<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 MARCH 31, 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 May 11, 1998.
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PART I. FINANCIAL INFORMATION
_______________________________
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands, except per share data)
(Unaudited)
<CAPTION>
1998 1997
_________ _________
<S> <C> <C>
Net sales $ 6,104 $ 5,527
Cost of goods sold 4,458 3,953
_________ _________
Gross margin 1,646 1,574
Selling, general and administrative expenses 1,190 1,109
_________ _________
Operating income 456 465
Interest expense 28 53
Interest income (45) (64)
_________ _________
Income before income taxes 473 476
Provision for income taxes 175 190
_________ _________
Net income $ 298 $ 286
========= =========
Basic and diluted earnings per share $ 0.05 $ 0.05
========= =========
Weighted average shares - basic and diluted 5,691 5,780
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1998 1997
_________ _________
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,459 $ 4,529
Accounts receivable, net 3,307 2,751
Inventories 7,689 7,760
Prepaid expenses and other current assets 269 201
Prepaid income taxes 163 253
Deferred income taxes 147 275
_________ _________
Total current assets 17,034 15,769
Property and equipment, net 1,890 1,819
Other assets 24 47
_________ _________
TOTAL ASSETS $ 18,948 $ 17,635
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,851 $ 922
Accrued expenses 864 677
Current maturities of notes payable - stockholders 1,757 --
_________ _________
Total current liabilities 4,472 1,599
Long-term notes payable - stockholders -- 1,757
Deferred income taxes 234 287
_________ _________
Total liabilities 4,706 3,643
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 6 6
Additional paid-in capital 10,429 10,486
Retained earnings 3,807 3,509
Treasury stock -- (9)
_________ _________
Total stockholders' equity 14,242 13,992
_________ _________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,948 $ 17,635
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
OCAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands)
(Unaudited)
<CAPTION>
1998 1997
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 298 $ 286
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 96 80
Deferred income taxes 75 136
Changes in assets and liabilities:
Accounts receivable, net (556) (62)
Inventories 71 (333)
Prepaid expenses and other (45) (50)
Accounts payable 929 698
Accrued expenses 187 217
Income taxes 90 41
_________ _________
Net cash provided by operating activities 1,145 1,013
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (167) (69)
_________ _________
Net cash used in investing activities (167) (69)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (48) --
Distribution of S corporation retained earnings
to prior S corporation stockholders -- (300)
_________ _________
Net cash used in financing activities (48) (300)
_________ _________
Net increase in cash and cash equivalents 930 644
Cash and cash equivalents at beginning of period 4,529 6,619
_________ _________
Cash and cash equivalents at end of period $ 5,459 $ 7,263
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 24 $ 49
Income taxes $ 9 $ 13
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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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 ended March 31, 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
______________________
March 31, March 31,
1998 1997
_______ _______
<S> <C> <C>
Numerator: Net income for basic
and diluted earnings per share $ 298 $ 286
Denominator:
Weighted average shares 5,691 5,780
Effect of dilutive securities:
Warrants -- --
Stock options -- --
_______ _______
Dilutive potential common shares -- --
Denominator for basic and
diluted earnings per share 5,691 5,780
======= =======
Basic and diluted earnings per share $ 0.05 $ 0.05
======= =======
</TABLE>
3. INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
_______ _______
<S> <C> <C>
Raw materials $ 3,502 $ 3,344
Finished goods 4,187 4,416
_______ _______
$ 7,689 $ 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 MARCH 31, 1998 AND 1997
NET SALES. The Company's net sales for the first quarter of 1998 were
$6,104,000, which represented an increase of $577,000 (10.4%) compared to net
sales in the first quarter of 1997. The increase in net sales was due to an
increase in volume shipments of approximately 10%, with average selling prices
basically unchanged from the year-ago period. Overseas jobs comprised
approximately 7% of first quarter net sales in 1998, compared to 2% in 1997.
GROSS MARGIN. The Company's gross margin for the first quarter of 1998 was
$1,646,000, which represented an increase of $72,000 (4.6%) compared to the
gross margin for the first quarter of 1997. The Company's gross margin as a
percentage of sales decreased to 27.0% in the first quarter of 1998 from 28.5%
in the year-ago period, primarily due to a combination of increased material
and labor costs. Material costs as a percentage of sales increased from
approximately 44.3% for the first quarter of 1997 to approximately 46.4% for
the same period of 1998, with steel pipe costs staying relatively flat and
costs of fittings increasing. The average hourly wage rate for factory labor
was 20% higher in the first quarter of 1998 than in the same period of 1997 due
to the round of wage increases implemented in the factory in the beginning of
the second quarter of 1997, but on an absolute dollar basis, labor costs
increased approximately 8% as efficiencies were achieved due to the higher unit
shipment volumes in 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses for the first
quarter of 1998 were $1,190,000, which represented an increase of $81,000
(7.3%) compared to the first quarter of 1997. The increase was due primarily to
increased sales commissions, and to a lesser extent, increased sales promotion
and legal expenses. The average sales commission rate for the first quarter
increased to 8.0% in 1998 from 7.6% in 1997 due to a greater number of
shipments from agent warehouses. Legal expenses for the first quarter of 1997
included non-recurring insurance refunds of approximately $60,000.
INTEREST EXPENSE. Interest expense for the first quarter of 1998 was $28,000,
which represented a decrease of $25,000 (47.2%) compared to the first 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 first quarter of 1998 was $45,000,
which represented a decrease of $19,000 (29.7%) compared to the first 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 first
quarter of 1998 was 37.0%, compared to 39.9% in the same period of the prior
year. The tax rate used during the first 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 first quarter of 1998 was $298,000, which
represented an increase of $12,000 (4.2%) compared to the same period of the
prior year. The increase was due to a reduction in the effective income tax
rate. The Company's increased revenues during the 1998 first quarter were
offset by increases in cost of goods sold and selling, general and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
At March 31, 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.
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 March 31, 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 March 31, 1998, was $5,251,000.
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 March 31, 1998, working capital was $12,562,000, compared to $14,170,000 at
December 31, 1997, a decrease of $1,608,000 (11.3%). 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 $1,116,000, which
were partially offset by increases in cash of $930,000 and accounts receivable
of $556,000. Accounts payable reflects $735,000 due for a barge of steel pipe
which was included in inventory, but in-transit to the Company at March 31,
1998. Accounts receivable at March 31, 1998 reflects a higher proportion of
sales which occurred in the latter part of the quarter, and therefore remain
outstanding at quarter-end, than in the quarter ended December 31, 1997.
The Company generated net cash from operating activities of $1,145,000 in the
first quarter of 1998, compared to $1,013,000 in the first quarter of 1997, an
increase of $132,000 (13.0%). The primary sources of operating cash in the
first quarter of 1998 were an increases in accounts payable and accrued
expenses and the Company's net income, partially offset by an increase in
accounts receivable. During the first quarter of 1997, the primary sources of
operating cash were increases in accounts payable and accrued expenses and the
Company's net income, partially offset by an increase in inventories.
Net cash used in investing activities consists of capital expenditures of
$167,000 in the first quarter of 1998, compared to $69,000 in the first quarter
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 in the first quarter of 1998,
compared to $300,000 in the first quarter of 1997. During the first quarter of
1998, the Company purchased 20,000 shares of treasury stock at a cost of
$48,000 under a 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.
<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
March 31, 1998.
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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, 1998 By: /s/Lida R. Frankel
__________________
Lida R. Frankel
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,459
<SECURITIES> 0
<RECEIVABLES> 3,307
<ALLOWANCES> 0
<INVENTORY> 7,689
<CURRENT-ASSETS> 17,034
<PP&E> 1,890
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,948
<CURRENT-LIABILITIES> 4,472
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 14,236
<TOTAL-LIABILITY-AND-EQUITY> 18,948
<SALES> 6,104
<TOTAL-REVENUES> 6,104
<CGS> 4,458
<TOTAL-COSTS> 4,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 473
<INCOME-TAX> 175
<INCOME-CONTINUING> 298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
