the manufacturing facilities. The Company's corporate office is
leased from a partnership in which the Company's major
stockholder is the general partner (see Note 6), and the
expiration date is December 31, 1998. The Company also leases
autos under various agreements expiring in 1998. Future minimum
lease payments under noncancelable operating leases as of
December 31, 1996 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
________________________
<S> <C>
1997 $ 225
1998 212
1999 162
2000 158
2001 148
Thereafter -
________
Total $ 905
</TABLE>
Rent expense was as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
________________________
<S> <C>
1996 $ 196
1995 167
1994 221
</TABLE>
Included in rent expense are amounts paid to a partnership for
rental of the Company's corporate office in the amounts
indicated in Note 6.
11. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash
equivalents and trade receivables. The Company places its cash
equivalents with high credit quality institutions.
The primary users of the Company's products are electrical
contractors and large industrial companies which obtain such
products through a group of approximately 600 distributors and
resellers who purchase the products directly from the Company.
Credit is extended to these distributors and resellers based
upon an evaluation of the customer's financial condition, and
collateral is generally not required. Management does not
believe significant credit risk exists at December 31, 1996.
The Company's four largest customers are multiple location
distributors. During 1996 and 1994, sales to any individual
customer did not exceed 10% of the Company's net sales. During
1995, there were two individual customers that represented 15.3%
and 11.4%, respectively, of the Company's net sales. Management
believes that the loss of any of these distributors would not
have a material adverse effect on the Company. These customers
are comprised of chains of individual distributors who make
independent purchasing decisions.
12. COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits arising in the
ordinary course of business. The Company does not believe that
the outcome of any of these lawsuits will have a material
adverse effect on the Company's business or financial condition.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 follow (in
thousands of dollars except for per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
_______ _______ _______ _______ ____
1996
<S> <C> <C> <C> <C> <C>
Net sales $ 5,721 $ 6,011 $ 7,193 $ 6,075 $ 25,000
Gross profit 1,821 1,891 2,172 1,975 7,859
Net income 639 540 612 565 2,356
Pro forma net income 499 540 612 465 2,116
Net income per share .18 .09 .11 .10 .45
Pro forma net income per share .14 .09 .11 .08 .41
<CAPTION>
1995
<S> <C> <C> <C> <C> <C>
Net sales $ 6,025 $ 6,784 $ 5,987 $ 6,089 $ 24,885
Gross profit 2,051 2,367 1,939 1,883 8,240
Net income (loss) 575 777 787 (1,058) 1,081
Pro forma net income 601 706 485 366 2,158
Net income (loss) per share .18 .24 .24 (.33) .33
Pro forma net income per share .18 .22 .15 .11 .66
</TABLE>
The pro forma financial information is prepared on a basis
consistent with pro forma information appearing in the
Registration Statement and Prospectus related to the Company's
initial public offering. The pro forma financial information
includes adjustments (i) to reflect levels of stockholders'
compensation for certain stockholders whose compensation is
classified as stockholders' compensation in the accompanying
consolidated statements of income (based on the $312,500 of
salaries and bonuses paid to those stockholders for the year
ending December 31, 1996) and (ii) to provide related income
taxes as if all of the Company's income were taxed at
C corporation rates based upon pro forma income before
income taxes.
<PAGE>
SIGNATURE
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.
OCAL, INC.
By: /s/ Lida R. Frankel
___________________
Lida R. Frankel
Chief Financial Officer
Date: July 28, 1997
