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, 1998
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
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12827 East Imperial Hwy, Santa Fe Springs, 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 $25,996,000
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.
$6,607,953 as of March 19, 1999 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 19, 1999
Class B Common Stock - par value $.01 per share - 1,020,000 as of March 19, 1999
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. 1998 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, Camarillo,
California and Coventry, England. 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>
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 sterling) 2,200,000) ($3,706,340 based
on an exchange rate of $1.6847) cash on the Closing Date and (b) within 120 days
following the end of each of the calendar years 1998 through 2001, a cash amount
equal to 25% of the Pre-tax Profit on the light armored vehicle business only,
the maximum aggregate amount of which shall not exceed Twenty Million pounds
sterling ((pound sterling) 20,000,000). Additional payments will be capitalized
as part of the purchase price, when and if earned.
The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of NP Aerospace have been included in the
consolidated financial statements from April 24, 1998.
Additional information on the NP Aerospace acquisition is set forth in
Note 2 to the Consolidated Financial Statements on page 22 and "Management
Discussion and Analysis of Financial Condition and Results of Operations " on
page 15 of Reinhold's 1998 Annual Report to Stockholders, which is incorporated
herein by reference.
<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.
Additional information on operating segments is set forth in Note 8 to
the Consolidated Financial Statements on page 29 and "Management Discussion and
Analysis of Financial Condition and Results of Operations " on page 15 of
Reinhold's 1998 Annual Report to Stockholders, which is incorporated herein by
reference.
Distribution
Products are marketed by company sales personnel and sales
representatives in the United States and Europe.
Competition
Reinhold competes with many companies in the sale of ablative and
structural composite 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
<PAGE>
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.
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 six major
customers constituted approximately 66% of the Company's net sales in 1998.
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 and NP Aerospace in 1998,
Reinhold expanded its development and sale of composite components into the
commercial aircraft seatbacks market. The market for aircraft seating is
expanding. Reinhold, through its operating segments, CompositAir and NP
Aerospace 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. and
Newport Adhesives and Composites, Inc.
<PAGE>
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
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 $158,000 and
$145,000 for the years ended December 31, 1998 and 1997, respectively.
<PAGE>
Employees
At December 31, 1998, Reinhold had 266 full-time employees and 3
part-time employees. Of these employees, 241 ( 239 full-time and 2 part-time)
were employed in manufacturing and 28 (27 full-time and 1 part-time) in
administration, product development and sales. Approximately 29% of the
personnel are based at Reinhold's Santa Fe Springs, California facility,
approximately 23% are based in Camarillo, California and approximately 48% are
based at NP Aerospace located in Coventry, England. Approximately 70 of the
employees in Coventry, England are represented by a labor union. Reinhold
believes its workforce to be relatively stable and considers its employee
relations to be excellent.
Additional information is set forth in Note 1 to the Consolidated
Financial Statements on page 22 and "Management Discussion and Analysis of
Financial Condition and Results of Operations" on page 15 of Reinhold's 1998
Annual Report to Stockholders, which is incorporated herein by reference.
Item 2. DESCRIPTION OF PROPERTY
<TABLE>
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.
<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)
Coventry, England Administrative and 80,000 sq. ft Own
Manufacturing
Coventry, England Land 2.7 acres Own
Rancho Cucamonga, CA Undeveloped Land 33 acres Own
</TABLE>
<PAGE>
Facilities are generally suitable and adequate for current needs of the
Company. Reinhold is presently in negotiations with its Santa Fe Springs
landlord relating to the improvement, expansion and upgrade of its present
facility to meet the Company's future needs. Reinhold believes its facilities
are utilized consistent with economic conditions and the requirements of its
operations.
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 1998 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 1998 or 1997.
b. The approximate number of common equity security holders is as
follows:
Approximate Number
of Holders of Record
Title of Class as of March 19, 1999
-------------- --------------------
Class A Common Stock,
par value $.01 per share 1,741
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 15 of Reinhold's 1998
Annual Report to Stockholders, which is incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS
Reference is made to the Independent Auditors' Report and to the
Consolidated Financial Statements included on page 31 and pages 17 through 21
and Notes to Consolidated Financial Statements on pages 22 through 30 of
Reinhold's 1998 Annual Report to Stockholders, which is incorporated herein by
reference. Financial data schedules are included in Part IV of this filing.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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 1999 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>
EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Name Age Title
<S> <C> <C> <C>
Michael T. Furry 61 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 39 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.
</TABLE>
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is included in the definitive Proxy
Statement for the 1999 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 1999 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 1999 Annual Meeting of Stockholders of Reinhold, to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year and is incorporated herein by reference.
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<CAPTION>
Page Incorporated by
Description No.* Reference to
----------- ---- ---------------
<S> <C> <C> <C>
2.1 Keene Corporation's Exhibit 99(a) to
Fourth Amended Plan of Keene Corporation's
Reorganization under Form 8-K filed with
Chapter 11 of the the Commission on
Bankruptcy Code dated June 28, 1996.
March 11, 1996
2.2 Motion to Approve Exhibit 99(b) to
Modifications to the Keene Corporation's
Keene Corporation Fourth Form 8-K filed with
Amended Plan of the Commission on
Reorganization Under June 28, 1996.
Chapter 11 of the Bankruptcy
Code dated June 12, 1996
2.3 Finding of Fact, Conclusions Exhibit 99(c) to
of Law and Order Confirming Keene Corporation's
Keene Corporation's Fourth Form 8-K filed with
Amended Plan of Reorganization the Commission on
under Chapter 11 of the June 28, 1996.
Bankruptcy Code, as modified,
entered June 14, 1996.
3.1 Amended and Restated Exhibit 99(a),
Certificate of Exhibit A to the
Incorporation of Plan, to Keene
Reinhold Industries, Inc. Corporation's Form
8-K filed with the
Commission on June
28, 1996.
<PAGE>
Page Incorporated by
Description No.* Reference to
----------- ---- ---------------
3.2 Amended and Restated Exhibit 99(a),
By-Laws of Reinhold Exhibit B to the
Industries, Inc. Plan, to Keene
(Formerly Keene Corporation's Form
Corporation) 8-K filed with the
Commission on June
28, 1996.
3.3 Certificate of Merger Exhibit 99(a),
of Reinhold Industries, Exhibit C to the
Inc. into Keene Corporation Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
4.1 Share Authorization Exhibit 99(a),
Agreement Exhibit H to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
4.2 Registration Rights Exhibit 99(a),
Agreement Exhibit G to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
9.1 Creditors' Trust Exhibit 99(a),
Agreement Exhibit D to the
Plan, to Keene
Corporation's Form
8-K filed with the
Commission on June
28, 1996.
<PAGE>
Page Incorporated by
Description No.* Reference to
----------- ---- ---------------
10.1 Reinhold Industries, Inc. 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
10.5 Asset Sale Agreement dated Exhibit 2 to Reinhold's
April 17, 1998 by and between 8-K/A, dated April 17,1998
NP Aerospace Limited (Purchaser), filed with the Commission on
Reinhold Industries, Inc. (Guarantor) June 30, 1998.
and Courtaulds plc (Vendor) relating
to the purchase of certain assets and
assumption of certain liabilities of the
Ballistic and Performance Composites
Division of Courtaulds Aerospace Ltd.
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 26, 1999 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 26, 1999
--------------------------------------
Michael T. Furry- President and Director
(Principal Executive Officer)
/s/ Lawrence H. Diamond March 26, 1999
--------------------------------------
Lawrence H. Diamond- Chairman
/s/ Robert B. Steinberg March 26, 1999
--------------------------------------
Robert B. Steinberg- Director
Reinhold Industries, Inc.
1998 Annual Report
for the next millennium
a global vision
<PAGE>
Picture of Board of Directors
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.
replacing metal
with advanced composites
where light weight,
corrosion resistance,
or complex shapes are required
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Selected Financial Data
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Summary of operations (in thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 25,996 16,232 13,120 11,122 14,824
Gross profit $ 6,503 4,699 3,046 1,728 4,579
Operating income (loss) $ 2,196 1,595 17 (1,832) 1,628
Interest (expense) income, net $ (17) 103 1,159 2,202 2,108
Reorganization expenses $ - - 3,139 9,492 11,230
Net income (loss) $ 2,138 1,647 (2,198) (8,983) (7,792)
- -------------------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities $ 3,622 3,169 2,522 34,660 42,833
Working capital $ 8,961 6,314 3,602 39,105 48,682
Net property and equipment $ 5,476 4,526 5,158 5,607 6,201
Total assets $ 20,215 13,215 12,540 64,705 75,321
Long-term debt $ 1,550 - - - -
Long-term liabilities $ 4,124 2,438 4,879 4,733 4,259
Stockholder equity $ 9,698 9,340 5,719 41,990 51,251
- -------------------------------------------------------------------------------------------------------------------
Per share data Net income (loss):
Basic & diluted (Note 1) $ 1.07 0.82 N.M.* (0.86) (0.75)
Stockholders' equity $ 4.85 4.67 2.86 4.02 4.91
Market price range: (Note 2)
High $ 9 1/4 10 4 1/8 N.M.* N.M.*
Low $ 5 1/2 2 7/8 3 1/4 N.M.* N.M.*
- -------------------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand $ 16,194 5,989 4,935 6,635 3,514
Average shares outstanding 1,999 1,999 Note 1 10,442 10,442
Average number of common stockholders 1,808 1,951 2,099 2,396 2,434
Average number of employees 220 124 105 104 119
<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.
See management analysis and Note 1 to the consolidated financial statements for
discussion of Chapter 11 bankruptcy proceedings and the Effective Date of the
Fourth Amended Plan of Reorganization.
*N.M. - Not Meaningful
</FN>
</TABLE>
1
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Picture of Michael T. Furry
Michael T. Furry
President and CEO
To Our Stockholders
ACQUISITION SYNERGY In 1998, Reinhold added significantly to its sales,
manufacturing skill base, and profitability through the purchase of certain
assets and liabilities of Courtaulds Aerospace in the United Kingdom. Following
its acquisition in April, this new business unit was re-named NP Aerospace.
The acquisition of Courtaulds was first pursued because of our mutual presence
in the aircraft seating business. In the process of due diligence, a much
greater potential for synergism than first appeared was uncovered. We found a
skilled work force and latent leadership ready to be absorbed in the Reinhold
culture of an enlightened work ethic, a sense of controlled urgency, and
targeted financial goals. They needed no more motivation than a well-articulated
vision of our combined possibilities.
While our financial performance with NP Aerospace for the first eight months has
exceeded our forecast, the primary benefits of the acquisition will be long
range: the broadening of our market base and the illumination of ways to
economize in manufacturing and distribution. Already the fusion of technology in
combining two unique processes related to seat back structure manufacturing has
resulted in the realization of our goal of a better product at a lower cost. We
expect this hybrid process to have a positive impact on production as early as
1999.
A new niche market that NP Aerospace has brought to the Reinhold products
portfolio is ballistic protection products, including military helmets for
ground forces and air crews, armored vehicles, body armor, and ballistic
shields.
NP Aerospace also occupies a niche in the market for our structural composite
family of products with medical radiation therapy tables, and products for the
trade molding market for the lighting, communications, United Kingdom defense,
and automotive after-market industries.
REINHOLD IN THE GLOBAL MARKETPLACE The effect of this acquisition is that
Reinhold has become a global company. The prospect of a broad base of diverse
industries being served by an accomplished assembly of composites manufacturing
experts has become a reality.
Wherever lighter weight, corrosion resistance, or a more complex shape of a
manufactured component is needed, a change from metal to advanced composites may
be indicated. Where it is, there is both need and opportunity for Reinhold.
Reinhold revenue is currently derived from four business units: Aerospace (USA),
Commercial (USA), CompositAir (USA), and NP Aerospace (UK).
Aerospace products are made of structural and ablative (heat absorbing)
composites and are related to the solid rocket propulsion industry. Most of them
are sold directly or indirectly to the United States Defense Department. With
few exceptions, these products cannot be sold outside the United States.
The Commercial business unit serves a regional swimming pool filter customer,
the USA lighting market, and various other commercial customers. All products
are made using Reinhold manufactured Sheet Molding Compound (SMC) as the molding
raw material. This unit operates in highly competitive markets where freight
costs are significant.
2
<PAGE>
The opportunity for international sales for these products is slight but some
sales could result from duplicating their manufacture at the NP Aerospace plant
in the United Kingdom.
The strategy of acquiring NP Aerospace to become a global supplier of aircraft
seat backs has already begun to have a positive impact on our business. In 1997,
CompositAir (USA) secured a major contract from a European manufacturer of
commercial aircraft seating. The contract was completed satisfactorily, but
follow-up business was lost to an "in-country" supplier because of our excessive
freight costs and logistic difficulties. Now, that business has been recaptured
because of the combined design and engineering skills of CompositAir and the
manufacturing capability and proximity of NP Aerospace.
Composite commercial seat back structures will continue to provide opportunity
for expansion. NP Aerospace has established a good reputation in the United
Kingdom serving companies in England and Northern Ireland. We have expanded our
marketing staff for seating products to secure business from other European
manufacturers. These sales and marketing efforts are designed to highlight the
benefits of using composites to replace aluminum for seat back structures
because of lower weight and more freedom for designers to utilize shapes that
address ergonomic considerations.
NP Aerospace has a long-standing international presence as a result of their
ballistic protection products. There is a significant international demand for
these products outside of the United Kingdom. They are sold to other European
countries, Africa, and Asia. We expect sales of ballistic and specialty helmets
to represent a major portion of our business for the next several years.
In the near term, the synergy of the CompositAir and NP Aerospace business units
in the engineering, manufacturing, and marketing of composite seat backs will
provide the most tangible benefits of our global presence.
PERFORMANCE IN 1998 Net sales increased by 60%, from $16.2 million in 1997 to
$26.0 million in 1998. The increase is attributable to the acquisition of NP
Aerospace ($8.9 million), and increased sales by Compositair ($0.6 million) and
Commercial ($0.5 million), offset by lower Aerospace sales ($0.2 million).
Backlog increased 170%, from $6.0 million in 1997 to $16.2 million in 1998, due
mainly to the NP Aerospace acquisition.
Gross profit increased from $4.7 million in 1997 to $6.5 million in 1998 but
dropped as a percentage of sales from 28.9% in 1997 to 25.0% in 1998. The
percentage decrease primarily reflects lower sales by Aerospace(USA), whose
products have comparatively higher gross margins, and the inclusion of sales by
NP Aerospace, a lower gross margin business. There were also production
inefficiencies at CompositAir and lower positive material variances for
Aerospace products than in 1997.
Selling, general and administrative expenses were $4.3 million in 1998 (16.6% of
sales) compared with $3.1 million in 1997 (19.1% of sales). The dollar increase
is primarily attributable to added headcount and the one-time costs of
facilities consolidation at our new subsidiary in the United Kingdom.
Net income in 1998 was $2.1 million, $1.07 per share, compared with $1.6
million, $0.82 per share, in 1997.
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 by $2.0 million, thereby reducing the excess pension
liability and increasing the company's net worth by $2.0 million. In 1998, the
impact of a drop in long-term interest rates used in calculating our Plan
funding requirements as well as fluctuations in the stock market decreased both
portfolio value and the Company net worth by $1.7 million.
PROJECTIONS FOR 1999 AND BEYOND Sales and profit growth for the past two years
have been good. We believe that the trend will continue in CY1999. Such results
depend on committed people and have been realized because of a team of workers
and management who embrace the Reinhold philosophy of fewer people working
harder and smarter in the pursuit of excellence.
In 1998 we doubled our headcount with the acquisition of NP Aerospace. Our new
teammates have shown early enthusiasm for the Reinhold philosophy. Our challenge
will be to attract leaders who will enable us to continue double-digit sales and
profit growth. Unfortunately, we lost two valued business unit managers in the
US in 1998. We shall miss them, but we have promoted from within to replace them
with good results.
All business units are on track for 1999. Aerospace activity is better than
expected. CompositAir continues to ship at a record pace. We expect moderate
sales growth and higher profits from the Commercial business unit, and early
indications are good for NP Aerospace.
For the past decade, Reinhold has experienced a significant decline in Defense
related business. In response, we have acquired companies that served markets
and supplied products not indigenous to Reinhold. We have done this to increase
sales and profit in lieu of the more costly and risky attempt to develop new
products internally. In 1998, more than 70% of revenue was derived from acquired
businesses.
Our strategy is to acquire companies most likely to benefit from our operational
and financial management methods. Our Return On Capital Employed (ROCE)
objective is above 15%. Our 1998 ROCE was 18%. Based on the results we have
achieved in identifying, acquiring at the right price, and turning companies
around, we will continue to seek acquisition candidates to expand Reinhold's
presence in growing markets.
The support of our customers and suppliers and the commitment of our employees
is indispensable to our continued success. To all of you, we express our thanks.
/s/ Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
March 3, 1999
3
<PAGE>
Picture
Combat helmet shell being removed from a mold.
NP Aerospace manufactures ballistic helmets for the U.K. Ministry of Defense,
governments throughout Europe, and third world countries. Composite helmets
offer light weight and ballistic protection superior to the metal helmets they
replace.
4
<PAGE>
Picture
helmets
uk
Tough light weight Helicopter Users Helmet being inspected.
5
<PAGE>
Picture
aerospace
usa
Whether designing and manufacturing components to power communication satellites
into orbit or building strong but lightweight aerospace structural components,
Reinhold is helping to shape the 21st century.
6
<PAGE>
Picture
The quality and attention to detail necessary for successful space components is
present in every Reinhold process.
Reinhold Industries has been a pioneer in building components for space
exploration since the earliest days of the U.S. space program. Reinhold built
ablative (heat absorbing) hardware for satellite launch and propulsion systems
such as Thor Delta and Castor II and IV as well as components for the manned
Gemini and Apollo programs, including the LEM-D engine that took the Apollo
astronauts from orbit to the surface of the moon. Today, Reinhold remains a
leading producer of ablative components for various U.S. space and military
applications.
7
<PAGE>
Picture
Composite preform being prepared for molding operation.
Composite aircraft seatbacks offer superior performance and increased comfort
over metal equivalents. We have produced over 120,000 composite seatbacks since
the mid-eighties in a wide range of ergonomic designs. Our seatback structures
are produced from multiple layers of high performance carbon and glass fabrics.
These seatbacks offer light weight with significantly enhanced comfort for the
passenger.
8
<PAGE>
Picture
seatbacks
uk
Final inspection of seatbacks at Quality Audit station.
9
<PAGE>
Picture
seatbacks
usa
Composite seat back frames for a regional class commercial aircraft are
manufactured in a custom hydraulic molding press using precision matched metal
mold tooling.
10
<PAGE>
Picture
High volume production of a tourist class composite seat frame is performed in a
CNC machining center equipped with a multiple tool changer and rapid feed
cutting capabilities.
CompositAir has been in continuous production of composite seatback frames since
1980. Composites of epoxy, phenolic, or other resin systems, reinforced with
carbon, aramid or glass fibers, are laminated into the complex shapes required
by today's features-packed commercial aircraft seats. Our ability to manufacture
these composite materials economically with preferred shapes and weight savings
of 30% to 40% distinguish CompositAir's seatback products from the industry's
standard aluminum frames.
11
<PAGE>
Picture
"Rhinolite" SMC molded components can be bonded together to form complex
water-tight enclosures for inground lighting applications.
Reinhold has been formulating and manufacturing sheet molding compounds (SMC)
since the early 1970s. Reinhold produces SMC for sales to third parties and for
internal use in our aerospace and commercial applications. Our "Rhinolite" line
of SMC is specifically formulated to replace metals in corrosive, high
temperature lighting applications.
12
<PAGE>
Picture
lighting
usa
"Rhinolite" SMC, formulated and manufactured by Reinhold, blends high
performance engineered resins, mineral fillers and structural fibers to meet
demanding lighting industry requirements.
13
<PAGE>
Picture
lighting
uk
Housing for motorway lighting application is inspected on a 5 axis measuring
machine.
14
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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.
1998 COMPARED WITH 1997 Backlog at December 31, 1998 was $16.2 million, up 170%
from December 31, 1997, primarily due to the acquisition of NP Aerospace and an
increase in aircraft seatback orders. In 1998, order input increased 72% to
$29.8 million and net sales increased 60% to $26.0 million from $16.2 million in
1997, primarily reflecting sales of $8.9 million related to the April 1998
acquisition of NP Aerospace. Sales also increased $0.6 million for CompositAir
products and $0.5 million for Commercial products. However, there was a $0.2
million decrease in sales for Aerospace products.
Gross profit margin decreased to 25.0% from 28.9%, reflecting lower Aerospace
sales, whose products have comparatively higher gross margins, production
inefficiencies at CompositAir and the inclusion of NP Aerospace activities (a
lower total margin business). There were also lower positive material variances
for Aerospace products in 1998 compared to 1997. Gross margin for Aerospace
products decreased to 41.0% in 1998 from 43.9% in 1997. Gross profit margin for
CompositAir products decreased to 19.5% in 1998 from 20.7% in 1997. Gross profit
margin for Commercial products increased to 19.3% in 1998 from 11.1% in 1997.
Gross profit margin for NP Aerospace products was 20.8% for the period from
acquisition (April 24, 1998) through December 31, 1998.
In 1998, selling, general and administrative expenses were $4.3 million (16.6%
of sales) compared with $3.1 million (19.1% of sales) in 1997. Although selling,
general and administrative expenses were higher in 1998, these expenses
decreased 2.5% as a percent of sales. Selling, general and administrative
expense increases are primarily associated with the costs of the new foreign
subsidiary, including the costs associated with the consolidation of facilities
in the United Kingdom.
Income before income taxes increased to $2.2 million (8.4% of sales) from $1.7
million (10.5% of sales), reflecting lower gross margins and lower interest
income offset by lower public compliance costs. Income before income taxes for
Aerospace was $1.6 million (25.7% of sales) in 1998 compared with $2.0 million
(31.2% of sales) in 1997. Income before income taxes for CompositAir was $0.4
million (4.8% of sales) in 1998 compared with $0.3 million (3.6% of sales) in
1997. Income before income taxes for Commercial was $0.1 million (3.6% of sales)
in 1998 compared with a loss in 1997 of $0.2 million. Since acquisition, NP
Aerospace contributed income before income taxes of $0.4 million, or 4.6% of
sales.
In 1998, net interest expense was $0.01 million. Interest expense of $0.15
million was offset by interest income of $0.14 million. In 1997, interest income
was $0.1 million. The average yield was 5.14% in 1998 compared with 5.12% in
1997.
A tax provision of $0.04 million was recorded in 1998 for the alternative
minimum tax for federal and state tax expenses compared with a provision of
$0.05 million in 1997. In 1998, the Company had pre-tax income of $2.2 million
and was able to reduce income taxes by $0.4 million by utilizing a net operating
loss carry forward, which resulted in a reduction in the valuation allowance
related to deferred tax assets. Deferred tax assets, net of deferred tax
liabilities, amounted to $13.4 million at December 31, 1998. The Company has
recorded a related valuation allowance of $13.4 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 consolidated
financial statements.
Net income totaled $2.1 million, or $1.07 per share in 1998 compared with $1.6
million, or $0.82 per share in 1997.
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 by $2.0 million, thereby reducing the excess pension
liability and increasing the company's net worth by $2.0 million. In 1998, the
impact of a drop in long-term interest rates used in calculating our Plan
funding requirements as well as fluctuations in the stock market decreased both
portfolio value and the Company net worth by $1.7 million.
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, working capital was
$9.0 million, up $2.6 million from December 31, 1997. Cash and cash equivalents
of $3.6 million held at December 31, 1998 were $1.2 million higher than cash and
cash equivalents held at December 31, 1997 primarily due to $3.1 million of net
cash provided by operating activities and $0.7 million of marketable securities
which matured offset by the net cash outlay of $1.4 million by the Company for
the NP Aerospace acquisition ($3.7 million less loan proceeds of $2.3 million)
and $1.0 million spent on capital expenditures. There were no marketable
securities held at December 31, 1998.
Net cash provided by operations amounted to $3.1 million in 1998 and $1.2
million in 1997. The increase over the prior period relates to the increased
profitability of the Company.
Net cash used in investing activities in 1998 totaled $3.9 million, which
consisted of the NP Aerospace acquisition totaling $3.7 million and property and
equipment expenditures of $1.0 million offset by the maturity of $0.7 million of
marketable securities. Net cash used in investing activities in 1997 totaled
$0.3 million which consisted of property and equipment expenditures totaling
$0.3 million and $0.2 million relating to the payment made for the acquisition
of Reynolds & Taylor offset by the maturity of $0.2 million of marketable
securities.
Net cash provided by financing activities in 1998 totaled $2.0 million relating
to the $2.3 million of proceeds from the CIT loan, less subsequent repayments.
The Company does not have any current significant commitments for capital
expenditures at December 31, 1998.
15
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Management's Discussion and Analysis (cont'd)
As discussed in the notes to the 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 Two
Million Two Hundred Thousand pounds sterling ((pound)2,200,000) ($3,706,340
based on an exchange rate of $1.6847) and may make additional payments in the
future as required by the Asset Sale Agreement.
The source of 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% (9.50%). The term portion of the loan in the
amount of Two Million Two Hundred Sixty-Eight Thousand Dollars ($2,268,000) was
received from CIT. The remainder of the CIT credit facility is a revolver of One
Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000), which has not
been used at this time. The remaining portion of the purchase consideration not
funded by the CIT loan was funded by Reinhold's cash on hand. Future payments
required by the Agreement are expected to be financed from operating cash flows.
The Company had a credit facility with the Keene Creditors' Trust whereby the
Company had the ability to draw on a $1.5 million line of credit. However, this
credit facility expired on July 31, 1998. No amounts had been used under this
facility.
Management believes that the available cash, cash flows from operations and the
amounts available under the Credit Facility described above, will be sufficient
to fund the Company's operating and capital expenditure requirements.
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 fiscal years beginning after December
15, 1999. At this time, the Company does not expect the adoption of SFAS No. 133
to have a significant impact on its financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The Company will adopt SOP
98-1 effective in 1999. The adoption of SOP 98-1 will require the Company to
modify its method of accounting for computer software developed or obtained for
internal use. Based upon information currently available, the Company does not
expect the adoption of SOP 98-1 to have a significant impact on its financial
position or results of operations.
KEENE CREDITORS' TRUST SCHEDULE 13D AMENDMENT FILING On July 27, 1998 The Keene
Creditors' Trust, owner of 100% of the Class B Common Stock, filed an amendment,
dated July 16, 1998, to their previously filed Schedule 13D, dated August 12,
1996, with the Securities and Exchange Commission. The purpose of this filing
was to announce the retention of HT Capital Advisors, LLC to assist the Trust in
determining the value of its shares and the feasibility of a disposition of 100%
of those shares for cash. The process to sell has been initiated and several
companies have shown interest in those shares. Formal due diligence proceedings
have not yet begun by any of the prospective purchasers.
FORWARD LOOKING STATEMENTS This Annual Report 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 Annual Report. 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 Annual Report, 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.
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 are Year 2000 compliant. In the United Kingdom, the Company is in the
process of identifying and remediating or replacing any other computer systems
and software that may not function correctly in the year 2000. Additionally, the
Company is planning a program of communications with its significant suppliers,
customers and affiliated companies to determine the readiness of these third
parties and the impact on the Company as a consequence of their own year 2000
issues. The Company's manual assessment of the impact of the year 2000 date
change should be complete by mid-1999. The Company believes that it will be able
to identify, and, if necessary, modify or replace such systems and software
before any year 2000 associated problems. No assurances can be given that such
modification and replacement will be completed before any year 2000 associated
problems arise or that costs arising from unanticipated problems will not have a
material adverse effect on the Company. The Company's most likely potential risk
is a temporary inability of some customers to order and pay on a timely basis,
and for the company to receive purchases from their vendors on time. The
Company's year 2000 efforts are ongoing and its overall plan will continue to
evolve as new information becomes available.
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 December 31, 1998, amounts spent on the Company's year 2000
program were less than $25,000. The Company currently estimates the cost to
remediate both its year 2000 hardware and software issues to be less than
$30,000.
The Company is in the process of assessing the year 2000 readiness of its
critical suppliers. We expect this assessment to be completed by the end of the
second quarter 1999. At this time, we have not formulated a contingency plan,
but expect to have specific contingency plans in place by the end of the third
quarter 1999.
16
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(Amounts in thousands, except for per share data)
- -------------------------------------------------------------------------------------------------------------------
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $25,996 16,232
Cost of sales 19,493 11,533
- -------------------------------------------------------------------------------------------------------------------
Gross profit 6,503 4,699
Selling, general and administrative expenses 4,307 3,104
- -------------------------------------------------------------------------------------------------------------------
Operating income 2,196 1,595
Interest (expense) income, net (17) 103
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,179 1,698
Income taxes 41 51
- -------------------------------------------------------------------------------------------------------------------
Net income $ 2,138 1,647
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share
Net income $ 1.07 0.82
- -------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 1,999 1,999
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
17
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,622 2,419
Marketable securities - 750
Accounts receivable (less allowance for doubtful accounts of $287
and $344, respectively) 4,869 1,899
Inventories 4,385 1,975
Prepaid expenses and other current assets 928 708
- -------------------------------------------------------------------------------------------------------------------
Total current assets 13,804 7,751
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost 9,532 7,826
Less accumulated depreciation and amortization 4,056 3,300
- -------------------------------------------------------------------------------------------------------------------
Net property and equipment 5,476 4,526
- -------------------------------------------------------------------------------------------------------------------
Other assets, less applicable amortization 935 938
- -------------------------------------------------------------------------------------------------------------------
$20,215 13,215
- -------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,976 588
Accrued expenses 1,413 849
Current installments of long term debt 454 -
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,843 1,437
- -------------------------------------------------------------------------------------------------------------------
Long-term pension liability 2,290 592
Long-term debt, less current installments 1,550 -
Other long-term liabilities 1,834 1,846
Stockholders' equity:
Common stock, $0.01 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 4,186 2,048
Accumulated other comprehensive loss (2,299) (519)
- -------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 9,698 9,340
Commitments and contingencies
- -------------------------------------------------------------------------------------------------------------------
$20,215 13,215
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
18
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Amounts in thousands)
- -------------------------------------------------------------------------------------------------------------------
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,138 1,647
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 899 844
Accounts receivable, net (359) (76)
Inventories (178) (484)
Other current assets (143) (250)
Other assets 32 26
Accounts payable 1,007 (170)
Accrued expenses (18) (89)
Other, net (266) (205)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,112 1,243
- -------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Maturity of marketable securities 750 250
Acquisitions (3,707) (246)
Capital expenditures (956) (350)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,913) (346)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt 2,268 -
Repayment of long term debt (264) -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,004 -
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,203 897
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 2,419 1,522
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,622 2,419
- -------------------------------------------------------------------------------------------------------------------
Supplementary disclosures of cash flow information -
Cash paid during the year for:
Income taxes $ 38 30
Interest $ 137 -
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Amounts in thousands, except share data)
Common stock $0.01 par value
--------------------------------------------------
Class A Class B
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 978,956 $10 1,020,000 $10
Net income - - - -
Decrease in additional pension liability in excess of
unrecognized prior service cost - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 978,956 10 1,020,000 10
Net income - - - -
Increase in additional pension liability in excess of
unrecognized prior service cost - - - -
Foreign currency translation adjustment - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 978,956 $10 1,020,000 $10
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
20
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Comprehensive Income
--------------------------------------------------------------
Accumulated
other comprehensive Total comprehensive
Additional paid-in capital Retained earnings loss income Net stockholders' equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$7,791 $ 401 $(2,493) $5,719
- 1,647 - $1,647 1,647
- - 1,974 1,974 1,974
- ------------------------------------------------------------------------------------------------------------------------------
3,621
- ------------------------------------------------------------------------------------------------------------------------------
7,791 2,048 (519) 9,340
- 2,138 - 2,138 2,138
- - (1,730) (1,730) (1,730)
- - (50) (50) (50)
- ------------------------------------------------------------------------------------------------------------------------------
358
- ------------------------------------------------------------------------------------------------------------------------------
$7,791 $4,186 $(2,299) $9,698
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 1998 and 1997
1 ORGANIZATION
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.
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).
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Principles of Consolidation The accompanying consolidated financial statements
as of and for the years ended December 31, 1998 and 1997, include the accounts
of Reinhold and its wholly owned subsidiary NP Aerospace Limited (NP Aerospace)
which was acquired on April 24, 1998. 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>
<CAPTION>
Cash and cash equivalents consist of the following (in thousands):
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash in banks $ 722 504
Money market funds 2,900 1,915
- -------------------------------------------------------------------------------------------------------------------
Total $ 3,622 2,419
- -------------------------------------------------------------------------------------------------------------------
</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 non recurring 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, 1998 and 1997 were $889,000 and $647,000,
respectively.
MARKETABLE SECURITIES The Company accounts for investments in certain debt and
equity securities under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Debt and Equity Securities".
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.
22
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
At December 31, 1997, 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, unrealized holding gains or losses
were immaterial.
Proceeds from the sale of marketable securities available for sale were $750,000
during the year ended December 31, 1998 and $250,000 during the year ended
December 31, 1997. Gross realized gains and losses included in income in 1998
and 1997 were immaterial.
PROPERTY AND EQUIPMENT The Company depreciates property and equipment
principally on a straight-line basis based over estimated useful lives.
Leasehold improvements are amortized straight-line over the shorter of the lease
term or estimated useful life of the asset.
<TABLE>
<CAPTION>
Property and equipment, at cost, consists of the following (in thousands):
Useful life December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Undeveloped land - $ 900 900
Buildings 10 years 352 -
Leasehold improvements 5-6 years 838 836
Machinery and equipment 5-25 years 6,794 5,553
Furniture and fixtures 3-10 years 643 523
Construction in process - 5 14
- -------------------------------------------------------------------------------------------------------------------
9,532 7,826
Less accumulated depreciation and amortization 4,056 3,300
- -------------------------------------------------------------------------------------------------------------------
$5,476 4,526
- -------------------------------------------------------------------------------------------------------------------
</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, 1998 and 1997 amounted to $1,118,000 and $369,000, and $1,118,000
and $252,000, respectively.
ACQUIRED BUSINESS On April 24, 1998, NP Aerospace Limited 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 the acquired business have been included in the
consolidated financial statements from April 24, 1998.
<TABLE>
<CAPTION>
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):
<S> <C>
Working capital $ 3,360
Severance costs (403)
- -------------------------------------------------------------------------------------------------------------------
Net identifiable assets 2,957
Purchase price 3,707
- -------------------------------------------------------------------------------------------------------------------
Excess over cost allocated to property, plant and equipment $ 750
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
The pro forma unaudited results of operations for the years ended December 31,
1998 and 1997, assuming consummation of the purchase as of January 1, 1997 are
as follows (in thousands, except earnings per share data):
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 30,918 32,780
Net income $ 2,270 1,997
Basic and diluted earnings per share $ 1.14 1.00
</TABLE>
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.
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.
COMPREHENSIVE INCOME The Company adopted the provisions of 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. Total
comprehensive income is reported in the Consolidated Statements of Stockholders'
Equity in the financial statements and includes net income, changes in the
additional pension liability in excess of unrecognized prior service cost and
changes in foreign currency translation.
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 6 to the consolidated 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.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS
No. 132 does not change the measurement or recognition of these plans, however,
it standardizes the disclosure requirements. See Note 7 to the consolidated
financial statements.
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 and disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
24
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The
Company accounts for long lived assets and certain intangibles including
goodwill under the provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." 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. As of
December 31, 1998 and 1997, no assets were considered impaired.
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 fair values of marketable securities are
based on the quoted market prices at the reporting date for those investments.
The long term debt bears interest at a variable market rate, and thus has a
carrying amount that approximates fair value.
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 from the date of acquisition through December 31, 1998. Exchange
differences arise from the valuation rates of the intercompany accounts and are
taken directly to Stockholders' equity. The exchange rate at December 31, 1998
was $1.66 for both the balance sheet and the consolidated statement of income.
RECLASSIFICATIONS Certain amounts in the prior period consolidated financial
statements have been reclassified to conform with the current presentation.
3 INCOME TAXES
<TABLE>
<CAPTION>
The income tax provision consists of (in thousands):
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal $ 35 39
State 3 12
Foreign 3 -
Deferred - -
- -------------------------------------------------------------------------------------------------------------------
Total $ 41 51
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The income tax expense for the years ended December 31, 1998 and 1997 was
$41,000 and $51,000, respectively, and differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to pretax income as a result of
the following (in thousands):
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Statutory taxes at Federal rate $ 601 594
Federal and State Alternative Minimum Tax - 51
State taxes, net of Federal tax benefits 52 -
Permanent differences (247) -
Change in valuation allowance (403) (643)
Other 38 49
- -------------------------------------------------------------------------------------------------------------------
Total provision for income tax expense $ 41 51
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
The significant components of deferred income tax benefit were as follows (in
thousands):
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax benefit $ 403 643
Change in valuation allowance for deferred tax asset (403) (643)
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax benefit $ - -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Adjustments from quasi-reorganization $ 595 595
Net operating loss carryforwards 12,305 13,416
Inventory reserves 240 363
Other reserves 996 886
- -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,136 15,260
Less valuation allowance (13,388) (14,593)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 748 667
Deferred tax liabilities:
Pension (268) (207)
Depreciation (480) (460)
- -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (748) (667)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ - -
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on the level of
historical taxable income and projections of future taxable income over the
periods 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, 1998.
At December 31, 1998 and 1997, the Company had generated net operating loss
carryovers for Federal income tax purposes of approximately $34,857,000 and
$38,331,000, respectively. At December 31, 1998, the Company has also generated
net operating loss carryovers for State income tax purposes of approximately
$8,988,000. The Company may utilize the Federal net operating losses by carrying
them forward to offset future Federal taxable income, if any, through 2011. The
Company may utilize the State net operating losses by carrying them forward to
offset future State taxable income, if any, through 2001.
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 consolidated
financial statements.
4 LONG TERM DEBT
On April 22, 1998, the Company borrowed $2,268,000, of which $2,004,000 is
outstanding as of December 31, 1998, from The CIT Group Credit/Finance (CIT) to
fund a portion of the purchase consideration due to Courtaulds Aerospace. The
Company had previously entered into a Five Year Loan and Security Agreement with
CIT in the amount of Four Million Dollars ($4,000,000). The term portion of the
loan ($2,268,000) is payable in equal monthly principal payments of $37,800 plus
interest at prime plus 1.75% and is secured by fixed assets and land. The
remainder of the CIT credit facility is a revolver of One Million Seven Hundred
Thirty-Two Thousand Dollars ($1,732,000), which has not been used at this time.
26
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
At December 31, 1998, maturities of long term debt were as follows (in
thousands):
<S> <C>
1999 $ 454
2000 454
2001 454
2002 454
2003 188
- -------------------------------------------------------------------------------------------------------------------
$ 2,004
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
5 STOCKHOLDERS' EQUITY
Common stock consists of 2,500,000 authorized shares, $0.01 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, 1998 and 1997. 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.
6 STOCK OPTIONS
As of the Effective Date, the Company established a stock incentive plan (the
Stock Plan) for key employees. The 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 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 Stock Plan may not exceed 10,000. The shares to be delivered under the 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 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 Stock Plan.
7 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 (as defined).
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. Plan assets consist principally of
publicly traded equity and debt securities.
The measurement date used for the valuation of the pension plan and calculation
of projected benefits and fair value of assets was changed from September 30 to
December 31 in 1998. The 1997 information was not restated. The fourth quarter
1997 information is included in 1998.
27
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
Net pension cost included the following (in thousands):
Year Ended Year Ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $113 96
Interest cost on benefits earned in prior years 839 846
Expected return on assets (972) (839)
Amortization of net obligation at transition 20 20
Amortization of net loss 6 112
- -------------------------------------------------------------------------------------------------------------------
Net pension cost $ 6 235
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's benefit
obligation at December 31, 1998 and September 30, 1997 (in thousands):
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at beginning of period $11,812 11,947
Service cost 137 102
Interest cost 1,051 846
Actuarial loss/(gain) 1,049 (256)
Benefits paid (1,350) (827)
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of period $12,699 11,812
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's assets at
December 31, 1998 and September 30, 1997 (in thousands):
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets at beginning of period $11,432 9,311
Actual return on assets 345 2,483
Employer contributions 328 465
Benefits paid (1,350) (827)
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $10,755 11,432
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's funded
status at December 31, 1998 and September 30, 1997 (in thousands):
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at end of period $12,699 11,812
Fair value of plan assets at end of period 10,755 11,432
- -------------------------------------------------------------------------------------------------------------------
Funded status (1,944) (380)
Unrecognized prior service cost 1 8
Unrecognized net obligation at transition 40 65
Unrecognized net loss 2,562 704
- -------------------------------------------------------------------------------------------------------------------
Prepaid pension cost at end of period $ 659 397
- -------------------------------------------------------------------------------------------------------------------
Intangible asset at December 31, $ 41 73
Additional minimum liability at December 31, (2,290) (592)
- -------------------------------------------------------------------------------------------------------------------
Additional pension liability in excess of prior
service cost at December 31, $(2,249) (519)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions used in accounting for the pension plan were:
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.5% 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>
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.
28
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
8 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 establishes 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 four operating segments: Aerospace,
CompositAir, Commercial and NP Aerospace. Management has determined these to be
Reinhold's operating segments based upon the nature of their products. Aerospace
produces a variety of products for the U.S. military and space programs.
CompositAir produces components for the commercial aircraft seating industry.
The Commercial segment produces lighting housings and pool filters. NP Aerospace
is our subsidiary located in Coventry, England and produces products for law
enforcement, lighting, military, automotive and commercial aircraft.
<TABLE>
<CAPTION>
The information in the following tables is derived directly from the segment's
internal financial reporting for corporate management purposes (in thousands).
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
Aerospace $ 6,165 6,391
CompositAir 8,997 8,340
Commercial 1,978 1,501
NP Aerospace 8,856 -
- -------------------------------------------------------------------------------------------------------------------
Total sales $ 25,996 16,232
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes
Aerospace $ 1,587 1,994
CompositAir 431 304
Commercial 72 (198)
NP Aerospace 410 -
Unallocated corporate expenses (321) (402)
- -------------------------------------------------------------------------------------------------------------------
Total income before income taxes $ 2,179 1,698
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization
Aerospace $ 369 424
CompositAir 220 214
Commercial 150 137
NP Aerospace 64 -
Unallocated corporate 96 69
- -------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 899 844
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures
Aerospace $ 63 117
CompositAir 458 100
Commercial 132 133
NP Aerospace 303 -
- -------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 956 350
- -------------------------------------------------------------------------------------------------------------------
Total assets
Aerospace $ 4,869 5,590
CompositAir 3,419 2,541
Commercial 1,144 1,134
NP Aerospace 8,015 -
Unallocated corporate 2,768 3,950
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 20,215 13,215
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
The table below presents information related to geographic areas in which
Reinhold operated in 1998 and 1997 (in thousands):
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
United States $14,920 13,794
United Kingdom 8,579 266
Germany 1,797 2,172
Switzerland 336 -
Sweden 238 -
Other Europe 126 -
- -------------------------------------------------------------------------------------------------------------------
Net sales $25,996 16,232
- -------------------------------------------------------------------------------------------------------------------
Total assets
United States $12,200 13,215
United Kingdom 8,015 -
- -------------------------------------------------------------------------------------------------------------------
Total assets $20,215 13,215
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
9 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 $509,000 and $447,000 for 1998 and 1997, respectively.
<TABLE>
Minimum future rental commitments under noncancelable operating leases at
December 31, 1998 are as follows (in thousands):
<S> <C>
1999 $ 449
2000 254
2001 104
2002 44
- -------------------------------------------------------------------------------------------------------------------
$ 851
- -------------------------------------------------------------------------------------------------------------------
</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.
10 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.
The Company's principal customers are prime contractors to the U.S. Government,
other foreign governments and aircraft seat manufacturers.
<TABLE>
<CAPTION>
Sales to each customer that exceed 10% of total net sales for the periods
presented were as follows (in thousands):
Year ended Year ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
B/E Aerospace $ 8,687 5,736
Alliant Techsystems 3,077 1,929
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 39% of the Company's accounts
receivable balance before any adjustments for the allowance for doubtful
accounts and the United Kingdom Ministry of Defense 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.
30
<PAGE>
Reinhold Industries, Inc. and Subsidiary
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Reinhold Industries, Inc.
We have audited the accompanying consolidated balance sheets of Reinhold
Industries, Inc. and Subsidiary (the Company) as of December 31, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc. and Subsidiary as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
January 29, 1999
31
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
CORPORATE DIRECTORY
<S> <C> <C> <C>
BOARD OF DIRECTORS CORPORATE OFFICES FORM 10-KSB STOCK LISTING
Lawrence H. Diamond 12827 East Imperial Highway Stockholders may obtain a Reinhold common stock
Chairman Santa Fe Springs, CA 90670 copy of Reinhold's 10-KSB is listed on the OTC Bulletin
Retired, 562 944-3281 without charge by writing to Board
Ernst & Young LLP 562 944-7238 (fax) Investor Relations Department Symbol - RNHDA
Michael T. Furry INVESTOR RELATIONS TRANSFER AGENT
President and CEO Contact Judy Sanson Continental Stock Transfer &
Reinhold Industries, Inc. Reinhold Industries, Inc. Trust Company
2 Broadway
Robert B. Steinberg REGISTRAR New York, New York 10004
Senior Partner Continental Stock Transfer & 212 509-4000
Rose, Klein & Marias Trust Company
2 Broadway INDEPENDENT AUDITORS
Corporate Officers New York, New York 10004 KPMG LLP
Michael T. Furry 725 South Figueroa Street
President and CEO ANNUAL MEETING Los Angeles, CA 90017
The Annual Stockholders'
Brett R. Meinsen Meeting will be held at the ATTORNEYS
Vice President - Finance offices of Petillon & Hansen
Administration, Treasurer Reinhold Industries, Inc. 1260 Union Bank Tower
and Secretary 12827 East Imperial Hwy 21515 Hawthorne Boulevard
Santa Fe Springs, CA Torrance, California 90503
on April 30, 1999
at 10:00 a.m. Wapnick & Alvarado
11268 W. Washington Blvd.
Suite 200
Culver City, CA 90230
</TABLE>
<TABLE>
<CAPTION>
Stockholder Information
Market Price High Low
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter ended March 31, 1998 8 7/8 5 1/2
Second Quarter ended June 30, 1998 9 1/4 8
Third Quarter ended September 30, 1998 8 1/4 6 1/8
Fourth Quarter ended December 31, 1998 8 1/2 6 3/4
<FN>
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, 1998.
</FN>
</TABLE>
32
<PAGE>
Inside Back Cover
This page is blank
<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 report dated January 29, 1999
relating to the consolidated balance sheets of Reinhold Industries, Inc. as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and comprehensive income and cash flows for the
years ended December 31, 1998 and 1997 which reports appears in the December 31,
1998 Annual Report on Form 10-KSB of Reinhold Industries, Inc..
/S/ KPMG LLP
Los Angeles, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheets and statements of operations found on pages 17 and 18 of
Reinhold's 1998 Annual Report to Stockholders, which is incorporated herein by
reference.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,622
<SECURITIES> 0
<RECEIVABLES> 5,156
<ALLOWANCES> 287
<INVENTORY> 4,385
<CURRENT-ASSETS> 13,804
<PP&E> 9,532
<DEPRECIATION> 4,056
<TOTAL-ASSETS> 20,215
<CURRENT-LIABILITIES> 4,843
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 9,678
<TOTAL-LIABILITY-AND-EQUITY> 20,215
<SALES> 25,996
<TOTAL-REVENUES> 25,996
<CGS> 19,493
<TOTAL-COSTS> 4,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 2,179
<INCOME-TAX> 41
<INCOME-CONTINUING> 2,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,138
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
