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 MARCH 31, 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 5,780,000 at April 30,
1997.
<PAGE>
<TABLE>
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
Ended March 31,
_______________________
1997 1996
____ ____
<S> <C> <C>
Net sales $ 5,527 $ 5,721
Cost of goods sold 3,953 3,900
__________ __________
Gross margin 1,574 1,821
Selling, general and administrative expense 1,109 893
__________ __________
Operating income 465 928
Interest expense 53 97
Interest income (64) (9)
__________ __________
Income before income taxes 476 840
Provision for income taxes 190 200
__________ __________
Net income $ 286 $ 640
Pro forma net income $ 499
Average common and common equivalent
shares outstanding 5,780 3,564
Net income per share $ 0.05 $ 0.18
Pro forma net income per share $ 0.14
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1997 1996
__________ __________
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,263 $ 6,619
Accounts receivable, net 2,642 2,580
Inventories 7,280 6,947
Prepaid expenses and other current assets 246 171
Deferred income taxes 199 293
__________ __________
Total current assets 17,630 16,610
Property, plant and equipment, at cost 2,859 2,809
Less accumulated depreciation and amortization 1,346 1,285
__________ __________
Net property and equipment 1,513 1,524
Other assets 123 148
__________ __________
Total Assets $ 19,266 $ 18,282
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 1,865 $ 1,167
Accrued expenses 805 588
Income taxes payable 78 37
Distributions payable - stockholders - 300
Current portion of notes payable - stockholders 1,500 1,500
__________ __________
Total current liabilities 4,248 3,592
Other Liabilities
Long-term notes payable - stockholders 1,757 1,757
Deferred income taxes 260 218
__________ __________
Total other liabilities 2,017 1,975
Stockholders' Equity
Capital Stock
Preferred stock - -
Common stock 6 6
Additional paid-in capital 10,708 10,708
Retained earnings 2,287 2,001
__________ __________
Total stockholders' equity 13,001 12,715
__________ __________
Total Liabilities and Stockholders' Equity $ 19,266 $ 18,282
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands)
(Unaudited)
<CAPTION>
1997 1996
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 286 $ 640
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 80 73
Deferred income taxes 136 100
Changes in assets and liabilities:
Accounts receivable, net (62) 70
Inventories (333) 1,135
Prepaid expenses and other assets (50) (154)
Accounts payable 698 (41)
Accrued expenses 217 (173)
Income taxes payable 41 192
__________ __________
Net cash provided by operating activities 1,013 1,842
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (69) (35)
Repayment of loan to stockholder - 1,645
__________ __________
Net cash provided by (used in) investing activities (69) 1,610
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable - bank - (5,802)
Net proceeds from sale of common stock - 9,005
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 (300) 1,603
Net increase in cash and cash equivalents 644 5,055
Cash and cash equivalents at beginning of period 6,619 127
__________ __________
Cash and cash equivalents at end of period $ 7,263 $ 5,182
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 49 $ 223
Income taxes $ 13 $ 8
<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
months ended March 31, 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
53.0% stockholder of the Company as of March 31, 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 three months ended March 31, 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 $ 840 $ 840
Provision for income taxes 200 $ 141 341
________ ________ ________
Net income $ 640 $ (141) $ 499
Net income per share $ 0.18 $ 0.14
</TABLE>
4. INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
____________ ____________
<S> <C> <C>
Raw materials $ 3,204 $ 3,038
Finished goods 4,076 3,909
_________ _________
7,280 6,947
</TABLE>
5. REVOLVING BANK LINE OF CREDIT
At March 31, 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 March 31, 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 March 31, 1997 and 1996
__________________________________________
Net sales. The Company's net sales for the first quarter of 1997
were $5,527,000, which represented a decrease of $194,000 (3.4%)
compared to net sales of the same period of the prior year. The
net sales decrease is the result of the cyclical purchasing
patterns of customer's construction projects and continued
pricing pressures, as well as a general slowdown in the industry.
During the first quarter of 1996, one of the Company's customers
was in the final phase of a construction project. While the
customer continues to do business with the Company, their
purchases in the first quarter of 1997 were approximately
$500,000 lower than in 1996.
Gross margin. The Company's gross margin for the first quarter
of 1997 was $1,574,000, which represented a decrease of $247,000
(13.6%) compared to gross margin of the same period of 1996. The
Company's gross margin as a percentage of sales decreased to
28.5% of sales in 1997 from 31.8% in 1996 due to continued
aggressive pricing by the Company and the absorption of material
cost increases which averaged 3% from period to period.
Selling, general and administrative ("SG&A"). SG&A expenses for
the first quarter of 1997 were $1,109,000, which represented an
increase of $216,000 (24.2%) 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.
Interest expense. Interest expense for the first quarter of 1997
was $53,000, which represented a decrease of $44,000 (45.4%)
compared to 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 first quarter of 1997
was $64,000, which represented an increase of $55,000, compared
to the same period of the prior year. The increase was due to
the higher cash balances which resulted from the Company's IPO.
Income tax expense. The Company's effective income tax rate for
the first quarter of 1997 was 39.9%, compared to an effective
rate of 23.8% for the first quarter of 1996. 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 first quarter of 1997 was
$286,000, which represented a decrease of $354,000 (55.3%)
compared to the same period of the prior year. The decrease was
due primarily to reduced gross margin and higher selling and
administrative expenses, partially offset by higher interest
income and reduced interest expense.
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 the first quarter 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 March 31, 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 March 31, 1997). There were no
borrowings outstanding under this line at March 31, 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 $13,382,000 at March 31, 1997 from
$13,018,000 at December 31, 1996, an increase of $364,000 (2.8%).
The increase was due primarily to cash flow from operations.
The Company generated net cash of $1,013,000 and $1,842,000 from
operating activities in the first quarters of 1997 and 1996,
respectively. The primary sources of operating cash in the
first quarter of 1997 were increases in accounts payable and
accrued expenses and the Company's net income, partially offset
by an increase in inventories. During the first quarter of 1996,
the primary sources of operating cash were the Company's net
income and a reduction in inventory levels.
Net cash used by investing activities was $69,000 in the first
quarter of 1997, compared to net cash provided by investing
activities of $1,610,000 in the same quarter 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.
Capital expenditures during the first quarter of 1997 were $69,000,
compared to $35,000 for the same period of 1996.
Net cash used by financing activities during the first quarter of
1997 was $300,000, 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. During
the same period in 1996, the Company generated $1,603,000 of net
cash from financing activities, consisting of net proceeds from
the IPO of $9,005,000 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April
25, 1997. At the Annual Meeting, stockholders voted on the
election of Ilan Bender, Ronald Costa, Carlos R. Espinosa,
Carlos V. Espinosa, William T. Gross, and Michael R. Peevey as
Directors of the Company and ratified the appointment of
Ernst & Young LLP as the Company's independent auditor for the
year ending December 31, 1997. The votes cast with respect to
each of these matters were as follows:
<TABLE>
<CAPTION>
Votes Against
1. Election of Directors: Votes For or Withheld
_____________ _____________
<S> <C> <C>
Ilan Bender 3,852,067 3,200
Ronald Costa 3,852,067 3,200
Carlos R. Espinosa 3,852,067 3,200
Carlos V. Espinosa 3,852,067 3,200
William T. Gross 3,852,067 3,200
Michael R. Peevey 3,852,067 3,200
<CAPTION>
2. Ratification of Appointment of
<S> <C> <C>
Ernst & Young LLP 3,855,067 200
</TABLE>
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
March 31, 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: May 14, 1997 By: /s/Lida R. Frankel
__________________
Lida R. Frankel
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,263
<SECURITIES> 0
<RECEIVABLES> 2,642
<ALLOWANCES> 0
<INVENTORY> 7,280
<CURRENT-ASSETS> 17,630
<PP&E> 2,859
<DEPRECIATION> 1,346
<TOTAL-ASSETS> 19,266
<CURRENT-LIABILITIES> 4,248
<BONDS> 1,757
0
0
<COMMON> 6
<OTHER-SE> 12,995
<TOTAL-LIABILITY-AND-EQUITY> 19,266
<SALES> 5,527
<TOTAL-REVENUES> 5,527
<CGS> 3,953
<TOTAL-COSTS> 3,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 476
<INCOME-TAX> 190
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
