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, 1997
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 x NO
--- ---
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 $16,232,000
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.
$7,954,018 AS OF MARCH 11, 1998 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 - 978,956 AS OF MARCH 11, 1998
- -------------------------------------------------------------------------------
CLASS B COMMON STOCK - PAR VALUE $.01 PER SHARE - 1,020,000 AS OF MARCH 11, 1998
- --------------------------------------------------------------------------------
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. 1997
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 Effective Date, Reinhold issued 1,998,956 shares of Common
<PAGE>
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 978,956 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
<PAGE>
Claims against it, including Asbestos-Related Claims that might be filed in the
future.
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. In March 1992, to strengthen its market position in defense and
aerospace markets, 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 their 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 to 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
Products are marketed by company sales personnel and sales representa-
tives in the United States and Europe.
COMPETITION
Reinhold competes with many companies in the sale of ablative and
structural composite products. 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 three
major customers constituted approximately 61% of the Company's net sales in
1997. 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 purchase of CompositAir in 1994, Reinhold expanded its
development and sale of composite components into the commercial aircraft
seatbacks market. The market for aircraft seating is expanding. CompositAir is a
world leader in producing commercial composite aircraft seatback structures.
With the seatback market expanding at a rate of 10% - 15% per year, composites
are enjoying an increased acceptance by the airlines. Due to this acceptance, we
expect an increase in competition in the future.
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 Cytec Fiberite, Inc.
No significant supply problems have been encountered in recent years.
Reinhold uses PAN (polyacrylonitrile) and rayon in the manufacture of
composites. However, the supply of rayon used to make carbon fiber cloth
typically used in ablative composites is highly dependent upon the qualification
<PAGE>
of the rayon supplier by the United States Department of Defense. North American
Rayon has ceased production of the rayon used in Reinhold's ablative products.
This could have an effect on the rayon supply in the coming years. Also, a
European company has become the world's sole supplier of graphite and carbon,
which is used in Reinhold's ablative applications. At this time, Reinhold can
not determine if there will be any significant impact on price or supply.
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 owned 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 expired October 1997 and was not renewed. Reinhold
does not hold any registered trademarks.
RESEARCH AND DEVELOPMENT
Research and Development expenditures were approximately $145,000,
$25,000 and $19,000 for the year ended December 31, 1997, the periods August 1,
1996 - December 31, 1996 (reorganized company) and January 1, 1996 - July 31,
1996 (predecessor company), respectively.
EMPLOYEES
At December 31, 1997, Reinhold had 119 full-time employees and 3
part-time employees. Of these employees, 101( 98 full-time and 3 part-time) were
employed in manufacturing and 21 (all full-time) in administration, product
development and sales. Approximately 60% of the personnel are based at
<PAGE>
Reinhold's Santa Fe Springs, California facility and approximately 40% 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 14 and "Management Discussion and Analysis" on page 5 of
Reinhold's 1997 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> <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 Directors under Keene's Certificate of
Incorporation, dated April 12, 1990, and Section 145 of Delaware General
Corporation Law, for 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.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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 1 and under Stockholder
Information on the back inside cover of Reinhold's 1997 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. No
dividends were paid in 1997 or 1996.
b. The approximate number of common equity security holders is as
follows:
Approximate Number
of Holders of Record
Title of Class as of March 11, 1998
-------------- --------------------
Class A Common Stock,
par value $.01 per share 1,845
Class B Common Stock,
par value $.01 per share 1
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Reference is made to the "Management Discussion and Analysis of
Financial Condition and Results of Operations" on page 5 of Reinhold's 1997
Annual Report to Stockholders, which is incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS
Reference is made to the Independent Auditors' Reports and to the
Financial Statements included on page 7 and pages 9 through 13 and Notes to
Financial Statements on pages 14 through 20 of Reinhold's 1997 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 1998 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 60 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.
Brett R. Meinsen 38 Vice President- Mr. Meinsen became Vice President -
Finance and Finance and Administration in June
Administration 1997. Prior to coming to Reinhold, from
Treasurer and 1986 until January 1997, Mr. Meinsen
Secretary worked as the Director of Finance and
Administration, Manager of Financial
Analysis and a senior financial analyst
at Philips Medical Systems.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is included in the definitive Proxy
Statement for the 1998 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 1998 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 1998 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
Page Incorporated by
Description No.* Reference to
- --------------------------------------------------------------------------------------------------------
<S> <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. Form S-8, filed with the
Stock Incentive Plan Commission on November
10, 1997.
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
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.
23.1 Consent of Independent Auditors
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 13, 1998 By:/s/ Brett R. Meinsen
-------------------- --------------------
Brett R. Meinsen
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 13, 1998
--------------------------------------
Michael T. Furry- President and Director
(Principal Executive Officer)
/s/ Lawrence H. Diamond March 13, 1998
------------------------------------
Lawrence H. Diamond- Chairman
/s/ Robert B. Steinberg March 13, 1998
--------------------------------------
Robert B. Steinberg- Director
<PAGE>
Reinhold
Industries, Inc.
1997 Annual Report
Replacing metal
with
advanced
composites
<PAGE>
Picture of the Reinhold Industries Board of Directors
(left to right): Chairman of the Board Lawrence H. Diamond, President and Chief
Executive Officer Michael T. Furry, and Director Robert B. Steinberg.
where
light weight,
corrosion resistance,
or complex shapes
are required.
<PAGE>
Reinhold Industries, Inc.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of operations (in thousands)
Net sales $ 16,232 13,120 11,122 14,824 11,612
Gross profit $ 4,699 3,046 1,728 4,579 4,123
Operating income (loss) $ 1,595 17 (1,832) 1,628 904
Interest income, net $ 103 1,159 2,202 2,108 6,282
Corporate expenses $ - - - - 4,686
Reorganization expenses $ - 3,139 9,492 11,230 250
Net income (loss) $ 1,647 (2,198) (8,983) (7,792) 2,793
- ---------------------------------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities $ 3,169 2,522 34,660 42,833 88,892
Working capital $ 6,314 3,602 39,105 48,682 56,523
Net property and equipment $ 4,526 5,158 5,607 6,201 4,447
Total assets $ 13,215 12,540 64,705 75,321 114,444
Long-term liabilities $ 2,438 4,879 4,733 4,259 1,914
Stockholders' equity $ 9,340 5,719 41,990 51,251 59,453
- ---------------------------------------------------------------------------------------------------------------------------------
Per share data
Net income (loss):
Basic & diluted (note 1) $ 0.82 N.M.* (0.86) (0.75) 0. 27
Stockholders' equity $ 4.67 2.86 4.02 4.91 5.69
Market price range: (note 2)
High $ 10 4 1/8 N.M.* N.M.* N.M.*
Low $ 2 7/8 3 1/4 N.M.* N.M.* N.M.*
- ---------------------------------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand $ 5,989 4,935 6,635 3,514 5,400
Average shares outstanding 1,999 Note 1 10,442 10,442 10,442
Average number of common stockholders 1,951 2,099 2,396 2,434 2,511
Average number of employees 124 105 104 119 93
<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 978,956 shares of Class A Common Stock and 1,020,000
shares of Class B Common Stock. Therefore, the earnings per share
and average shares outstanding information is not meaningful.
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.
Note 3: The Company has adopted the provisions of SFAS No. 128
"Earnings Per Share" during the quarterly period ended December
31, 1997. See Note 2 to the accompanying financial statements.
See management analysis and Note 1 to the financial statements
for discussion of Chapter 11 bankruptcy proceeding and the
Effective Date of the Fourth Amended Plan of Reorganization.
*N.M. - Not Meaningful
</FN>
</TABLE>
1
<PAGE>
Reinhold Industries, Inc.
CompositAir
Picture of CompositAir Products
Composite seatback structures are enjoying increasing acceptance as ergonomic
features are designed into the tubular frame. Light weight and the ability to
form complex cross sections and shapes make CompositAir's products excellent
replacements for metal structures.
2
<PAGE>
Reinhold Industries, Inc.
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 Creditors' 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 Reinhold manufactures products made from advanced
composites, which are fiber reinforced resin matrices. Our business objective is
to identify or develop niche market opportunities for replacing metal with
advanced composites where complex shapes at lower cost, light weight, or
corrosion resistance are required.
Commercial products manufactured by Reinhold include graphite composite
commercial aircraft seatback structures and molded composite in-ground lighting
housings. Our Aerospace/Defense Business Unit manufactures ablative (heat
absorptive) components such as exit cones, nozzles, and motor case insulation
for solid propellant rockets, including the Pegasus satellite launch rocket.
PERFORMANCE Net sales increased 24% from $13.1 in 1996 to $16.2 million in 1997,
reflecting increased sales of aircraft seatback and aerospace products. Gross
profit grew from 23.2% to 28.9% due to greater absorption of overhead resulting
from the increase in sales.
Selling, general and administrative expenses rose to $3.1 million in 1997 from
$3.0 in 1996 due to higher costs for public compliance (a full year in 1997
compared to seven months in 1996.) More significant than the dollar increase is
that these expenses decreased 4% as a percentage of sales, from 23.1% in 1996 to
19.1% in 1997.
Net income was $1.6 million, or $0.82 per share in 1997, compared with a net
loss of $2.2 million in 1996. (The per share figure for 1996 is not meaningful
because it would be based on old Keene shares through July 31 and new Reinhold
shares beginning August 1.)
During 1997, the Company's Board of Directors changed its investment strategy
related to the Retirement Plan Trust. As a result, the market value of the
portfolio increased significantly, thereby reducing the excess pension liability
by $2.0 million. The Company's net worth was thereby increased, not only by $1.6
million of net income, but also by this $2.0 million.
ACQUISITIONS We expect a portion of Reinhold's future growth to result from
acquiring other companies. Our strategy is to identify those that already occupy
a niche in advanced composites, or those whose products could be improved by
conversion from metal to advanced composites.
During 1997, evaluation of several acquisition candidates was initiated. The
process continues. Significant progress has been made with at least one company.
OUTLOOK
AEROSPACE: We had a good year in 1997 for both sales and profit. Sales from the
solid rocket market were as expected. A substantial increase from new business
in composite structures and radomes, however, although welcome, came from a
"one-time" order and will not repeat.
Essentially all of this Business Unit's sales are derived from military spending
related to solid rockets, a sector that is in annual decline. We expect the
trend to continue, so lower sales for this Unit are projected for 1998.
COMMERCIAL: Neither sales nor profit were good for this Business Unit in 1997.
There is, however, sound reason for optimism in 1998. This Unit serves the
residential pool filter, outdoor lighting, and other commercial markets. During
1997, we tooled, developed, and began limited production of three new lighting
products for three new customers. We expect these to account for approximately
25% of the Unit's 1998 sales. With an expected increase in sales of other
products, a significant improvement in sales and profits should result in 1998.
COMPOSITAIR: Unit sales were up 25% and total revenue 43% in 1997. The new
European customer that we added in late 1996 contributed significantly to these
results.
During 1997, we moved laminating production to a new facility, streamlined the
assembly operation, and improved quality and on-time delivery significantly. We
also invested in our technical support staff, an investment that resulted not
only in unit volume and total revenue growth, but in improved margins as well.
Our investment in human resources, equipment, and facilities was made in
anticipation of continuing market growth of 10% to 15% per year in airline
seating. As conversion from aluminum to composites has increased, our market
share has grown 2% per year. We now enjoy an estimated 25% share of the
worldwide aircraft seatback market.
OVERALL Bookings exceeded sales by more than $1 million in 1997, a fact
particularly significant because our biggest commercial customer has implemented
a just-in-time ordering and shipping policy. This is a positive indicator as we
move from a strong performance in 1997 into the new year. We will continue to
apply Reinhold's historical management controls and process improvements to
reduce costs and better respond to our customers' needs.
Modest improvement in revenues can be expected this year, but profit may soften
as the percentage of Aerospace business will be lower in 1998 than 1997.
Our excellent performance in 1997 was achieved as a result of the loyalty of our
customers and suppliers and the commitment of Reinhold's employees. To all of
you, we express our thanks.
/s/ Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
February 20, 1998
3
<PAGE>
Reinhold Industries, Inc.
Aerospace
Picture of Aerospace Products
The Aerospace Business Unit currently manufactures components for several
military programs, including wings and control surfaces for the AGM-130 "Smart
Bomb," nozzles for the Hellfire and Maverick missiles, props for use on military
torpedos, polarizing radomes for fighter planes, and rocket nozzles for the
Pegasus launch vehicle.
4
<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 Discussion and Analysis and to facilitate a
meaningful comparison for the year ended December 31, 1996, 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 results for the year ended December 31, 1996.
Reinhold is a manufacturer of advanced custom composite components and sheet
molding compounds for a variety of applications and derives revenues from the
United States defense contract industry, the aerospace industry, and other
commercial industries.
1997 COMPARED WITH 1996 Backlog at December 31, 1997 was $6.0 million, up 21%
from December 31, 1996, primarily due to an increase in aircraft seatback and
aerospace product orders. In 1997, order input increased 47% to $17.3 million
and net sales increased 24% to $16.2 million from $13.1 million in 1996,
reflecting higher sales of aircraft seatbacks and aerospace products partially
offset by lower commercial product sales.
Gross profit margin increased to 28.9% from 23.2%, reflecting greater absorption
of overhead due to higher sales volume. In 1997, selling, general and
administrative expenses were $3.1 million (19.1% of sales) compared with $3.0
million (23.1% of sales) in 1996 as the result of higher costs for public
compliance partially offset by lower general insurance costs. However, as a
percentage of sales, selling, general and administrative expenses decreased
significantly in 1997.Operating income was $1.6 million in 1997 compared with
$0.02 million in 1996.
Interest income declined 91.1% to $0.1 million in 1997 from $1.2 million in 1996
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 5.12%
in 1997 compared with 5.17% in 1996.
During 1996, $3.1 million was incurred for reorganization expenses, which
included Chapter 11-related professional fees of $1.5 million. Reorganization
expenses in 1996 only included expenses through July 31, 1996. There were no
reorganization expenses in 1997.
A tax provision of $0.05 million was recorded in 1997 for the alternative
minimum tax for federal and state tax expenses compared with a provision of $0.2
million in 1996. In 1997, the Company had pre-tax income of $1.7 million and was
able to reduce income taxes by $0.6 million by a reduction in the valuation
allowance related to deferred tax assets. Deferred tax assets, net of deferred
tax liabilities, amounted to $14.6 million at December 31, 1997. The Company has
recorded a related valuation allowance of $14.6 million. 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. 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. See Note 3 to the financial
statements.
Net income totaled $1.6 million, or $0.82 per share in 1997 compared with a net
loss of $2.2 million in 1996. (The per share computation in 1996 is not
meaningful since it would be based on an average of 10,485,427 old Keene shares
through July 31, 1996 and 1,998,956 new Reinhold shares beginning August 1,
1996).
During 1997, the Company's Board of Directors changed its investment strategy
related to the Retirement Plan Trust. As a result, the market value of the
portfolio significantly increased, thereby reducing the excess pension liability
by $2.0 million.
The Company's net worth was increased not only by our $1.6 million of net
income, but also by this $2.0 million. In future periods, the portfolio results
may be adversely affected by fluctuations in the stock market.
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, working capital was
$6.3 million, up $2.7 million from December 31, 1996. Cash and cash equivalents
of $2.4 million held at December 31, 1997 were $0.9 million higher than cash and
cash equivalents held at December 31, 1996, primarily due to $1.6 million of net
income and the maturity of $0.2 million of marketable securities offset by $0.2
million paid to Furon related to the Reynolds & Taylor acquisition, an inventory
increase of $0.5 million, and $0.4 million paid to the pension trust. Marketable
securities of $0.8 million held at December 31, 1997 declined $0.2 million
compared with those held at December 31, 1996, primarily due to the maturity of
an investment of $0.2 million.
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 to 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 1997, Reinhold spent approximately $0.4 million on capital expenditures.
No Year 2000 costs nor any material capital expenditures are planned for 1998.
Management believes that the available cash, cash flows from operations, and the
amount available under the Credit Facility, described above, will be sufficient
to fund the Company's operating and capital expenditure requirements.
RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 128 "Earnings Per Share," SFAS No. 130
"Reporting Comprehensive Income," and SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information" are discussed in Note 2 to the financial
statements.
5
<PAGE>
Reinhold Industries, Inc.
CompositAir
Picture of CompositAir Products
Composites offer the designer versatility of shape and feature. Reinforcements
of graphite, aramid, and glass fibers are used to provide products adapted to
the needs of business, first class, tourist and regional seating requirements.
6
<PAGE>
Reinhold Industries, Inc.
INDEPENDENT AUDITORS' REPORTS
The Board of Directors
Reinhold Industries, Inc.
We have audited the accompanying balance sheets of Reinhold Industries, Inc.
(the Company) as of December 31, 1997 and 1996 and the related statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997 and 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reinhold Industries, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the year ended December 31, 1997 and 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.
/s/KPMG Peat Marwick LLP
Los Angeles, California
January 30, 1998
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. 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 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 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 in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
Los Angeles, California
January 17, 1997
7
<PAGE>
Reinhold Industries, Inc.
Commercial
Picture of Commercial Products
The Commercial Business Unit manufactures sheet molding compound (SMC) for sale
and use in compression molding custom components for swimming pool filter tanks
and in-ground lighting fixtures.
8
<PAGE>
Reinhold Industries, Inc.
<TABLE>
STATEMENTS OF OPERATIONS
(Amounts in thousands, except for per share data)
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------------------- --------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C>
Net sales $16,232 6,323 6,797
Cost of sales 11,533 4,515 5,559
- --------------------------------------------------------------------------------------------------- --------------------------
Gross profit 4,699 1,808 1,238
Selling, general and administrative expenses 3,104 1,445 1,584
- --------------------------------------------------------------------------------------------------- --------------------------
Operating income (loss) 1,595 363 (346)
Interest income, net 103 54 1,105
- --------------------------------------------------------------------------------------------------- --------------------------
Income before reorganization expenses
and income taxes 1,698 417 759
Reorganization expenses - - 3,139
- --------------------------------------------------------------------------------------------------- --------------------------
Income (loss) before income taxes 1,698 417 (2,380)
Income taxes 51 16 219
- --------------------------------------------------------------------------------------------------- --------------------------
Net income (loss) $1,647 401 (2,599)
- --------------------------------------------------------------------------------------------------- --------------------------
Basic and diluted earnings per share
Net income $.82 .20 N.M.*
- --------------------------------------------------------------------------------------------------- --------------------------
Weighted average common shares outstanding 1,999 1,999 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>
9
<PAGE>
Reinhold Industries, Inc.
<TABLE>
BALANCE SHEETS
(Amounts in thousands, except share data)
<CAPTION>
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,419 1,522
Marketable securities 750 250
Accounts receivable (less allowance for doubtful accounts of $344
and $501, respectively) 1,899 1,823
Inventories 1,975 1,491
Prepaid expenses and other current assets 708 458
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 7,751 5,544
- --------------------------------------------------------------------------------------------------------------------------------
Marketable securities - 750
Property and equipment, at cost 7,826 7,896
Less accumulated depreciation and amortization 3,300 2,738
- --------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 4,526 5,158
- --------------------------------------------------------------------------------------------------------------------------------
Other assets 938 1,088
- --------------------------------------------------------------------------------------------------------------------------------
$13,215 12,540
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 588 758
Accrued expenses 849 938
Amount due to Furon Corp. - 246
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,437 1,942
- --------------------------------------------------------------------------------------------------------------------------------
Long-term pension liability 592 2,591
Other long-term liabilities 1,846 2,288
Stockholders' equity:
Common stock, $.01 par value:
Class A - authorized 1,480,000 shares; issued and outstanding 978,956 shares 10 10
Class B - authorized 1,020,000 shares; issued and outstanding 1,020,000 shares 10 10
Additional paid-in capital 7,791 7,791
Retained earnings 2,048 401
Additional pension liability in excess of unrecognized prior service cost (519) (2,493)
- --------------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 9,340 5,719
Commitments and contingencies
- --------------------------------------------------------------------------------------------------------------------------------
$13,215 12,540
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
10
<PAGE>
Reinhold Industries, Inc.
<TABLE>
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------- -----------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- ------------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,647 401 (2,599)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 844 285 455
Obligations subject to Chapter 11 proceedings,
including reorganization cost - - (15,131)
Assets transferred to Creditors' Trust - - 42,561
Charges due to reorganization activities - - (34,118)
Change in assets and liabilities:
Accounts receivable, net (76) (151) (497)
Inventories (484) (159) -
Other current assets (250) (159) 1,654
Other assets 26 (32) (155)
Accounts payable (170) (332) 123
Accrued expenses (89) 358 (379)
Other, net (205) (102) 263
- ------------------------------------------------------------------------------------------------------- -----------------------
Net cash provided by (used in) operating activities 1,243 109 (7,823)
- ------------------------------------------------------------------------------------------------------- -----------------------
Cash flows used in investing activities:
Proceeds from sale of marketable securities 250 351 12,457
Proceeds from sale of equipment - - 10
Capital expenditures (350) (207) (153)
- ------------------------------------------------------------------------------------------------------- -----------------------
Net cash (used in) provided by investing activities (100) 144 12,314
- ------------------------------------------------------------------------------------------------------- -----------------------
Cash flows from financing activities:
Repayment of notes payable - - (475)
Cash paid for acquisition of Reynolds and Taylor (246) - (206)
Cash distributions at date of consummation - - (23,393)
- ------------------------------------------------------------------------------------------------------- -----------------------
Net cash used in financing activities (246) - (24,074)
- ------------------------------------------------------------------------------------------------------- -----------------------
Net increase (decrease) in cash and cash equivalents 897 253 (19,583)
- ------------------------------------------------------------------------------------------------------- -----------------------
Cash and cash equivalents at beginning of period 1,522 1,269 20,852
- ------------------------------------------------------------------------------------------------------- -----------------------
Cash and cash equivalents at end of period $2,419 1,522 1,269
- ------------------------------------------------------------------------------------------------------- -----------------------
Supplementary disclosures of cash flow information
Cash paid during the period for:
Income taxes $ 30 - 194
Interest $ - - 45
- ------------------------------------------------------------------------------------------------------- -----------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
11
<PAGE>
Reinhold Industries, Inc.
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<CAPTION>
Common stock Common stock
$0.01 par value $0.0001 par value
------------------------------------------- --------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- -- -- -- 10,441,960 $1
Net loss for the period January 1, 1996 through July 31, 1996 -- -- -- -- -- --
Stock options exercised -- -- -- -- 304,275 --
Impact of reorganization:
Elimination of former equity interests related to
emergence from bankruptcy -- -- -- -- (10,746,235) (1)
Issuance of new equity interests related to
from bankruptcy 978,956 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 978,956 10 1,020,000 10 -- --
Net income for the year ended December 31, 1997 -- -- -- -- -- --
Decrease in additional pension liability in excess of
unrecognized prior service cost -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 978,956 10 1,020,000 10 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
Reinhold Industries, Inc
<CAPTION>
Additional pension liability
Retained earnings in excess of unrecognized
Additional paid-in capital (accumulated deficit) prior service cost Net stockholders' equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
120,286 (75,883) (2,414) 41,990
-- (2,599) -- (2,599)
124 -- -- 124
(120,410) 78,482 -- (41,929)
7,791 -- -- 7,811
-- 401 -- 401
-- -- (79) (79)
- ---------------------------------------------------------------------------------------------------------------------------
7,791 401 (2,493) 5,719
-- 1,647 -- 1,647
-- -- 1,974 1,974
- ---------------------------------------------------------------------------------------------------------------------------
7,791 2,048 (519) 9,340
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997, 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 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 1,998,956 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 978,956 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).
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.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION The accompanying financial statements as of December
31, 1997 and 1996, for the year ended December 31, 1997, 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
include the accounts of Keene Corporation and subsidiary (Predecessor Company).
All material intercompany 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.
<TABLE>
Cash and cash equivalents consist of the following (in thousands):
<CAPTION>
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------
<S> <C> <C>
Cash in banks $ 504 459
Money market funds 1,915 1,063
- ----------------------------------------------------------------
Total $2,419 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, 1997 and 1996 were $647,000 and $887,000,
respectively.
14
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CON'T)
MARKETABLE SECURITIES The Company adopted provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Debt and Equity
Securities" at December 31, 1994. Under SFAS No. 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, 1997 and 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, 1997 and 1996,
unrealized holding gains or losses were immaterial.
Proceeds from the sale of marketable securities available for sale were $250,000
during the year ended December 31, 1997, $351,000 during the five months ended
December 31, 1996, and $12,457,000 during the seven months ended July 31, 1996.
Gross realized gains and losses included in income in 1997 and 1996 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.
<TABLE>
Property and equipment, at cost, consists of the following (in thousands):
<CAPTION>
Useful life December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Undeveloped land - $ 900 900
Leasehold improvements 5-6 years 836 1,093
Machinery and equipment 5-25 years 5,553 5,359
Furniture and fixtures 3-10 years 523 404
Construction in process - 14 140
- ------------------------------------------------------------------------------------------------------
7,826 7,896
Less accumulated depreciation and amortization 3,300 2,738
- ------------------------------------------------------------------------------------------------------
$ 4,526 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.
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 included in other assets at
December 31, 1997 and 1996 amounted to $1,118,000 and $252,000, and $1,118,000
and $130, 000, respectively.
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 final payment for the year ended December 31, 1996 was
$246,000, resulting in an increase in goodwill. This amount was paid in January
1997.
INCOME TAXES The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
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 SFAS No. 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.
15
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CON'T)
EARNINGS PER SHARE The Company adopted the provisions of SFAS No. 128 "Earnings
Per Share" during the quarterly period ending December 31, 1997. This statement
specifies new standards designed to improve the earnings per share information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure and increasing the comparability of earnings
per share data on an international basis. Adoption of SFAS No. 128 had no impact
on the current year's calculation or previously reported amounts, as the Company
has no dilutive securities.
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. All stock options granted by the Company were
prior to January 1, 1995; accordingly, pro forma disclosures are not required
until such time as the Company grants additional stock options under the new
stock plan, as described in Note 5 to the financial statements.
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 and income and
expense 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. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles including goodwill 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 SFAS No. 121 did not have a material impact on the Company's
financial position, results of operations or liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS The Company intends to adopt SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information" in 1998. Both Standards will require
additional disclosure, but will not have any effect on the Company's financial
position or results of operations. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and is expected to be reflected in
the Company's first quarter of 1998 interim financial statements. Components of
comprehensive income include items such as net income and changes in value of
available-for-sale securities. 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.
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.
16
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
3 INCOME TAXES
<TABLE>
The income tax provision consists of (in thousands):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------- -------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
Federal $ 39 - -
State 12 16 219
Deferred - - -
- --------------------------------------------------------------------------------------------------- -------------------------
Total $ 51 16 219
- --------------------------------------------------------------------------------------------------- -------------------------
</TABLE>
<TABLE>
The income tax expense for the years ended December 31, 1997 and 1996 was
$51,000 and $235,000, 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):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------ -------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
Statutory taxes at Federal rate $ 594 146 (832)
Federal and State Alternative Minimum Tax 51 - -
State taxes, net of Federal tax benefits - 10 142
Reduction of net operating loss - - 25,027
Change in valuation allowance (643) (155) (24,124)
Other 49 15 6
- --------------------------------------------------------------------------------------------------- -------------------------
Total provision for income tax expense $ 51 16 219
- --------------------------------------------------------------------------------------------------- -------------------------
</TABLE>
<TABLE>
The significant components of deferred income tax benefit were as follows (in
thousands):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------- -------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
Current deferred tax benefit $643 155 24,124
Change in valuation allowance for deferred tax asset (643) (155) (24,124)
- --------------------------------------------------------------------------------------------------- -------------------------
Total deferred tax benefit $ - - -
- --------------------------------------------------------------------------------------------------- -------------------------
</TABLE>
<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% are presented below:
<CAPTION>
December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Adjustments from quasi-reorganization $ 595 2,404
Net operating loss carryforwards 13,416 12,365
Inventory reserves 363 49
Other reserves 886 972
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 15,260 15,790
Less valuation allowance (14,593) (15,236)
- ---------------------------------------------------------------------------------------------------
Net deferred tax assets 667 554
- ---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Pension (207) (76)
Depreciation (460) (478)
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (667) (554)
- ---------------------------------------------------------------------------------------------------
Net deferred tax assets $ - -
- ---------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 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 at December 31, 1997.
At December 31, 1997 and 1996, the Company had generated net operating loss
carryovers for Federal income tax purposes of approximately $38,331,000 and
$39,976,000, respectively. 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.
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 978,956 of Class A were issued and
outstanding at December 31, 1997 and 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.
5 STOCK OPTIONS
Prior to the Effective Date, the Company had a stock incentive plan (the Stock
Plan) that 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
permitted 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.
<TABLE>
Changes in stock options at December 31, 1996 were as follows:
<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, 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 have 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.
18
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 employee's 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 different actuarial assumptions than are used for determining pension
expense for financial reporting 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.
<TABLE>
Net pension cost included the following (in thousands):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------- -------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
Service cost $ 96 51 71
Interest cost on benefits earned in prior years 846 353 495
Return on assets:
Actual gain (2,989) (228) (319)
Deferred gain (loss) 2,150 (108) (149)
- --------------------------------------------------------------------------------------------------- -------------------------
Expected return (839) (336) (468)
- --------------------------------------------------------------------------------------------------- -------------------------
Amortization of net obligation at transition 20 8 12
Amortization of net loss 112 52 71
- --------------------------------------------------------------------------------------------------- -------------------------
Net pension cost $235 128 181
- --------------------------------------------------------------------------------------------------- -------------------------
</TABLE>
<TABLE>
The funded status of the plan was as follows (in thousands):
Estimated amounts of assets required to provide funds for future
payment of accumulated benefits based on employment service
to date and present pay levels:
<CAPTION>
December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested $11,571 11,651
Non-vested 56 67
- -----------------------------------------------------------------------------------------------------
Accumulated benefit obligation 11,627 11,718
Additional amounts related to projected pay increases 185 229
- -----------------------------------------------------------------------------------------------------
Projected benefit obligation 11,812 11,947
Actual amount of assets available for benefits at fair value 11,432 9,311
- -----------------------------------------------------------------------------------------------------
Assets (less than) projected benefit obligation (380) (2,636)
Unrecognized prior service cost 8 14
Unrecognized net obligation at transition 65 85
Unrecognized net loss 704 2,722
- -----------------------------------------------------------------------------------------------------
Prepaid pension cost at September 30, 397 185
Fourth quarter accruals (59) (77)
Fourth quarter contributions 139 174
- -----------------------------------------------------------------------------------------------------
Prepaid pension cost at December 31, $ 477 282
- -----------------------------------------------------------------------------------------------------
Additional minimum liability at December 31, $ (592) (2,591)
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Assumptions used in accounting for the pension plan were:
<CAPTION>
December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Discounted rate 7.5% 7.5%
Rate of increase in compensation levels 5.0 5.0
Expected long-term rate of return on assets 9.0 9.0
- -----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Reinhold Industries, Inc.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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.
7 COMMITMENTS AND CONTINGENCIES
LEASES The Company leases certain facilities and equipment under operating
leases expiring through 2002. Total rental expense on all operating leases
approximated $447,000 and $712,000 for 1997 and 1996, respectively.
<TABLE>
Minimum future rental commitments under noncancelable operating leases at
December 31, 1997 are as follows (in thousands):
<S> <C>
1998 $ 454
1999 449
2000 254
2001 104
2002 44
- -------------------------------------------------------------
$1,305
- -------------------------------------------------------------
</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 Government 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 with 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.
<TABLE>
The Company's principal customers are prime contractors to the U.S. Government
and aircraft seat manufacturers. Sales to each customer that exceed 10% of total
net sales for the periods presented were as follows (in thousands):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------- -------------------------
Period from Period from
Year ended August 1, 1996 through January 1, 1996 through
December 31, 1997 December 31, 1996 July 31, 1996
- --------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
B/E Aerospace $ 5,736 2,216 3,308
Alliant Techsystems 1,929 1,300 *
Recaro Aircraft Seating 2,173 * *
- --------------------------------------------------------------------------------------------------- -------------------------
<FN>
*Sales to these customers were less than 10% of total net sales for the period.
</FN>
</TABLE>
B/E Aerospace accounted for approximately 25% of the Company's accounts
receivable balance before any adjustments for the allowance for doubtful
accounts, Recaro Aircraft Seating accounted for approximately 15%, Alliant
Techsystems accounted for approximately 14%, and Thiokol Corporation accounted
for approximately 12% . 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.
20
<PAGE>
Reinhold Industries, Inc.
<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 AUDITORS
CORPORATE OFFICERS KPMG Peat Marwick LLP
Michael T. Furry ANNUAL MEETING 725 South Figueroa Street
President and CEO The Annual Stockholders' Los Angeles, CA 90017
Meeting will be held at the
Brett R. Meinsen offices of Reinhold
Vice-President - Finance Industries, Inc.
Administration, Treasurer and 12827 East Imperial Hwy ATTORNEYS
Secretary Santa Fe Springs, CA Petillon & Hansen
on May 1, 1998 at 10:00 a.m. 1260 Union Bank Tower
21515 Hawthorne Boulevard
Torrance, California 90503
Wapnick & Alvarado
11268 W. Washington Blvd.
Suite 200
Culver City, CA 90230
</TABLE>
STOCKHOLDER INFORMATION
<TABLE>
<CAPTION>
Market Price High Low
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter ended March 31, 1997 3 1/2 2 7/8
Second Quarter ended June 30, 1997 3 3/4 3
Third Quarter ended September 30, 1997 6 5/8 3 9/16
Fourth Quarter ended December 31, 1997 10 6
The Class A Common Stock of the Company is listed on the OTC Bulletin Board
under the ticker symbol RNHDA. The table above sets forth the high and low sale
prices of the Company's Class A Common Stock for each of the quarterly periods
for the year ended December 31, 1997.
</TABLE>
<PAGE>
Reinhold Industries, Inc.
12827 East Imperial Highway
Santa Fe Springs, CA 90670
562 944-3281
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS REINHOLD INDUSTRIES, INC.
We consent to incorporation by reference in Registration Statement No. 333-39925
on Form S-8 of Reinhold Industries, Inc. of our reports dated January 30, 1998
and January 17, 1997 relating to the balance sheets of Reinhold Industries, Inc.
as of December 31, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1997, the
period from August 1, 1996 through December 31, 1996 and the period from January
1, 1996 through July 31, 1996 which reports appears in the December 31, 1997
Annual Report on Form 10-KSB of Reinhold Industries, Inc..
/S/ KPMG Peat Marwick LLP
Los Angeles, California
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
This schedule contains summary information extracted from the balance sheet and
statement of operations found on pages 9 and 10 of Reinhold's 1997 Annual Report
to Stockholders, which is incorporated herein by reference.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,419
<SECURITIES> 750
<RECEIVABLES> 2,243
<ALLOWANCES> 344
<INVENTORY> 1,975
<CURRENT-ASSETS> 7,751
<PP&E> 7,826
<DEPRECIATION> 3,300
<TOTAL-ASSETS> 13,215
<CURRENT-LIABILITIES> 1,437
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 9,320
<TOTAL-LIABILITY-AND-EQUITY> 13,215
<SALES> 16,232
<TOTAL-REVENUES> 16,232
<CGS> 11,533
<TOTAL-COSTS> 14,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,698
<INCOME-TAX> 51
<INCOME-CONTINUING> 1,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,647
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
