<PAGE>
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, 1998
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 5,681,000 at August 10, 1998.
<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 For the Six Months
Ended June 30, Ended June 30,
______________________ _____________________
1998 1997 1998 1997
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net sales $ 6,431 $ 6,350 $ 12,535 $ 11,877
Cost of goods sold 4,783 4,590 9,241 8,543
_________ _________ _________ _________
Gross margin 1,648 1,760 3,294 3,334
Selling, general and administrative expenses 1,189 1,108 2,379 2,217
_________ _________ _________ _________
Operating income 459 652 915 1,117
Interest expense 29 53 57 106
Interest income (51) (63) (96) (127)
_________ _________ _________ _________
Income before income taxes 481 662 954 1,138
Provision for income taxes 178 260 353 450
_________ _________ _________ _________
Net income $ 303 $ 402 $ 601 $ 688
========= ========= ========= =========
Basic and diluted earnings per share $ 0.05 $ 0.07 $ 0.11 $ 0.12
========= ========= ========= =========
Weighted average shares - basic and diluted 5,681 5,780 5,686 5,780
========= ========= ========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, December 31,
1998 1997
_________ _________
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,916 $ 4,529
Accounts receivable, net 3,779 2,751
Inventories 7,382 7,760
Prepaid expenses and other current assets 117 201
Prepaid income taxes 292 253
Deferred income taxes 179 275
_________ _________
Total current assets 16,665 15,769
Property and equipment, net 2,070 1,819
Other assets 16 47
_________ _________
TOTAL ASSETS $ 18,751 $ 17,635
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,297 $ 922
Accrued expenses 902 677
Current maturities of notes payable - stockholders 1,757 --
_________ _________
Total current liabilities 3,956 1,599
Long-term notes payable - stockholders -- 1,757
Deferred income taxes 250 287
_________ _________
Total liabilities 4,206 3,643
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 6 6
Additional paid-in capital 10,429 10,486
Retained earnings 4,110 3,509
Treasury stock -- (9)
_________ _________
Total stockholders' equity 14,545 13,992
_________ _________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,751 $ 17,635
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(Unaudited)
<CAPTION>
1998 1997
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 601 $ 688
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 199 155
Deferred income taxes 59 119
Changes in assets and liabilities:
Accounts receivable, net (1,028) (81)
Inventories 378 (548)
Prepaid expenses and other 115 94
Accounts payable 375 (191)
Accrued expenses 225 254
Prepaid income taxes (39) (261)
_________ _________
Net cash provided by operating activities 885 229
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (450) (200)
_________ _________
Net cash used in investing activities (450) (200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (48) (33)
Distribution of S corporation retained earnings
to prior S corporation stockholders -- (300)
_________ _________
Net cash used in financing activities (48) (333)
_________ _________
Net increase (decrease) in cash and cash equivalents 387 (304)
Cash and cash equivalents at beginning of period 4,529 6,619
_________ _________
Cash and cash equivalents at end of period $ 4,916 $ 6,315
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 49 $ 98
Income taxes $ 332 $ 589
<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 1997 Annual Report on
Form 10-K and the Company's other Securities and Exchange Commission filings.
The results of operations for the three months and six months ended June 30,
1998 are not necessarily indicative of the results of operations that may be
expected for the full year ending December 31, 1998.
2. COMPUTATION OF NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128. This Statement requires the presentation of basic and diluted earnings per
share. Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during
the period, increased by the effect of dilutive stock options and warrants. All
earnings per share amounts presented have been recalculated to comply with SFAS
No. 128's requirements, which did not change amounts previously reported.
The following table presents the calculation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
__________________ ________________
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Numerator: Net income for basic
and diluted earnings per share $ 303 $ 402 $ 601 $ 688
Denominator:
Weighted average shares 5,681 5,780 5,686 5,780
Effect of dilutive securities:
Warrants -- -- -- --
Stock options -- -- -- --
_______ _______ _______ _______
Dilutive potential common shares -- -- -- --
Denominator for basic and
diluted earnings per share 5,681 5,780 5,686 5,780
======= ======= ======= =======
Basic and diluted earnings per share $ 0.05 $ 0.07 $ 0.11 $ 0.12
======= ======= ======= =======
</TABLE>
3. INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
___________ ____________
(Unaudited)
<S> <C> <C>
Raw materials $ 3,322 $ 3,344
Finished goods 4,060 4,416
_______ _______
$ 7,382 $ 7,760
======= =======
</TABLE>
<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 risks and
uncertainties. The actual results of Ocal, Inc. (together with its wholly-owned
subsidiaries, "Ocal" or the "Company") could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, without limitation, competitive pressures on product pricing,
potential delays in implementing planned reductions in material and factory
labor costs, competition from other manufacturers of PVC-coated conduit and
from manufacturers of alternative conduit products, nominal growth in the
Company's industry, dependence on key personnel, control by the Company's
majority stockholder, cyclicality of plant expansion activities by the
Company's end users, and risks associated with the financing and integration of
potential future acquisitions (including the potential dilutive effect and
other financial impact of such acquisitions), as well as the factors set forth
in the Company's 1997 Annual Report on Form 10-K, under the caption "Risk
Factors" in the Company's IPO Prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) on March 12, 1996, and in the Company's
other Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
_____________________
Ocal, founded in 1965, is a leading manufacturer of high-quality, competitively
priced polyvinyl chloride (PVC) coated rigid steel conduit, elbows, and
fittings. The Company's products are primarily used in the new construction and
maintenance of plants operating in highly corrosive environments and provide
the maximum protection and durability commercially available for electrical
wiring systems.
OVERVIEW
On March 18, 1996, the Company completed an initial public offering ("IPO") of
its stock. Concurrent with the closing of the IPO, all of the outstanding
capital stock of OCAL, Incorporated ("Ocal Alabama"), Occidental Coating
Company, Ocal Data Company, and Ocal Transport Co. 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.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
_________________________________________
NET SALES. The Company's net sales for the second quarter of 1998 were
$6,431,000, which represented an increase of $193,000 (1.3%) compared to net
sales in the second quarter of 1997. The increase in net sales was due to an
increase in volume shipments of approximately 3%, offset by significant price
concessions on one large overseas order and also on initial orders for three
new Ocal stocking distributors. In addition, average selling prices decreased
by approximately 2% from the year-ago period.
GROSS MARGIN. The Company's gross margin for the second quarter of 1998 was
$1,648,000, which represented a decrease of $112,000 (6.4%) compared to the
gross margin for the second quarter of 1997. The Company's gross margin as a
percentage of sales decreased to 25.6% in the second quarter of 1998 from 27.7%
in the same prior year period, primarily due to the aforementioned pricing
concessions and competitive pricing in the Company's industry in general.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses for the second
quarter of 1998 were $1,189,000, which represented an increase of $81,000
(7.3%) compared to the second quarter of 1997. The increase was due primarily
to approximately $50,000 of non-recurring expenses related to the settlement of
a lawsuit and increased sales commissions. The average sales commission rate
increased to 8.0% for the second quarter of 1998 from 7.5% in the second
quarter of 1997 due to a greater value of shipments from agent warehouses
during the quarter.
INTEREST EXPENSE. Interest expense for the second quarter of 1998 was $29,000,
which represented a decrease of $24,000 (45.3%) compared to the second quarter
of 1997. The decrease was due to the repayment of $1,500,000 principal amount
of notes payable due to former stockholders of Ocal Alabama on September 18,
1997.
INTEREST INCOME. Interest income for the second quarter of 1998 was $51,000,
which represented a decrease of $12,000 (19.0%) compared to the second quarter
of 1997. The decrease was due to lower average investment balances, resulting
from the repayment of $1,500,000 principal amount of notes payable due to
former stockholders of Ocal Alabama on September 18, 1997.
INCOME TAX EXPENSE. The Company's effective income tax rate for the second
quarter of 1998 was 37.0%, compared to 39.3% in the same period of the prior
year. The tax rate used during the second quarter of 1997 was a provisional
rate, which was reduced later in the year, and the effective rate for the full
year of 1997 was 36.5%.
NET INCOME. Net income for the second quarter of 1998 was $303,000, which
represented a decrease of $99,000 (24.6%) compared to the same period of the
prior year. The decrease was due primarily to reduced gross margin, caused by
lower net pricing, as well increased selling, general and administrative
expenses, partially offset by a reduction in the effective income tax rate.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
_______________________________________
NET SALES. The Company's net sales for the six months ended June 30, 1998 were
$12,535,000, which represented an increase of $658,000 (5.5%) compared to net
sales in the same period of 1997. The increase in net sales was due to an
increase in volume shipments of approximately 7%, with average selling prices,
including the effects of price concessions on opening orders, down
approximately 2% from the year-ago period.
GROSS MARGIN. The Company's gross margin for the six months ended June 30,
1998 was $3,294,000, which represented a decrease of $40,000 (1.2%) compared to
the gross margin for the same period of 1997. The Company's gross margin as a
percentage of sales decreased to 26.3% for the first six months of 1998 from
28.1% in the same period of the prior year, primarily due to a combination of
competitive pricing and increased material costs. Material costs as a
percentage of sales increased from approximately 44.5% for the first six months
of 1997 to approximately 47.0% for the same period of 1998, with steel pipe
costs staying relatively flat and costs of fittings increasing.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses for the six months
ended June 30, 1998 were $2,379,000, which represented an increase of $162,000
(7.3%) compared to the same period of 1997. The increase was largely due to
higher sales commissions, as well as approximately $50,000 of non-recurring
expenses related to the settlement of a lawsuit in the second quarter of 1998.
The average sales commission rate for the first six months of 1998 increased to
8.0% in 1998 from 7.5% in 1997 due to a greater value of shipments from agent
warehouses.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1998 was
$57,000, which represented a decrease of $49,000 (46.2%) compared to the same
period of 1997. The decrease was due to the repayment of $1,500,000 principal
amount of notes payable due to former stockholders of Ocal Alabama on September
18, 1997.
INTEREST INCOME. Interest income for the six months ended June 30, 1998 was
$96,000, which represented a decrease of $31,000 (24.4%) compared to the same
period of 1997. The decrease was due to lower average investment balances,
resulting from the repayment of $1,500,000 principal amount of notes payable
due to former stockholders of Ocal Alabama on September 18, 1997.
INCOME TAX EXPENSE. The Company's effective income tax rate for the six months
ended June 30, 1998 was 37.0%, compared to 39.5% in the same period of the
prior year. The tax rate used during the first six months of 1997 was a
provisional rate, which was reduced later in the year, and the effective rate
for the full year of 1997 was 36.5%.
NET INCOME. Net income for the six months ended June 30, 1998 was $601,000,
which represented a decrease of $87,000 (12.6%) compared to the same period of
the prior year. The decrease was due to increased selling, general and
administrative expenses, partially offset by a reduction in the effective
income tax rate. Notwithstanding the Company's increased revenues during the
first six months of 1998, the Company experienced a slight decrease in gross
margin due to competitive pricing and increases in certain material costs.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
At June 30, 1998, the Company's debt totaled $1,757,000, which consisted of
$1,500,000 in notes payable to former stockholders of Ocal Alabama and $257,000
of notes payable to the Company's major stockholder. These notes are due on
March 18, 1999.
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
Company's accounts receivable and inventories). Interest is payable, at the
Company's option, at either the bank's prime interest rate or LIBOR plus 2.0%.
At June 30, 1998, the Company had $22,000 outstanding under a standby letter of
credit, and no borrowings outstanding under the bank line of credit. The amount
of unused credit available under the bank line of credit, based upon the
Company's collateral at June 30, 1998, was $5,497,000.
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.
At June 30, 1998, working capital was $12,709,000, compared to $14,170,000 at
December 31, 1997, a decrease of $1,461,000 (10.3%). The most significant
components of the decrease were the reclassification of $1,757,000 principal
amount of long-term notes payable due to former stockholders of Ocal Alabama
and the Company's major stockholder, which are now due in the current period,
and increases in accounts payable and accrued expenses of $600,000, which were
partially offset by an increase in accounts receivable of $1,028,000. The
Company's days' sales outstanding in receivables has increased from
approximately 49 days at December 31, 1997 to approximately 52 days at June 30,
1998.
The Company generated net cash from operating activities of $885,000 for the
first six months ended June 30, 1998, compared to $229,000 in the same period
of 1997. The primary sources of operating cash for the six months ended June
30, 1998 were the Company's net income, increases in accounts payable and
accrued expenses and a reduction in inventory, partially offset by an increase
in accounts receivable. During the first six months of 1997, the primary
sources of operating cash were the Company's net income, offset by increases in
inventory and prepaid income taxes.
Net cash used in investing activities consists of capital expenditures of
$450,000 for the six months ended June 30, 1998, compared to $200,000 in the
same period of 1997. The increased expenditures in 1998 relate to the ongoing
automation of certain painting and pipe-cutting processes which are currently
being done manually.
Net cash used by financing activities was $48,000 for the six months ended June
30, 1998, compared to $333,000 in the same period of 1997. During the first
quarter of 1998, the Company purchased 20,000 shares of treasury stock at a
cost of $48,000 under its stock repurchase program. During the first quarter of
1997, the Company paid $300,000 of previously undistributed S corporation
earnings to former Ocal Alabama stockholders after the finalization of Ocal
Alabama's March 18, 1996 tax return and in the second quarter of 1997
repurchased 10,000 shares of treasury stock at a cost of $33,000. During the
second quarter of 1998, the Company's Board of Directors decided to suspend the
Company's stock repurchase program.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<TABLE>
At the Company's Annual Meeting of Stockholders, held May 18, 1998, the Company's
stockholders approved the following:
Proposal One: Election of Directors
_____________ _____________________
<CAPTION>
Votes For Votes Withheld
_________ ______________
<S> <C> <C>
Ilan Bender 5,381,000 28,285
Ronald Costa 5,381,000 28,285
Carlos R. Espinosa 5,381,000 28,285
Carlos V. Espinosa 5,381,000 28,285
William T. Gross 5,381,000 28,285
Michael R. Peevey 5,381,000 28,285
</TABLE>
<TABLE>
Proposal Two: Ratification of the appointment of Ernst & Young LLP as the Company's
_____________ _____________________________________________________________________
Independent Auditors for the year ending December 31, 1998
__________________________________________________________
<S> <C>
Votes For 5,396,783
Votes Against 11,400
Abstensions 1,800
Broker Non-Votes 0
</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 June 30, 1998.
<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 14, 1998 By: /s/Lida R. Frankel
______________________
Lida R. Frankel
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,916
<SECURITIES> 0
<RECEIVABLES> 3,779
<ALLOWANCES> 0
<INVENTORY> 7,382
<CURRENT-ASSETS> 16,665
<PP&E> 2,070
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,751
<CURRENT-LIABILITIES> 3,956
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 14,539
<TOTAL-LIABILITY-AND-EQUITY> 18,751
<SALES> 12,535
<TOTAL-REVENUES> 12,535
<CGS> 9,241
<TOTAL-COSTS> 9,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 954
<INCOME-TAX> 353
<INCOME-CONTINUING> 601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
