UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ----- OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
- ----- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
--------- ----------
COMMISSION FILE NUMBER 0-18434
REINHOLD INDUSTRIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 13-2596288
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12827 East Imperial Hwy, Santa Fe Springs, California 90670
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number, including area code (562) 944-3281
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
CLASS A COMMON STOCK, PAR VALUE $.01
CLASS B COMMON STOCK, PAR VALUE $.01
(TITLE OF CLASS)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO x
CHECK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION
S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO
THIS FORM 10-KSB. X
-----
ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE $13,120,000
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE
PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH
STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS. $2,817,500 as of March 11, 1997
Class A Common Stock
CHECK WHETHER THE ISSUER HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE
FILED BY SECTION 12, 13 OR 15(d) OF THE EXCHANGE ACT AFTER THE DISTRIBUTION OF
SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES X NO
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY AS OF THE LATEST PRACTICABLE DATE:
Class A Common Stock - par value $.01 per share - 980,000 as of March 11, 1997
Class B Common Stock - par value $.01 per share - 1,020,000 as of March 11, 1997
DOCUMENTS INCORPORATED BY REFERENCE
IF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE, BRIEFLY DESCRIBE THEM
AND IDENTIFY THE PART OF THE FORM 10-KSB (E.G., PART I, PART II, ETC.) INTO
WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS;
(2) ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO
RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. THE LISTED DOCUMENTS SHOULD
BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.
Reinhold Industries, Inc. 1996 Annual Report to Stockholders -
Parts I, II
Reinhold Industries, Inc. Proxy Statement - Part III
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
YES ; NO X
----- -----
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
a. Business Development
On December 3, 1993, Keene Corporation ("Keene") filed a voluntary
petition for relief under Chapter 11 of Title 11 of the United State Code (the
"Bankruptcy Code") in the United States Bankruptcy Court in the Southern
District of New York (the "Bankruptcy Court"), Case No. 93-B-46090 (SMB).
Keene's Chapter 11 filing came as a direct result of tens of thousands of
asbestos-related lawsuits which named Keene as a party.
On March 28, 1995, Keene, the Official Committee of Unsecured
Creditors' and the Legal Representative for Future Claimants entered into a
stipulation to file a consensual plan of reorganization that would resolve
Keene's Chapter 11 Case.
On March 11, 1996, the Bankruptcy Court approved the Second Amended
Disclosure Statement regarding Keene's Fourth Amended Plan of Reorganization for
solicitation.
On June 12, 1996, the Bankruptcy Court and the U.S. District Court held
a confirmation hearing on Keene's Fourth Amended Plan of Reorganization, as
modified (the "Plan"). The Plan was confirmed by the U.S. District Court by
order entered on June 14, 1996.
On July 31, 1996, Keene's Fourth Amended Plan of Reorganization, as
modified, became effective (the "Effective Date").On the Effective Date, Keene's
wholly-owned subsidiary, Reinhold Industries, Inc. ("Reinhold") was merged into
and with Keene, with Keene becoming the surviving entity. Pursuant to the
merger, all the issued and outstanding capital stock of Reinhold was canceled.
Keene, as the surviving corporation of the merger, was renamed Reinhold. On the
<PAGE>
Effective Date, Reinhold issued 2,000,000 shares of Common Stock, of which
1,020,000 shares of Class B Common Stock were issued to the Trustees of a
Creditors' Trust (the "Creditors' Trust") set up to administer Keene's asbestos
claims. The remaining 980,000 shares, identified as Class A Common Stock, were
issued to Keene's former shareholders as of record date, June 30, 1996. All of
Keene's previously outstanding Common Stock was canceled.
Keene was incorporated in Delaware in 1967, reincorporated in New York
in 1979 and reincorporated in Delaware in 1990. The Common Stock of Keene was
listed on the New York Stock Exchange from 1972 to 1981. In 1981, Keene became a
direct wholly owned subsidiary of Bairnco Corporation ("Bairnco") pursuant to a
corporate restructuring. On August 6, 1990, 100% of Keene's stock was
distributed to the shareholders of Bairnco.
Keene's asbestos-related liabilities stem entirely from its 1968
purchase of Baldwin-Ehret-Hill, Inc. ("BEH"), a manufacturer of acoustical
ceilings, ventilation systems, and thermal insulation products. Over the past 20
years, Keene spent over $530 million (approximately 75% of which has been in the
form of insurance proceeds) in connection with Asbestos-Related Claims asserted
against Keene on behalf of tens of thousands of individuals and entities, all
stemming from Keene's ownership, for a period of approximately five years, of
BEH.
By the end of 1992, Keene had exhausted substantially all of its
insurance coverage for Asbestos-Related Personal Injury Claims and by 1993,
Keene had exhausted substantially all of its insurance related to Asbestos In
Building Claims. Therefore, Keene had to bear directly the costs of all Claims.
In May 1993, Keene filed a limited fund, mandatory settlement action
("Limited Fund Action"). This Limited Fund Action sought a declaration that
Keene had only limited funds available to resolve the numerous Asbestos-Related
Claims against it, including Asbestos-Related Claims that might be filed in the
future.
<PAGE>
In November 1993, Keene reached an agreement in principle with the
lawyers representing each subclass with respect to the allocation of Keene's
remaining assets. However, on December 1, 1993, the Court of Appeals for the
Second Circuit issued a decision dismissing the Limited Fund Action on the
grounds of lack of subject matter jurisdiction.
In light of this decision, on December 3, 1993, Keene filed its
voluntary petition for relief under Chapter 11.
In 1984, Keene acquired the assets, and assumed certain liabilities, of
Reinhold, which was operated as a division until October 1990, when it was
incorporated in Delaware as a wholly owned subsidiary. Reinhold, which was
originally founded in 1928 as a custom molder of thermosetting and thermoplastic
materials, currently operates in Santa Fe Springs, California and Camarillo,
California. Today, Reinhold manufactures advanced composite components and sheet
molding compounds for a variety of aerospace, defense and commercial
applications. To strengthen its market position in defense and aerospace
markets, in March 1992, Reinhold acquired 100% of the outstanding common stock
of Reynolds & Taylor, Inc. ("R & T"), a California corporation and manufacturer
of structural composite components serving, primarily, the defense and aerospace
markets. R & T's operations were consolidated into Reinhold's existing facility.
In May 1994, Reinhold acquired CompositAir. CompositAir is a niche manufacturer
of commercial composite aircraft seatbacks and other commercial products.
CompositAir operates in both Camarillo, California and Santa Fe Springs,
California.
<PAGE>
b. Business of Issuer
Products
Reinhold's operations consist of the manufacturing of advanced
composite components and sheet molding compounds for a variety of aerospace,
defense and commercial applications. Reinhold's principal products include
ablative composite components and structural composite components. Ablative
composites are used for heat absorbing properties and structural composites are
used where lightness, strength and complex shapes are essential. Composites have
certain properties superior to metals, and are formed into components which
replace metal components in applications where light weight, strength, heat
absorption, corrosion resistance and complex shapes are required, such as rocket
nozzles, lighting fixture housings, small water filtration system housings and
aircraft seating frames. Distribution
Composites are marketed by company sales personnel and sales
representatives in the United States and Europe.
Competition
Reinhold competes with many companies in the sale of ablative and
structural composite components. The markets served by Reinhold are specialized
and competitive. Several of its competitors have greater financial, technical
and operating resources than Reinhold. Although Reinhold has competed
successfully in the critical areas of price, product performance and engineering
support services, there is no assurance that Reinhold will be able to continue
to manufacture and sell its products profitably in competitive markets.
<PAGE>
Because a substantial portion of Reinhold's business has been as a
supplier to government contractors, Reinhold has developed a limited number of
customers with which it does significant amounts of business. Sales to two major
customers constituted approximately 55% of the Company's net sales in 1996.
Reinhold's future prospects will depend on the continued business of such
customers and on Reinhold's continued status as a qualified supplier to such
customers. Reinhold's success also depends on developing additional commercial
composite products to replace heavier and shape restrictive metals-based
products.
With the addition of CompositAir in 1994, Reinhold expanded its
development and sale of composite components into the commercial area of
aircraft seatbacks. CompositAir has been the exclusive producer for one of its
commercial aircraft seatback customers for many years. The limited size of the
market, coupled with CompositAir's entrenched position, should limit competition
and enable Reinhold to retain approximately 90% of the composite aircraft
seatback market. In addition, Reinhold expects that the structural superiority
of CompositAir's composite seatback products to the traditional aluminum
aircraft seatback products should allow Reinhold to capture a larger percentage
of the total aircraft seatback market. Raw Materials and Purchased Components
The principal raw materials for composite fabrication include
pre-impregnated fiber cloth (made of carbon, graphite, aramid or fiberglass
fibers which have been heat-treated), molding compounds, resins (phenolic and
epoxy), hardware, adhesives and solvents. Occasionally, certain raw materials
and parts are supplied by customers for incorporation into the finished product.
Reinhold's principal supplier of raw materials is Fiberite.
No significant supply problems have been encountered in recent
years. Reinhold uses PAN (polyacrylonitrile) and rayon in manufacture of
composites. However, the supply of rayon used to make carbon fiber cloth
is highly dependent upon the qualification of the rayon supplier by the United
States Department of Defense.
Environmental Matters
Reinhold's manufacturing facilities are subject to regulation by
federal, state and local environmental agencies. Management believes all
facilities meet or exceed all applicable environmental requirements in all
material respects and believes that continued compliance will not materially
affect capital expenditures, earnings or competitive position. Patents and
Trademarks
Reinhold owns one patent registered with the United States Patent and
Trademark Office for the "Method of Making Perforated Articles" (U.S. Patent
No.5,252,279). The patent expires October 1997 and may be renewed for successive
periods of four years. Reinhold does not hold any registered trademarks.
Research and Development
Research and Development expenditures were approximately $25,000,
$19,000 and $47,000 for the periods August 1, 1996 - December 31, 1996
(reorganized company), January 1, 1996 - July 31, 1996 (predecessor company) and
the year ended December 31, 1995 (predecessor company), respectively.
<PAGE>
Employees
At December 31, 1996, Reinhold had 119 full-time employees and 1
part-time employee. Of these employees, 83 (82 full-time and 1 part-time) were
employed in manufacturing and 37 (all full-time) in administration, product
development and sales. Approximately one-half of the personnel are based at
Reinhold's Santa Fe Springs, California facility and approximately one-half are
based in Camarillo, California. None of the employees is represented by a labor
union, and Reinhold considers its employee relations to be excellent.
Additional information is set forth in Note 1 to the Financial
Statements on page 8 and "Management Discussion and Analysis" on page 3 of
Reinhold's 1996 Annual Report to Stockholders, which is incorporated herein by
reference.
Item 2. DESCRIPTION OF PROPERTY
The following chart lists the principal locations and size of
Reinhold's facilities and indicates whether the property is owned or leased and,
if leased, the lease expiration.
<TABLE>
<CAPTION>
LEASED OR OWNED
LOCATION USE SIZE LEASE EXPIRATION
- -------- --- ---- ----------------
<S> <C> <C>
Santa Fe Springs, CA Administration and 113,000 sq. ft. Leased (Expires 2000)
Manufacturing
Camarillo, CA Manufacturing 18,000 sq. ft. Leased (Expires 2002)
Rancho Cucamonga, CA Undeveloped Land 33 acres Own
</TABLE>
Facilities are generally suitable and adequate for current and
presently projected needs. Reinhold believes its facilities are utilized
consistent with economic conditions and the requirements of its operations.
<PAGE>
Item 3. LEGAL PROCEEDINGS
Reinhold is a defendant in a number of other legal actions arising from
the normal course of business. Management believes that these actions are not
meritorious and will not have a material adverse effect on the financial
position of Reinhold.
As part of the confirmed Plan, Reinhold received the benefit of a
"Permanent Channeling Injunction". This Permanent Channeling Injunction bars
asbestos-related claims and demands against Reinhold, as the reorganized company
under the Plan, and channels those claims and demands to the Creditors' Trust.
The Permanent Channeling Injunction also gives Reinhold the benefit of
protection in the form of an indemnification by the Creditors' Trust for Keene's
obligations to indemnify its Officers and Dirctors under Keene's Certificate of
Incorporation, dated April 12, 1990, and Section 145 of Delaware General
Corporation Law, for the asbestos-related claims and demands asserted by or on
behalf of a holder of an asbestos-related claim or demand against Keene.
Pursuant to the Permanent Channeling Injunction, on or after the Effective Date,
any person or entity who holds or may hold an asbestos-related claim or demand
against Keene will be forever stayed, restrained, and enjoined from taking
certain actions for the purpose of, directly or indirectly, collecting,
recovering, or receiving payment of, on, or with respect to such
asbestos-related claims or demands against Reinhold.
The payments and distributions made to the Creditors' Trust pursuant to
the terms and conditions of the Plan were made in complete satisfaction, release
and discharge of all claims and demands against, liabilities of, liens on,
obligations of and interest in Keene and Reinhold as the reorganized company
under the Plan.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. & c. Data regarding the market price of Reinhold's common stock is
included in the "Selected Financial Data" on page 2 of Reinhold's 1996 Annual
Report to Stockholders, which is incorporated herein by reference. Reinhold's
common stock is traded on the NASD OTC Bulletin Board under the symbol RNHDA.
The stock price quotations incorporated herein reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions. Dividends are paid quarterly based upon Reinhold's net income. No
dividends were paid in 1996 or 1995.
b. The approximate number of common equity security holders is as
follows:
<TABLE>
<CAPTION>
Approximate Number
of Holders of Record
Title of Class as of March 11, 1997
-------------- --------------------
<S> <C>
Class A Common Stock,
par value $.01 per share 1,991
Class B Common Stock,
par value $.01 per share 1
</TABLE>
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Reference is made to the "Management Discussion and Analysis" on page 3
and Notes 1 and 2 to the Financial Statements on pages 8 and 11, respectively,
of Reinhold's 1996 Annual Report to Stockholders, which is incorporated herein
by reference.
Item 7. FINANCIAL STATEMENTS
Reference is made to the Independent Auditors' Report and to the
Financial Statements included on pages 4 through 9 and Notes to Financial
Statements on pages 8 through 16 of Reinhold's 1996 Annual Report to
Stockholders, which is incorporated herein by reference. Financial data
schedules are included in Part IV of this filing.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required with respect to directors of Reinhold is
included in the definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders of Reinhold, to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year and is
incorporated herein by reference.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
- ---- --- -----
<S> <C> <C> <C>
Michael T. Furry 59 President and CEO Mr. Furry has served as president of
Reinhold Industries, Inc. since June
1986 and became President and Chief
Executive Officer of the Reorganized
Company on the Effective Date. Mr. Furry
became a Director of Keene (the
Predecessor Company) in April 1990 and
Reinhold Industries, Inc. upon its
incorporation in October 1990. From
April 1976 to June 1986, Mr. Furry was
Vice President and General Manager of
the composites division of Reynolds &
Taylor, Inc.
David M. Blakesley 52 Vice President- Mr. Blakesley became Vice President-
Finance and Finance and Administration in April
Administration 1996. He was controller from May 1995
Treasurer and to April 1996. Prior to coming to
Secretary Reinhold, Mr. Blakesley worked as a
regional controller as well as a
controller and general manager at
several divisions of Bairnco Corporation.
</TABLE>
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is included in the definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders of Reinhold, to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year and is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is included in the definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders of Reinhold, to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year and is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is included in the definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders of Reinhold, to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year and is incorporated herein by reference.
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<CAPTION>
Page Incorporated by
Description No.* Reference to
----------- ----- ---------------
<S> <C> <C> <C>
2.1 Keene Corporation's Exhibit 99(a) to
Fourth Amended Plan of Keene Corporation's
Reorganization under Form 8-K filed with
Chapter 11 of the the Commission on
Bankruptcy Code dated June 28, 1996.
March 11, 1996
2.2 Motion to Approve Exhibit 99(b) to
Modifications to the Keene Corporation's
Keene Corporation Fourth Form 8-K filed with
Amended Plan of the Commission on
Reorganization Under June 28, 1996.
Chapter 11 of the Bankruptcy
Code dated June 12, 1996
2.3 Finding of Fact, Conclusions Exhibit 99(c) to
of Law and Order Confirming Keene Corporation's
Keene Corporation's Fourth Form 8-K filed with
Amended Plan of Reorganization the Commission on
under Chapter 11 of the June 28, 1996.
Bankruptcy Code, as modified,
entered June 14, 1996.
3.1 Amended and Restated Exhibit 99(a),
Certificate of Exhibit A to the
Incorporation of Plan, to Keene
Reinhold Industries, Inc. Corporation's Form
8-K filed with the
Commission on June
28, 1996.
<PAGE>
Page Incorporated by
Description No.* Reference to
------------ ---- ---------------
3.2 Amended and Restated Exhibit 99(a),
By-Laws of Reinhold Exhibit B to the
Industries, Inc. Plan, to Keene
(Formerly Keene Corporation's Form
Corporation) 8-K filed with the
Commission on June
28, 1996.
3.3 Certificate of Merger Exhibit 99(a),
of Reinhold Industries, Exhibit C to the
Inc. into Keene Corporation Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
4.1 Share Authorization Exhibit 99(a),
Agreement Exhibit H to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June,
28, 1996
4.2 Registration Rights Exhibit 99(a),
Agreement Exhibit G to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June,
28, 1996
9.1 Creditors' Trust Exhibit 99(a),
Agreement Exhibit D to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June,
28, 1996
<PAGE>
Page Incorporated by
Description No.* Reference to
------------ ---- ---------------
10.1 Reinhold Industries, Inc. Exhibit 99(a) to
Stock Incentive Plan Exhibit I to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June,
28, 1996
10.2 Reinhold Management Page 34 to Keene's
Incentive Compensation (Predecessor Co.)
Plan Form 10, dated April
4, 1990, as amended
by Form 8, Exhibit
10(e), dated July
19, 1990
10.3 Lease, dated January Exhibit 10(b) to
4, 1990 by and between Keene's Form 10
Imperial Industrial dated April 4, 1990,
Properties, Inc. and as amended by Form
Reinhold Industries 8, dated July 19,1990
10.4 Reinhold Industries, Inc. Exhibit 10(i) to
Retirement Plan (formerly Keene's Form 10,
Keene Retirement Plan) dated April 14,1990,
as amended by Form 8,
dated July 19,
1990
10.5 Employee Retention Program Exhibit 10(h) to
Agreement Keene's 1992 Form
10-KSB, dated March
5, 1993
13 Annual Report to Stock-
holders
<PAGE>
Page Incorporated by
Description No.* Reference to
----------- ---- ---------------
20.1 New Keene Credit Facility Exhibit 99(a),
Exhibit F to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
27 Financial Data Schedules
- --------------------
<FN>
* Page reference is to sequentially numbered copy.
</FN>
</TABLE>
b) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Reinhold has duly caused this Annual Report to be signed on its behalf by the
undersigned thereunto duly authorized.
REINHOLD INDUSTRIES, INC.
Registrant
Date: March 17, 1997 By:/s/ David M. Blakesley
-------------------- ----------------------
David M. Blakesley
Vice President -
Finance & Administration
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of Reinhold and
in the capacities and on the date indicated.
/s/ Michael T. Furry March 17, 1997
--------------------------------------
Michael T. Furry- President and Director
(Principal Executive Officer)
/s/ Lawrence H. Diamond March 17, 1997
--------------------------------------
Lawrence H. Diamond- Chairman
/s/ Robert B. Steinberg March 17, 1997
--------------------------------------
Robert B. Steinberg- Director
REINHOLD INDUSTRIES, INC.
1996 ANNUAL REPORT
<PAGE>
TO OUR STOCKHOLDERS
KEENE CORPORATION'S PLAN OF REORGANIZATION As previously reported, Keene
Corporation's Fourth Amended Plan of Reorganization went effective on July 31,
1996. Under that plan, Reinhold Industries, Inc., Keene's subsidiary, was merged
up and into Keene with the surviving company being re-named Reinhold Industries,
Inc. New stock was issued in Reinhold's name to existing Keene stockholders.
Also under the plan, a Creditor's Trust was established for the benefit
of asbestos-related claimants and was awarded 51% of the equity in Reinhold.
Reinhold, in turn, received the benefit of a permanent channeling injunction,
one feature of which is judicial protection in the form of indemnification for
any costs related to asbestos matters that occur subsequent to the Effective
Date of July 31, 1996.
THE REINHOLD MISSION The business objective of Reinhold is to identify or
develop niche market opportunities where metals replacement with advanced
composites makes sense.
Reinhold manufactures products made from advanced composites. Advanced
composites are fiber reinforced resin matrices. We use advanced composites to
replace metals - where light weight, corrosion resistance or the need to form
complex shapes inexpensively are required.
Today, Reinhold uses the unique qualities offered by advanced
composites to manufacture graphite composite commercial aircraft seatback
structures and molded composite in-ground lighting housings. Our
Aerospace/Defense Business Unit manufactures ablative composite components used
in solid propellant rockets. Ablative composites absorb heat and are used to
produce exit cones, nozzles and motor case insulation for rockets such as the
Pegasus satellite launch rocket.
PERFORMANCE Net sales for 1996 increased 18% over 1995, from $11.1 million to
$13.1 million, reflecting increased sales of aircraft seatback components. Gross
profit grew from 15.5% in 1995 to 23.2% in 1996 because of the greater
absorption of overhead that resulted from the increase in sales.
Selling and general and administrative expenses dropped from $3.6
million and 32% of sales in 1995 to $3.0 million and 23.1% in 1996. The
principal reasons for the improvement were lower head count and the absence of
any need to add to our reserve for bad debts, savings that were partially offset
by higher costs for public compliance.
ACQUISITIONS Reinhold acquired the capital stock of Reynolds & Taylor, Inc. in
1992. In 1994, we purchased essentially all of the assets of CompositAir. In
1996, sales derived from these acquired companies represented approximately $7.7
million or 57.8% of total sales.
It is expected that a portion of Reinhold's future growth will result
from acquiring other companies. Our acquisition strategy is to identify
companies that have capitalized on a niche where advanced composites are being
successfully employed, or companies that manufacture products which would be
improved by changing from metal to advanced composites.
OUTLOOK The bankruptcy, with its attendant ills, is now behind us. The
possibility for future growth appears positive for all business units.
We are focused on expanding our business by developing new markets and
increasing our market share where we already have a niche. We took a step toward
this goal in 1996 with our CompositAir Business Unit. We secured a new customer
for our composite seatbacks in Europe. In 1996 composite seatback sales
increased almost 50% over 1995. We expect this positive trend to continue in
1997 as a result of an upturn in commercial aircraft production and increasing
acceptance of advanced composites for seatback design. We now hold a 20% share
of the total market.
To meet the anticipated increase in sales of aircraft seatbacks, we
have signed a lease and will move into a more efficient facility in Camarillo in
the first quarter of 1997. The laminating and curing operations will be
performed there. As previously reported, we have consolidated the numerically
controlled machining, bonding, finishing, inspection, and shipping functions in
our Santa Fe Springs facility.
Two major new customers were added to our Commercial Lighting Products
Business Unit in 1996 and are a major reason for our projected increase of more
than 50% in sales of these products in 1997.
Because of reduced spending by the government for military purposes, we
foresee lower sales through 1998 for the Aerospace/Defense segment of our
business.
On balance, we are optimistic that 1997 will be an improvement over
1996.
/s/Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
February 28, 1997
1
<PAGE>
<TABLE>
Reinhold Industries, Inc.
Selected Financial Data
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (in thousands)
Net sales $ 13,120 11,122 14,824 11,612 13,193
Gross profit $ 3,046 1,728 4,579 4,123 4,448
Operating profit (loss) $ 17 (1,832) 1,628 904 1,538
Interest income, net $ 1,159 2,202 2,108 6,282 8,289
Corporate expenses $ - - - 4,686 6,100
Reorganization expenses $ 3,139 9,492 11,230 250 -
Asbestos-related expenses $ - - - - 75,819
(Loss) income from continuing operations $ (2,198) (8,983) (7,792) 2,021 (77,186)
Net (loss) income $ (2,198) (8,983) (7,792) 2,793 (75,871)
- -----------------------------------------------------------------------------------------------------------------------------
YEAR END POSITION (in thousands)
Cash and marketable securities $ 2,522 34,660 42,833 88,892 93,117
Working capital $ 3,602 39,105 48,682 56,523 54,720
Net property and equipment $ 5,158 5,607 6,201 4,447 3,576
Total assets $ 12,540 64,705 75,321 114,444 135,065
Long term debt $ - - 475 - -
Stockholders' equity $ 5,719 41,990 51,251 59,453 56,537
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
(Loss) income from continuing operations:
Primary & fully diluted (note 1) $ (0.05) (0.86) (0.75) 0.20 (7.39)
Net (loss) income:
Primary & fully diluted (note 1) $ (0.05) (0.86) (0.75) 0.27 (7.27)
Cash dividends $ - - - - 0.10
Stockholders' equity $ 2.86 4.02 4.91 5.69 5.41
Market price range: (note 2)
High $ 4 1/8 N.M.* N.M.* N.M.* N.M.*
Low $ 3 1/4 N.M.* N.M.* N.M.* N.M.*
- -----------------------------------------------------------------------------------------------------------------------------
OTHER DATA (in thousands except stockholder & employee data)
Orders on hand $ 5,292 6,635 3,514 5,400 7,143
Average shares outstanding Note 1 10,442 10,442 10,442 10,442
Average number of common stockholders 2,099 2,396 2,434 2,511 2,678
Average number of employees 105 104 119 93 105
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
Note 1: Keene emerged from bankruptcy on July 31, 1996. Reinhold was merged into
and with Keene, with the surviving company being renamed Reinhold Industries,
Inc. The outstanding common stock of Keene on July 31, 1996, 10,746,235 shares,
was canceled and replaced by 980,000 shares of Class A Common Stock and
1,020,000 shares of Class B Common Stock.
Note 2: The historical market value of the old Keene stock (the predecessor
company) is not meaningful since the company has been recapitalized as of July
31, 1996.
See management analysis and Note 1 to the financial statements for discussion of
Chapter 11 bankruptcy proceedings and the Effective Date of the Fourth Plan of
Reorganization.
*N.M. - Not Meaningful
</FN>
</TABLE>
2
<PAGE>
Reinhold Industries, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the financial
statements and related notes, along with Form 8-K, which was dated June 14, 1996
and filed with the Securities and Exchange Commission on June 28, 1996. It
pertains to the confirmation of Keene's Fourth Amended Plan of Reorganization.
For purposes of Management Analysis and Discussion and to facilitate a
meaningful comparison for the years ended December 31, 1996 and 1995, net sales,
gross profit margin, selling, general and administrative expenses, and interest
income prior and subsequent to the Effective Date of the Plan of Reorganization
were used in the computations of the year ended December 31, 1996.
Reinhold is a manufacturer of advanced custom composite components and
sheet molding compounds for a variety of applications. Reinhold derives revenues
from the United States defense contract industry, the aerospace industry and
other commercial industries.
1996 COMPARED WITH 1995 Backlog at December 31, 1996 was $5.3 million, down 20%
from December 31, 1995 primarily due to decline in aerospace orders. In 1996,
order input decreased 19% to $11.7 million and net sales increased 18% to $13.1
million from $11.1 million in 1995, reflecting higher sales of aircraft
seatbacks partially offset by lower commercial sales of pool filter housings and
lower aerospace sales.
Gross profit margin increased to 23.2% from 15.5%, reflecting higher
absorption of overhead due to higher sales volume. In 1996, selling, general and
administrative expenses were $3.0 million (23.1% of sales) compared with $3.6
million (32.0% of sales) in 1995 as the result of lower headcount and lower
legal costs, partially offset by higher costs for public compliance. Operating
profit was $0.02 million in 1996 compared with an operating loss of $1.8 million
in 1995.
Interest income declined 47.4% to $1.2 million in 1996 from $2.2
million in 1995 due to the transfer of most of the investment portfolio to the
Creditors' Trust on the Effective Date of the Plan of Reorganization. The
average yield was 5.17% in 1996 compared with 5.33% in 1995 due to increased
investment in lower yield shorter term securities.
During 1996, $3.1 million was incurred for reorganization expenses
compared with $9.5 million in 1995. Reorganization expenses included Chapter
11-related professional fees of $1.5 million in 1996 compared with $6.8 million
in 1995. Reorganization expenses in 1996 only included expenses through July 31,
1996.
A tax provision of $0.2 million was recorded in 1996 for certain state
tax expenses compared with a benefit of $0.1 million in 1995.
The net loss totaled $2.2 million, or $0.05 per share (based on average
10,485,427 old Keene shares through July 31, 1996 and 2,000,000 new Reinhold
shares beginning August 1, 1996), in 1996 compared with a net loss of
$9.0 million, or $0.86 per share in 1995.
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1996, working capital was
$3.6 million, down $35.5 million from December 31, 1995. Cash and cash
equivalents of $1.5 million held at December 31, 1996 were $19.3 million lower
than cash and cash equivalents held at December 31, 1995 primarily due to the
transfer of $17.3 million of cash to the Creditors' Trust and the payment of
Notes Payable of $0.5 million. Marketable securities of $1.0 million held at
December 31, 1996 declined $12.8 million compared with those held at December
31, 1995 primarily due to the transfer of $6.1 million of pledged securities to
the Creditors' Trust and the transfer of $6.1 million to a disbursing agent for
bankruptcy administrative costs.
On the Effective Date, the Creditors' Trust and Reinhold entered into a
Credit Facility. Pursuant to the terms of the Credit Facility, Reinhold shall
have the ability to draw on a $1.5 million line of credit for up the two years
and all obligations incurred thereunder shall be due and payable at the end of
the third year. A copy of the Credit Facility is annexed as Exhibit F to the
Plan, which was a part of Form 8-K, which was dated June 14, 1996 and filed with
the Securities and Exchange Commission on June 28, 1996. To date, there have
been no borrowings against this Credit Facility.
During 1996, Reinhold spent approximately $0.4 million on capital
expenditures. Management believes that the available cash and the amount
available under the Credit Facility, described above, will be sufficient to fund
the Company's operating and capital expenditure requirements.
INFLATION In management's opinion, changes in net sales and earnings (loss)
before income taxes between the years ended December 31, 1996 and 1995 that have
resulted from inflation and changing prices have not been material.
3
<PAGE>
Reinhold Industries, Inc.
Independent Auditors' Reports
The Board of Directors
Reinhold Industries, Inc.
We have audited the accompanying balance sheet of Reinhold Industries, Inc. (the
Company) as of December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the period from August 1, 1996 through
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for the period from August 1, 1996 through December 31, 1996 in conformity
with generally accepted accounting principles.
As discussed in note 1 to the financial statements, the Company's Plan
of Reorganization was confirmed by the United States Bankruptcy Court on June
14, 1996 and became effective July 31, 1996. As a result, Reinhold Industries,
Inc. was merged into and with Keene Corporation (the Predecessor Company) with
Keene becoming the surviving corporation. Keene was renamed Reinhold Industries,
Inc. (Reorganized Company). The Company also adopted fresh-start reporting
effective July 31, 1996, and as a result, the financial information for the
period after July 31, 1996 is presented on a different basis of accounting than
for the period before August 1, 1996 and, therefore, is not comparable.
Los Angeles, California
January 17, 1997
The Board of Directors
Reinhold Industries, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Keene Corporation (the Predecessor
Company) and subsidiary for the period from January 1, 1996 through July 31,
1996 and for the year ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements of Keene
Corporation referred to above present fairly, in all material respects, the
results of their operations and their cash flows for the period from January 1,
1996 through July 31, 1996 and for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
Los Angeles, California
January 17, 1997
4
<PAGE>
<TABLE>
Reinhold Industries, Inc.
Statements of Operations
(Amounts in thousands, except for per share data)
<CAPTION>
Reorganized Company Predecessor Company
- ------------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $6,323 6,797 11,122
Cost of sales 4,515 5,559 9,394
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,808 1,238 1,728
Selling, general and administrative expenses 1,445 1,584 3,560
- ------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 363 (346) (1,832)
Interest income, net 54 1,105 2,202
Income (loss) before reorganization expenses and
income taxes 417 759 370
Reorganization expenses - 3,139 9,492
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 417 (2,380) (9,122)
Income tax provision (benefit) 16 219 (139)
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $401 (2,599) (8,983)
Net income (loss) per share $.20 N.M.* N.M.*
Weighted average common shares outstanding 2,000 N.M.* N.M.*
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*N.M. not meaningful - historical per share data for the Predecessor Company is
not meaningful since the Company has been recapitalized and has adopted fresh
-start reporting as of July 31, 1996.
See accompanying notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
Reinhold Industries, Inc.
Balance Sheet
December 31, 1996
(Amounts in thousands, except for share data)
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 1,522
Marketable securities 250
Accounts receivable (less allowance for doubtful accounts of $501) 1,823
Inventories 1,491
Prepaid expenses and other current assets 458
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 5,544
Marketable securities 750
Property and equipment, at cost 7,896
Less accumulated depreciation and amortization 2,738
- -----------------------------------------------------------------------------------------------------------------------------
Net property and equipment 5,158
Other assets 1,088
- -----------------------------------------------------------------------------------------------------------------------------
$12,540
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 758
Accrued expenses 938
Amount due to Furon Corp. 246
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,942
Long-term pension liability 2,591
Other long-term liabilities 2,288
Stockholders' equity:
Common stock, $.01 par value:
Class A - authorized 1,480,000 shares; issued and outstanding 980,000 shares 10
Class B - authorized 1,020,000 shares; issued and outstanding 1,020,000 shares 10
Additional paid-in capital 7,791
Retained earnings 401
Additional pension liability in excess of unrecognized prior service cost (2,493)
- -----------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 5,719
Commitments and contingencies (note 7)
- -----------------------------------------------------------------------------------------------------------------------------
$12,540
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
Reinhold Industries, Inc.
Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $401 (2,599) (8,983)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 285 455 708
Obligations subject to Chapter 11 proceedings,
including reorganization cost -- (15,131) (876)
Assets transferred to Creditors' Trust -- 42,561 --
Charges due to reorganization activities -- (34,118) --
Change in assets and liabilities:
Accounts receivable, net (151) (497) 929
Accounts receivable - other -- -- 1,129
Inventories (159) -- (246)
Other current assets (159) 1,654 346
Other assets (32) (155) (309)
Accounts payable (332) 123 (424)
Accrued expenses 358 (379) (428)
Other liabilities (23) 169 949
Other, net (79) 94 (419)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 109 (7,823) (7,624)
Cash flows used in investing activities:
Proceeds from sale of marketable securities 351 12,457 16,270
Proceeds from sale of equipment -- 10 --
Capital expenditures (207) (153) (114)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 144 12,314 16,156
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of notes payable -- (475) --
Cash paid for acquisition of Reynolds and Taylor -- (206) (576)
Cash distributions at date of consummation -- (23,393) --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities -- (24,074) (576)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 253 (19,583) 7,956
Cash and cash equivalents at beginning of period 1,269 20,852 12,896
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $1,522 1,269 20,852
- -----------------------------------------------------------------------------------------------------------------------------
Supplementary disclosures of cash flow information
- cash paid during the period for:
Income taxes $ -- 194 180
Interest $ -- 45 17
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
Reinhold Industries, Inc.
Statements of Stockholders' Equity
(Amounts in thousands, except for share data)
<CAPTION>
Common stock, Common stock,
$0.01 par value $0.0001 par value
Class A Class B
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- -- -- -- 10,442 $1
Net loss for the year ended December 31, 1995 -- -- -- -- -- --
Increase in additional pension liability in excess of
unrecognized prior service cost -- -- -- -- -- --
Decrease in unrealized gain on marketable securities -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 -- -- -- -- 10,442 1
Net loss for the period January 1, 1996 through July 31, 1996 -- -- -- -- -- --
Stock options exercised -- -- -- -- 304 --
Impact of reorganization:
Elimination of former equity interests related to
emergence from bankruptcy -- -- -- -- (10,746) (1)
Issuance of new equity interests related to emergence
from bankruptcy 980,000 10 1,020,000 10 -- --
Net income for the period August 1, 1996 through
December 31, 1996 -- -- -- -- -- --
Increase in additional pension liability in excess of
unrecognized prior service cost -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 980,000 $10 1,020,000 $10 -- --
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1995. Period from January 1, 1996, through July 31,
1996, and the period from August 1, 1996, through December 31, 1996.
(1) ORGANIZATION
DESCRIPTION OF BUSINESS Reinhold Industries, Inc. (Reinhold or the Company)
is a manufacturer of advanced custom composite components and sheet molding
compounds for a variety of applications. Reinhold derives revenues from the
United States defense contract industry, the aerospace industry and other
commercial industries.
CHAPTER 11 REORGANIZATION Reinhold was acquired by Keene Corporation
(Keene) in 1984 and operated as a division of Keene until 1990, when
Reinhold was incorporated in the state of Delaware as a wholly owned
subsidiary of Keene.
On December 3, 1993, Keene filed a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in
the United States Bankruptcy Court (Bankruptcy Court). Keene's Chapter 11
filing came as a direct result of the demands on Keene of thousands of
asbestos-related lawsuits which named Keene as a party.
On July 31, 1996 (the Effective Date), Keene consummated its Plan of
Reorganization under the Bankruptcy Code (the Plan) and emerged from
bankruptcy. On the Effective Date, Reinhold was merged into and with Keene,
with Keene becoming the surviving corporation. Pursuant to the
8
<PAGE>
<TABLE>
Reinhold Industries, Inc.
<CAPTION>
Additional pension liability
Unrealized gain (loss) on Retained earnings in excess of unrecognized
Additional paid-incapital marketable securities (accumulated deficit) prior service cost Net stockholders' equity
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
120,286 (168) (66,900) (1,986) 51,233
-- -- (8,983) -- (8,983)
-- -- -- (428) (428)
-- 168 -- -- 168
- -----------------------------------------------------------------------------------------------------------------------------------
120,286 -- (75,883) (2,414) 41,990
-- -- (2,599) -- 2,599)
124 -- -- -- 124
(120,410) -- 78,482 -- (41,929)
7,791 -- -- -- 7,791
-- -- 401 -- 401
-- -- -- (79) (79)
- -----------------------------------------------------------------------------------------------------------------------------------
7,791 -- 401 (2,493) 5,719
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
merger, all of the issued and outstanding capital stock of Reinhold was
canceled. Keene, as the surviving corporation of the merger, was renamed
Reinhold. On the Effective Date, Reinhold issued 2,000,000 shares of Common
Stock, of which 1,020,000 of Class B Common Stock was issued to the
Trustees of a Creditors' Trust (the Creditors' Trust) set up to administer
Keene's asbestos claims. The remaining 980,000 shares of Class A Common
Stock were issued to Keene's former stockholders as of record date, June
30, 1996. All of Keene's previous outstanding Common Stock was canceled.
The payments and distributions made to the Creditors' Trust pursuant to the
terms and conditions of the Plan were made in complete satisfaction,
release and discharge of all claims and demands against, liabilities of,
liens on, obligations of and interest in Reinhold (Reorganized Company).
On the Effective Date, the Plan of Reorganization provided for, among other
things, the transfer of approximately $6 million to Continental Stock
Transfer and Trust Company for the payment of Class 6 Claims and
administrative costs related to the bankruptcy. Also on the Effective Date,
$17.3 million of cash, $6.1 million of securities pledged as collateral for
appeal bonds and escrow accounts and $19.1 million of other assets were
transferred to the Creditors' Trust. Certain assets that were not recorded
on Keene's Financial Statements due to their contingent nature were also
transferred to the Creditors' Trust.
As part of the reorganization, certain assets and liabilities were kept by
the surviving entity (Reinhold). These included the long-term pension
liability of $2.5 million, a current prepaid pension asset of $125,000 and
an underfunded pension liability in excess of unrecognized prior service
cost of $2.4 million (a reduction of stockholders' equity).
9
<PAGE>
On the Effective Date, the Creditors' Trust and Reinhold entered into a
Credit Facility. Pursuant to the terms of the Credit Facility, Reinhold
shall have the ability to draw on a $1.5 million line of credit for up the
two years and all obligations incurred thereunder shall be due and payable
at the end of the third year.
Reorganization expenses are segregated from normal operations in the
Statements of Operations and reflect the costs incurred by the Company in
the implementation of its plan of reorganization as well as costs directly
associated with the bankruptcy case. The major component of reorganization
costs was professional fees.
Reorganization expenses consisted of (in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- ----------------------------------------------------------------------------------------------------------------------------
Period from August 1,1996 Period from January 1, 1996 Year Ended
Through December 31, 1996 July 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Professional Fees $ -- 1,500 6,800
All other costs $ -- 1,639 2,692
- ----------------------------------------------------------------------------------------------------------------------------
$ -- 3,139 9,492
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
FRESH-START REPORTING Pursuant to the guidelines provided by the American
Institute of Certified Public Accountants in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" (SOP 90-7), the Company adopted fresh-start reporting as of the close
of business on July 31, 1996. The Company adopted fresh-start reporting
because holders of existing shares immediately before filing and
confirmation of the Plan received less than 50% of the voting shares of the
emerging entity and the Company's reorganized value is less than its
postpetition liabilities and allowed claims. None of the assets or
liabilities were revalued at the Effective Date because the book value of
the assets and liabilities approximated their fair value.
The significant fresh-start adjustments are summarized as follows:
o Cancellation of all prepetition ownership interests in the Company as of
the Effective Date.
o Historical balance of accumulated deficit set to zero.
The adjustments to the Company's balance sheet as of July 31, 1996, to
record confirmation of the Plan, are as follows (in thousands):
<TABLE>
<CAPTION>
Adjustments to record confirmation of the Plan
----------------------------------------------
Predecessor Distributions to Reorganized
Company's Creditors' Trust and Company's
Balance Sheet, Continental Stock Fresh-Start Balance Sheet,
Assets July 31, 1996 Transfer and Trust Co. Adjustments July 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 24,651 (23,382) -- 1,269
Marketable securities 7,456 (6,105) -- 1,351
Accounts receivable 19,981 (18,309) -- 1,672
Inventories 1,332 -- -- 1,332
Other current assets 1,042 (743) -- 299
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 54,462 (48,539) -- 5,923
Net property and equipment 5,308 (72) -- 5,236
Deferred costs and other assets 1,056 -- -- 1,056
- ----------------------------------------------------------------------------------------------------------------------------------
$ 60,826 (48,611) -- 12,215
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,090 -- -- 1,090
Accrued expenses 826 -- -- 826
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,916 -- -- 1,916
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities subject to Chapter 11 proceedings 14,493 (14,493) -- --
Long-term pension liability 2,539 -- -- 2,539
Other long-term liabilities 2,363 -- -- 2,363
Stockholders' equity (deficit):
Common stock 1 19 -- 20
Additional paid-in capital 120,410 -- (112,619) 7,791
Additional pension liability in excess of
unrecognized prior service cost (2,414) -- -- (2,414)
Retained earnings (accumulated deficit) (78,482) (34,137) 112,619 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity (deficit) 39,515 (34,118) -- 5,397
$ 60,826 (48,611) -- 12,215
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION The accompanying financial statements as of and
for the five-month period ended December 31, 1996 include the accounts of
Reinhold. The accompanying financial statements for the seven-month period
ended July 31, 1996 and the year ended December 31, 1995 include the
accounts of Keene Corporation and subsidiary (Predecessor Company). All
material inter-company accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS The Company considers cash in banks, commercial
paper, demand notes and similar short-term investments purchased with
maturities of less than three months as cash and cash equivalents for the
purpose of the statements of cash flows.
Cash and cash equivalents consist of the following at December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash in banks $ 459
Money market funds 1,063
- --------------------------------------------------------------
Total $ 1,522
- --------------------------------------------------------------
</TABLE>
INVENTORIES Inventories are stated at the lower of cost or market on a
first-in, first-out (FIFO) basis. Inventoried costs relating to long-term
contracts and programs are stated at the actual production costs, including
factory overhead, initial tooling and other related nonrecurring costs
incurred to date, reduced by amounts related to revenue recognized on units
delivered.
ACCOUNTING FOR GOVERNMENT CONTRACTS Substantially all of the Company's
government contracts are firm fixed price. Sales and cost of sales on such
contracts are recorded on units delivered. Estimates of cost to complete
are reviewed and revised periodically throughout the contract term, and
adjustments to profit resulting from such revisions are recorded in the
accounting period in which the revisions are made. Losses on contracts are
recorded in full as they are identified.
Amounts billed to contractors of the U.S. Government included in accounts
receivable at December 31, 1996 were $887,000.
MARKETABLE SECURITIES The Company adopted provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Debt and
Equity Securities" (Statement 115), at December 31, 1994. Under Statement
115, the Company must classify its debt and marketable equity securities in
one of three categories: trading, available-for-sale or held-to-maturity.
Available-for-sale securities are recorded at fair value.Unrealized holding
gains and losses, net of the tax effect, on available-for-sale securities
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Declines in the market value of
available-for-sale securities deemed to be other than temporary result
in charges to current earnings and establishment of a new cost basis.
At December 31, 1996, the Company's marketable securities consist
principally of highly liquid U.S. Government Treasury notes and bills with
various maturity dates through 1998. The Company has classified all of its
marketable securities as available-for-sale. At December 31, 1996 and 1995,
unrealized holding gains or losses were immaterial. Approximately $750,000
of marketable securities are due after one year through five years.
Proceeds from the sale of marketable securities available for sale were
$351,000 during the five months ended December 31, 1996, $12,457,000 during
the seven months ended July 31, 1996 and $16,270,000 during the year ended
December 31, 1995. Gross realized gains and losses included in income in
1996 and 1995 were immaterial.
PROPERTY AND EQUIPMENT The Company depreciates property and equipment
principally on a straight-line basis based on estimated useful lives.
Leasehold improvements are amortized straight-line over the shorter of the
lease term or estimated useful life of the asset.
Property and equipment, at cost, consists of the following at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
Useful life
- --------------------------------------------------------------
<S> <C> <C>
Undeveloped land -- $ 900
Leasehold improvements 5-6 years 1,093
Machinery and equipment 5-25 years 5,359
Furniture and fixtures 3-10 years 404
Construction in process -- 140
- --------------------------------------------------------------
7,896
Less accumulated depreciation
and amortization 2,738
$ 5,158
- --------------------------------------------------------------
</TABLE>
When property is sold or otherwise disposed of, the asset cost and
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the statement of operations.
Maintenance and repairs are expensed as incurred. Renewals and betterments
are capitalized.
11
<PAGE>
OTHER ASSETS Other assets consist primarily of goodwill. Goodwill
represents the excess of purchase price over fair value of net assets
acquired, and is amortized on a straight-line basis over the expected
periods to be benefited, 10 years. Goodwill and related accumulated
amortization at December 31, 1996 amounted to $999,000 and $130,000,
respectively.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
On March 2, 1992, the Company acquired Reynolds & Taylor, Inc. (R&T) from
Furon Company (Furon). The acquisition was accounted for as a purchase. The
acquisition agreement provided that Reinhold was required to pay additional
cash consideration over the years ended December 31, 1992 through December
31, 1996 (inclusive). The amount of the contingent payment for each year is
equal to the sum of $3,000,000 multiplied by a fraction, the numerator of
which is R&T sales for the year then ended and the denominator of which is
$27,000,000. The amount owed for the year ended December 31, 1996 was
approximately $246,000. The obligation to Furon was offset by a
corresponding increase in goodwill.
INCOME TAXES The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 (Statement 109), "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109,
the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
NET INCOME (LOSS) PER SHARE Computation of net income (loss) per share was
based on the weighted average number of common shares outstanding for all
periods presented plus common stock equivalents arising from outstanding
options using the Treasury-stock method.
STOCK OPTION PLAN Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation expense
would be recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123, if required.
PENSION AND OTHER POSTRETIREMENT PLANS The Company has a defined benefit
pension plan covering substantially all of its employees. The benefits are
based on years of service and the employee's compensation during the last
years of service before retirement. The cost of this program is being
funded currently.
USE OF ESTIMATES Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The
Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value, less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations or liquidity.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the following
financial instruments approximate fair value because of the short maturity
of those instruments: cash and cash equivalents, accounts receivable, other
current assets, other assets, accounts payable, and accrued expenses.
The fair values of marketable securities are based on the quoted market
prices at the reporting date for those investments.
Reclassifications Certain amounts in the prior period financial statements
have been reclassified to conform with the current presentation.
12
<PAGE>
(3) INCOME TAXES
The income tax provision (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $ -- -- --
State 16 219 (139)
Deferred -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 16 219 (139)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax expense (benefit) for the years ended December 31, 1996 and
1995 was $235,000 and $(139,000), respectively, and differed from the
amounts computed by applying the U.S. Federal income tax rate of 35% to
pretax income (loss) as a result of the following (in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory taxes at Federal rate $ 146 (832) (3,193)
State taxes, net of Federal tax benefits 10 142 (90)
Reduction of net operating loss -- 25,027 --
Change in valuation allowance (155) (24,124) 2,679
Other 15 6 465
- -----------------------------------------------------------------------------------------------------------------------------
Total provision for income tax expense (benefit) $ 16 219 (139)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax benefit were as follows
(in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current deferred tax benefit $ 155 24,124 (2,679)
Change in valuation allowance for deferred tax asset (155) (24,124) 2,679
- -----------------------------------------------------------------------------------------------------------------------------
Total deferred tax benefit $ -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities based on
an effective tax rate of 35% at December 31, 1996 are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Adjustments from quasi-reorganization $ 2,404
Net operating loss carryforwards 5,032
Inventory reserves 49
Other reserves 972
- --------------------------------------------------------------
Total gross deferred tax assets 8,457
Less valuation allowance (7,903)
- --------------------------------------------------------------
Net deferred tax assets 554
- --------------------------------------------------------------
Deferred tax liabilities:
Pension (76)
Depreciation (478)
- --------------------------------------------------------------
Total gross deferred tax liabilities (554)
- --------------------------------------------------------------
Net deferred tax assets $ --
- --------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Based on the level of historical taxable income and projections of future
taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company may
not realize the benefits of these deductible differences at December 31,
1996.
At December 31, 1996, the Company had generated net operating loss
carryovers for Federal income tax purposes of approximately $14,400,000.
The Company may utilize these net operating losses by carrying them forward
to offset future Federal taxable income, if any, through 2011.
Pursuant to the Plan, Keene (predecessor company) transferred certain
assets on July 31, 1996 to the Creditors' Trust. Certain assets at the date
of transfer were not capable of being valued until the resolution of
pending litigation. The Company anticipates a future tax benefit; however,
since the value of certain assets is not currently quantifiable and the
extent of any potential benefit resultant upon the transfer of the assets
is not estimable, the Company has not disclosed nor recorded a deferred tax
benefit in the accompanying financial statements.
13
<PAGE>
(4) STOCKHOLDERS' EQUITY
Common stock consists of 2,500,000 authorized shares, $.01 par value per
share, of which 1,020,000 shares of Class B and 980,000 of Class A were
issued and outstanding at December 31, 1996. At such time as the Class B
Common Stock shall represent less than 10% of the aggregate shares of
Common Stock then outstanding, all the shares of the Class B Common Stock
shall convert to Class A Common Stock.
In 1990, Keene established a Preferred Share Purchase Rights Plan pursuant
to which a dividend of one right was issued for each outstanding share of
common stock. The right was eliminated on the Effective Date.
(5) STOCK OPTIONS
Prior to the Effective Date, the Company had a stock incentive plan (the
Stock Plan) which was established in 1990. The number of common shares
subject to awards under the Stock Plan could not exceed 1,000,000 shares.
The Stock Plan permited the Board of Directors of the Company to grant
nonqualified common stock options to key employees and directors at not
less than either the fair market value per share or the book value per
share on the date of grant. Options granted expired ten years from date of
grant and were exercisable at the rate of 25% per year commencing one year
after date of grant for employees and 33 1/3% per year commencing one year
after date of grant for directors. All options were extinguished on the
Effective Date.
Changes in stock options at December 31, 1996 were as follows:
<TABLE>
<S> <C>
Outstanding options, beginning of year 639,000
Options exercised between $.03 and $.25 per share (304,275)
Options granted between $.03 and $.25 per share --
Options canceled between $.03 and $1.75 per share (334,725)
- --------------------------------------------------------------------------------
Outstanding options between $.03 and
$1.75 per share, end of year --
- --------------------------------------------------------------------------------
</TABLE>
As of the Effective Date, the Company established a new stock incentive
plan (the New Stock Plan) for key employees. The New Stock Plan permits the
grant of stock options, stock appreciation rights and restricted stock. The
total number of shares of stock subject to issuance under the New Stock
Plan may not exceed 100,000. The maximum number of shares of stock with
respect to which options or stock appreciation rights may be granted to any
eligible employee during the term of the New Stock Plan may not exceed
10,000. The shares to be delivered under the New Stock Plan may consist of
authorized but unissued stock or treasury stock, not reserved for any other
purpose.
The exercise price of the options is established at the discretion of a
Committee of the Board of Directors (the Committee), provided that it may
not be less than the estimated fair value at the time of grant. The New
Stock Plan provides that the options are exercisable based on vesting
schedules, provided that in no event shall such options vest more rapidly
than 33 1/3% annually. The options expire no later than ten years from the
date of grant.
The Committee, in its discretion, in connection with grant of an option,
may grant to the optionee stock appreciation rights (SARs). A SAR will
entitle the holder of the related option, upon exercise of the stock
appreciation right, to surrender such option, and receive payment of an
amount determined by multiplying (i) the excess of the fair market value of
a share of stock on the date of exercise of such SAR over the purchase
price of a share of stock under the related option, by (ii) the number of
shares as to which the SARs has been exercised.
The Committee may grant shares of restricted stock to eligible employees
and in such amounts as it shall determine in its sole discretion.
No options, SARs or restricted stock were granted under the New Stock Plan.
14
<PAGE>
(6) PENSION PLAN
The Company has a pension plan covering substantially all employees. The
benefits paid under the pension plan generally are based on an employees'
years of service and compensation during the last years of employment.
Annual contributions made to the pension plan are determined in compliance
with the minimum funding requirements of ERISA using a different actuarial
cost method and actuarial assumptions than are used for determining pension
expense for book accounting purposes. Annual contributions to the plan are
made in amounts approximately equal to the amounts accrued for pension
expense. Plan assets consist principally of publicly traded equity and debt
securities.
Net pension cost included the following (in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996 July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 51 71 113
Interest cost on benefits earned in prior years 353 495 863
Return on assets:
Actual gain (228) (319) (1,327)
Deferred (loss) gain (108) (149) 602
- -----------------------------------------------------------------------------------------------------------------------------
Expected return (336) (468) (725)
- -----------------------------------------------------------------------------------------------------------------------------
Amortization of net obligation at transition 8 12 20
Amortization of net loss 52 71 142
- -----------------------------------------------------------------------------------------------------------------------------
Net pension cost $128 181 413
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of the plan at December 31, 1996 was as follows (in
thousands):
<TABLE>
<CAPTION>
Estimated amounts of assets required to provide funds for future payment of
accumulated benefits based on employment service to date and present pay
levels:
<S> <C>
Vested $11,651
Non-vested 67
- --------------------------------------------------------------------------------
Accumulated benefit obligation 11,718
Additional amounts related to projected pay increases 229
- --------------------------------------------------------------------------------
Projected benefit obligation 11,947
Actual amount of assets available for benefits at fair value 9,311
- --------------------------------------------------------------------------------
Assets (less than) Projected benefit obligation (2,636)
Unrecognized prior service cost 14
Unrecognized net obligation at transition 85
Unrecognized net loss 2,722
- --------------------------------------------------------------------------------
Prepaid pension cost at September 30, 1996 185
Fourth quarter accruals (77)
Fourth quarter contributions 174
Prepaid pension cost at December 31, 1996 $ 282
- --------------------------------------------------------------------------------
Additional minimum liability at December 31, 1996 $(2,591)
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the pension plan as of December 31, 1996
were:
<TABLE>
<CAPTION>
<S> <C>
Discounted rate 7.5%
Rate of increase in compensation levels 5.0
Expected long-term rate of return on assets 9.0
- ---------------------------------------------------------------
</TABLE>
The unrecognized prior service cost and the unrecognized net loss are being
amortized on a straight-line basis over the average future service of
employees expected to receive benefits under the plans. The unrecognized
net obligation at transition is being amortized on a straight-line basis
over 15 years.
15
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
Leases Reinhold leases certain facilities and equipment under operating
leases. Total rental expense on all operating leases approximated $712,000
and $811,000 for 1996 and 1995, respectively.
Minimum future rental commitments under noncancelable operating leases in
force at December 31, 1996 are payable as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 429
1998 429
1999 429
2000 239
2001 104
Thereafter 17
- -------------------------------------------------------------
$ 1,647
- -------------------------------------------------------------
</TABLE>
Legal Proceedings The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material effect on the Company's financial position, results of operations
or liquidity.
(8) BUSINESS AND CREDIT CONCENTRATIONS
As the United States continues to reduce budget allocations for defense
expenditures, sales to customers operating in the defense contract industry
may be adversely affected. The Company has been successful in replacing
sales lost to customers in the defense contract industry to companies
operating in the aerospace and other commercial industries. Changes in the
marketplace of any of the above-named industries may significantly affect
management's estimates and the Company's performance.
The Company's principal customers are prime contractors to the U.S.
Government and aircraft seat manufacturers. Sales to each customer which
exceed 10% of total net sales for the periods presented were as follows (in
thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
- -----------------------------------------------------------------------------------------------------------------------------
Period from Period from
(August 1, 1996 through January 1, 1996 through Year ended
December 31, 1996) July 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliant Technology $ 1,300 * *
BE Aerospace 2,216 3,308 3,459
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Sales to these customers were less than 10% of total net sales for the
period.
BE Aerospace accounted for approximately 36% of the Company's accounts
receivable balance before any adjustments for the allowance for doubtful
accounts. No other customer exceeded 10% of the Company's gross accounts
receivable balance. The Company estimates an allowance for doubtful
accounts based on the creditworthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts.
16
<PAGE>
<TABLE>
<CAPTION>
CORPORATE DIRECTORY
<S> <C> <C> <C>
BOARD OF DIRECTORS CORPORATE OFFICES FORM 10-KSB STOCK LISTING
Lawrence H. Diamond 12827 East Imperial Hwy Stockholders may obtain a Reinhold common stock
Chairman Santa Fe Springs, CA 90670 copy of Reinhold's 10-KSB by is listed on the OTC Bulletin
Consultant 562 944-3281 writing to Investor Relations Board
Ernst & Young LLP Department Symbol - RNHDA
INVESTOR RELATIONS
MICHAEL T. FURRY Contact Judy Sanson TRANSFER AGENT
President and CEO Reinhold Industries, Inc. Continental Stock Transfer &
Reinhold Industries, Inc. Trust Company
REGISTRAR 2 Broadway
Robert B. Steinberg Continental Stock Transfer & New York, New York 10004
Senior Partner Trust Company 212 509-4000
Rose, Klein & Marias 2 Broadway
New York, New York 10004 INDEPENDENT PUBLIC
CORPORATE OFFICERS Accountants
Michael T. Furry ANNUAL MEETING KPMG Peat Marwick LLP
President and CEO The Annual Stockholders' One World Trade Center
Meeting will be held at the Suite 1700
David M. Blakesley offices of Reinhold Long Beach, CA 90831
Vice-President - Finance Industries, Inc.
Administration, Treasurer and 12827 East Imperial Hwy ATTORNEYS
Secretary Santa Fe Springs, CA Petillon & Hansen
on May 1, 1997 at 10:00 a.m. 1260 Union Bank Tower
21515 Hawthorne Boulevard
Torrance, California 90503
Wapnic & Alvarado
11300 West Olympic Boulevard
Suite 700
Los Angeles, California
90664-1644
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1522
<SECURITIES> 1000
<RECEIVABLES> 2324
<ALLOWANCES> 501
<INVENTORY> 1491
<CURRENT-ASSETS> 5544
<PP&E> 7896
<DEPRECIATION> 2738
<TOTAL-ASSETS> 12540
<CURRENT-LIABILITIES> 1942
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 5699
<TOTAL-LIABILITY-AND-EQUITY> 12540
<SALES> 13120
<TOTAL-REVENUES> 13120
<CGS> 10074
<TOTAL-COSTS> 13103
<OTHER-EXPENSES> 3139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1963)
<INCOME-TAX> 235
<INCOME-CONTINUING> (2198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2198)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>