<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
_________
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 Identification No.)
incorporation or organization)
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 or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 2, 1998, 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 $4,271,000. Shares of
Common Stock held by each officer and director and by each person who owns 10%
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 5,691,000 shares of the Registrant's Common Stock outstanding as of
March 2, 1998.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the Registrant for the
Registrant's 1998 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, 1997, are
incorporated by reference into Part III.
<PAGE>
PART I
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, competition from other manufacturers of PVC-
coated conduit and from manufacturers of alternative conduit products, downward
pressure on product pricing and gross margin, 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, general economic conditions, 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 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 this Form 10-K and the Company's other Securities and
Exchange Commission filings. See Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations.
ITEM 1. BUSINESS.
GENERAL
_______
Ocal, Inc., a Delaware corporation, is a leading domestic manufacturer of
polyvinyl chloride ("PVC") coated rigid steel conduit ("PVC-coated conduit"),
elbows, and fittings. The Company's products are primarily used in the new
construction and maintenance of plants operating in highly corrosive
environments which require the highest level of protection of electrical wiring
systems against corrosion and physical damage, such as sewage treatment, water
treatment, electric power, oil refining, chemical and pharmaceutical, pulp and
paper, and food processing plants.
INDUSTRY OVERVIEW
_________________
MARKET DEMAND. The demand for conduit stems from the need to comply with
building codes in the United States which require protection for electrical
wiring systems. Alternative forms of protection include PVC-coated conduit,
rigid steel conduit ("RSC"), plastic conduit, aluminum conduit, cable tray
(metal or fiberglass trays in which wire is laid, but not enclosed), pre-wired
armored cable integrating the functions of electrical wire and conduit into one
system, thinner-walled versions of metal conduit called intermediate metallic
conduit ("IMC") and electrical metallic tubing ("EMT"). Of the various
commercially available forms of protection for electrical wiring systems,
PVC-coated conduit is the most expensive. It is also the most durable in
corrosive environments due to the combination of the corrosion protection of
PVC coating and galvanizing with the physical protection of steel pipe.
Although alternative products generally have an initial product and
installation cost advantage over PVC-coated conduit, the Company's PVC-coated
conduit compares favorably on a life-cycle cost basis in corrosive
environments.
SALES AND DISTRIBUTION IN THE ELECTRICAL INDUSTRY. The sales and
distribution structure in the electrical industry consists of independent sales
representatives, distributors, electrical contractors, end users and project
engineers. End users include industrial companies such as International Paper
Company, OxyChem, Weyerhaeuser Company, and Merck & Company, Inc. When an end
user is planning to build a new plant, it hires an engineering firm to design,
among other things, the infrastructure and electrical system for the plant. The
end user will then hire an electrical contractor through a bidding process.
Each bidding electrical contractor generally requests one or more distributors
to price the components needed to construct the electrical system, and the
distributors bid for the contractor's order. In the electrical industry,
substantially all sales of conduit, elbows, fittings and related products are
made by the manufacturer to the distributor, who in turn sells the products to
the contractor or end user.
BUSINESS STRATEGY
_________________
The Company's business strategy is designed to increase penetration of its
traditional corrosive environment market while expanding into other markets
where the life-cycle cost and additional features of its products provide a
cost-effective solution to customer needs. The Company seeks to implement this
strategy based upon the following strengths:
INDUSTRY LEADERSHIP. The Company believes it is a leading manufacturer of
PVC-coated conduit, elbows, and fittings. In terms of sales volume, management
believes the Company's total sales of $24.3 million for the year ended December
31, 1997 place it among the two largest domestic manufacturers of PVC-coated
conduit in the industry.
MARKETING FOCUS. The Company focuses its marketing on engineers and end
users to educate them regarding the technological advantages and long-term
savings of PVC-coated conduit as compared to alternative conduit products, and
to illustrate the features of the Company's products which its competitors do
not provide. The Company's goal is to have PVC-coated conduit generally, and
where possible, the features of the Company's products in particular, specified
by engineers and end users in engineering designs for particular projects.
LEADERSHIP IN PRODUCT QUALITY. The Company's products have protection
features which its competitors do not provide. The Company believes it is the
only manufacturer of conduit that hot dip galvanizes its own conduit after
threading, increasing the corrosion protection and life of electrical conduit
systems. In addition, the Company double coats its fittings with both blue
urethane and PVC, providing additional protection unavailable elsewhere in the
industry.
LOW-COST, PROPRIETARY MANUFACTURING. Management believes the Company's
proprietary manufacturing technology used in its equipment and processes allows
it to be one of the lowest-cost producers in the industry. Much of the
machinery used in the Company's manufacturing process was designed and
constructed by company personnel with minimal capital investment, labor, and
material costs. The Company galvanizes its own pipe, and purchases ungalvanized
pipe in large volumes, which often enables the Company to negotiate
advantageous purchase prices. In addition, the Company compounds its own PVC,
primer, and urethane, which allows the Company to provide these features at a
lower cost than its competitors.
COMPREHENSIVE CUSTOMER SERVICE. The Company provides a broad range of
customer support services, including assistance from senior Company employees
with respect to installation and maintenance of conduit, free installation
training, and a toll-free installation hotline.
EXPANSION INTO RELATED OR COMPLEMENTARY BUSINESSES. The Company intends to
explore expansion into related or complementary businesses internally or
through acquisitions, building on its expertise in marketing and manufacturing
in the electrical conduit industry.
PRODUCTS
________
The Company sells and manufactures a full line of PVC-coated conduit, elbows,
fittings, RSC, PVC-coated aluminum conduit and uncoated conduit elbows, all of
which range in diameter from 1/2" to 6", as well as installation tools. The
following is a more detailed description of the product lines the Company
offers:
RIGID STEEL CONDUIT is the heaviest wall conduit in use in the world and
provides the highest level of physical protection commercially available for
electrical systems. It can be used underground, in concrete, and wherever a
high level of physical protection of electrical wiring is required. The Company
believes it is the only manufacturer producing this conduit that hot dip
galvanizes the threads together with the rest of the pipe, a process developed
by the Company. The RSC manufactured by the Company is threaded at both ends,
is 10' in length, and overall wall thicknesses range from .109" to .280". The
Company is one of the few suppliers of 6" diameter RSC and PVC-coated conduit
made from domestically produced steel pipe. Some of Ocal's customers for this
product need domestically produced 6" conduit in order to comply with the
requirements of projects funded by the federal government. All federally-funded
or federally-aided projects must comply with the Buy American Act, which
requires that more than 50% of the total cost of a given product's components
be attributable to components mined, produced, or manufactured in the United
States.
PVC-COATED RIGID STEEL CONDUIT is RSC coated with .040 inches ("40 mils") of
bonded PVC on the exterior of the pipe and 2 mils of blue urethane on the
interior. It is used in environments that are too corrosive to use RSC, but
where the physical protection offered by RSC is required or prudent.
PVC-COATED ALUMINUM CONDUIT is aluminum pipe coated with 40 mils of bonded
PVC on the exterior of the pipe and 2 mils of blue urethane on the interior. It
is used in environments where lighter weight conduit is required.
CONDUIT ELBOWS are short lengths of curved RSC or PVC-coated conduit, bent to
90, 60, 45, or 30 degrees and threaded at both ends. Various radiuses are
available.
PVC-COATED FITTINGS AND ACCESSORIES include couplings (which have PVC sleeves
to seal the connection), liquidtight connectors, conduit bodies, beam clamps,
pulling elbows, nipples, and strut channel accessories. The Company's fittings
are coated with blue urethane on the inside and both blue urethane and PVC on
the outside, which provides added protection. The ability to bond PVC to blue
urethane is achieved through a proprietary process developed by the Company.
All of the accessories are PVC-coated and provide a complete corrosion
protection solution for the Company's end users.
INSTALLATION TOOLS offered by the Company include electric benders used for
bending PVC-coated conduit of 1/2" to 2", threaders for 1/2" to 4" conduit,
hickeys to bend 1/2" to 1" PVC-coated conduit, impact sockets, wrenches and
other tools to assist in the installation of its conduit.
MARKETING, DISTRIBUTION AND CUSTOMER SERVICE
____________________________________________
IN-HOUSE MARKETING. The Company established an in-house marketing group in
1993 with individuals experienced in sales and marketing in the electrical
industry. The group currently consists of three individuals. The Company
specifically focuses marketing efforts at the project engineer and end user
level, educating them as to the technological advantages and lower life-cycle
cost of the Company's PVC-coated conduit as compared to alternative conduit
products.
INDEPENDENT SALES AGENTS. In addition to education of engineers and
contractors so that Ocal products will be specified, the Company's marketing
group works hand-in-hand with independent regional sales agents. The Company
markets and sells its products to approximately 700 distributors or chains of
distributors through approximately 35 independent regional sales agents
throughout the United States and Canada. Shipments to customers outside of the
United States and Canada are done through an international sales agent
experienced in the exportation of electrical materials. Independent sales
agents are the functional equivalent of a manufacturer's internal sales force
in other industries. The agents market the Company's products to distributors
and handle the purchase orders from the distributors. Some agents warehouse the
Company's products, which can expedite delivery since inventory is stored at
various locations throughout the United States. Sales agents do not market the
Company's products exclusively, but they do not sell products which are in
direct competition with the Company's products. Sales agents receive
commissions, with higher commissions paid to those agents that warehouse the
Company's products at their facilities.
The Company permits the return of products within certain time limits and
under certain conditions subject to a restocking charge. The Company warrants
all of its products from defect for six years.
CUSTOMER SERVICE. Another key aspect of the Company's marketing is the
customer support services it provides. Senior management and other Company
employees are available to answer questions from contractors, end users and
engineers regarding installation procedures, maintenance, product applications
and other technical areas. The Company offers free training on proper
installation of its products, sells a variety of installation tools designed to
assist in the installation of its products, and has established a toll-free
installation hotline.
CUSTOMERS
_________
The Company's four largest customers are multiple location distributors.
These customers are comprised of chains of individual distributors who make
independent purchasing decisions. In 1997, sales to one customer represented
10.2% of the Company's net sales. During 1996, 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 one of these
distributors would not have a material adverse effect on the Company.
BACKLOG AND SEASONALITY
_______________________
The Company's business is characterized by short-term order and shipment
schedules rather than volume purchase contracts. After a distributor sends a
purchase order to the Company, the product is typically shipped within 10 to 15
days. Accordingly, the Company does not consider backlog at any given date to
be indicative of future sales. The short term delivery requirements and the
nature of the Company's business preclude any significant backlog. The
Company's business is not seasonal.
MANUFACTURING
_____________
RAW MATERIALS AND SUPPLIERS. The Company's principal raw materials are carbon
steel pipes which it obtains from a number of domestic primary steel pipe
producers, conduit fittings, plastics and chemicals for coating, and zinc for
galvanizing. Because the Company galvanizes its own pipe, it can purchase pipe
directly from a number of steel pipe manufacturers. Wherever practical, vendor
purchases are made in large volumes to maximize volume discounts and optimize
payment terms. The Company believes that the market is extremely competitive,
and that its relationship with suppliers is good.
COMPETITION
___________
The Company's principal competitors in the PVC-coated conduit business are
Robroy Industries, Inc. ("Robroy") and Perma-Cote Industries. Robroy is a
diversified business and has greater financial resources than the Company. The
Company faces substantial competition in its RSC business from large,
established companies such as Allied Tube & Conduit Company, Wheatland Tube
Company, the LTV Corporation, and Western Tube, all of which have greater
financial and managerial resources than the Company. These competitors also
produce IMC and EMT. Companies which produce alternative conduit products
include Easco Aluminum, Inc. and VAW of America, Inc. in aluminum conduit;
Certain Teed Incorporated and Carlon in plastic conduit; T.J. Cope, B-Line
Systems, Inc. and Enduro Fiberglass Systems in cable tray; and AFC Cable
Systems and Alflex Corporation in armored cable.
With respect to PVC-coated conduit, RSC, IMC, and EMT, as well as alternative
conduit products, the Company competes based upon product performance, quality,
availability of product, speed of delivery, customer support, and price. The
Company believes it is competitive with respect to each of these factors and
that its principal competitive advantages are product performance, quality, and
price.
EMPLOYEES
_________
As of December 31, 1997, the Company employed 159 people, comprised of 142 in
manufacturing, 14 in administration, and 3 in marketing and sales. All of these
were full-time employees. None of the Company's employees is represented by
labor unions and the Company believes that its relations with its employees are
good.
ITEM 2. PROPERTIES
The Company leases its corporate office and manufacturing plant. The Company
believes that its facilities are adequately maintained, in good operating
condition, and adequate for the Company's present needs.
The Company's principal executive office is located in Van Nuys, California,
consisting of approximately 3,000 square feet of office space, which the
Company leases from a partnership in which the Company's majority stockholder
is the general partner, at an annual rental of $36,000 per year. The lease for
this property expires on December 31, 1998.
The Company's 300,000 square foot manufacturing facility is located in
Mobile, Alabama, and contains a building of approximately 100,000 square feet
on the property. The lease contains certain rent escalation clauses and
provides the Company with an option to extend the lease through December 31,
2002.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
__________________
The Company's Common Stock commenced trading on the NASDAQ National Market
System under the symbol "OCAL" on March 18, 1996, and no established public
trading market existed prior to that date. The quarterly market price ranges of
the Common Stock were as follows:
<TABLE>
<CAPTION>
1997 1996
____________________ ____________________
HIGH LOW HIGH LOW
____ ___ ____ ___
<S> <C> <C> <C> <C>
First Quarter ................. $ 4-1/4 $ 3-1/4 $ 6-7/8 $ 6-1/4
Second Quarter................. 3-15/16 3 6-7/8 5
Third Quarter.................. 3-1/2 2-3/8 5-1/2 3-1/16
Fourth Quarter................. 3-1/4 2-3/8 4 3
</TABLE>
As of March 2, 1998, there were approximately 45 holders of record of Common
Stock, and the Company estimates that there were approximately 1,500 beneficial
owners holding stock in nominee or "street" name on that date.
DIVIDEND POLICY
_______________
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying any such dividends in the foreseeable
future. The Company plans to reinvest earnings and other cash resources of the
Company in the development and expansion of its business. The declaration of
dividends in the future will be at the discretion of the Board of Directors and
will depend upon earnings, capital requirements, the financial position of the
Company, general economic conditions and other pertinent factors. The terms of
the Company's bank line of credit restrict the Company's ability to pay cash
dividends. Future credit agreements may also contain restrictions on the
Company's ability to pay dividends.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company and its subsidiaries, as described in Note 1 of the
consolidated financial statements appearing elsewhere herein (amounts in thousands except per share data). The financial data
for the years ended December 31, 1997, 1996, and 1995 and as of December 31, 1997 and 1996 have been derived from the audited
financial statements of the Company appearing elsewhere herein, and should be read in conjunction with such statements and the
notes thereto. The remainder of the financial data has been derived from audited financial statements of the Company which are
not included herein.
<CAPTION>
FIVE MONTHS YEAR
ENDED ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JULY 31,
______________________________________
STATEMENT OF OPERATIONS DATA: 1997 1996 1995 1994 1993<F1> 1993
________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 24,279 $ 25,000 $ 24,885 $ 19,123 $ 8,361 $ 17,165
Gross margin 6,651 7,859 8,240 6,842 2,906 4,801
Stockholders' compensation<F2> 347 313 2,806 1,605 879 2,108
Operating income (loss) 2,316 3,519 1,489 1,700 481 (236)
Provision (benefit) for income taxes<F3> 867 1,180 22 8 (11) 208
Net income (loss) 1,508 2,356 1,081 1,384 410 (310)
Basic and diluted earnings per share<F4> 0.26 0.45 0.33 -- -- --
PRO FORMA STATEMENT OF OPERATIONS DATA<F5>:
Net income 2,116 2,158
Basic and diluted earnings per share 0.41 0.66
Weighted average shares - basic and diluted<F6> 5,762 5,224 3,250
<CAPTION>
BALANCE SHEET DATA: AS OF DECEMBER 31, AS OF
________________________________________________ JULY 31,
1997 1996 1995 1994 1993 1993
________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Working capital $ 14,170 $ 13,018 $ 3,373 $ 2,632 $ 1,134 $ 1,002
Total assets 17,635 18,282 14,298 10,379 8,911 8,432
Total debt 1,757 3,257 6,179 4,320 4,851 3,796
Stockholders' equity 13,992 12,715 5,259 4,175 2,791 2,381
___________________________
<FN>
<F1>
Effective August 1, 1993, the Company changed its fiscal year end from July 31 to December 31.
<F2>
Stockholders' compensation expense consists of salaries and bonuses paid to certain stockholders whose compensation is
classified as such in the financial statements.
<F3>
Prior to March 18, 1996, Ocal Alabama and Ocal Data were S corporations, and their net income (loss) did not include a provision
(benefit) for federal income taxes since they were not subject to federal income taxes. Their net income (loss) for those
periods included a provision for state income taxes based upon income tax rates applicable to S corporations. Net income (loss)
attributable to Occidental and Ocal Transport, C corporations for all periods, includes federal and state income taxes based
upon statutory rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview."
<F4>
The earnings per share amounts prior to 1997 have been recalculated to comply with Statement of Financial Accounting Standards
No. 128, "Earnings per Share," which did not change amounts previously reported. For further discussion of earnings per share
and the impact of Statement No. 128, see note 2 of the consolidated financial statements.
<F5>
Pro forma statement of operations data includes adjustments (i) to reduce stockholders' compensation expense, relating to
salaries and bonuses paid to certain stockholders, by $2,493,000 for the year ended December 31, 1995 and (ii) to provide for
related income taxes as if all of the Company's income during the pro forma periods presented were taxed at C corporation rates
based upon pro forma income before income taxes.
<F6>
Weighted average common shares outstanding for the year ended December 31, 1995 is based upon the assumed issuance of 3,250,000
shares of Common Stock at the beginning of the year.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
________
In March and April of 1996, the Company completed an initial public offering
("IPO") of its stock. Prior to the IPO, the Company's operations were conducted
by a number of affiliated companies formed at various times in the past. The
most significant of these operating entities 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
and the operating results of these companies reflected no provision for federal
taxes. Stockholders' compensation expense for 1995 includes amounts distributed
to these stockholders to facilitate the payment of their personal income taxes.
Occidental Coating Company ("Occidental"), a California corporation, was
incorporated on December 15, 1965 to manufacture and sell PVC-coated conduit
and fittings. On November 30, 1987, OCAL, Incorporated, an Alabama corporation
("Ocal Alabama"), was formed in Mobile, Alabama initially as a place for the
importation and distribution of conduit manufactured in Costa Rica by an
affiliate of Occidental. In 1988, the California and Costa Rica plants were
consolidated and relocated to Mobile, Alabama, when the Company determined that
the advantages of manufacturing in Costa Rica could not be fully realized. On
August 1, 1993, the operations of Occidental and Ocal Alabama were consolidated
through the acquisition by Ocal Alabama of substantially all of the assets and
liabilities of Occidental at net book value. On August 24, 1995, the Company
was incorporated in Delaware under the name Ocal, Inc.
On March 18, 1996, all of the outstanding capital stock of Ocal Alabama,
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. Of
this distribution, $1,600,000 was paid by the Company in cash in March 1996 and
the remainder of the distribution was in the form of $3,000,000 of interest-
bearing notes payable. The total amount of the distribution was finalized as
$4,900,000 upon completion of the final tax return for Ocal Alabama, and the
additional $300,000 distribution was paid in cash to the former stockholders in
February 1997. In September of 1997, $1,500,000 principal amount of the notes
was repaid in cash and at December 31, 1997, $1,500,000 principal amount of the
notes (which is due on March 18, 1999) remained outstanding.
RESULTS OF OPERATIONS
_____________________
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. The Company's net sales for 1997 were $24,279,000, which
represented a decrease of $721,000 (2.9%) compared to net sales of the prior
year. The decrease in net sales is due primarily to a general slowdown in the
Company's industry, which has caused an increase in the competitive nature of
the pricing. Average selling prices of Company products decreased by
approximately 3% from 1996 to 1997. Unit shipment volumes were approximately
the same in 1997 as in 1996, with decreases of approximately 5% in pipe volumes
being offset by equivalent increases in the volumes of fittings. Sales volume
is also impacted by major end user and project activity. Net sales to a major
end user decreased from approximately $1,100,000 in 1996 to $400,000 in 1997, a
decrease of $700,000. While the end user continues to do business with the
Company, it had fewer plant expansions in 1997 than in 1996.
GROSS MARGIN. The Company's gross margin for 1997 was $6,651,000, which
represented a decrease of $1,208,000 (15.4%) compared to gross margin of the
prior year. The Company's gross margin as a percentage of sales decreased to
27.4% in 1997 from 31.4% in 1996 due to a combination of a 3% decrease in
average selling prices due to competition, and increased factory labor costs.
At the beginning of the second quarter of 1997, the Company implemented wage
increases of approximately 20% for factory personnel in order to remain
competitive with wages paid by other local employers and to help reduce
employee turnover. As part of the Company's strategy to maintain and increase
its market share, it has reduced prices in competitive situations and may
continue to do so in 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses for 1997 were
$3,988,000, which represented a decrease of $39,000 (1.0%) compared to SG&A
expenses of the prior year. As a percentage of net sales, SG&A expenses were
16.4% in 1997 compared to 16.1% in 1996. The net decrease in expenses from 1997
to 1996 is due to a reduction in legal expenses, partially offset by higher
sales and administrative salaries and expenses associated with the Company's
first annual report. During 1997, the Company received a one-time insurance
refund of approximately $80,000 relating to legal expenses incurred in 1996.
Without this refund, SG&A expenses would have been 16.8% of sales in 1997. SG&A
expenses in absolute dollars for 1998 are expected to be higher than in 1997
due to the absence of the insurance refund.
STOCKHOLDERS' COMPENSATION. Stockholders' compensation expenses for 1997
were $347,000, which represented an increase of $34,000 (10.9%) compared to the
prior year. During the second quarter of 1997, the Company's Compensation
Committee approved salary increases to these former stockholders of Ocal
Alabama.
INTEREST EXPENSE. Interest expense for 1997 was $184,000, which represented
a decrease of $74,000 (28.7%) compared to the prior year. During 1996, the
Company had outstanding bank debt until its IPO. During 1997, the Company had
no outstanding bank debt and also paid off the current portion ($1,500,000) of
notes payable to former stockholders of Ocal Alabama on September 18, 1997.
INTEREST INCOME. Interest income for 1997 was $243,000, which represented a
decrease of $32,000 (11.7%) compared to the prior year. During the fourth
quarter of 1996, the Company decided to invest excess cash in federally tax-
free instruments, which had a lower pre-tax yield than taxable investments
which were made during the second and third quarters of 1996.
INCOME TAX EXPENSE. Income tax expense for 1997 was $867,000, which
represented a decrease of $313,000 (26.5%) compared to the prior year,
primarily due to reduced income before income taxes. The Company's effective
income tax rate increased to 36.5% for 1997 compared to 33.4% for 1996. In the
first quarter of 1996, prior to the Company's Reorganization and IPO, Ocal
Alabama and Ocal Data were taxed as S corporations under the provisions of the
Internal Revenue Code, and accordingly, no provision was made for federal
income taxes for these operations. Subsequent to that date, the Company and all
of its subsidiaries became C corporations subject to state and federal income
taxes at statutory rates.
NET INCOME. Net income for 1997 of $1,508,000 decreased by $848,000 (36.0%)
compared to net income for the prior year. The decrease was due primarily to
reduced gross margin, partially offset by lower income taxes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. The Company's net sales for 1996 were $25,000,000, which
represented an increase of $115,000 (0.5%) compared to sales of the prior year.
Although unit volumes in 1996 increased compared to 1995, there was an
offsetting decline in selling prices due to competitive product pricing. The
Company lost an account which represented approximately 4% of 1995 sales during
1996, and replaced the lost sales by obtaining new customers with aggressive
product pricing.
GROSS MARGIN. The Company's gross margin for 1996 was $7,859,000, which
represented a decrease of $381,000 (4.6%) compared to gross margin of the prior
year. The Company's gross margin as a percentage of sales decreased to 31.4% in
1996 from 33.1% in 1995 due to competitive pricing pressures on the Company's
net sales, as well as increased costs of raw materials.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses for 1996 were
$4,027,000, which represented an increase of $82,000 (2.1%) compared to SG&A
expenses of the prior year. The increase was due to certain expenses associated
with being a public company, such as public relations costs and directors and
officers liability insurance, as well as increased expenses of the in-house
marketing group. Overall SG&A expenses as a percentage of net sales increased
to 16.1% in 1996 from 15.9% in the prior year.
STOCKHOLDERS' COMPENSATION. Stockholders' compensation expenses for 1996
were $313,000, which represented a decrease of $2,493,000 (88.8%) compared to
expenses of the prior year. The decrease was due to a reduction in salaries and
bonuses paid to those stockholders in 1996. As described in the Overview
section above, the 1995 expense includes amounts to facilitate the payment by
these stockholders of their personal income taxes, mainly attributable to S
corporation income on their personal tax returns.
INTEREST EXPENSE. Interest expense for 1996 was $258,000, a reduction of
$128,000 (33.2%) compared to the prior year. The reduction was due to the
repayment of bank debt with a portion of the cash proceeds from the Company's
IPO.
INTEREST INCOME. Interest income for 1996 was $275,000, earned from excess
cash proceeds available after the Company's IPO. In 1995, all excess cash from
operations was used to pay down the Company's bank debt, and therefore, no
interest income was recognized.
INCOME TAX EXPENSE. Income tax expense for 1996 was $1,180,000 (an effective
rate of 33.4%) compared to $22,000 for the prior year. Prior to the Company's
Reorganization and IPO, Ocal Alabama and Ocal Data were taxed as S corporations
under the provisions of the Internal Revenue Code, and accordingly, no
provision was made for federal income taxes for these operations. Subsequent to
that date, the Company and all of its subsidiaries became C corporations
subject to state and federal income taxes at statutory rates.
NET INCOME. Net income for 1996 was $2,356,000, which represented an
increase of $1,275,000 (117.9%) compared to the prior year. The increase was
due primarily to reduced stockholders' compensation expense, partially offset
by an increased provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
Historically, working capital needed to finance the Company's operations and
growth has been provided by cash flows from operations, bank debt, and long-
and short-term notes from related parties and a supplier. In March and April of
1996, the Company completed an initial public offering of 2,530,000 shares of
its common stock, which resulted in net proceeds to the Company, after
deduction of underwriters' discounts, commissions, and expenses, of
$10,000,000. In March of 1996, a portion of the proceeds of the IPO was used to
pay off the $3,948,000 balance remaining on the Company's revolving bank line
of credit and to pay the $1,600,000 cash portion of Ocal Alabama's $4,600,000
distribution of its S corporation retained earnings to prior S corporation
stockholders. The balance of the proceeds was added to the Company's working
capital during March and April of 1996.
As part of the Reorganization which occurred immediately prior to the IPO,
Ocal Alabama declared the above-mentioned $4,600,000 distribution to its former
stockholders. Of this amount, $1,600,000 was paid by the Company in cash in
March 1996 and the remaining $3,000,000 was paid by the issuance of notes
payable bearing interest at the rate of 6.5% per annum, with $1,500,000
principal amount due (and paid in cash) on September 18, 1997 and $1,500,000
principal amount due on March 18, 1999. The total amount of the distribution
was finalized as $4,900,000 upon completion of the final tax return for Ocal
Alabama, and the additional $300,000 distribution was paid in cash to the
former stockholders in February 1997.
At December 31, 1997, working capital was $14,170,000, compared to
$13,018,000 at December 31, 1996, an increase of $1,152,000 (8.9%). The most
significant components of the increase were increases in inventories of
$813,000 and prepaid taxes of $253,000, decreases in distributions and current
notes payable to former S corporation stockholders of $1,800,000, partially
offset by a decrease in cash and cash equivalents of $2,090,000. During 1997,
the Company was able to obtain advantageous pricing of steel pipe by purchasing
large quantities on a periodic basis. The parts purchased are regular stock
items with little or no risk of obsolescence, and the Company intends to
continue to make such purchases in the future. Inventory turnover decreased
from 2.6 times in 1996 to 2.3 times in 1997.
The Company generated net cash from operating activities of $558,000 in 1997,
compared to $2,148,000 in 1996 and $483,000 in 1995. The $1,590,000 decrease
from 1996 to 1997 was due primarily to a decrease in net income of $848,000 and
an increase in inventory of $813,000. The $1,665,000 increase from 1995 to 1996
was due primarily to an increase in net income of $1,275,000 and reductions in
accounts receivable and inventories, which were offset by increases in accounts
payable and accrued expenses.
Net cash used by investing activities was $617,000 in 1997, compared to net
cash provided by investing activities of $1,256,000 in 1996 and net cash used
by investing activities of $1,804,000 in 1995. Capital expenditures in 1997
were $617,000, compared to $389,000 in 1996 and $159,000 in 1995. During 1997,
the Company made significant investments to increase its production workflow
and output, acquiring machinery that enables in-house production of tooling and
automatic injection molding of parts formerly produced manually. Prior to 1996,
due to cash constraints, the Company did not make significant capital
investments unless absolutely necessary. The Company expects capital
expenditures during 1998 to be in the range of $400,000 to $600,000. During
March of 1996, in conjunction with the Reorganization, the majority stockholder
repaid a $1,645,000 loan from the Company made during 1995. The loan was used
by the majority stockholder in 1995 to purchase a $2,000,000 certificate of
deposit which was pledged as a personal guarantee to secure the Company's
revolving bank line of credit.
Net cash used by financing activities was $2,031,000 in 1997, compared to net
cash provided by financing activities of $3,088,000 in 1996 and $1,369,000 in
1995. During 1997, the Company paid in cash $1,800,000 of distributions and
notes payable to prior S corporation stockholders and also purchased 79,000
shares of treasury stock at a cost of $231,000 under a stock repurchase
program. In January of 1997, the Company's Board of Directors approved the
stock repurchase program under which the Company is authorized to purchase up
to $500,000 of Company stock from time to time on the open market. The Company
intends to continue to make purchases of Company stock from time to time under
the terms of this program. In 1996, the Company generated $3,088,000 of cash
from financing activities, consisting of $10,490,000 of proceeds from the
issuance and sale of common stock in the Company's IPO, offset in part by
repayment of bank debt of $5,802,000 and the distribution of $1,600,000 of Ocal
Alabama's S corporation retained earnings to prior S corporation stockholders.
The Company has a revolving bank line of credit with SouthTrust Bank,
National Association that expires on July 31, 2000 and provides for maximum
borrowings of $6,500,000 (subject to certain specified percentages of the
Company's accounts receivable and inventories). The related credit 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. Interest on borrowings
outstanding under the bank line is based, at the Company's option, on the
London Interbank Offered Rate ("LIBOR") or the bank's prime rate (8.5% at
December 31, 1997). At December 31, 1997, the annual interest rate based on the
LIBOR pricing option was LIBOR plus 2.0%, and the annual interest rate based on
the prime rate was prime. At December 31, 1997, there were no borrowings
outstanding under the bank line of credit, and the amount of unused credit
available, based upon the Company's collateral, was $4,861,000.
The Company believes that cash provided by operating activities, existing
cash and cash equivalents, and available credit will be sufficient to fund the
Company's future operating and capital cash needs for 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.
The Company's principal commitments at December 31, 1997 consisted of
obligations under operating leases for facilities.
IMPACT OF THE YEAR 2000
_______________________
The Company has completed a study of the impact of the year 2000 on its
business and operational systems. A solution was developed and implemented
during 1997 and the cost did not have a material impact on the Company's
financial results.
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, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
January 27, 1998
Los Angeles, California
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
For the Years Ended December 31,
________________________________
1997 1996 1995
____ ____ ____
<S> <C> <C> <C>
Net sales $ 24,279 $ 25,000 $ 24,885
Cost of goods sold 17,628 17,141 16,645
________ ________ ________
Gross margin 6,651 7,859 8,240
Operating expenses:
Selling, general and administrative 3,988 4,027 3,945
Stockholders' compensation 347 313 2,806
________ ________ ________
Operating income 2,316 3,519 1,489
Interest expense 184 258 386
Interest income (243) (275) --
________ ________ ________
Income before income taxes 2,375 3,536 1,103
Provision for income taxes 867 1,180 22
________ ________ ________
Net income $ 1,508 $ 2,356 $ 1,081
======== ======== ========
Basic and diluted earnings per share $ 0.26 $ 0.45 $ 0.33
======== ======== ========
Pro forma net income $ 2,116 $ 2,158
======== ========
Pro forma basic and diluted earnings
per share $ 0.41 $ 0.66
======== ========
<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,
1997 1996
____________ ____________
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,529 $ 6,619
Accounts receivable, net of allowance for doubtful
accounts of $127 ($122 in 1996) 2,751 2,580
Inventories 7,760 6,947
Prepaid expenses and other current assets 201 171
Prepaid income taxes 253 --
Deferred income taxes 275 293
____________ ____________
Total current assets 15,769 16,610
Property and equipment, net 1,819 1,524
Other assets 47 148
____________ ____________
TOTAL ASSETS $ 17,635 $ 18,282
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 922 $ 1,167
Commissions payable 534 452
Accrued expenses 143 136
Income taxes payable -- 37
Distribution payable - stockholders -- 300
Current maturities of notes payable - stockholders -- 1,500
____________ ____________
Total current liabilities 1,599 3,592
Long-term notes payable - stockholders 1,757 1,757
Deferred income taxes 287 218
____________ ____________
Total liabilities 3,643 5,567
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; 5,704,000 shares issued and
outstanding (5,780,000 in 1996) 6 6
Additional paid-in capital 10,486 10,708
Retained earnings 3,509 2,001
Treasury stock at cost, 3,000 shares (9) --
____________ ____________
Total stockholders' equity 13,992 12,715
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,635 $ 18,282
============ ============
<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,
____________________________________________
1997 1996 1995
<S> ____________ ____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C> <C>
Net income $ 1,508 $ 2,356 $ 1,081
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 322 261 306
Deferred income taxes 87 (75) --
Changes in assets and liabilities:
Accounts receivable, net (171) 510 (963)
Inventories (813) 301 (851)
Prepaid expenses and other 71 (137) (65)
Accounts payable (245) (908) 808
Commissions payable 82 (24) 138
Accrued expenses 7 (162) 18
Income taxes (290) 26 11
____________ ____________ ____________
Net cash provided by operating activities 558 2,148 483
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (617) (389) (159)
Repayment by (loan to) stockholder and related parties -- 1,645 (1,645)
____________ ____________ ____________
Net cash provided by (used in) investing activities (617) 1,256 (1,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayment of) notes payable - bank -- (5,802) 4,959
Repayment of notes payable - supplier -- -- (700)
Repayment of notes payable - related parties -- -- (2,400)
Net proceeds from (costs of) issuance of common stock -- 10,490 (490)
Purchases of treasury stock (231) -- --
Distribution of S corporation retained earnings
to prior S corporation stockholders (300) (4,900) --
Additions to (repayment of) notes payable - stockholders (1,500) 3,300 --
____________ ____________ ____________
Net cash provided by (used in) financing activities (2,031) 3,088 1,369
Net increase (decrease) in cash and cash equivalents (2,090) 6,492 48
Cash and cash equivalents at beginning of year 6,619 127 79
____________ ____________ ____________
Cash and cash equivalents at end of year $ 4,529 $ 6,619 $ 127
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 192 $ 242 $ 416
Income taxes $ 1,040 $ 1,229 $ 24
<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, 1997
(In thousands)
<CAPTION>
Common Stock Additional Treasury Stock
________________ Paid-in Retained ______________
Shares Amount Capital Earnings Shares Amount Total
_______ _______ __________ __________ ______ _______ __________
<S> <C> <C> <C> <C> <C> <C> <C>
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
Purchases of treasury stock -- -- -- -- 79 (231) (231)
Retirements of treasury stock (76) -- (222) -- (76) 222 --
Net income -- -- -- 1,508 -- -- 1,508
_______ _______ __________ __________ ______ _______ __________
Balance at December 31, 1997 5,704 $ 6 $ 10,486 $ 3,509 3 $ (9) $ 13,992
======= ======= ========== ========== ====== ======= ==========
<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 4), 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 53.8%
stockholder of the Company as of December 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. 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.
(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, 1997, cash equivalents
include highly liquid investments of approximately $4,200,000 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 and consist of the following (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
____________
1997 1996
_______ _______
<S> <C> <C>
Raw materials $ 3,344 $ 3,038
Finished goods 4,416 3,909
_______ _______
$ 7,760 $ 6,947
======= =======
</TABLE>
(F) Property and Equipment: Property 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 six years 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. A
provision has been made for the estimated amount of product returns and rebates
that may occur under these programs.
(H) Income Taxes: The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. In estimating future tax consequences, SFAS 109 generally
considers all expected future events other than enactments of changes in the
tax law or rates.
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 the Company's initial public offering, Ocal
Alabama's Subchapter S election was terminated, and accordingly, the Company
then became subject to federal and state income taxes. For information
purposes, the pro forma financial information (see Note 3) includes pro forma
amounts for the income taxes that would have been recorded as if all of the
Company's income during the pro forma periods presented were taxed at C
corporation rates.
(I) Fair Value of Financial Instruments: The carrying values of the
Company's financial instruments, which consist of cash and cash equivalents and
notes payable - stockholders, approximate their fair values.
(J) Reclassifications: Certain previously reported amounts have been
reclassified to conform to the current period presentation.
(K) New Accounting Standard: In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share," which replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
presented have been recalculated to comply with Statement 128's requirements,
which did not change amounts previously reported. The effect of adopting
Statement 128 was not material.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Numerator: Net income for basic
and diluted earnings per share $ 1,508 $ 2,356 $ 1,081
Denominator:
Weighted average shares 5,762 5,224 3,250
Effect of dilutive securities:
Warrants -- -- --
Stock options -- -- --
_______ _______ _______
Dilutive potential common shares -- -- --
Denominator for basic and
diluted earnings per share 5,762 5,224 3,250
======= ======= =======
Basic and diluted earnings per share $ 0.26 $ 0.45 $ 0.33
======= ======= =======
</TABLE>
For additional disclosures regarding the stock options and warrants, see
Note 8. All options and warrants were excluded from the computation of diluted
earnings per share because the exercise prices for both the options and
warrants were greater than the average market price of the common shares during
the relevant periods, and therefore, the effect would be antidilutive.
3. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information is prepared on a basis consistent with
pro forma information disclosed in the Registration Statement and Prospectus
related to the Company's initial public offering. The pro forma financial
information includes adjustments (i) to reduce stockholders' compensation
expense, relating to salaries and bonuses paid to certain stockholders, by
$2,493,000 for the year ended December 31, 1995, and (ii) to provide for
related income taxes as if all of the Company's income during the pro forma
periods presented 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 basic and diluted earnings per share $ 0.41 $ 0.66
======= =======
Weighted average shares outstanding 5,224 3,250
======= =======
</TABLE>
4. 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.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
____________
1997 1996
_______ _______
<S> <C> <C>
Machinery and equipment $ 2,015 $ 1,556
Office equipment 377 365
Leasehold improvements 321 311
Molds 528 429
Vehicles 178 148
_______ _______
3,419 2,809
Less accumulated depreciation and amortization (1,600) (1,285)
_______ _______
Property and equipment - net $ 1,819 $ 1,524
======= =======
</TABLE>
6. REVOLVING BANK LINE OF CREDIT
The Company has a revolving bank line of credit with SouthTrust Bank,
National Association that expires July 31, 2000 and provides for maximum
borrowings of $6,500,000 (subject to certain specified percentages of the
Company's accounts receivable and inventories). The related credit 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. Interest on borrowings
outstanding under the bank line is based, at the Company's option, on the
London Interbank Offered Rate ("LIBOR") or the bank's prime rate (8.5% at
December 31, 1997). At December 31, 1997, the annual interest rate based on the
LIBOR pricing option was LIBOR plus 2.0%, and the annual interest rate based on
the prime rate was prime. At December 31, 1997, there were no borrowings
outstanding under the bank line of credit, and the amount of unused credit
available, based upon the Company's collateral, was $4,861,000.
7. TRANSACTIONS WITH RELATED PARTIES
Notes Payable
Notes payable - stockholders consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
____________
1997 1996
_______ _______
<S> <C> <C>
6.5% unsecured note payable to the majority stockholder
of the Company, due on March 18, 1999 $ 257 $ 257
6.5% unsecured notes payable due to former stockholders
of Ocal Alabama - see (ii) below 1,500 3,000
_______ _______
Total 1,757 3,257
Less: portion due within one year -- 1,500
_______ _______
Long-term portion $ 1,757 $ 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 by the Company on Ocal Alabama's behalf 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, bearing interest at the rate of 6.5% per annum. On September
18, 1997, $1,500,000 principal amount of the notes were repaid in cash,
and the remaining $1,500,000 principal amount of the notes are payable
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 undistributed S corporation retained earnings,
classified as a distribution payable to stockholders, was paid in cash to
former stockholders in February 1997 and reflected in current liabilities at
December 31, 1996.
Other
The Company's corporate office is leased (at an annual rent of $36,000) from
a partnership in which the Company's majority 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
(amounts in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
________________________________
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Rent expense $ 36 $ 36 $ 66
Interest expense $ 184 $ 170 $ 88
</TABLE>
8. 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 to issue 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 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. The following is a summary of stock option activity
under the Plan:
<TABLE>
<CAPTION>
1997 1996
____________________ ____________________
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
_________ _________ _________ _________
<S> <C> <C> <C> <C>
Outstanding, beginning of year 105,000 $ 5.32 -- $ --
Granted 60,500 $ 3.19 108,000 $ 5.31
Expired or canceled (10,000) $ 5.00 (3,000) $ 5.00
_________ _________
Outstanding, end of year 155,500 $ 4.51 105,000 $ 5.32
========= =========
Exercisable at year-end 31,667 $ 5.36 10,000 $ 5.00
========= =========
Available for grant 244,500 295,000
========= =========
Weighted-average fair value of
options granted during the year $ 1.46 $ 2.50
</TABLE>
The 155,500 options outstanding at December 31, 1997 have a weighted average
remaining contractual life of 8.89 years and the exercise prices range from
$3.19 to $5.94 per share.
On February 17, 1998, the Stock Option Committee of the Company's Board of
Directors passed a resolution to cancel all of the outstanding options under
the Plan and replace them with new option grants, effective February 18, 1998.
The new options expire ten years after the grant date, maintain the original
vesting schedule of the options they replace, and have an exercise price of
$2.375 per share.
Pro Forma Fair Value Disclosures
The Company accounts for its stock options using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees", and related Interpretations. Accordingly, no
compensation expense related to these plans has been recognized in the
Company's financial statements. The table below sets out the pro forma amounts
of net income and net income per share that would have resulted if the Company
accounted for its stock options under the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" and excludes the
effects of the above-mentioned cancellation and replacement of options (in
thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996
________ ________
<S> <C> <C>
Net income as reported $ 1,508 $ 2,356
Net income - pro forma 1,435 2,310
Primary and diluted earnings per share - as reported 0.26 0.45
Primary and diluted earnings per share - pro forma $ 0.25 $ 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:
<TABLE>
<CAPTION>
1997 1996
________ ________
<S> <C> <C>
Expected dividend yield 0.00% 0.00%
Expected stock price volatility 43.0% 46.4%
Risk-free interest rate 5.70% 6.70%
Expected life of options 5 years 5 years
Vesting assumption 33.3% per year 33.3% per year
</TABLE>
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 earnings 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. Because options generally vest over three years and
new option grants are generally made each year, the pro forma amounts shown
above may not be representative of the pro forma effect on reported net income
in future years.
Warrants
At December 31, 1997, warrants to purchase up to 220,000 shares of Common
Stock were outstanding. These warrants were issued to underwriters in
connection with the Company's initial public offering, and are exercisable for
a period of four years commencing March 18, 1997 at an exercise price of $6.50
per share.
9. 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 statements of income for the year ended December 31, 1997 and the
period from March 18, 1996 through December 31, 1996.
The components of the provision for income taxes are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
_____________________________
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Current:
Federal $ 581 $ 960 $ --
State 155 305 22
_______ _______ _______
736 1,265 22
Deferred:
Federal 113 (90) --
State 18 5 --
_______ _______ _______
131 (85) --
_______ _______ _______
Total $ 867 $ 1,180 $ 22
======= ======= =======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the Company's effective income tax rate is as follows (amounts in
thousands):
Years ended December 31,
_____________________________
1997 1996 1995
_______ _______ _______
[S] [C] [C] [C]
Expected tax at U.S. federal
statutory rate 34.0% 34.0% 34.0%
State and local income taxes,
net of U.S. federal benefit 4.7 5.8 2.0
Tax exempt interest income (2.3) (0.3) --
Exclusion of statutory taxes on
income prior to Reorganization -- (6.7) (34.0)
Other 0.1 0.6 --
_______ _______ _______
Total 36.5% 33.4% 2.0%
======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences
between the reported amounts of certain assets and liabilities in the Company's
financial statements and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
____________
1997 1996
________ ________
<S> <C> <C>
Deferred tax assets:
Receivables valuation $ 138 $ 126
Inventory valuation -- 51
State franchise taxes 75 105
Accrued commissions payable 35 --
Other 27 11
________ ________
Total deferred tax assets $ 275 $ 293
======== ========
Deferred tax liability - depreciation $ 287 $ 218
======== ========
</TABLE>
10. STOCKHOLDERS' COMPENSATION
Stockholders' compensation in 1995 includes amounts distributed to former
stockholders of Ocal Alabama to facilitate the payment 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.
11. 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 based upon changes in the Consumer Price Index
and provides the Company with an option to extend the lease through December
31, 2002. The Company's majority 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 majority stockholder
is the general partner (see Note 7), and the expiration date of that lease is
December 31, 1998. The Company also leases autos under various agreements
expiring in 2000. Future minimum lease payments under noncancelable operating
leases as of December 31, 1997 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
________________________
<S> <C>
1998 $ 235
1999 178
2000 168
2001 148
Thereafter --
________
Total $ 729
========
</TABLE>
Rent expense was as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
________________________
<S> <C>
1997 $ 199
1996 196
1995 167
</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 7.
12. 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 that obtain such products through a group of
approximately 700 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, 1997.
The Company's four largest customers are multiple location distributors.
These customers are comprised of chains of individual distributors who make
independent purchasing decisions. In 1997, sales to one customer represented
10.2% of the Company's net sales. During 1996, 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.
13. 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.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 follow (in thousands of
dollars except for per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
1997 _______ _______ _______ _______ ____
____
<S> <C> <C> <C> <C> <C>
Net sales $ 5,527 $ 6,350 $ 6,457 $ 5,945 $ 24,279
Gross profit 1,574 1,760 1,792 1,525 6,651
Net income 286 402 487 333 1,508
Basic and diluted earnings per share .05 .07 .08 .06 .26
<CAPTION>
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
Basic and diluted earnings per share .18 .09 .11 .10 .45
Pro forma earnings per share .14 .09 .11 .08 .41
</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 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. The above earnings per share amounts
have been recalculated to comply with Statement of Financial Accounting
Standards No. 128, "Earnings per Share," which did not change amounts
previously reported.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 10, 11, 12, and 13 is incorporated by
reference to the Company's definitive proxy statement for the Company's 1998
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE
(a) The following documents are filed as part of this report: ____
(1) FINANCIAL STATEMENTS:
Report of Independent Auditors..................................14
Consolidated Statements of Income for the three years ended
December 31, 1997...............................................15
Consolidated Balance Sheets as of December 31, 1997 and 1996....16
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997.........................................17
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1997.............................18
Notes to Consolidated Financial Statements......................19
(2) FINANCIAL STATEMENT SCHEDULES:
All other schedules for which provision is made in the applicable
rules and regulations of the Securities and Exchange Commission
("SEC") have been omitted as the schedules are not required under the
related instructions, are not applicable, or the information required
thereby is set forth in the consolidated financials statements or
notes thereto.
(3) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended to date.(2)
3.2 Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.(4)
4.2 Revised form of Representatives Warrants.(3)
10.1 Forms of Stock Option Agreements.(1)
10.2 Form of Indemnity Agreement between the Company and each of its
officers and directors.(1)
10.3 1995 Stock Option Plan, As Amended.(5)
10.7 Loan and Security Agreement dated July 28, 1992, among OCAL,
Incorporated, Occidental Coating Company ("Occidental"), and
SouthTrust Bank of Alabama ("SouthTrust"), and related Guaranty
Agreements with each of Ilan Bender and Mrs. Bender dated July
28, 1992, and Demand Promissory Note dated July 28, 1992 signed
by OCAL, Incorporated and Occidental.(1)
10.8 Letter Agreement dated October 20, 1993 between OCAL,
Incorporated, Occidental and SouthTrust re: waiver of loan
covenant.(1)
10.9 Amendment to Loan and Security Agreement with SouthTrust dated
July 1, 1994 to increase loan value of inventory.(1)
10.10 Amendment to Loan and Security Agreement dated June 27, 1995,
among OCAL, Incorporated, Occidental, and SouthTrust increasing
line of credit to $6.5 million, and related Guarantor's Consent;
Letter Agreement dated June 27, 1995 releasing subordinated
debts owed by Occidental and OCAL and relating to $2 million
certificate of deposit.(1)
10.11 Consent of SouthTrust to payment of dividends and other matters,
dated August 17, 1995.(1)
10.12 Lease dated June 22, 1988 between ADDSCO Industries, Inc.
("ADDSCO") and OCAL, Incorporated relating to lease of
manufacturing facility in Mobile, Alabama, and related Personal
Guaranty dated June 22, 1988 of Ilan Bender, Amendment No. 1 to
Lease dated June 1, 1989 relating to the lease of additional
land, and Letter dated December 19, 1991 from ADDSCO extending
term of lease.(1)
10.13 Amended Lease dated August 28, 1995 between Ocal, Inc. and 14647
Lull Co. relating to California property.(3)
10.15 Forms of S Corporation Tax Allocation and Indemnification
Agreement between the Company and the prior stockholders of
OCAL, Incorporated and Ocal Data Company. (4)
10.16 Amendment to Loan and Security Agreement and Note Modification
dated June 30, 1997 among Ocal, Inc., Occidental, OCAL,
Incorporated, Ocal Data Company ("Ocal Data"), Ocal Transport
Co. ("Ocal Transport") and SouthTrust Bank, National Association
("SouthTrust") adding Ocal, Inc., Ocal Data, and Ocal Transport
as named borrowers and to add a LIBOR interest pricing
option.(6)
10.17 Amendment to Loan and Security Agreement and Note Modification
dated December 31, 1997 among Ocal, Inc., Occidental, OCAL,
Incorporated, Ocal Data, Ocal Transport and SouthTrust
increasing the loan value of inventory to $3,250,000 and
converting the loan from a demand facility to a committed
facility expiring on July 31, 2000.(7)
21. Subsidiaries.(3)
23. Consent of Ernst & Young LLP, Independent Auditors.(7)
27. Financial Data Schedule.(7)
_____________
(1) Incorporated by reference to the exhibit with the same number in the
Company's Registration Statement on Form S-1 (Registration No.
33-96336), filed with the SEC on August 29, 1995.
(2) Incorporated by reference to Exhibit 3.3 in Amendment No. 2 to the
Company's Registration Statement on Form S-1 (Registration No.
33-96336), filed with the SEC on December 26, 1995.
(3) Incorporated by reference to the exhibit with the same number in
Amendment No. 3 to the Company's Registration Statement on Form S-1
(Registration No. 33-96336), filed with the SEC on January 23, 1996.
(4) Incorporated by reference to the exhibit with the same number in
Amendment No. 4 to the Company's Registration Statement on Form S-1
(Registration No. 33-96336), filed with the SEC on March 8, 1996.
(5) Incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 (File No.
0-27748), filed with the SEC on November 14, 1997.
(6) Incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 (File No.
0-27748), filed with the SEC on November 14, 1997.
(7) Filed herewith.
(b) REPORTS ON FORM 8-K:
During the fourth quarter ended December 31, 1997, the Company did not
file any reports on Form 8-K.
<PAGE>
SIGNATURES
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: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
Signature Title Date
_______________ _________ __________
Director and Principal
/s/ Ilan Bender Executive Officer March 24, 1998
_______________________
(Ilan Bender)
/s/ Ronald Costa Director March 24, 1998
_______________________
(Ronald Costa)
/s/ Carlos R. Espinosa Director March 24, 1998
_______________________
(Carlos R. Espinosa)
/s/ Carlos V. Espinosa Director March 24, 1998
_______________________
(Carlos V. Espinosa)
/s/ William T. Gross Director March 24, 1998
_______________________
(William T. Gross)
/s/ Michael R. Peevey Director March 24, 1998
_______________________
(Michael R. Peevey)
/s/ Lida R. Frankel Chief Financial Officer March 24, 1998
_______________________ (Principal Financial and
(Lida R. Frankel) Accounting Officer)
<PAGE>
AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT made this 31st day of December,
1997, by and between OCAL, INC., a Delaware corporation, OCCIDENTAL COATING
COMPANY, INC., a California corporation, OCAL, INCORPORATED, an Alabama
corporation, OCAL DATA COMPANY, a California corporation, and OCAL TRANSPORT
CO., a California corporation (jointly and severally, the "Borrower"), and
SOUTHTRUST BANK, NATIONAL ASSOCIATION, a national banking association formerly
known as SouthTrust Bank of Alabama, National Association, having its principal
office in Birmingham, Alabama (the "Bank").
R E C I T A L S:
- - - - - - - -
Ocal, Inc., an Alabama corporation, and Occidental Coating Company, a
California Corporation, entered into a Loan and Security Agreement with Bank
dated as of July 28, 1992, whereby Bank established in favor of Borrower a line
of credit and a term note in the aggregate initial principal amount of
$4,000,000. Said agreement, as amended by instruments dated July 1, 1994,
December 8, 1994, June 27, 1995, and June 30, 1997 is herein referred to as the
"Loan Agreement". Capitalized terms used herein but not otherwise defined
herein shall have the respective meanings ascribed to them in the Loan
Agreement. The indebtedness referred to in the Loan Agreement is represented by
a promissory note in the initial principal amount of $4,000,000, said note
having been amended by instrument dated June 27, 1995, so that the maximum
outstanding principal balance is now $6,500,000 (the "Note"). Borrower has
requested that Bank convert the Loan from a demand facility to a committed
facility and Bank has agreed to do so but only on the terms and conditions
hereinafter set forth. Borrower and Bank desire to set forth their agreement
with respect to these matters on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, the Borrower and the Bank agree as follows:
1. Section 1.30 of the Loan Agreement, containing the definition of Loan
Value of Inventory is hereby amended to read in its entirety as follows:
1.30. Loan Value of Inventory - an amount which is not more than 45% of
Borrower's Inventory valued at the lesser of cost or current market value,
which Inventory is, at any given time, (a) not damaged or defective in any
way; (b) not sold or segregated for sale and reflected as an Account of
Borrower; (c) not Consigned Inventory other than Perfected Consigned
Inventory; (d) not located in a place other than at those locations listed in
Section 5.10 of this Agreement which are within the states of Alabama,
Florida, Georgia, California, Texas, and New Jersey; (e) not work-in-process
inventory; (f) not Inventory evidenced by negotiable warehouse receipts or by
non-negotiable warehouse receipts or documents of title which have not been
issued in the name of the Bank; and (g) not Inventory deemed ineligible by
Bank in its sole discretion; provided, however, the Loan Value of Inventory
shall not at any time exceed the sum of $3,250,000, unless otherwise agreed
in writing by Bank at any time in its sole discretion.
2. The Loan Agreement is hereby amended by adding following definition as
Section 1.68:
Commitment Period - shall mean that period during which Bank is obligated
to make advances under the Line of Credit Loan hereunder, as provided in
Section 2.1 hereof. The Commitment Period shall commence upon the date hereof
and shall continue until July 31, 2000, unless sooner terminated according to
the provisions hereof.
3. Section 2.1.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.1.1. Subject to all terms set forth herein and only during the earlier
to occur of expiration of the Commitment Period or occurrence of an Event of
Default, Bank agrees, from time to time and on the terms hereinafter set
forth, to loan to Borrower, when requested by Borrower, principal amounts
aggregating up to the lesser of (i) $6,500,000 or (ii) the Aggregate Loan
Values as determined by the Bank from the periodic reports submitted by
Borrower to the Bank. Notwithstanding any other provision hereof, the Loan
Value of Inventory shall not at any time exceed the sum of $3,250,000. Within
the aforesaid limits, the Borrower may borrow, make payments, and reborrow
under this Agreement, subject to the provisions hereof.
4. Section 2.1.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.1.2. The obligation to repay the Loan shall be evidenced by a Note dated
the date of this Agreement payable to the order of the Bank and maturing no
later than the expiration of the Commitment Period, and amounts due under the
Note and otherwise under this Agreement and under the Loan Documents shall be
reflected in the Loan Account.
5. Section 2.1.7 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.1.7. Notwithstanding the other provisions of this Agreement, the
obligation of Bank to make the loans hereunder shall cease and all remaining
principal, interest and other charges and fees due with respect to the Loans
and the Notes shall be immediately due and payable by Borrower upon the
earlier to occur of (i) expiration of the Commitment Period or (ii) the
occurrence of an Event of Default.
6. Section 2.3.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.3.1. Whenever Borrower desires to borrow pursuant to this Agreement
(other than a borrowing resulting from a conversion or continuation pursuant
to Section 2.3.3 below), Borrower shall give Bank prior written or telephonic
notice of such borrowing request (a "Notice of Borrowing"). Such Notice of
Borrowing shall be given by Borrower no later than 12:00 Noon, Central Time,
at the office of Bank designated by Bank from time to time (i) on the
Business Day of the requested date of such borrowing in the case of Base Rate
Advances, and (ii) at least two Business Days prior to the requested date of
such borrowing in the case of LIBOR Rate Advances. Notices received after
12:00 Noon shall be deemed received on the next Business Day. All Loans made
on the date of initial funding of the Loan shall be made as Base Rate
Advances and thereafter may be made, continued as or converted into Base Rate
Advances or LIBOR Rate Advances. Each Notice of Borrowing shall be
irrevocable and shall specify (i) the principal amount of the borrowing
(which in the case of each LIBOR Rate Advance, shall be in minimum advances
of at least $1,000,000 each and integral multiples of $500,000 in excess of
$1,000,000), (ii) the date of borrowing (which shall be a Business Day), and
(iii) whether the borrowing is to consist of Base Rate Advances, or LIBOR
Rate Advances and the amount of each such Advance. Without limiting Bank's
right to cease making any Advances when a default or Event of Default exists,
it is expressly understood that Borrower may not request any LIBOR Rate
Advances if the period would extend beyond expiration of the Commitment
Period or if a default or Event of Default exists. All amounts outstanding
with respect to which there has been no request by Borrower and approval by
Bank of a LIBOR Rate Advance shall be deemed Base Rate Advances. The
requirement of written notice of borrowings under this Section shall benefit
Bank only and Bank may waive said requirement in one or more instances
without waiving its rights to insist on strict compliance with this Section
at any time thereafter.
7. Section 2.3.4 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.3.4. In no event shall the number of LIBOR Rate Advances outstanding at
any time exceed four (4) nor shall the aggregate principal balance of all
outstanding LIBOR Rate Advances exceed $6,500,000, nor shall Borrower be
entitled to request the making of a LIBOR Rate Advance after expiration of
the Commitment Period or if the interest period selected would extend beyond
expiration of the Commitment Period or during such time as an Event of
Default has occurred and is continuing.
8. Section 2.15 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.15. LIMITATIONS. Notwithstanding any provision in this Agreement, the
Bank may, in its sole discretion, at any time, but only upon one hundred and
eighty (180) days advance written notice to Borrower, limit the amount of the
Loan advanced to the Borrower to an amount less than the Aggregate Loan
Values. THE LOAN SHALL, NOTWITHSTANDING ANY COURSE OF DEALING OR CONDUCT ON
THE PART OF THE PARTIES HERETO, OR ANY OTHER COVENANTS OR UNDERTAKINGS OF THE
PARTIES HEREUNDER, BE FULLY DUE AND PAYABLE WITHOUT FURTHER NOTICE OR DEMAND
FROM BANK UPON THE EXPIRATION OF THE COMMITMENT PERIOD. TIME IS OF THE
ESSENCE OF THIS AGREEMENT.
9. Section 8.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.2. SALE OF INVENTORY. Until the occurrence of an Event of Default
hereunder, Borrower may use and dispose of the Inventory in the ordinary
course of business where such is not inconsistent with this Agreement,
provided that the ordinary course of business does not include a transfer in
partial or total satisfaction of Debt nor a transfer (other than a sale on
terms and conditions which would apply if disinterested parties were
involved) to an Affiliate of Borrower.
10. Section 12.13 of the Agreement is hereby deleted in its entirety.
11. Contemporaneously herewith, Borrower is executing in favor of Bank a
renewal note representing the Loan in the aggregate principal amount of
$6,500,000. Upon execution and delivery of said Note, said Note shall
constitute the Note under the Loan Agreement and shall be fully secured by said
agreement and shall be entitled to the benefits enumerated therein and in the
Loan Documents.
12. Borrower represents and affirms that no default or Event of Default
exists with respect to the indebtedness referred to herein or will exist as a
result of the amendments set forth herein, and Borrower further represents that
no fact or circumstance presently exists, or will exist as a result of the
amendments set forth herein, which could, with notice, or lapse of time, or
otherwise, result in the occurrence of a default or Event of Default under the
Loan Agreement or any related financing document. Borrower further represents
and warrants that all representations and warranties of Borrower herein, in the
Loan Agreement, and in the Loan Documents are true and correct as of the date
hereof the same as if repeated on this date.
13. Borrower represents and warrants to the Bank that it has no defenses,
setoffs, rights of recoupment, counterclaims or claims of any nature whatsoever
in respect to the Loan Documents or the obligations due thereunder or secured
thereby, and to the extent any such defenses, setoffs, rights of recoupment,
counterclaims or claims may exist, the same are hereby expressly waived,
released and discharged.
14. Except as herein amended, the Loan Agreement shall remain in full force
and effect, and the Loan Agreement, as so amended, and each of the Loan
Documents are hereby ratified and affirmed in all respects.
15. Borrower, and the officers of Borrower executing this agreement, jointly
and severally, represent and warrant to the Bank that the Borrower has full
power and authority to enter into this Agreement, that the execution and
delivery of this Agreement has been authorized by all requisite corporate
action, and that this Agreement constitutes the valid and legally binding
obligation of the Borrower enforceable against Borrower in accordance with its
terms.
16. Borrower agrees to pay to the Bank all expenses, including attorney's
fees, incurred by the Bank in connection with the negotiation and preparation
of this Amendment and the documents contemplated hereby.
17. This Agreement may be executed in two or more counterparts, each of which
when executed and delivered shall constitute an original, but all such
counterparts together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this agreement of
amendment to be executed by its duly authorized officer as of year and date
first above written.
BORROWER:
_________
OCAL, INC.
(a Delaware corporation)
By: /s/Ilan Bender
__________________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
___________________
Its: SECRETARY
_____________
OCCIDENTAL COATING COMPANY, INC.
(a California corporation)
By: /s/Ilan Bender
__________________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
___________________
Its: SECRETARY
_____________
OCAL, INCORPORATED
(an Alabama corporation)
By: /s/Ilan Bender
__________________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
___________________
Its: SECRETARY
_____________
OCAL DATA COMPANY
(a California corporation)
By: /s/Ilan Bender
__________________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
___________________
Its: SECRETARY
_____________
OCAL TRANSPORT COMPANY
(a California corporation)
By: /s/Ilan Bender
__________________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
___________________
Its: SECRETARY
_____________
BANK:
_____
SOUTHTRUST BANK,
NATIONAL ASSOCIATION
By: /s/Shane McBride
_________________________
Its: ASSISTANT VICE PRESIDENT
________________________
<PAGE>
PROMISSORY NOTE
_______________
$6,500,000.00 Birmingham, Alabama
December 31, 1997
FOR VALUE RECEIVED, the undersigned, OCAL, INC., a Delaware corporation,
OCCIDENTAL COATING COMPANY, INC., a California corporation, OCAL, INCORPORATED,
an Alabama corporation, OCAL DATA COMPANY, a California corporation, and OCAL
TRANSPORT CO., a California corporation, (hereinafter collectively referred to
as the "Borrower"), jointly and severally promise to pay to the order of
SouthTrust Bank, National Association, (the "Bank") at the main office of the
Bank in Birmingham, Alabama, or at such other place as the holder of this note
may from time to time designate in writing, the principal sum of Six Million,
Five Hundred Thousand and No/100 Dollars ($6,500,000.00), or so much thereof as
may have been advanced to Borrower from time to time and not repaid by the
Borrower pursuant to the terms hereof, together with interest on the unpaid
principal amount of such advances at a per annum rate equal to one percent (1%)
in excess of the Base Rate of the Bank as in effect from time to time so long
as the principal amount, or any part thereof, is outstanding, or at such lesser
or greater rate as may be provided by the terms of that certain Loan and
Security Agreement between Borrower and Bank dated as of July 28, 1992, as
amended (the "Loan Agreement"). In addition, portions of the indebtedness
represented shall bear interest at the Adjusted LIBOR Rate plus the applicable
LIBOR Margin as provided for in the Loan Agreement. The principal amount of
such advances shall bear interest from the date of each such advance.
Interest provided for herein shall be due and payable monthly commencing on
the first day of January, 1998, and continuing on the same day of each month
thereafter through and until such time as there remains no unpaid principal
balance on the amounts advanced to the Borrower hereunder or under the Loan
Agreement. The applicable interest rate shall be determined by the Bank and
shall, in the case of Base Rate Advances, change from time to time as and when
the Base Rate of the Bank changes until the principal amount is paid in full.
Principal and interest shall be payable in lawful money of the United States of
America. Time is of the essence with respect to the amounts due hereunder.
Interest on the principal amount shall be calculated on the basis of a 360 day
year by multiplying the principal amount by the per annum rate set forth above,
multiplying the product thereof by the actual number of days elapsed, and
dividing the product so obtained by 360. The term "Base Rate" means the rate of
interest designated by the Bank periodically as its Base Rate. The Base Rate is
not necessarily the lowest rate charged by the Bank.
During the Commitment Period, (as defined in the Loan Agreement), the
Borrower may borrow, repay and reborrow the principal sum of this Note, all in
accordance with the terms of the Loan Agreement but only in such amounts and to
the extent therein provided. On July 31, 2000, or such earlier date as may be
provided in the Loan Agreement, (the "Maturity Date"), this note shall mature
and all principal, interest, and other fees and charges due with respect
hereto, if not previously paid, shall be immediately due and payable.
Borrower shall have the right at any time to prepay this Note at such time
and in such manner as is provided in the Loan Agreement. This note is secured
by and entitled to the benefits of the security set forth and/or referred to in
said Loan Agreement.
The principal sum evidenced by this Note, together with accrued but unpaid
interest, shall be due and payable on the Maturity Date, but in any event at
the option of Bank upon the occurrence of (1) any failure by Borrower to pay as
and when due any installment of principal or interest due hereunder; (2) any
default or Event of Default under the Loan Agreement or any other default or
failure by Borrower to observe any covenant, condition or agreement under the
terms of this Note, the Loan Agreement, any of the Loan Documents (as defined
in the Loan Agreement) or any other security documents heretofore or hereafter
executed by Borrower to secure this Note; (3) the expiration of the Commitment
Period (as defined in the Loan Agreement); (4) the filing by Borrower or any
Guarantor of a voluntary petition in bankruptcy, the adjudication of Borrower
or any Guarantor as a bankrupt or insolvent, the filing by Borrower or any
Guarantor of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal, state or
other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors, or Borrower's or any Guarantor's seeking or consenting to
or acquiescence in the appointment of any trustee, receiver or liquidator or
the making of any general assignment for the benefit of creditors or its
admission in writing of its inability to pay its or his debts generally as they
become due; (5) the entry by a court of competent jurisdiction of an order,
judgment, or decree approving a petition filed against Borrower or any
Guarantor seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal,
state or other statute, law or regulation relating to bankruptcy, insolvency,
or other relief for debtors, which order, judgment or decree remains unvacated
and unstayed for thirty (30) consecutive days from the date of entry thereof,
or the appointment of any trustee, receiver or liquidator of Borrower or any
Guarantor or of a substantial part of its or his property or of any or all of
the rents, revenues, issues, earnings, profits or income thereof; (6) the death
of any Guarantor; (7) the occurrence of any material adverse change in the
financial condition or prospects of Borrower or any Guarantor.
Upon any Event of Default (as defined in the Loan Agreement), Borrower agrees
to pay interest to the Bank (or any holder) at the annual rate of four percent
(4%) above the Base Rate as said Base Rate shall change from time to time on
the aggregate indebtedness represented by this note, including interest earned
to maturity, from maturity, whether or not resulting from acceleration, until
such aggregate indebtedness is paid in full. The Bank (or any holder) shall be
entitled to recover all expenses of collecting this note, including, without
limitation, costs of court and reasonable attorney's fees.
The acceptance by the Bank of any payment or payments due hereunder, or any
part of such payment, after any default shall not constitute a waiver of such
default by the Bank.
With respect to the amounts due under this note, the Borrower waives the
following:
1. All rights of exemption of property from levy or sale under execution or
other process for the collection of debts under the Constitution or laws of the
United States or any state thereof;
2. Demand, presentment, protest, notice of dishonor, notice of non-payment,
suit against any party, diligence in collection, and all other requirements
necessary to charge or hold the undersigned liable on any obligations
hereunder; and
3. Any further receipt for or acknowledgment of any collateral now or
hereafter deposited as security for the obligations hereunder.
In no event shall the amount of interest due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Borrower or inadvertently received by the
Bank (or any holder), then such excess sum shall be credited as payment of
principal, unless the Borrower elects to have such excess sum refunded to the
Borrower forthwith. It is the express intent hereof that the Borrower not pay
and the Bank (or any holder) not receive, directly or indirectly, interest in
excess of that which may be legally paid by the Borrower under applicable law.
Borrower and Bank hereby waive any right to trial by jury on any claim,
counterclaim, setoff, demand, action or cause of action (a) arising out of or
in any way pertaining or relating to this Note, the Loan Agreement, any Loan
Document, or any other instrument, document or agreement executed or delivered
in connection with this Note or (b) in any way connected with or pertaining or
related to or incidental to any dealings of the parties hereto with respect to
this Note, the Loan Agreement, any Loan Agreement, or any other instrument,
document or agreement executed or delivered in connection herewith or in
connection with the transactions related thereto or contemplated thereby or the
exercise of either party's rights and remedies thereunder, in all of the
foregoing cases whether now existing or hereafter arising, and whether sounding
in contract, tort or otherwise. Borrower and Bank agree that either or both of
them may file a copy of this paragraph with any court as written evidence of
the knowing, voluntary and bargained agreement between the parties irrevocably
to waive trial by jury, and that any dispute or controversy whatsoever between
them shall instead be tried in a court of competent jurisdiction by a judge
sitting without a jury.
The Bank shall not by any act, delay, omission, or otherwise be deemed to
have waived any of its rights or remedies, and no waiver of any kind shall be
valid unless in writing and signed by the Bank. All rights and remedies of the
Bank under the terms of this note and under applicable statutes or rules of law
shall be cumulative and may be exercised successively or concurrently. The
Borrower agrees that there are no defenses, equities or set offs in respect to
the obligations set forth herein. The obligations of the Borrower hereunder
shall be binding upon and enforceable against the Borrower's successors and
assigns. The obligations of each person named as Borrower herein shall be joint
and several obligations of all such persons. This note shall be governed by,
and construed in accordance with, the laws of the State of Alabama. Any
provision in this note which may be unenforceable or invalid under any law
shall be ineffective to the extent of such unenforceability or invalidity
without affecting the enforceability or validity of any other provision hereof.
Any notice required to be given shall be deemed given if mailed, postage
prepaid, to the Borrower at 14538 Keswick Street, Van Nuys, California 91405.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed
by its duly authorized officer and its corporate seal affixed this 31ST day of
DECEMBER, 1997.
OCAL, INC.
(a Delaware corporation)
By: /s/Ilan Bender
______________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
__________________
Its: SECRETARY
__________________
OCCIDENTAL COATING COMPANY, INC.
(a California corporation)
By: /s/Ilan Bender
______________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
__________________
Its: SECRETARY
__________________
OCAL, INCORPORATED
(an Alabama corporation)
By: /s/Ilan Bender
______________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
__________________
Its: SECRETARY
__________________
OCAL DATA COMPANY
(a California corporation)
By: /s/Ilan Bender
______________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
__________________
Its: SECRETARY
__________________
OCAL TRANSPORT COMPANY
(a California corporation)
By: /s/Ilan Bender
______________
Its: PRESIDENT AND CEO
_________________
Attest:
/s/Lida R. Frankel
__________________
Its: SECRETARY
__________________
<PAGE>
EXHIBIT 23
CONSENT OF ERNST AND YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-41677) pertaining to the 1995 Stock Option Plan of Ocal, Inc.
of our report dated January 27, 1998 with respect to the consolidated financial
statements of Ocal, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1997.
ERNST & YOUNG LLP
Los Angeles, California
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,529
<SECURITIES> 0
<RECEIVABLES> 2,878
<ALLOWANCES> 127
<INVENTORY> 7,760
<CURRENT-ASSETS> 15,769
<PP&E> 3,419
<DEPRECIATION> 1,600
<TOTAL-ASSETS> 17,635
<CURRENT-LIABILITIES> 1,599
<BONDS> 1,757
0
0
<COMMON> 6
<OTHER-SE> 13,986
<TOTAL-LIABILITY-AND-EQUITY> 17,635
<SALES> 24,279
<TOTAL-REVENUES> 24,279
<CGS> 17,628
<TOTAL-COSTS> 17,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 2,375
<INCOME-TAX> 867
<INCOME-CONTINUING> 1,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,508
<EPS-PRIMARY> 0.26
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