U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission file number: 0-18434
REINHOLD INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in charter)
Delaware 13-2596288
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12827 East Imperial Hwy, Santa Fe Springs, CA 90670
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (562) 944-3281
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 [ X ] NO [ ]
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to distribution of securities under a plan confirmed by the 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 - 978,956 shares as of November 12, 1998.
Class B Common Stock, Par Value $.01 - 1,020,000 shares as of November 12, 1998.
Transitional Small Business Disclosure Format (Check one):
YES [ ] NO [ X ]
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
EXHIBITS 17
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Net sales $6,859 $4,672
Cost of goods sold 5,317 3,211
----- -----
Gross profit 1,542 1,461
Selling, general and administrative expenses 1,180 800
----- -----
Operating income 362 661
Interest (expense) income, net (17) 27
----- -----
Income before income taxes 345 688
Income tax provision (benefit) 51 (23)
----- -----
Net income $ 294 $ 711
===== =====
Basic and diluted earnings per shares $ .14 $ .36
Weighted average common shares outstanding 1,999 1,999
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Net sales $18,149 $12,111
Cost of goods sold 13,736 8,666
------ ------
Gross profit 4,413 3,445
Selling, general and administrative expenses 2,963 2,305
------ ------
Operating income 1,450 1,140
Interest (expense) income, net (5) 72
------ ------
Income before income taxes 1,445 1,212
Income tax provision 78 36
------ ------
Net income $ 1,367 $ 1,176
====== ======
Basic and diluted earnings per shares $ .68 $ .59
Weighted average common shares outstanding 1,999 1,999
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,775 $ 2,419
Marketable securities - 750
Accounts receivable 3,945 1,899
Inventories 4,565 1,975
Other current assets 1,220 708
------ ------
Total current assets 13,505 7,751
Property, plant and equipment, net 4,937 4,526
Other assets 1,008 938
------ ------
TOTAL ASSETS $ 19,450 $ 13,215
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,829 $ 588
Current portion - long term debt 454 -
Accrued expenses 1,307 849
------ ------
Total current liabilities 4,590 1,437
Long term pension liability 592 592
Long term debt - less current portion 1,663 -
Other long term liabilities 1,836 1,846
Stockholders' equity
Common stock
Authorized- 1,480,000 Class A shares
and 1,020,000 Class B shares
Issued and outstanding - 978,956 Class A shares
and 1,020,000 Class B shares 20 20
Additional paid-in capital 7,791 7,791
Retained earnings 3,415 2,048
Accumulated comprehensive loss (457) (519)
------ ------
Net stockholders' equity 10,769 9,340
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,450 $ 13,215
====== ======
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,367 $ 1,176
Adjustments to reconcile net income to net
cash provided by operating activities (net of effects
of acquisition):
Depreciation and amortization 653 546
Changes in assets and liabilities:
Accounts receivable 565 (328)
Inventories 63 (490)
Other current assets (435) (156)
Accounts payable 860 270
Accrued expenses (124) (4)
Other, net (119) (326)
------ ------
Net cash provided by operating activities 2,830 688
------ ------
Cash flow from investing activities:
Maturity of marketable securities 750 -
Acquisition of NP Aerospace (3,707) -
Capital expenditures (634) (308)
------ ------
Net cash used in investing activities (3,591) (308)
------ ------
Cash flow from financing activities:
Proceeds from long term debt 2,268 -
Repayment of long term debt (151) -
Cash paid for acquisition of Reynolds & Taylor - (246)
------ ------
Net cash provided by (used in) financing activities 2,117 (246)
------ ------
Net increase in cash and cash equivalents 1,356 134
Cash and cash equivalents, beginning of period 2,419 1,522
------ ------
Cash and cash equivalents, end of period $ 3,775 $ 1,656
====== ======
Cash paid during period for:
Income taxes $ 38 $ 12
Interest $ 84 $ 6
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
DESCRIPTION OF BUSINESS
Reinhold Industries, Inc. and subsidiary ("Reinhold" or the "Company") is
a manufacturer of advanced custom composite components and sheet molding
compounds for a variety of applications in the United States and Europe.
Reinhold derives revenues from the defense contract industry, the aerospace
industry and other commercial industries.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements are
those of Reinhold as of September 30, 1998 and December 31, 1997 and for the
nine and three months ended September 30, 1998 and 1997. The unaudited condensed
consolidated financial statements have been prepared by the Company as
contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation S-X and do not contain certain information that will be included in
the Company's annual financial statements and notes thereto. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all material adjustments and disclosures necessary for a fair
presentation have been made. The results of operations for the nine and three
months ended September 30, 1998 and 1997 are not necessarily indicative of the
operating results for the full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the annual
report and notes thereto for the year ended December 31, 1997, included in the
Company's Form 10-KSB filed with the Securities and Exchange Commission on March
13, 1998.
ACQUIRED BUSINESS
On April 24, 1998, NP Aerospace Limited ("NP Aerospace"), a wholly owned
subsidiary of Reinhold, purchased from Courtaulds Aerospace Limited ("CAL"), a
U.K. Corporation, which is a wholly owned subsidiary of Courtaulds plc, a U.K.
Corporation, certain assets (consisting of Accounts Receivable, Inventory,
Machinery and Equipment, Land and Intellectual Property and Patents) and assumed
certain liabilities of the Ballistic and Performance Composites Division of CAL.
Reinhold, as the Guarantor for NP Aerospace, became obligated to pay to
Courtaulds plc net consideration consisting of (a) Two Million Two Hundred
Thousand pounds sterling (pounds sterling 2,200,000) ($3,706,340 based on an
exchange rate of $1.6847) cash on the Closing Date and (b) within 120 days
following the end of each of the calendar years 1998 through 2001, a cash amount
equal to 25% of the Pre-tax Profit on the light armored vehicle business only,
the maximum aggregate amount of which shall not exceed Twenty Million pounds
sterling (pounds sterling 20,000,000). Additional payments will be capitalized
as part of the purchase price, when and if earned.
The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of NP Aerospace have been included in the
consolidated financial statements from April 24, 1998.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
The excess of the fair value of the net identifiable assets acquired over the
purchase price has been preliminarily allocated to fixed assets as follows (in
thousands):
Working capital $3,781
Severance costs (403)
-----
3,378
Cash paid 3,707
-----
Excess over cost allocated to property,
plant and equipment $ 329
=====
<TABLE>
The pro forma unaudited results of operations for the three and nine months
ended September 30, 1998 and 1997, assuming consummation of the purchase as of
January 1, 1997 are as follows (in thousands, except earnings per share data):
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $8,729 $23,071 $24,014
Net income $1,250 $1,499 $2,000
Basic and diluted earnings per share $0.63 $0.75 $1.00
</TABLE>
REPORTING COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 130, "Reporting Comprehensive Income," effective January 1, 1998. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS No.
130 also permits an entity to report a total for comprehensive income in the
notes to the interim financial statements. The difference between net income and
total comprehensive income during the nine months and three months ended
September 30, 1998 was a gain on foreign currency translation of $62,000 and
$112,000, respectively. There were no differences between net income and total
comprehensive income during the nine months and three months ending September
30, 1997.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information" in 1998. SFAS No. 131 will require
additional disclosure, but will not have any effect on the Company's financial
position or results of operations. SFAS No. 131 changes the way companies report
segment information and requires segments to be determined based upon how
management measures performance and makes decisions about allocating resources.
SFAS No. 131 will be reflected in the Company's 1998 Annual Report.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
SFAS No. 132 amends the disclosure requirements of SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 132 standardizes the disclosure requirements of SFAS No.'s
87 and 106 to the extent practicable and recommends a parallel format for
presenting information about pensions and other postretirement benefits. SFAS
No. 132 is applicable to all entities and addresses disclosure only. SFAS No.
132 does not change any of the measurement or recognition provisions provided
for in SFAS No.'s 87, 88 and 106. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 modifies the accounting for derivatives and hedging activities and is
effective for fiscal years beginning after December 15, 1999. At this time, the
Company does not expect the adoption of SFAS No. 133 to have a significant
impact on its financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The Company will
adopt SOP 98-1 effective in 1999. The adoption of SOP 98-1 will require the
Company to modify its method of accounting for computer software developed or
obtained for internal use. Based upon information currently available, the
Company does not expect the adoption of SOP 98-1 to have a significant impact on
its financial position or results of operations.
INCOME TAXES
Income taxes for interim periods are computed using the effective tax rate
estimated to be applicable for the full financial year, which is subject to
ongoing review and evaluation by management.
LONG TERM DEBT
On April 22, 1998, the Company borrowed $2,268,000 from The CIT Group
Credit/Finance ("CIT") to fund a portion of the purchase consideration due to
Courtaulds Aerospace. The Company had previously entered into a Five Year Loan
and Security Agreement with CIT in the amount of Four Million Dollars
($4,000,000). The term portion of the loan ($2,268,000) is payable in equal
monthly principal payments of $37,800 plus interest at prime plus 1.75% and is
secured by fixed assets and land. The remainder of the CIT credit facility is a
revolver of One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000),
which has not been used at this time.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
September 30, 1998
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Item 1 of this
filing, the financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
Reinhold is a manufacturer of advanced custom composite components and
sheet molding compounds for a variety of applications in the United States and
Europe. Reinhold derives revenues from the defense contract industry, the
aerospace industry and other commercial industries.
Comparison of Third Quarter 1998 to 1997
In the third quarter of 1998, net sales increased $2.2 million, or 47%, to
$6.9 million, compared to third quarter 1997 sales of $4.7 million. The increase
primarily reflects sales of $3.0 million related to the NP Aerospace acquisition
in April of 1998. Sales also increased $0.1 million for Commercial products.
However, there were decreases of $0.5 million in Aerospace product sales and
$0.4 million in CompositAir.
Gross profit margin decreased to 22.5% in the third quarter of 1998
compared to 31.3% in the third quarter 1997, primarily due to lower Aerospace
sales, whose products have comparatively higher gross margins, production
inefficiencies at CompositAir and the inclusion of NP Aerospace activities (a
lower total margin business). There were also lower favorable material variances
for Aerospace products in 1998 compared to 1997. Gross profit margin for
Aerospace products decreased to 43.3% in 1998 from 50.6% in 1997. Gross profit
margin for CompositAir products decreased to 17.1% in 1998 from 24.3% in 1997.
Gross profit margin for Commercial products decreased to 17.2% in 1998 from
17.3% in 1997. Gross profit margin for NP Aerospace products was 17.2% for the
third quarter 1998.
Selling, general and administrative expenses for the third quarter 1998
were $1.2 million (17.2% of sales) compared to $0.8 million (17.1% of sales) for
the same quarter of 1997. S,G & A increases are primarily associated with the
costs of the new foreign subsidiary, including the costs associated with the
consolidation of facilities in the United Kingdom.
Interest expense, net, in the third quarter of 1998 was $0.02 million
compared to interest income of $0.03 million in the third quarter of 1997 due to
the interest expense related to the CIT loan.
A tax provision of $0.05 million was recorded in the third quarter of
1998. The effective tax rate for the United Kingdom is approximately 20%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. In determining the recognition 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 not utilized in 1998 is dependent upon the
generation of future taxable income during the periods in which the net
operating losses are deductible. Management considers the projected future
<PAGE>
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
Comparison of First Nine Months 1998 to 1997
In the first nine months of 1998, net sales increased $6.0 million, or
50%, to $18.1 million, compared to first nine months 1997 sales of $12.1
million. The increase primarily reflects sales of $5.5 million related to the NP
Aerospace acquisition in April of 1998. There was also an increase in Commercial
product sales of $0.4 million.
Gross profit margin decreased to 24.3% in the first nine months of 1998
compared to 28.4% in the first nine months 1997 due to lower Aerospace sales
(products have a higher gross margin), production inefficiencies at CompositAir
and the inclusion of NP Aerospace activities (a lower total margin business).
There were also lower positive material variances for Aerospace products in 1998
compared to 1997. Gross profit margin for Aerospace products decreased to 42.3%
in 1998 from 43.8% in 1997. Gross profit margin for CompositAir products
decreased to 18.2% in 1998 from 21.4% in 1997. Gross profit margin for
Commercial products increased to 18.0% in 1998 from 6.8% in 1997. Gross profit
margin for NP Aerospace products was 18.5% for the period from acquisition
(April 24, 1998) through September 30, 1998.
Selling, general and administrative expenses for the first nine months of
1998 were $3.0 million (16.3% of sales) compared to $2.3 million (19.0% of
sales) for the same period of 1997. Although selling, general and administrative
expenses were higher in 1998, these expenses decreased 2.7 % as a percent of
sales. S,G & A increases are primarily associated with the costs of the new
foreign subsidiary, including the costs associated with the consolidation of
facilities in the United Kingdom.
Interest expense, net, in the first nine months of 1998 was $0.01 million
compared to interest income of $0.07 million in the first nine months 1997 due
to the interest expense related to the CIT loan.
A tax provision of $0.08 million was recorded in the first nine months of
1998. The effective tax rate for the United Kingdom is approximately 20%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. 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 not utilized in 1998 is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected future taxable
income and tax planning strategies in making this assessment. Based upon the
level of historical taxable income (losses) and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
<PAGE>
Liquidity and Capital Resources
As of September 30, 1998, working capital was $8.9 million, up $2.6
million from December 31, 1997. Cash and cash equivalents of $3.8 million held
at September 30, 1998 were $1.4 million higher than cash and cash equivalents
held at December 31, 1997 primarily due to $2.8 million of net cash provided by
operating activities and the $0.7 million of marketable securities which matured
offset by the net cash outlay of $1.4 million by the Company for the NP
Aerospace acquisition (Cash paid $3.7 million less proceeds from CIT of $2.3
million) and $0.6 million spent on capital expenditures. There were no
marketable securities held at September 30, 1998.
Net cash provided by operations amounted to $2.8 million for the nine
months ended September 30, 1998. Net cash provided by operations amounted to
$0.7 million for the comparable period in 1997. The increase over the prior
period relates to the increased profitability of the Company.
Net cash used in investing activities for the nine months ended September
30, 1998 totaled $3.6 million and consisted of the acquisition by NP Aerospace
of $3.7 million and property and equipment expenditures totaling $0.6 million
offset by the maturity of $0.7 million of marketable securities. Net cash used
in investing activities for the nine months ended September 30, 1997 consisted
of property and equipment expenditures totaling $0.3 million.
Net cash provided by financing activities for the nine months ended
September 30, 1998 totaled $2.1 million and consisted primarily of $2.3 million
of proceeds from the CIT loan. Net cash used in financing activities for the
nine months ended September 30, 1997 totaled $0.2 million relating to the
payment made for the acquisition of Reynolds & Taylor.
Expenditures in 1998 related to investing and financing activities were
financed by existing cash and cash equivalents and proceeds from the CIT loan.
Expenditures in 1997 related to investing and financing activities were financed
by existing cash and cash equivalents.
The Company does not have any current material commitments of capital
expenditures at September 30, 1998.
As discussed in the notes to the unaudited condensed consolidated
financial statements, the Company acquired certain assets and assumed certain
liabilities of the Ballistic and Performance Composites Division of Courtaulds
Aerospace Ltd on April 24, 1998 (the "Closing Date"). On the Closing Date,
Reinhold paid to Courtaulds plc the Two Million Two Hundred Thousand pounds
sterling (pounds sterling 2,200,000) ($3,706,340 based on an exchange rate of
$1.6847) cash due on the Closing Date and will make additional payments in the
future as required by the Asset Sale Agreement.
The source of the funds for a portion of the Purchase Consideration due on
the Closing Date was a Five Year Loan and Security Agreement with The CIT Group
Credit/Finance ("CIT") in the amount of Four Million Dollars ($4,000,000) at an
interest rate of prime plus 1.75%. The term portion of the loan in the amount of
Two Million Two Hundred Sixty-Eight Thousand Dollars ($2,268,000) was received
from CIT. The remainder of the CIT credit facility is a revolver of One Million
Seven Hundred Thirty-Two Thousand Dollars ($1,732,000), which has not been used
at this time. The remaining portion of the purchase consideration not funded by
the CIT loan was funded by Reinhold's cash on hand. Future payments required by
the Agreement are expected to be financed from operating cash flows.
<PAGE>
The Company had a credit facility with the Keene Creditors' Trust whereby
the Company had the ability to draw on a $1.5 million line of credit. However,
this credit facility expired on July 31, 1998. No amounts had been used under
this facility.
Management believes that the available cash, cash flows from operations
and the amounts available under the Credit Facility described above, will be
sufficient to fund the Company's operating and capital expenditure requirements.
Keene Creditors' Trust Schedule 13D Amendment Filing
On July 27, 1998, the Keene Creditors' Trust, owner of 100% of the Class B
Common Stock, filed an amendment, dated July 16, 1998, to their previously filed
Schedule 13D, dated August 12, 1996, with the Securities and Exchange
Commission. The purpose of this filing was to announce the retention of HT
Capital Advisors, LLC to assist the Trust in determining the value of its shares
and the feasibility of a disposition of 100% of those shares for cash. The
process to sell has been initiated.
Forward Looking Statements
This Form 10-QSB contains statements which, to the extent that they are
not recitations of historical fact, constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate", "anticipate", "project", "intend",
"expect", and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flow. Readers are cautioned not to place
undue reliance on these forward looking statements which speak only as of the
date of this 10-QSB. The Company does not undertake any obligation to publicly
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-QSB, or
to reflect the occurrence of unanticipated events. The forward looking
statements in this document are intended to be subject to safe harbor protection
provided by Sections 27A of the Securities Act and 21E of the Exchange Act.
1998 and 1999 Outlook
As anticipated, the results of the third quarter were significantly lower
than the first two quarters of 1998 and the third quarter of 1997. There may be
a shift of some large value aerospace sales, which had previously been
forecasted for the fourth quarter of 1998, into the first quarter of 1999. Even
with some sales moving into 1999, the Company is anticipating substantially
lower Aerospace sales in 1999. Sales for Commercial products are expected to be
significantly higher in 1998 over 1997, and a modest improvement is expected for
1999. Reinhold projects record sales dollars and unit sales for CompositAir in
1998. The outlook for 1999 is to maintain the same level of profitability. NP
Aerospace has performed better than pre-acquisition forecasts. It is expected to
be a valuable contributor to 1999 revenues. Overall, with the acquisition of NP
Aerospace, the Company expects full year 1998 results to be better than 1997.
Recent Accounting Pronouncements
The effective recent accounting pronouncements are included in the notes
to the condensed consolidated financial statements included herein.
<PAGE>
Year 2000
Many existing computer programs use only two digits to identify a year in
a date. If not corrected, many computer applications and systems could fail or
create erroneous results before or after the year 2000. The Company had
anticipated the year 2000 problem in the mid-1980's and therefore created
compliant systems at that time. The Company is in the process of identifying and
remediating or replacing any other computer systems and software that may not
function correctly in the year 2000. Additionally, the Company is planning a
program of communications with its significant suppliers, customers and
affiliated companies to determine the readiness of these third parties and the
impact on the Company as a consequence of their own year 2000 issues. The
Company's manual assessment of the impact of the year 2000 date change should be
complete by mid-1999. The Company believes that it will be able to identify,
and, if necessary, modify or replace such systems and software before any year
2000 associated problems. No assurances can be given that such modification and
replacement will be completed before any year 2000 associated problems arise or
that costs arising from unanticipated problems will not have a material adverse
effect on the Company. The Company's most likely potential risk is a temporary
inability of some customers to order and pay on a timely basis, and for the
company to receive purchases from their vendors on time. The Company's year 2000
efforts are ongoing and its overall plan, as well as contingency plans, will
continue to evolve as new information becomes available. While the Company
anticipates no major interruption in its business activities, that will be
dependent, in part, on the ability of third parties to be year 2000 compliant.
As of September 30, 1998, amounts spent on the Company's year 2000 program were
less than $25,000. The Company currently estimates the cost to remediate both
its year 2000 hardware and software issues to be less than $30,000.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1 Keene Corporation's Fourth Amended Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code dated March 11, 1996, incorporated
herein by reference to Exhibit 99(a) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
2.2 Motion to Approve Modifications to the Keene Corporation Fourth
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code dated June 12, 1996, incorporated herein by reference to Exhibit
99(b) to Keene Corporation's Form 8-K filed with the Commission on
June 28, 1996.
2.3 Finding of Fact, Conclusions of Law and Order Confirming Keene's
Fourth Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, as modified, entered June 14, 1996, incorporated
herein by reference to Exhibit 99(c) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
3.1 Amended and restated Certificate of Incorporation of Reinhold
Industries, Inc., incorporated herein by reference to Exhibit 99(a),
Exhibit A to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
3.2 Amended and restated By-laws of Reinhold Industries, Inc. (Formerly
Keene Corporation), incorporated herein by reference to Exhibit
99(a), Exhibit B to the Plan, to Keene Corporation's Form 8-K filed
with the Commission on June 28, 1996.
3.3 Certificate of Merger of Reinhold Industries, Inc. into Keene
Corporation, incorporated herein by reference to Exhibit 99(a),
Exhibit C to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
27 Financial Data Schedule
b. Reports on Form 8-K
A Current Report on Form 8-K, dated April 17, 1998, was filed by the
Company with the Securities and Exchange Commission on May 1, 1998. The Form 8-K
reported the asset purchase of the Ballistic and Performance Composites Division
of Courtaulds Aerospace Ltd. by Reinhold's wholly owned subsidiary NP Aerospace.
On June 30, 1998, the Company filed Amendment No. 1 to such Report, which
included audited financial statements of the Ballistic and Performance
Composites Division of Courtaulds Aerospace Ltd. for the years ended March 31,
1998 and 1997, pro forma unaudited combined balance sheet as of March 31, 1998
and pro forma unaudited combined statements of operations for the three months
ended March 31, 1998 and the year ended December 31, 1997, which gave effect to
said acquisition as of the date and for the periods indicated therein.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REINHOLD INDUSTRIES, INC.
Registrant
DATE: November 12, 1998
By: /S/ Brett R. Meinsen
Brett R. Meinsen
Vice President - Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS ON PAGES 3 THRU 5 OF THE COMPANY'S 10-QSB.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
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<RECEIVABLES> 4334
<ALLOWANCES> 389
<INVENTORY> 4565
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<PP&E> 8789
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0
0
<COMMON> 20
<OTHER-SE> 10749
<TOTAL-LIABILITY-AND-EQUITY> 19450
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