U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission file number: 0-18434
REINHOLD INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in charter)
Delaware 13-2596288
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12827 East Imperial Hwy, Santa Fe Springs, CA 90670
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (562) 944-3281
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to distribution of securities under a plan confirmed by the Court.
YES [ X ] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class A Common Stock,Par Value $0.01 - 1,998,956 shares as of November 10, 1999.
Transitional Small Business Disclosure Format (Check one):
YES [ ] NO [ X ]
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - OTHER INFORMATION 21
SIGNATURES 22
EXHIBITS 23
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1999 1998
------ -----
<S> <C> <C>
Net sales $11,659 $6,859
Cost of goods sold 8,417 5,317
----- -----
Gross profit 3,242 1,542
Selling, general and administrative expenses 1,303 1,180
------ ------
Operating income 1,939 362
Interest (expense) income, net 26 (17)
------ -------
Income before income taxes 1,965 345
Income taxes 300 51
------ ------
Net income $ 1,665 $ 294
====== =======
Basic earnings per share $ 0.83 $ 0.14
Diluted earnings per share $ 0.82 $ 0.14
Weighted average common shares outstanding - basic 1,999 1,999
Weighted average common shares outstanding - diluted 2,025 1,999
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------ ------
<S> <C> <C>
Net sales $29,921 $18,149
Cost of goods sold 21,877 13,736
------ ------
Gross profit 8,044 4,413
Selling, general and administrative expenses 3,352 2,963
------ ------
Operating income 4,692 1,450
Interest (expense) income, net 46 (5)
------ ------
Income before income taxes 4,738 1,445
Income taxes 601 78
------ ------
Net income $ 4,137 $ 1,367
====== =======
Basic earnings per share $ 2.07 $ 0.68
Diluted earnings per share $ 2.07 $ 0.68
Weighted average common shares outstanding - basic 1,999 1,999
Weighted average common shares outstanding - diluted 2,001 1,999
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 6,833 $ 3,622
Accounts receivable 5,833 4,869
Inventories 4,494 4,385
Other current assets 1,305 928
------- -----
Total current assets 18,465 13,804
Property, plant and equipment, net 5,557 5,476
Other assets 855 935
------- ------
$ 24,877 $ 20,215
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion - long term debt $ 465 $ 454
Accounts payable 3,133 2,976
Accrued expenses 2,233 1,413
------ ------
Total current liabilities 5,831 4,843
Long term pension liability 2,290 2,290
Long term debt - less current portion 1,202 1,550
Other long term liabilities 1,771 1,834
Stockholders' equity
Common stock
Class A - Authorized: 2,500,000 and 1,480,000
shares at September 30, 1999 and December 31, 1998,
respectively. Issued and outstanding: 1,998,956
and 978,956 shares at September 30, 1999 and
December 31, 1998, respectively 20 10
Class B - Authorized, issued and outstanding:
1,020,000 shares at December 31, 1998 - 10
Additional paid-in capital 7,791 7,791
Retained earnings 8,323 4,186
Accumulated comprehensive loss (2,351) (2,299)
------ -------
Net stockholders' equity 13,783 9,698
------ ------
$ 24,877 $ 20,215
====== ======
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Nine months Ended
September 30,
1999 1998
----- -----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 4,137 $ 1,367
Adjustments to reconcile net income to net
cash provided by operating activities (net of effects
of acquisition):
Depreciation and amortization 774 653
Foreign currency translation (52) 62
Changes in assets and liabilities:
Accounts receivable (964) 565
Inventories (109) 63
Other current assets (377) (435)
Accounts payable 157 860
Accrued expenses 757 (124)
Other, net (60) (181)
------ -------
Net cash provided by operating activities 4,263 2,830
------ -------
Cash flow from investing activities:
Maturity of marketable securities - 750
Acquisition by NP Aerospace - (3,707)
Capital expenditures (715) (634)
------ -------
Net cash (used in) investing activities (715) (3,591)
------ -------
Cash flow from financing activities:
Proceeds from long-term debt - 2,268
Repayment of long term debt (337) (151)
------ ------
Net cash provided by (used in) financing activities (337) 2,117
------ ------
Net increase in cash and cash equivalents 3,211 1,356
Cash and cash equivalents, beginning of period 3,622 2,419
------ ------
Cash and cash equivalents, end of period $ 6,833 $ 3,775
====== ======
Cash paid during period for:
Income taxes $ - $ 38
Interest $ 108 $ 84
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
DESCRIPTION OF BUSINESS
Reinhold Industries, Inc. and subsidiary ("Reinhold" or the "Company") is
a manufacturer of advanced custom composite components and sheet molding
compounds for a variety of applications in the United States and Europe.
Reinhold derives revenues from the defense contract industry, the aerospace
industry and other commercial industries.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements are
those of Reinhold as of September 30, 1999 and December 31, 1998 and for the
three and nine months ended September 30, 1999 and 1998. The unaudited condensed
consolidated financial statements have been prepared by the Company as
contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation S-X and do not contain certain information that will be included in
the Company's annual financial statements and notes thereto. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all material adjustments and disclosures necessary for a fair
presentation have been made. Certain prior year amounts have been reclassified
to conform to 1999 presentation. The results of operations for the three and
nine months ended September 30, 1999 are not necessarily indicative of the
operating results for the full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the annual
report and notes thereto for the year ended December 31, 1998, included in the
Company's Form 10-KSB filed with the Securities and Exchange Commission on March
26, 1999.
ACQUIRED BUSINESS
On April 24, 1998, NP Aerospace Limited ("NP Aerospace"), a wholly owned
subsidiary of Reinhold, purchased from Courtaulds Aerospace Limited ("CAL"), a
U.K. Corporation, which is a wholly owned subsidiary of Courtaulds plc, a U.K.
Corporation, certain assets (consisting of Accounts Receivable, Inventory,
Machinery and Equipment, Land and Intellectual Property and Patents) and assumed
certain liabilities of the Ballistic and Performance Composites Division of CAL.
Reinhold, as the Guarantor for NP Aerospace, became obligated to pay to
Courtaulds plc net consideration consisting of (a) Two Million Two Hundred
Thousand pounds sterling ((pound)2,200,000) ($3,706,340 based on an exchange
rate of $1.6847) cash on the Closing Date and (b) within 120 days following the
end of each of the calendar years 1998 through 2001, a cash amount equal to 25%
of the Pre-tax Profit on the light armored vehicle business only, the maximum
aggregate amount of which shall not exceed Twenty Million pounds sterling
((pound)20,000,000).
Additional payments will be capitalized as part of the purchase price, when and
if earned.
The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of NP Aerospace have been included in the
consolidated financial statements from the date of acquisition.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
The excess of the fair value of the net identifiable assets acquired over the
purchase price has been allocated to fixed assets as follows (in thousands):
Working capital $3,360
Severance costs (403)
2,957
Cash paid 3,707
-----
Excess over cost allocated to property,
plant and equipment $ 750
======
The pro forma unaudited results of operations for the three and nine months
ended September 30, 1998, assuming consummation of the purchase as of January 1,
1998 are as follows (in thousands, except earnings per share data):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net sales $8,729 $23,071
Net income $1,250 $ 1,499
Basic and diluted earnings per share $ 0.63 $ 0.75
</TABLE>
CHANGE IN CONTROL
On May 21, 1999, pursuant to a Stock Purchase Agreement, dated May 18,
1999, between Keene Creditors Trust (the "Trust"), the holder of all of the
outstanding shares of the Class B Common Stock of Reinhold Industries, Inc. (the
"Company") and Reinhold Enterprises, Inc., a newly formed Indiana corporation
("REI"), the Trust sold 997,475 shares of Class B Common Stock owned by it to
certain purchasers designated by REI (the "Purchasers") at a purchase price of
$9.00 per share. These shares represent approximately 49.9% of the outstanding
common stock of the Company. Pursuant to the Company's Certificate of
Incorporation, upon consummation of the sale of the shares to the Purchasers,
all of the 1,020,000 outstanding shares of Class B Common Stock (including those
retained by the Trust) were automatically converted into 1,020,000 shares of
Class A Common Stock, and at the next meeting of the stockholders of the Company
called for that purpose, the holders of the Class A Common Stock, voting as a
class, will be entitled to elect all of the directors of the Company. Prior to
the sale, the Trust, as the holder of all of the Class B Common Stock, was
entitled to elect two directors, and the holders of the Class A Common Stock
were entitled to elect one director. In connection with the Stock Purchase
Agreement, the amount of authorized Class A Common Stock changed from 1,480,000
shares to 2,500,000 shares.
The Purchasers designated by REI are Massachusetts Mutual Life Insurance
Company, MassMutual High Yield Partners II LLC, MassMutual Corporate Value
Partners Limited, Ralph R. Whitney, Jr., Glenn Scolnik, Forrest E. Crisman, Jr.,
Andrew McNally, IV, Ward S. McNally, Andrew Management IV, L.P., BJR Management,
L.P. and ECM Management, L.P. Messrs. Whitney, Scolnik, Crisman, A. McNally and
W. McNally are directors and officers of Hammond Kennedy Whitney & Company,
Inc., a private equity firm ("HKW"). Each of the Purchasers paid for the shares
purchased using his or its own available funds.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
The sale of shares to the Purchasers constitutes an "ownership shift"
within the meaning of Section 382 of the Internal Revenue Code of 1986, as
amended. Section 382 limits the utilization of net operating loss carryforwards
upon certain accumulations of stock of corporate issuers. Additional purchases
of shares by the Purchasers prior to May 22, 2002, or purchases of shares by
other shareholders that result in those shareholders owning more than 5% of the
outstanding Common Stock of the Company prior to May 22, 2002, may result in
significant limitations on the Company's ability to utilize its net operating
loss carryforwards to offset its future income for federal income tax purposes.
The stock purchase agreement provides that it was a condition to the
closing of the sale of the shares that Lawrence H. Diamond and Robert B.
Steinberg, the members of the Board of Directors elected by the Trust (as the
sole holder of Class B Common Stock), resign as directors. Messrs. Diamond and
Steinberg resigned as directors on May 21, 1999. On June 3, 1999, Ralph R.
Whitney, Jr. and Andrew McNally IV were appointed by the remaining director,
Michael T. Furry, as successor directors. The Board of Directors of the Company
now consists of: Michael T. Furry, Ralph R. Whitney, Jr., and Andrew McNally IV.
STOCK INCENTIVE PLAN
On July 31, 1996, the Company established the Reinhold Stock Incentive
Plan for key employees. The Reinhold Stock Incentive 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 Reinhold Stock Incentive 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 Reinhold Stock Incentive Plan may not exceed
10,000. The shares to be delivered under the Reinhold Stock Incentive Plan may
consist of authorized but unissued stock or treasury stock, not reserved for any
other purpose. All other terms and conditions of the Reinhold Stock Incentive
Plan can be found on Form S-8 filed with the Securities and Exchange Commission
on November 10, 1997.
On June 3, 1999, the Compensation Committee of the Board of Directors
granted 73,000 stock options to key employees at an option price of $8.25 per
share, the prevailing market rate on that date. Mr. Michael T. Furry, President
and CEO, received 10,000 options and Mr. Brett R. Meinsen, Vice President -
Finance, Secretary/Treasurer, received 8,000 options. The remaining 55,000
options were granted to other non-officer/director employees. The options shall
not be exercisable in whole or in part until after June 3, 2002 and expire 10
years from the date of grant.
On June 3, 1999, the Board of Directors approved and adopted the
Reinhold Industries, Inc. Stock Option Agreement (the "Agreement") by and
between the Company and Michael T. Furry, granting Mr. Furry the option,
effective June 3, 1999, to acquire up to 90,000 shares of Class A common stock
of the Company at fair market value at that date ($8.25 per share). Terms of the
Agreement are equivalent to those in the Reinhold Stock Incentive Plan.
The dilutive effects on earnings per share for the three and nine month
period ending September 30, 1999 were $0.01 and $0.00, respectively.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
EARNINGS PER COMMON SHARE
SFAS No. 128 replaces Accounting Principles Board ("APB") No. 15 and simplifies
the computation of earnings per share ("EPS") by replacing the presentation of
primary EPS with a presentation of basic EPS. Basic EPS includes no dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution from securities that could share in the earnings of the
Company.
Options to purchase 157,000 shares of common stock at $8.25 were outstanding
during the three and nine-month period ended September 30, 1999. For the three
and nine-month period ended September 30, 1999, the difference between the
weighted average number of shares used in the basic computation compared to that
used in the diluted computation was due to the dilutive impact of options to
purchase common stock.
The reconciliations of basic and diluted weighted average shares are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net income $1,665,000 $ 294,000
========= =========
Weighted average shares used in basic computation 1,998,956 1,998,956
Dilutive stock options 26,308 --
--------- ---------
Weighted average shares used for diluted calculation 2,025,264 1,998,956
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net income $4,137,000 $ 1,367,000
========= =========
Weighted average shares used in basic computation 1,998,956 1,998,956
Dilutive stock options 2,015 --
--------- ---------
Weighted average shares used for diluted calculation 2,000,971 1,998,956
========= =========
</TABLE>
<PAGE>
REPORTING COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 130, "Reporting Comprehensive Income," effective January 1, 1998. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS No.
130 also permits an entity to report a total for comprehensive income in the
notes to the interim financial statements. The difference between net income and
total comprehensive income during the nine months ended September 30, 1999 and
1998 was a loss on foreign currency translation of $52,000 and a gain on foreign
currency translation of $62,000, respectively.
COMPUTER SOFTWARE COSTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The Company adopted
SOP 98-1 effective January 1, 1999.
The adoption of SOP 98-1 did not have a significant impact on the Company's
operating results.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
modifies the accounting for derivatives and hedging activities and is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. In June
1999, the Financial Accounting Standards Board issued SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
date of FASB Statement No. 133" which defers the effective date of SFAS No. 133
by one year. At this time, the Company does not expect the adoption of SFAS No.
133 to have a significant impact on its financial position or results of
operations.
INCOME TAXES
Income taxes for interim periods are computed using the effective tax rate
estimated to be applicable for the full financial year, which is subject to
ongoing review and evaluation by management.
LONG TERM DEBT
On April 22, 1998, the Company borrowed $2,268,000 from The CIT Group
Credit/Finance ("CIT") to fund a portion of the purchase consideration due to
Courtaulds Aerospace. The Company had previously entered into a Five Year Loan
and Security Agreement with CIT in the amount of Four Million Dollars
($4,000,000). The term portion of the loan ($2,268,000) is payable in equal
monthly principal payments of $37,800 plus interest at prime plus 1.75% and is
secured by fixed assets and land. The remainder of the CIT credit facility is a
revolver of One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000),
which has not been used as of April 15, 1999.
On April 16, 1999, the Company repaid the outstanding loan with the CIT
Group Credit/Finance through a refinancing with Bank of America National Trust
and Savings Association ("B of A") and cancelled the revolver. The new credit
facility with B of A is a term loan in the amount of $1,861,478 payable in 48
equal monthly principal installments of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
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, accrued expenses and current installments of long term debt. The long
term debt bears interest at a variable market rate, and thus has a carrying
amount that approximates fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY
The reporting currency of the Company is the United States dollar. The
functional currency of NP Aerospace is the UK pound sterling. For consolidation
purposes, the assets and liabilities of the Company's subsidiary are translated
at the exchange rate in effect at the balance sheet date. The consolidated
statement of income is translated at the average exchange rate in effect during
the period being reported. Exchange differences arise mainly from the valuation
rates of the intercompany accounts and are taken directly to Stockholders'
equity. The exchange rate at September 30, 1999 and 1998 was $1.66 and $1.70 for
the condensed consolidated balance sheet and $1.61 and $1.65 for the condensed
consolidated statement of income, respectively.
OPERATING SEGMENTS
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998. SFAS No. 131
established new standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and major
customers.
Reinhold is a manufacturer of advanced custom composite components and
sheet molding compounds for a variety of applications in the United States and
Europe. The Company generates revenues from two operating segments: United
States and United Kingdom. Management has determined these to be Reinhold's
operating segments based upon the nature of their products. The United States
produces a variety of composite products in three main product categories.
Aerospace manufactures products mainly for the U.S. military and space programs.
CompositAir produces components for the commercial aircraft seating industry.
Commercial manufactures lighting housings and pool filters. The United Kingdom
includes NP Aerospace, our subsidiary located in Coventry, England, and produces
products for law enforcement, lighting, military, automotive and commercial
aircraft.
<PAGE>
Notes to Consolidated Financial Statements (cont'd)
The information in the following tables is derived directly from the
segment's internal financial reporting for corporate management purposes (in
thousands).
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
United States $ 15,584 12,654
United Kingdom 14,337 5,495
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 29,921 18,149
- ------------------------------------------------------------------------------------------------------------------------------------
Income before interest and income taxes
United States $ 3,297 1,499
United Kingdom 1,761 320
Unallocated corporate expenses (366) (271)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income before interest and income taxes $ 4,692 1,450
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization
United States $ 652 516
United Kingdom 122 30
- ------------------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 774 546
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures
United States $ 470 401
United Kingdom 245 233
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 715 634
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets
United States $ 15,659 12,095
United Kingdom 9,218 7,355
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 24,877 19,450
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table below presents information related to geographic areas in which
Reinhold operated in 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
United States $ 13,976 10,790
United Kingdom 12,526 5,535
Switzerland 244 -
Germany 1,558 1,777
Africa 1,381 -
Other 236 47
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 29,921 18,149
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (cont'd)
SUBSEQUENT EVENT
On October 20, 1999, a Special Meeting of Stockholders of the Corporation
was held to consider and vote on the following proposals:
1. To amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of capital
stock of the Corporation from 2,500,000 shares to 50,000,000 shares by
(a) increasing the number of authorized shares of Class A New Common
Stock, par value $.01 per share (the "Class A Common Stock" or "Common
Stock") from 2,500,000 shares to 45,000,000 shares, and (b) authorizing
a class of preferred stock, consisting of 5,000,000 authorized shares
(the "Preferred Stock"), for which the Board of Directors will have
authority to establish the rights and preferences of any series prior
to the issuance of any such series and to issue such Preferred Stock in
one or more series, without further approval of stockholders of the
Company;
2. To amend the Company's Amended and Restated By-laws to increase the
size of the Board of Directors to between three and ten directors, with
the exact number to be determined from time to time by vote of a
majority of the Board of Directors;
3. To approve and ratify the Company's Management Agreement with
Hammond, Kennedy, Whitney & Company, Inc., a private equity firm.
All proposals were approved by majority vote of the stockholders.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
September 30, 1999
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Item 1 of this
filing, the financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
Reinhold is a manufacturer of advanced custom composite components and
sheet molding compounds for a variety of applications in the United States and
Europe. Reinhold derives revenues from the defense contract industry, the
aerospace industry and other commercial industries.
Comparison of Third Quarter 1999 to 1998
In the third quarter of 1999, net sales increased $4.8 million, or 70%, to
$11.7 million, compared to third quarter 1998 sales of $6.9 million. Sales
increased by $3.2 million at NP Aerospace, due mainly to sales of armored
vehicles. In the United States, CompositAir enjoyed another record quarter with
sales increasing by $1.2 million or 58%. This increase reflects heavy orders
booked in the fourth quarter of 1998. Sales also increased $0.1 million for
Commercial products and $0.3 million in Aerospace.
Gross profit margin increased to 27.8% in the third quarter of 1999
compared to 22.5% in the third quarter 1998 primarily due to higher sales across
all product lines and the resulting absorption of fixed overhead expenses. Gross
profit margin in the United States increased to 32.8% in 1999 from 26.5% in
1998. Gross profit margin for the United Kingdom increased to 23.3% in 1999 from
17.2% in 1998.
Selling, general and administrative expenses for the third quarter 1999
were $1.3 million (11.2% of sales) compared to $1.2 million (17.2% of sales) for
the same quarter of 1998.
Interest income, net, in the third quarter of 1999 was $0.03 million
compared to interest expense of $0.02 million in the third quarter of 1998 due
to higher cash balances and a lower interest rate on the term loan.
Income before income taxes increased to $2.0 million (16.9% of sales) in
the third quarter of 1999 from $0.3 million (5.0% of sales) in the same period
of 1998, reflecting higher sales and gross margins. Income before income taxes
and unallocated corporate expenses for the United States was $1.3 million (22.6%
of sales) in 1999 compared to $0.4 million (10.6% of sales) in 1998. Income
before income taxes and unallocated corporate expenses for the United Kingdom
was $0.9 million (14.1% of sales) in 1999 compared with $0.03 million (1.0% of
sales) in 1998.
<PAGE>
Management's Discussion and Analysis (cont'd)
A tax provision of $0.3 million was recorded in the third quarter of 1999.
The effective tax rate for the United Kingdom is approximately 30%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. In determining the recognition of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets not utilized in 1999 is dependent upon the
generation of future taxable income during the periods in which the net
operating losses are deductible. Management considers the projected future
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
Comparison of First Nine Months 1999 to 1998
In the first nine months of 1999, net sales increased $11.8 million, or
65%, to $29.9 million, compared to the first nine months 1998 sales of $18.1
million. Sales increased by $8.8 million at NP Aerospace, due mainly to the
acquisition date of April 1998 (nine months sales in 1999 vs. five months sales
in 1998) and armored vehicle sales. In the United States, CompositAir enjoyed a
record first nine months of 1999 with sales increasing by $3.2 million or 48%.
This increase reflects heavy orders booked in the fourth quarter of 1998. Sales
also increased $0.4 million for Commercial products. However, there was a
decrease of $0.6 million in Aerospace sales due to lost business and sales
shifting to subsequent quarters.
Gross profit margin increased to 26.9% in the first nine months of 1999
compared to 24.3% in the same period in 1998 primarily due to higher sales
across all product lines and the resulting absorption of fixed overhead
expenses. Gross profit margin in the United States increased to 31.8% in 1999
from 26.9% in 1998. Gross profit margin for the United Kingdom increased to
21.6% in 1999 from 18.4% in 1998.
Selling, general and administrative expenses for the first nine months of
1999 were $3.4 million (11.2% of sales) compared to $3.0 million (16.3% of
sales) for the first nine months of 1998. 1998 includes NP Aerospace expenses
from the acquisition date (April) through September.
Interest income, net, in the first nine months of 1999 was $0.05 million
compared to $0.01 million in the same period in 1998 due to higher cash balances
and a lower interest rate on the term loan.
Income before income taxes increased to $4.7 million (15.8% of sales) in
the first nine months of 1999 from $1.4 million (8.0% of sales) in the same
period of 1998, reflecting higher sales and gross margins. Income before income
taxes and unallocated corporate expenses for the United States was $3.4 million
(21.9% of sales) in 1999 compared to $1.5 million (11.8% of sales) in 1998.
Income before income taxes and unallocated corporate expenses for the United
Kingdom was $1.7 million (11.8% of sales) in 1999 compared with $0.2 million
(4.1% of sales) in 1998.
<PAGE>
Management's Discussion and Analysis (cont'd)
A tax provision of $0.6 million was recorded in the first nine months of
1999. The effective tax rate for the United Kingdom is approximately 30%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. In determining the recognition of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets not utilized in 1999 is dependent upon the
generation of future taxable income during the periods in which the net
operating losses are deductible. Management considers the projected future
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
Liquidity and Capital Resources
As of September 30, 1999, working capital was $12.6 million, up $3.7
million from December 31, 1998. Cash and cash equivalents of $6.8 million held
at September 30, 1999 were $3.2 million higher than cash and cash equivalents
held at December 31, 1998 primarily due to $4.3 million of net cash provided by
operating activities offset by $0.7 million spent on capital expenditures and
repayment of $0.3 of long-term debt. There were no marketable securities held at
September 30, 1999.
Net cash provided by operations amounted to $4.3 million for the nine
months ended September 30, 1999. Net cash provided by operations amounted to
$2.8 million for the comparable period in 1998. The increase over the prior
period relates to the increased profitability of the Company.
Net cash used in investing activities for the nine months ended September
30, 1999 totaled $0.7 million and consisted of property and equipment
expenditures. Net cash used in investing activities for the nine months ended
September 30, 1998 consisted of the maturity of $0.8 million of marketable
securities offset by the purchase of certain assets and the assumption of
certain liabilities of the Ballistic and Performance Composites Division of
Courtaulds Aerospace Ltd on April 24, 1998 for $3.7 million and property and
equipment expenditures totaling $0.6 million.
Net cash used in financing activities for the nine months ended September
30, 1999 totaled $0.3 million and consisted of the payments made on the CIT and
B of A loans. Net cash provided by financing activities for the nine months
ended September 30, 1998 totaled $2.12 million and consisted of $2.3 million of
proceeds from the CIT loan offset by $0.1 million repayment of long-term debt.
Expenditures in 1999 and 1998 related to investing and financing
activities were financed by existing cash and cash equivalents and proceeds from
the CIT loan.
The Company does not have any current material commitments of capital
expenditures at September 30, 1999.
<PAGE>
Management's Discussion and Analysis (cont'd)
As discussed in the notes to the unaudited condensed consolidated
financial statements, the Company acquired certain assets and assumed certain
liabilities of the Ballistic and Performance Composites Division of Courtaulds
Aerospace Ltd on April 24, 1998 (the "Closing Date"). On the Closing Date,
Reinhold paid to Courtaulds plc the Two Million Two Hundred Thousand pounds
sterling ((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847)
cash due on the Closing Date and will make additional payments in the future as
required by the Asset Sale Agreement.
The source of the funds for a portion of the Purchase Consideration due on
the Closing Date was a Five Year Loan and Security Agreement with The CIT Group
Credit/Finance ("CIT") in the amount of Four Million Dollars ($4,000,000) at an
interest rate of prime plus 1.75%. The term portion of the loan in the amount of
Two Million Two Hundred Sixty-Eight Thousand Dollars ($2,268,000) was received
from CIT. The remainder of the CIT credit facility was a revolver of One Million
Seven Hundred Thirty-Two Thousand Dollars ($1,732,000). The remaining portion of
the purchase consideration not funded by the CIT loan was funded by Reinhold's
cash on hand. Future payments required by the Agreement are expected to be
financed from operating cash flows.
On April 16, 1999, the Company repaid the outstanding loan with the CIT Group
Credit/Finance through a refinancing with Bank of America National Trust and
Savings Association ("B of A") and cancelled the revolver. The new credit
facility with B of A is a term loan in the amount of $1,861,478 payable in 48
equal monthly principal installments of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets.
Management believes that the available cash and cash flows from operations
will be sufficient to fund the Company's operating and capital expenditure
requirements.
Change in Control
On May 21, 1999, pursuant to a Stock Purchase Agreement dated May 18,
1999, between Keene Creditors Trust (the "Trust"), the holder of all of the
outstanding shares of the Class B Common Stock of Reinhold Industries, Inc. (the
"Company") and Reinhold Enterprises, Inc., a newly formed Indiana corporation
("REI"), the Trust sold 997,475 shares of Class B Common Stock owned by it to
certain purchasers designated by REI (the "Purchasers") at a purchase price of
$9.00 per share. These shares represent approximately 49.9% of the outstanding
common stock of the Company.
This transaction is more fully described in the accompanying Notes to
Consolidated Financial Statements and on Form 8-K filed with the Securities and
Exchange Commission on June 7, 1999.
<PAGE>
Management's Discussion and Analysis (cont'd)
Forward Looking Statements
This Form 10-QSB contains statements which, to the extent that they are
not recitations of historical fact, constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate", "anticipate", "project", "intend",
"expect", and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flow. Readers are cautioned not to place
undue reliance on these forward looking statements which speak only as of the
date of this 10-QSB. The Company does not undertake any obligation to publicly
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-QSB, or
to reflect the occurrence of unanticipated events. The forward looking
statements in this document are intended to be subject to safe harbor protection
provided by Sections 27A of the Securities Act and 21E of the Exchange Act.
1999 Outlook
We expect a softening of our financial results in the fourth quarter of
1999. In the United States, shipments of commercial aircraft seatbacks should
decline due to the fulfillment of unusually high orders booked in the fourth
quarter of 1998. Aerospace revenues should increase versus our actual results in
the first three quarters of 1999. Commercial revenues should be slightly higher
in 1999 versus 1998. In the United Kingdom, sales of armored vehicles in the
third quarter due the Kosovo situation will not recur in the fourth quarter.
Recent Accounting Pronouncements
The effective recent accounting pronouncements are included in the notes
to the condensed consolidated financial statements included herein.
<PAGE>
Management's Discussion and Analysis (cont'd)
Year 2000
Many existing computer programs use only two digits to identify a year in
a date. If not corrected, many computer applications and systems could fail or
create erroneous results before or after the year 2000. In the United States,
the Company had anticipated the year 2000 problem in the mid-1980's and
therefore created compliant systems. The internal computer systems in the United
States and the United Kingdom are Year 2000 compliant.
Additionally, the Company planned and executed a program of communications with
its significant suppliers, customers and affiliated companies to determine the
readiness of these third parties and the impact on the Company as a consequence
of their own year 2000 issues. The Company's manual assessment of the impact of
the year 2000 date change was completed during the third quarter 1999. The
Company believes that it has identified, and, where necessary, modified or
replaced such systems and software before any year 2000 associated problems. No
assurances can be given that these modifications and replacements or any year
2000 associated problems that arise from unanticipated problems will not have a
material adverse effect on the Company. The Company's most likely potential risk
is a temporary inability of some customers to order and pay on a timely basis,
and for the company to receive purchases from their vendors on time.
While the Company anticipates no major interruption in its business
activities, it will be dependent, in part, on the ability of third parties to be
year 2000 compliant. As of September 30, 1999, amounts spent on the Company's
year 2000 program were less than $25,000.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1 Keene Corporation's Fourth Amended Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code dated March 11, 1996, incorporated
herein by reference to Exhibit 99(a) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
2.2 Motion to Approve Modifications to the Keene Corporation Fourth
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code dated June 12, 1996, incorporated herein by reference to Exhibit
99(b) to Keene Corporation's Form 8-K filed with the Commission on
June 28, 1996.
2.3 Finding of Fact, Conclusions of Law and Order Confirming Keene's
Fourth Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, as modified, entered June 14, 1996, incorporated
herein by reference to Exhibit 99(c) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
3.1 Amended and restated Certificate of Incorporation of Reinhold
Industries, Inc., incorporated herein by reference to Exhibit 99(a),
Exhibit A to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
3.2 Amended and restated By-laws of Reinhold Industries, Inc. (Formerly
Keene Corporation), incorporated herein by reference to Exhibit
99(a), Exhibit B to the Plan, to Keene Corporation's Form 8-K filed
with the Commission on June 28, 1996.
3.3 Certificate of Merger of Reinhold Industries, Inc. into Keene
Corporation, incorporated herein by reference to Exhibit 99(a),
Exhibit C to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
10.1 Management Agreement between Reinhold Industries, Inc. and Hammond,
Kennedy, Whitney & Company, Inc. dated May 31, 1999 on Form 10-QSB
filed with the Commission on August 16, 1999.
10.2 Stock Option Agreement between Reinhold Industries, Inc. and Michael
T. Furry dated June 3, 1999 on Form 10-QSB filed with the Commission
on August 16, 1999. (Confidential Treatment for portions of the
Agreement to be Requested)
10.3 Stock Price Deficiency Payment Agreement between Reinhold Industries,
Inc. and various Stockholders dated June 16, 1999 on Form 10-QSB
filed with the Commission on August 16, 1999.
27 Financial Data Schedule
b. Reports on Form 8-K
None
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REINHOLD INDUSTRIES, INC.
Registrant
DATE: November 11, 1999
By: /S/ Brett R. Meinsen
Brett R. Meinsen
Vice President - Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENTS OF OPERATIONS ON PAGES 3, 4 AND 5 OF THE COMPANY'S
10-QSB.
</LEGEND>
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
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