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, 1999
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.
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(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
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(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
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(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 $39,140,000
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.
$20,489,299 as of March 20, 2000 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 - 1,998,956 as of March 20, 2000
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. 1999 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
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
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 from SP Systems, Inc. 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.
On April 24, 1998, NP Aerospace Limited ("NP Aerospace"), a wholly
owned subsidiary of Reinhold, purchased from Courtaulds Aerospace Limited
("CAL"), a U.K. Corporation, which is a wholly owned subsidiary of Courtaulds
plc, a U.K. Corporation, certain assets (consisting of Accounts Receivable,
Inventory, Machinery and Equipment, Land and Intellectual Property and Patents)
and assumed certain liabilities of the Ballistic and Performance Composites
Division of CAL. Reinhold, as the Guarantor for NP Aerospace, became obligated
to pay to Courtaulds plc net consideration consisting of (a) Two Million Two
Hundred Thousand pounds sterling ((pound)2,200,000) ($3,706,340 based on an
exchange rate of $1.6847) cash on the Closing Date and (b) within 120 days
following the end of each of the calendar years 1998 through 2001, a cash amount
equal to 25% of the Pre-tax Profit on the light armored vehicle business only,
the maximum aggregate amount of which shall not exceed Twenty Million pounds
sterling ((pound)20,000,000). Additional payments of (pound)140,000 ($227,000)
were capitalized in 1999 as part of the purchase price.
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 27 and "Management
Discussion and Analysis of Financial Condition and Results of Operations " on
page 17 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated
herein by reference.
SUBSEQUENT EVENT
On March 9, 2000, Samuel Bingham Enterprises, Inc., a newly formed
wholly-owned subsidiary of Reinhold Industries, Inc., purchased certain assets
and assumed certain liabilities of Samuel Bingham Company for $15.5 million in
cash. A majority of the purchase price was financed through a five year term
loan with the Bank of America for $11.0 million with the balance being paid from
cash on hand. Samuel Bingham Company is a manufacturer and supplier of graphic
arts and industrial rollers for a variety of applications.
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 33 and "Management Discussion and
Analysis of Financial Condition and Results of Operations " on page 17 of
Reinhold's 1999 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
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 two major
customers constituted approximately 50% of the Company's net sales in 1999.
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. CompositAir is a world leader in producing commercial composite
aircraft seatback structures. With the seatback market expanding at a rate of
10% - 15% per year, composites are enjoying an increased acceptance by the
airlines. Due to this acceptance, we expect an increase in competition in the
future.
Raw Materials and Purchased Components
The principal raw materials for composite fabrication include
pre-impregnated fiber cloth (made of carbon, graphite, aramid or fiberglass
fibers which have been heat-treated), molding compounds, resins (phenolic and
epoxy), hardware, adhesives and solvents. Occasionally, certain raw materials
and parts are supplied by customers for incorporation into the finished product.
Reinhold's principal suppliers of raw materials are Cytec Fiberite, Inc. and
Newport Adhesives and Composites, Inc.
No significant supply problems have been encountered in recent years.
Reinhold uses PAN (polyacrylonitrile) and rayon in the manufacture of
composites. However, the supply of rayon used to make carbon fiber cloth
typically used in ablative composites is highly dependent upon the qualification
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 $155,000 and
$158,000 for the years ended December 31, 1999 and 1998, respectively.
Employees
At December 31, 1999, Reinhold had 256 full-time employees and 5
part-time employees. Of these employees, 241 ( 236 full-time and 5 part-time)
were employed in manufacturing and 30 (all full-time) in administration, product
development and sales. Approximately 29% of the personnel are based at
Reinhold's Santa Fe Springs, California facility, approximately 22% are based in
Camarillo, California and approximately 49% are based at NP Aerospace located in
Coventry, England. Approximately 74 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.
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The following chart lists the principal locations and size of
Reinhold's facilities and indicates whether the property is owned or leased and,
if leased, the lease expiration.
<TABLE>
<CAPTION>
LEASED OR OWNED
LOCATION USE SIZE LEASE EXPIRATION
- -------------------- ------------------ --------------- ---------------------
<S> <C> <C> <C>
Santa Fe Springs, CA Administration and 113,000 sq. ft. Leased (Expires 2000)
Manufacturing
Camarillo, CA Manufacturing 18,000 sq. ft. Leased (Expires 2002)
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>
Construction of a new building and additional improvements at the Santa
Fe Springs location are expected to be completed by the end of the year 2000.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On October 20, 1999, a Special Meeting of Stockholders of the
Corporation was held to consider and vote on the following proposals:
1. To consider and act upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of capital stock of the Corporation from 2,500,000 shares to 50,000,000
shares by (a) increasing the number of authorized shares of Class A New Common
Stock, par value $.01 per share (the "Class A Common Stock" or "Common Stock")
from 2,500,000 shares to 45,000,000 shares, and (b) authorizing a class of
preferred stock, consisting of 5,000,000 authorized shares (the "Preferred
Stock"), for which the Board of Directors will have authority to establish the
rights and preferences of any series prior to the issuance of any such series
and to issue such Preferred Stock in one or more series, without further
approval of stockholders of the Company;
2. To consider and act upon a proposal to amend the Company's Amended and
Restated By-laws to increase the size of the Board of Directors to between three
and ten directors, with the exact number to be determined from time to time by
vote of a majority of the Board of Directors;
3. To consider and act upon a proposal to approve and ratify the Company's
Management Agreement with Hammond, Kennedy, Whitney & Company, Inc., a private
equity firm;
4. To transact such other business as may properly be brought before the meeting
or any adjournment thereof.
Results of the voting were as follows:
For Against Abstain Not Voted
--------- ------- ------- ---------
Item 1. 1,338,178 86,870 4,617 2,664
Item 2. 1,352,663 72,710 4,292 2,664
Item 3. 1,317,063 109,057 6,209 0
All proposals were approved by the stockholders. There were no further items of
business discussed at the meeting.
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
a. & c. Data regarding the market price of Reinhold's common stock is
included in the "Selected Financial Data" on page 1 and under Stockholder
Information on page 36 of Reinhold's 1999 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 1999 or 1998.
b. The approximate number of common equity security holders is as
follows:
Approximate Number
of Holders of Record
Title of Class as of March 20, 2000
- -------------- --------------------
Class A Common Stock,
par value $.01 per share 1,636
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 17 of Reinhold's 1999
Annual Report to Stockholders, which is incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS
Reference is made to the Independent Auditors' Reports and to the
Consolidated Financial Statements included on page 19 through 25 and Notes to
Consolidated Financial Statements on pages 26 through 35 of Reinhold's 1999
Annual Report to Stockholders, which is incorporated herein by reference.
Financial data schedules are included in Part IV of this filing.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required with respect to directors of Reinhold is included
in the definitive Proxy Statement for the 2000 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C> <C>
Michael T. Furry 62 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 40 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>
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is included in the definitive Proxy
Statement for the 2000 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 2000 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 2000 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
2.1 Keene Corporation's Fourth Amended Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code dated March 11, 1996, incorporated
herein by reference to Exhibit 99(a) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
2.2 Motion to Approve Modifications to the Keene Corporation Fourth
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code dated June 12, 1996, incorporated herein by reference to Exhibit
99(b) to Keene Corporation's Form 8-K filed with the Commission on
June 28, 1996.
2.3 Finding of Fact, Conclusions of Law and Order Confirming Keene's
Fourth Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, as modified, entered June 14, 1996, incorporated
herein by reference to Exhibit 99(c) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
3.1 Amended and restated Certificate of Incorporation of Reinhold
Industries, Inc., incorporated herein by reference to Exhibit 99(a),
Exhibit A to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
3.2 Amended and restated By-laws of Reinhold Industries, Inc. (Formerly
Keene Corporation), incorporated herein by reference to Exhibit
99(a), Exhibit B to the Plan, to Keene Corporation's Form 8-K filed
with the Commission on June 28, 1996.
3.3 Certificate of Merger of Reinhold Industries, Inc. into Keene
Corporation, incorporated herein by reference to Exhibit 99(a),
Exhibit C to the Plan, to Keene Corporation's Form 8-K filed with
the Commission on June 28, 1996.
4.1 Share Authorization Agreement, incorporated herein by reference to
Exhibit 99(a), Exhibit H to the Plan, to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
4.2 Registration Rights Agreement, incorporated herein by reference to
Exhibit 99(a), Exhibit G to the Plan, to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
9.1 Creditors' Trust Agreement, incorporated herein by reference to
Exhibit 99(a), Exhibit D to the Plan, to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
10.1 Reinhold Industries, Inc. Stock Incentive Plan, on Form S-8, filed
with the Commission on November 10, 1997.
10.2 Reinhold Management Incentive Compensation Plan, incorporated by
reference to Page 34 to Keene's (Predecessor Co.) Form 10, dated
April 4, 1990, as amended by Form 8, Exhibit 10(e), dated July 19,
1990.
10.3 Lease, dated January 4, 1990, by and between Imperial Industrial
Properties, Inc. and Reinhold Industries, incorporated by reference
to Exhibit 10(b) to Keene's Form 10 dated April 4, 1990, as amended
by Form 8, dated July 19, 1990.
10.4 Reinhold Industries, Inc. Retirement Plan (formerly Keene Retirement
Plan), incorporated by reference to Exhibit 10(i) to Keene's Form 10
dated April 4, 1990, as amended by Form 8, dated July 19, 1990.
10.5 Management Agreement between Reinhold Industries, Inc. and Hammond,
Kennedy, Whitney & Company, Inc. dated May 31, 1999 on Form 10-QSB
filed with the Commission on August 16, 1999.
10.6 Stock Option Agreement between Reinhold Industries, Inc. and Michael
T. Furry dated June 3, 1999 on Form 10-QSB filed with the Commission
on August 16, 1999.
10.7 Stock Price Deficiency Payment Agreement between Reinhold Industries,
Inc. and various Stockholders dated June 16, 1999 on Form 10-QSB
filed with the Commission on August 16, 1999.
<PAGE>
13 Annual Report to Stockholders
20.1 New Keene Credit Facility, incorporated herein by reference to
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
b) REPORTS ON FORM 8-K
A Form 8-K, Item 5 - Other Events, was filed with the Commission on
November 11, 1999. The information reported was the voting results of the
October 20, 1999 Special Stockholders Meeting.
<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 27, 2000 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 27, 2000
--------------------------------------
Michael T. Furry- President and Director
(Principal Executive Officer)
/s/ Ralph R. Whitney, Jr. March 27, 2000
---------------------------------------
Ralph R. Whitney, Jr.- Chairman
/s/ Andrew McNally, IV March 27, 2000
-------------------------------------
Andrew McNally, IV- Director
Reinhold Industries, Inc.
Picture - Michael T. Furry Picture - Roger Medwell Picture - Joe Ball
Picture - Joe Savage Picture - Ari Aleong Picture - Brett Meinsen
1999 Annual Report
It is who we are
<PAGE>
Picture of Board of Directors
Reinhold Industries Board of Directors
(left to right): President and Chief Executive
Officer Michael T. Furry, Chairman of the
Board Ralph R. Whitney, Jr., and Director
Andrew McNally IV.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of operations (in thousands)
Net sales $ 39,140 25,996 16,232 13,120 11,122
Gross profit $ 10,783 6,503 4,699 3,046 1,728
Operating income (loss) $ 5,704 2,196 1,595 17 (1,832)
Interest (expense) income, net $ 100 (17) 103 1,159 2,202
Reorganization expenses $ - - - 3,139 9,492
Net income (loss) $ 5,041 2,138 1,647 (2,198) (8,983)
- ------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities $ 9,419 3,622 3,169 2,522 34,660
Working capital $ 11,691 8,961 6,314 3,602 39,105
Net property and equipment $ 5,726 5,476 4,526 5,158 5,607
Total assets $ 25,234 20,215 13,215 12,540 64,705
Long-term debt $ 1,125 1,550 - - -
Long-term liabilities $ 204 4,124 2,438 4,879 4,733
Stockholder equity $ 16,858 9,698 9,340 5,719 41,990
- ------------------------------------------------------------------------------------------------------
Per share data Net income (loss):
Basic (Note 1) $ 2.52 1.07 0.82 N.M.* (0.86)
Diluted (Note 1) $ 2.51 1.07 0.82 N.M.* (0.86)
Stockholders' equity $ 8.40 4.85 4.67 2.86 4.02
Market price range: (Note 2)
High $ 13 1/8 9 1/4 10 4 1/8 N.M.*
Low $ 6 3/4 5 1/2 2 7/8 3 1/4 N.M.*
- ------------------------------------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand $ 13,841 16,194 5,989 4,935 6,635
Average shares outstanding - basic 1,999 1,999 1,999 Note 1 10,442
Average shares outstanding - diluted 2,006 1,999 1,999 Note 1 10,442
Average number of common stockholders 1,711 1,808 1,951 2,099 2,396
Average number of employees 289 220 124 105 104
<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>
Picture of Michael T. Furry
Michael T. Furry
President and Chief
Executive Officer
TO OUR STOCKHOLDERS
The confluence of a number of favorable events resulted in an excellent year for
Reinhold Industries in 1999, only our third full year as a public company. The
charts on the following pages illustrate this success according to these
criteria: net sales, net income, earnings per share, return on capital employed
(ROCE), cash balances, and stockholder equity. My purpose here is to call your
attention to these significant facts. Primary among them are a 50% increase in
net sales from $26 million in 1998 to $39 million in 1999 and a 127% increase in
net income from $2.1 million in 1998 to $5 million in 1999. For complete
financial details, I urge you to read pages 17 and 18 - Management Discussion
and Analysis of Financial Condition and Results of Operations - as well as the
subsequent tables.
2
<PAGE>
Reinhold revenue is derived from four business units: Aerospace (USA),
Commercial (USA), CompositAir (USA-UK), and NP Aerospace (UK). Each made a
positive contribution to the company's success in 1999.
AEROSPACE (USA) This unit's 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. This unit has experienced a 10-year drought resulting primarily from
reductions in defense spending. Sales dropped from $23 million in 1990 to $9.6
million in
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net Sales (in millions)
1997 $16.2
1998 $26.0
1999 $39.1
141% increase
1991 and has averaged $5 to $6 million for the balance of the decade. Sales for
1999 were $5.9 million, down 5% from $6.2 million in 1998, and profit was $1.2
million, down 22% from $1.6 million in 1998.
COMMERCIAL (USA) This unit serves a regional swimming pool customer, the USA
lighting market, and various other commercial customers. All products are made
using Reinhold-manufactured sheet molding compound (SMC) as the basic raw
material. In the past year, this unit was able to bring to manufacturing
maturity all of our previously introduced products, an improvement in efficiency
that is reflected in the improved performance in 1999, and management is on the
alert for new product design and development opportunities. Orders for six or
seven new products are now in process. Sales increased by 23% over 1998 to
$2.4 million, but profit leaped by 300% from $72,000 in 1998 to $287,000 in
1999.
COMPOSITAIR (USA-UK) This unit, acquired in 1994, 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 of today's
features-packed commercial aircraft seats. Our ability to manufacture these
composite materials with preferred shapes and weight savings of 30% to 40%
distinguishes our seatback products from aluminum frames. Sales and profit
contribution for 1999 were $16 million and $2.1 million respectively.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net Income (in millions)
1997 $1.6
1998 $2.1
1999 $5.0
213% increase
NP AEROSPACE (UK) This business segment was acquired from Courtaulds Aerospace
in the United Kingdom in April of 1998, so this is the first full year of its
effect on operations. As it did for eight months of 1998, performance in 1999
exceeded forecasts. This acquisition was first pursued because of our mutual
presence in the aircraft seating business, but it also brought other market
niches: ballistic-protection products, a family of medical products, and
products for the trade molding market for lighting, communications, United
Kingdom defense, and automotive after-market industries. Ballistic products
include military helmets for ground forces and air crews, armored vehicles, body
armor, and ballistic shields. Medical products include graphite tables for X-ray
and MRI treatment. Sales and profit contribution for 1999 were $14.9 million and
$2.5 million respectively, a pro-rated increase of 133% in sales and 131% in
profit.
3
<PAGE>
A GLOBAL CONSORTIUM CompositAir (USA) and NP Aerospace (UK) have long been
rooted in the aircraft seatback business. Now, our worldwide marketing strategy
in pursuit of that business and the combination of USA and UK engineering and
manufacturing resources in developing a superior hybrid product have led us to
treat those two units as one for that segment of business. In our 1998 annual
report, we predicted that the hybrid technology resulting from the fusion of two
unique processes for making seatbacks would result in a better product at lower
cost. That has been realized. Reinhold is now the world cost leader in the
aircraft seatback field and can
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Earnings per share (in millions)
1997 $0.82
1998 $1.07
1999 $2.51
206% increase
offer that cost advantage to our customers in a collaborative effort to secure a
greater share of the worldwide market. The increasing benefits of composite
seatbacks in lieu of metal are described in more detail on pages 6 and 7 and 10
and 11.
THE REINHOLD PHILOSOPHY We cannot expect to sustain indefinitely the growth that
we have enjoyed for the past three years - 141% in net sales, 213% in net
income, 206% in earnings per share, 193% in cash balance, 81% in stockholder
equity, and from 21% in 1997 to a lofty 32% return on capital employed (ROCE) in
1999. Conditions that cannot be anticipated, such as the effects of a military
crisis in Botswana or the breakdown of peace talks in Northern Ireland - to name
two that have impacted our business recently - make forecasts around them
imprudent. What we can do is sustain and extend the management philosophy and
strategy that have made it possible for us to capitalize on the good fortune
that comes our way and, at the same time, protect against the vagaries of a
volatile world.
Human resource management is a vital part of the Reinhold style. By adhering to
sound management practices, we have developed a team concept that thrives in the
culture of an enlightened work ethic, a sense of controlled urgency, mutual
respect, and targeted financial goals. Our credo is "fewer people working harder
and smarter." People are our most valuable asset, and our future growth depends
on a work force of highly skilled and motivated
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ROCE* (in percentages)
1997 21%
1998 17%
1999 32%
52% increase
Return on capital employed
people. They are the primary feature of this annual report.
ACQUISITIONS A major element of Reinhold's long-range business strategy is
growth through acquisitions. On March 9, 2000, Reinhold acquired the Samuel
Bingham Company. Founded in 1826 under that name, it is one of the oldest
continuously-operated companies in the country. It will be managed as a
wholly-owned subsidiary. Headquartered in Bloomingdale, Illinois, Bingham
manufactures and distributes rubber and polyurethane rollers for graphic arts
and industrial applications, employing 250 people in 12 plants in the US and two
in Canada. Gross sales in 1999 were $24.2 million. This will be a year of
consolidation, but Bingham's position in a stable industry, with a steady flow
of income, will contribute to year 2000 earnings and have a positive long-term
effect on shareholder value.
4
<PAGE>
CHANGE IN CONTROL On May 21, 1999, Keene Creditors' Trust sold most of its
Reinhold stock to a group of individual and institutional investors. Two of the
investors, Ralph R. Whitney and Andrew McNally IV, were elected to our Board of
Directors at a special Board meeting on June 3, 1999. The new directors are in
accord with Reinhold management and company goals. We consider this change in
ownership a liberating and informative event that will have a positive effect on
our future.
NEW FACILITY A long-term lease has been secured and plans approved by the
planning commission for new and renovated buildings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Cash Balance (in millions)
1997 $3.2
1998 $3.6
1999 $9.4
193% increase
at our Santa Fe Springs location. We currently occupy eight buildings in Santa
Fe Springs and one 65 miles away in Camarillo, where certain seatback operations
occur. The new and renovated buildings comprise 134,000 square feet, an increase
of 24,000. Each of the three business units, which now share work spaces, will
occupy its own space, and procurement, inventory control, warehousing, and work
flow will be greatly enhanced. Construction is expected to be complete within
the year, and the results will have a positive impact on the bottom line in
2001.
FORECAST Backlog at December 31, 1999 was $13.8 million, down 15% from December
31, 1998, primarily due to a softening of aircraft production and a temporary
reduction in demand from our principal seating products customer. The concerted
marketing and sales effort of CompositAir (USA-UK) should capture some part of
the 65% market share now held by metal seatbacks, but we still anticipate a
downturn in sales and earnings for this business segment in 2000. NP Aerospace
(UK) experienced a surge in sales of armored vehicles in 1999 that cannot be
again predicted, but that anticipated shortfall could be made up by an expected
increase in sales of military helmets and medical tables, and what promises to
be an expansion of our lighting products market. This unit will be profitable,
but we anticipate little if any overall growth in 2000.
We expect both sales and profits for Aerospace (USA) and Commercial (USA)
Business Units to be up in 2000 and beyond.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Stockholder Equity (in millions)
1997 $9.3
1998 $9.7
1999 $16.9
81% increase
In summation, we do not expect to reprise our 1999 performance, but we expect to
be profitable and are bullish about our prospects for accelerating growth and
profit in the immediate years to follow.
For the nexus of our customers, our suppliers, and our skilled and committed
employees, we are grateful. It is vital to our success.
It is who we are.
/s/ Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
March 20, 2000
5
<PAGE>
NP AEROSPACE UK
It is who we are
Picture NP Aerospace team
(left to right) Mike Linton, Ian Paterson, Martin
Cheese, Gavin Friell, Roger Medwell, Debbie
Wadge, Jim Cantes, Vaughan Collins
Roger Medwell, Managing Director,
NP Aerospace (UK) Business Unit
Roger Medwell is Managing Director of NP Aerospace in Coventry, West Midlands,
England, a position he held with Courtaulds Aerospace when that business was
acquired in 1998. That acquisition brought to Reinhold a significant segment of
aircraft seatback business and market niches for ballistic protection products,
including military helmets for ground and air crews, armored vehicles, body
armor, and ballistic shields. Complementary technology and new market niches
were not the only benefits of the acquisition, however. In the course of due
diligence, a kinship of shared
Picture - Products Picture - Products
Values and methods emerged, such as team concepts and work forces with
overlapping skills and compatible techniques. It was also revealed that in 1926
Courtaulds was doing pioneering work with bakelite molding similar to what
Reinhold was doing in 1928. With more than 40 years of direct experience in the
industry, Roger has a well-informed vision and enthusiasm for the future of
composites remarkably akin to that of Reinhold. "the potential has been
stifled," he says, "because most composites manufacturers have been under the
control of large petrochemical companies out of touch with the entrepreneurial
spirit." All of these kinships made assimilation of this business unit into the
Reinhold culture of targeted goals, an enlightened work ethic, and a sense of
controlled urgency a smooth process. With an expanded view of the potential for
growth of the combined businesses, Roger is also on the alert for other
companies in the UK that might be apt candidates for acquisition.
6
<PAGE>
Picture - Roger Medwell
Picture - Products Picture - Products Picture - Products
7
<PAGE>
Picture - Joe Ball
Picture - Products Picture - Products Picture - Products
8
<PAGE>
Joe Ball, Manager,
Aerospace USA Business Unit
Joe Ball has been with Reinhold for 20 years, a product of our policy of
promoting from within. He became manager of this Business Unit in 1998. Reinhold
has been developing and building ablative (heat absorbing) components for the
U.S. space program since its inception. Current contracts include initial
production of the insulation components for the Minuteman III Propulsion
Replacement Program, airfoils for BAT anti-tank weapons, small nozzles for
booster separation rockets, and aircraft structural composites for both
government and commercial applications.
Picture - Products Picture - Products
Our continuing ability to do so is attributable to a team of highly skilled and
motivated employees. Upon that base, we are building for the future. Through
generous employee benefit programs, on-the-job training, education, and
discriminating recruitment we are sustaining and invigorating a work force that
prepares us for a new generation of exploration and discovery. Our goal is
continued growth through an increasing share of existing markets and further
successful acquisitions. The window of opportunity is open.
AEROSPACE USA
It is who we are
Picture Aerospace team
(left to right) Saul Osuna, Van Dreng, Dave
Fuller, Rick Olson, Rich Ciauri, Gilbert
Torres, Subinh Chanthavongsouk
9
<PAGE>
COMPOSITAIR USA-UK
It is who we are
Picture CompositAir team
(left to right) Steve Carmichael, Don
Carmichael, Bob Buchanon, Paka Aina,
Lester Gray, Hamid Gholami
Joe Savage, Manager,
CompositAir (USA-UK) Business Unit
Joe Savage is a Reinhold veteran of more than 20 years and has managed the
CompositAir Business Unit, whose primary product is aircraft seatbacks, since
November, 1998. Joe believes that the passage of controlling interest in
Reinhold to private investors in 1999 was a liberating event, initiating an
aggressive policy of growth that was the natural tendency of management. This
policy compliments Reinhold people, the company's greatest strength. "Their
capability is unmatched, their experience, expertise, and process innovation
make us the industry leader in technology and
Picture - Products Picture - Products
cost controls," says Joe. As the world leader, this team strives to develop a
more robust manufacturing process and to distinguish composites from the
standard metal seatback. The estimated worldwide market for new and retrofit
seatbacks is 300,000 for the year 2000. Of that, 65% is projected as metal. Our
goal is to increase the market share for composites, and the product is here.
The CompositAir USA and UK teams have collaborated to develop a new,
hybrid seatback that is lighter, stronger, more comfortable, more pleasing in
shape and design, and can accommodate more features, all at a price that is
equal to or better than metal seatbacks. With pressure mapping and other
sophisticated testing methods, the benefits of composites can be convincingly
demonstrated. Our goal for this year is to work in concert with our customers to
assure that those benefits are made compellingly clear to the specification
writers and airline companies.
10
<PAGE>
Picture - Joe Savage
Picture - Products Picture - Products Picture - Products
11
<PAGE>
Picture - Ari Aleong
Picture - Products Picture - Products Picture - Products
12
<PAGE>
Ari Aleong, Manager,
Commercial Business Unit
Ari Aleong has been with Reinhold since 1989 and became Manager of the
Commercial Business Unit in 1999. This tightly-knit unit makes products for a
regional swimming pool filter company, the USA lighting market, and various
other commercial customers. On this team, every employee is trained and
cross-trained for a cellular-type manufacturing process in which an operator
performs more than one function. Every employee is empowered to make decisions
in the process of manufacturing a product from start to finish - molding,
testing, packaging, and palletizing. Every employee is,
Picture - Products Picture - Products
in effect, a manager. In this environment, where understanding of company and
team goals is fostered through open communication in daily meetings, there is
little evidence of a hierarchy of authority. A sense of purpose and pride in
workmanship runs deep. Achievement is recognized in a performance-based
compensation program called PIE - an acronym for Performance, Incentive, Equity
- - in which production employees receive a bonus for each week the company meets
forecast sales. Cash awards are disbursed to proud recipients at monthly PIE
barbecue luncheons. Always, the focus is constant and urgent: embrace customer
needs, embrace company goals, make a better product.
COMMERCIAL USA
It is who we are
Picture Commercial team
(left to right) Davood Taslimi, Maria Muro,
Bob Bockman, Maria Hernandez,
Hector Gamboa, Danny Radillo
13
<PAGE>
NEW FACILITY
Picture - New Facility
New and Renovated Facility
Reinhold's USA operations currently occupy eight buildings in two locations 65
miles apart, with headquarters in Santa Fe Springs and manufacturing of aircraft
seatbacks divided between there and Camarillo, the only facility less than 50
years old. Three Business Units now share work spaces where parts are moved from
building to building in a circuitous manufacturing process. Moving materials and
people long distances was tolerable when transportation costs and surface
traffic were minor matters, but that is no longer so. A major project for the
year 2000 is the consolidation of operations in Santa Fe Springs in new and
reconfigured buildings comprising 134,000 square feet - an increase of 24,000
over the present. The utilization of space has been further enhanced by thorough
space management. In the new facility, each Business Unit will be distinct and
work flow, materials procurement and control, warehousing, and shipping will be
much more efficient. Plans have been approved by the planning commission, and
construction is expected to be complete within the year. A positive impact on
the bottom line will be realized in 2001.
14
<PAGE>
Picture - New Facility
Engineering
Gerry Gore, Chief Engineer
This team of five engineers headed by Gerry Gore is a key component of
Reinhold's expertise in solving challenging design and manufacturing problems.
Engineering is responsible for reviewing plans and preparing estimates for all
projects and designing special tools and dies for unique manufacturing needs. It
serves all three business units at Reinhold USA and collaborates with the
engineering team at NP Aerospace in the United Kingdom in seeking solutions to
common problems.
It is who we are
Picture Engineering team
(left to right) Tony Swezey, Jed Merrill, Fred Ngo, Bob Briggs,
Gerry Gore
15
<PAGE>
Picture - Brett R. Meinsen
It is who we are
Picture Administration team
(left to right) Bruce Nguyen, Debbie Nicol,
Judy Sanson, Brent Marcus, Linda Crawford
Brett R. Meinsen
Vice President - Finance and Administration,
Treasurer and Secretary
Brett Meinsen has been with Reinhold for only three years but brings almost
twenty years of diversified accounting and finance experience to the company.
His responsibilities include accounting, human resources, information systems,
purchasing, and logistics. "With such a wide scope of responsibilities, it would
be impossible to be effective without an outstanding team of dedicated people,"
he said. "The Administration team exemplifies the Reinhold philosophy of `fewer
people working harder and smarter.'" The goal for this team in the coming year
is to continue to manage our working capital aggressively, to assist in the
assimilation of our Bingham acquisition into the Reinhold work ethic and
management style, and to provide our employees with a challenging and satisfying
work environment that offers ample opportunity for advancement.
16
<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.
1999 COMPARED WITH 1998 Backlog at December 31, 1999 was $13.8 million, down 15%
from December 31, 1998, primarily due to a decrease in aircraft seatback orders.
In 1999, order input increased 23% to $36.7 million and net sales increased 51%
to $39.1 million from $26.0 million in 1998, primarily reflecting a full year of
sales for NP Aerospace . Sales also increased $4.7 million for CompositAir
products and $0.5 million for Commercial products. However, there was a $0.3
million decrease in sales for Aerospace products.
Gross profit margin increased to 27.6% from 25.0% due to increased sales and the
resulting absorption of fixed overhead expenses. Gross margin in the United
States increased to 31.3% in 1999 from 27.2% in 1998. Gross margin in the United
Kingdom increased to 23.4% in 1999 from 20.8% in 1998.
In 1999, selling, general and administrative expenses were $5.1 million (13.0%
of sales) compared with $4.3 million (16.6% of sales) in 1998. Although selling,
general and administrative expenses were higher in 1999, these expenses
decreased 3.6% as a percent of sales. Selling, general and administrative
expense increases are primarily associated with the costs incurred for NP
Aerospace for a full year.
Income before income taxes increased to $5.8 million (14.8% of sales) from $2.2
million (8.4% of sales), reflecting higher sales and gross margins. Income
before income taxes for the United States was $3.6 million (17.8% of sales) in
1999 compared with $1.8 million (10.3% of sales) in 1998. Income before income
taxes for the United Kingdom was $2.2 million (11.6% of sales) in 1999 compared
with $0.4 million (4.6% of sales) in 1998.
In 1999, net interest income was $0.1 million. Interest income of $0.2 million
was offset by interest expense of $0.1 million. In 1998, net interest expense
was $0.01 million. The average yield was 4.08% in 1999 compared with 4.18% in
1998.
A tax provision of $0.8 million was recorded in 1999 compared with a provision
of $0.04 million in 1998, due primarily to increased profitability in the United
Kingdom. The effective tax rate in the United Kingdom is 30%. In 1999, the
Company had pre-tax income of $5.8 million and was able to reduce United States
federal and state income taxes by $1.5 million by utilizing a net operating loss
carry forward, which resulted in a reduction in the valuation allowance related
to deferred tax assets.
Net income totaled $5.0 million, or $2.51 per diluted share in 1999 compared
with $2.1 million, or $1.07 per diluted share in 1998.
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, working capital was
$11.7 million, up $2.7 million from December 31, 1998. Cash and cash equivalents
of $9.4 million held at December 31, 1999 were $5.8 million higher than cash and
cash equivalents held at December 31, 1998 primarily due to $7.4 million of net
cash provided by operating activities.
Net cash provided by operating activities amounted to $7.4 million in 1999 and
$3.1 million in 1998. The increase over the prior period relates to the
increased profitability of the Company.
Net cash used in investing activities in 1999 totaled $1.2 million, which
consisted of capital expenditures and deferred consideration payable to
Courtaulds plc. 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 $0.8 million of marketable securities.
Net cash used in financing activities in 1999 totaled $0.4 million relating to
the repayment of the CIT/ Bank of America loan. Net cash provided by financing
activities in 1998 totaled $2.0 million consisting of 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, 1999.
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. In the year ended December 31,
1999, additional payments earned totalled (pound)140,000 ($227,000).
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 was a revolver of
One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000), which was
never used. 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.
17
<PAGE>
Reinhold Industries, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D)
On April 16, 1999, the Company repaid the outstanding loan with the CIT Group
Credit/Finance through a refinancing with Bank of America National Trust and
Savings Association ("B of A") and cancelled the revolver. The new credit
facility with B of A is a term loan in the amount of $1,861,478 payable in 48
equal monthly principal installments of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets.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.
CHANGE IN CONTROL On May 21, 1999, pursuant to a Stock Purchase Agreement dated
May 18, 1999, between Keene Creditors' Trust, the holder of all of the
outstanding shares of the Class B Common Stock of the Company and Reinhold
Enterprises, Inc., a newly formed Indiana corporation ("REI"), the Creditors'
Trust sold 997,475 shares of Class B Common Stock owned by it to certain
purchasers designated by REI (the "Purchasers"). These shares represent
approximately 49.9% of the outstanding common stock of the Company. Pursuant to
the Company's Certificate of Incorporation, upon consummation of the sale of the
shares to the Purchasers, all of the 1,020,000 outstanding shares of Class B
Common Stock (including those retained by the Creditors' Trust) were
automatically converted into 1,020,000 shares of Class A Common Stock, and at
the next meeting of the stockholders of the Company called for that purpose, the
holders of the Class A Common Stock, voting as a class, will be entitled to
elect all of the directors of the Company. Prior to the sale, the Creditors'
Trust, as the holder of all of the Class B Common Stock, was entitled to elect
two directors, and the holders of the Class A Common Stock were entitled to
elect one director. In connection with the Stock Purchase Agreement, the amount
of authorized Class A Common Stock changed from 1,480,000 shares to 2,500,000
shares.
The sale of shares to the Purchasers constitutes an "ownership shift" within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended. Section
382 limits the utilization of net operating loss carryforwards upon certain
accumulations of stock of corporate issuers. Additional purchases of shares by
the Purchasers prior to May 22, 2002, or purchases of shares by other
shareholders that result in those shareholders owning more than 5% of the
outstanding Common Stock of the Company prior to May 22, 2002, may result in
significant limitations on the Company's ability to utilize its net operating
loss carryforwards to offset its future income for federal income tax purposes.
The stock purchase agreement provided that it was a condition to the closing of
the sale of the shares that Lawrence H. Diamond and Robert B. Steinberg, the
members of the Board of Directors elected by the Creditors' Trust (as the sole
holder of Class B Common Stock), resign as directors. Messrs. Diamond and
Steinberg resigned as directors on May 21, 1999. On June 3, 1999, Ralph R.
Whitney, Jr. and Andrew McNally IV were appointed by the remaining director,
Michael T. Furry, as successor directors. The Board of Directors of the Company
now consists of: Michael T. Furry, Ralph R. Whitney, Jr., and Andrew McNally IV.
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 June 15,
2000. 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.
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 identified
and remediated or replaced any other computer systems and software that may not
function correctly in the year 2000. Additionally, the Company planned a program
of communications with its significant suppliers, customers and affiliated
companies to determine the readiness of these third parties and the impact on
the Company as a consequence of their own year 2000 issues. The Company's manual
assessment of the impact of the year 2000 date change was completed by December
31, 1999. The Company was able to identify, and, modify or replace such systems
and software before any year 2000 associated problems. The Company has not
experienced any significant Year 2000 issues to date.
Due to the way the leap year occurs, the company believes that February 29, 2000
is the only remaining significant date on which potential Year 2000 issues could
arise.
18
<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, 1999 and 1998
and the related consolidated statements of earnings, stockholders' equity and
comprehensive income 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, 1999 and 1998 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
February 16, 2000, except for Note 12
which is as of March 9, 2000
19
<PAGE>
Reinhold Industries, Inc. and Subsidiary
This page left blank
20
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
(Amounts in thousands, except for per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $39,140 25,996
Cost of sales 28,357 19,493
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 10,783 6,503
Selling, general and administrative expenses 5,079 4,307
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 5,704 2,196
Interest income (expense), net 100 (17)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,804 2,179
Income taxes 763 41
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,041 2,138
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 2.52 1.07
Diluted $ 2.51 1.07
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 1,999 1,999
Diluted 2,006 1,999
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
21
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Amounts in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,419 3,622
Accounts receivable (less allowance for doubtful accounts of $60
and $287, respectively) 4,077 4,869
Inventories 4,085 4,385
Prepaid expenses and other current assets 1,157 928
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 18,738 13,804
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost 10,436 9,532
Less accumulated depreciation and amortization 4,710 4,056
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 5,726 5,476
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets, less applicable amortization 770 935
- ------------------------------------------------------------------------------------------------------------------------------------
$25,234 20,215
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,825 2,976
Accrued expenses 4,719 1,413
Current installments of long term debt 503 454
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,047 4,843
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term pension liability - 2,290
Long-term debt, less current installments 1,125 1,550
Other long-term liabilities 204 1,834
Stockholders' equity:
Preferred stock - Authorized: 5,000,000 shares
Issued and outstanding: None - -
Common stock, $0.01 par value:
Class A - Authorized: 45,000,000 shares.
Issued and outstanding: 1,998,956 and 978,956 shares, respectively. 20 10
Class B - Authorized, issued and outstanding: 1,020,000 shares
at December 31, 1998 - 10
Additional paid-in capital 7,791 7,791
Retained earnings 9,227 4,186
Accumulated other comprehensive loss (180) (2,299)
- ------------------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 16,858 9,698
- ------------------------------------------------------------------------------------------------------------------------------------
$25,234 20,215
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
22
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $5,041 2,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,028 899
Accounts receivable, net 792 (359)
Inventories 300 (178)
Prepaid expenses and other current assets (229) (143)
Other assets - 32
Accounts payable (1,151) 1,007
Accrued expenses 3,306 (18)
Other, net (1,711) (266)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,376 3,112
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Maturity of marketable securities - 750
Acquisitions and deferred consideration (227) (3,707)
Capital expenditures (924) (956)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,151) (3,913)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt - 2,268
Repayment of long term debt (376) (264)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (376) 2,004
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivilents (52) -
Net increase in cash and cash equivalents 5,797 1,203
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 3,622 2,419
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $9,419 3,622
- ------------------------------------------------------------------------------------------------------------------------------------
Supplementary disclosures of cash flow information - Cash paid during the year
for:
Income taxes - 38
Interest $ 158 137
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
23
<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
----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Class A Class B
Shares Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income - - - -
Decrease in additional pension liability in excess of
unrecognized prior service cost - - - -
Conversion of Class B shares to Class A shares (Note 1) 1,020,000 10 (1,020,000) (10)
Foreign currency translation adjustment - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 - 1,998,956 $20 - -
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
24
<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> <C>
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
- 5,041 - 5,041 5,041
- - 2,249 2,249 2,249
- - (130) (130) (130)
- ------------------------------------------------------------------------------------------------------------------------------------
7,160
- ------------------------------------------------------------------------------------------------------------------------------------
$7,791 $9,227 $(180) $16,858
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Reinhold Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
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).
On May 21, 1999, pursuant to a Stock Purchase Agreement, dated May 18, 1999,
between the Creditors' Trust, the holder of all of the outstanding shares of the
Class B Common Stock of the Company and Reinhold Enterprises, Inc., a newly
formed Indiana corporation ("REI"), the Creditors' Trust sold 997,475 shares of
Class B Common Stock owned by it to certain purchasers designated by REI (the
"Purchasers"). These shares represent approximately 49.9% of the outstanding
common stock of the Company. Pursuant to the Company's Certificate of
Incorporation, upon consummation of the sale of the shares to the Purchasers,
all of the 1,020,000 outstanding shares of Class B Common Stock (including those
retained by the Creditors' Trust) were automatically converted into 1,020,000
shares of Class A Common Stock. In connection with the Stock PurchaseAgreement,
the amount of authorized Class A Common Stock changed from 1,480,000 shares to
2,500,000 shares.
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, 1999 and 1998, 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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash in banks $ 707 722
Money market funds 8,712 2,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 9,419 3,622
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1999 and 1998 were $1,065,000 and $889,000,
respectively.
26
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Undeveloped land - $ 900 900
Buildings 10 years 848 352
Leasehold improvements 5-6 years 838 838
Machinery and equipment 5-25 years 7,178 6,763
Furniture and fixtures 3-10 years 672 674
Construction in process - - 5
- ------------------------------------------------------------------------------------------------------------------------------------
10,436 9,532
Less accumulated depreciation and amortization 4,710 4,056
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,726 5,476
- ------------------------------------------------------------------------------------------------------------------------------------
</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 earnings.
Maintenance and repairs are expensed as incurred. Renewals and betterments are
capitalized.
The undeveloped land aggregating $900,000 is held for sale by the Company.
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 10 years. Goodwill and related
accumulated amortization included in other assets at December 31, 1999 and 1998
amounted to $1,118,000 and $485,000, and $1,118,000 and $369,000, 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.
In the year ended December 31, 1999, additional payments earned totalled
(pound)140,000 ($227,000).
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.
The excess of the fair value of the net identifiable assets acquired over the
purchase price has been allocated to fixed assets as follows (in thousands):
Working capital $ 3,360
Severance costs (403)
- --------------------------------------------------------------------------------
Net identifiable assets 2,957
- --------------------------------------------------------------------------------
Purchase price 3,707
Deferred consideration 227
- --------------------------------------------------------------------------------
Allocated to property, plant and equipment $ 977
- --------------------------------------------------------------------------------
27
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
The pro forma unaudited results of operations for the year ended December 31,
1998, assuming consummation of the purchase as of January 1, 1998 are as follows
(in thousands, except earnings per share data):
Year ended
December 31, 1998
- --------------------------------------------------------------------------------
Net sales $30,918
Net income $ 2,270
Basic and diluted earnings per share $ 1.14
INCOME TAXES The Company accounts for income taxes under the asset and liability
method whereby 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. 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 COMMON SHARE The Company presents basic and diluted earnings per
share ("EPS"). Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
securities that could share in the earnings of the Company.
<TABLE>
<CAPTION>
The reconciliations of basic and diluted weighted average shares are as follows:
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $5,041 2,138
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares used in basic computation 1,999 1,999
Dilutive stock options 7 -
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares used for diluted calculation 2,006 1,999
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 and Comprehensive Income 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 The Company accounts for its stock-based compensation in
accordance with the provisions of SFAS No. 123 "Accounting For Stock-Based
Compensation". Under the provisions of SFAS No. 123, 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.
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.
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.
28
<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 at amortized cost. As part of an ongoing review of the valuation and
amortization of long-lived assets, management assesses the carrying value of
such assets, if facts and circumstances suggest that they may be impaired.
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, 1999 and 1998, 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, prepaid
expenses and other current assets, other assets, accounts payable, accrued
expenses and current installments of long term debt. The long term debt bears
interest at a variable market rate, and thus has a carrying amount that
approximates fair value.
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 statements of earnings are translated at the average exchange rate
in effect for the year ended Dember 31, 1999 and 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, 1999 and 1998 was $1.62 and $1.66, respectively
for both the balance sheet and consolidated statement of earnings.
RECLASSIFICATIONS Certain amounts in the prior period consolidated financial
statements have been reclassified to conform with the current year presentation.
3 INCOME TAXES
<TABLE>
<CAPTION>
The income tax provision consists of (in thousands):
Year ended Year ended
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal $ 76 35
State 37 3
Foreign 650 3
- ------------------------------------------------------------------------------------------------------------------------------------
Total $763 41
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The income tax expense for the years ended December 31, 1999 and 1998 was
$763,000 and $41,000, 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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taxes at statutory Federal rate $ 1,269 601
State taxes, net of Federal tax benefits 222 52
Foreign taxes on UK operations 650 3
Non-deductible expenses 55 (247)
Change in beginning balance of valuation allowance (1,471) (403)
Other 38 35
- ------------------------------------------------------------------------------------------------------------------------------------
Total provision for income tax expense $ 763 41
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax benefit $ 1,471 403
Change in valuation allowance for deferred tax asset (1,471) (403)
- ------------------------------------------------------------------------------------------------------------------------------------
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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Adjustments from quasi-reorganization $ 595 595
Net operating loss carryforwards 11,222 12,305
Inventory reserves 225 240
Other reserves 769 996
- ------------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 12,811 14,136
Less valuation allowance (11,809) (13,388)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 1,002 748
Deferred tax liabilities:
Pension (476) (268)
Depreciation (526) (480)
- ------------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (1,002) (748)
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, 1999.
At December 31, 1999 and 1998, the Company had generated net operating loss
carryovers for Federal income tax purposes of approximately $32,089,000 and
$34,857,000, respectively. At December 31, 1999, the Company has also generated
net operating loss carryovers for State income tax purposes of approximately
$6,179,000. 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.
30
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
4 LONG TERM DEBT
On April 22, 1998, the Company borrowed $2,268,000 from The CIT Group
Credit/Finance (CIT) to fund a portion of the purchase consideration due to
Courtaulds Aerospace. The Company had previously entered into a Five Year Loan
and Security Agreement with CIT in the amount of Four Million Dollars
($4,000,000). The term portion of the loan ($2,268,000) was payable in equal
monthly principal payments of $37,800 plus interest at prime plus 1.75% and was
secured by fixed assets and land. The remainder of the CIT credit facility was a
revolver of One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000),
which had never been used.
On April 16, 1999, the Company repaid the outstanding loan with the CIT Group
Credit/Finance through a refinancing with Bank of America National Trust and
Savings Association ("B of A") and cancelled the revolver. The new credit
facility with B of A is a term loan in the amount of $1,861,478 payable in 48
equal monthly principal installments of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets. The B of A term
loan contains various covenants to which the Company must adhere. At December
31, 1999, the Company was in compliance with the covenants.
At December 31, 1999, maturities of long term debt were as follows (in
thousands):
2000 $ 503
2001 465
2002 465
2003 195
- --------------------------------------------------------------------------------
$1,628
- --------------------------------------------------------------------------------
5 STOCKHOLDERS' EQUITY
Capital stock consists of 45,000,000 and 2,500,000 authorized common shares,
$0.01 par value per share, of which 1,998,956 and 978,956 of Class A were issued
and outstanding at December 31, 1999 and 1998, respectively, and 1,020,000
shares of Class B were outstanding at December 31, 1998. There were 5,000,000
preferred shares authorized at December 31, 1999, however, none were issued or
outstanding.
6 STOCK OPTIONS
STOCK INCENTIVE PLAN On July 31, 1996, the Company established the Reinhold
Stock Incentive Plan for key employees. The Reinhold Stock Incentive Plan
permits the grant of stock options, stock appreciation rights and restricted
stock. The total number of shares of stock subject to issuance under the
Reinhold Stock Incentive Plan may not exceed 100,000. The maximum number of
shares of stock with respect to which options or stock appreciation rights may
be granted to any eligible employee during the term of the Reinhold Stock
Incentive Plan may not exceed 10,000. The shares to be delivered under the
Reinhold Stock Incentive Plan may consist of authorized but unissued stock or
treasury stock, not reserved for any other purpose.
On June 3, 1999, the Compensation Committee of the Board of Directors granted
73,000 stock options to key employees at an option price of $8.25 per share, the
prevailing market rate on that date. The options shall not be exercisable in
whole or in part until three years after the grant date and are exercisable up
to ten years from the grant date.
On June 3, 1999, the Board of Directors approved and adopted the Reinhold
Industries, Inc. Stock Option Agreement by and between the Company and Michael
T. Furry, granting Mr. Furry the option, effective June 3, 1999, to acquire up
to 90,000 shares of Class A common stock of the Company at fair market value at
that date ($8.25 per share). Terms of theAgreement are equivalent to those in
the Reinhold Stock Incentive Plan.
31
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and the related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options approximates the fair value of the underlying stock on the date of
grant, no compensation expense is recognized. Pro forma information regarding
net income and earnings per share is required by SFAS No. 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using the Black-Scholes Option Pricing Model with
the following weighted-average assumptions for 1999:
- --------------------------------------------------------------------------------
Risk free interest rate 6.5%
- --------------------------------------------------------------------------------
Dividend yield -
- --------------------------------------------------------------------------------
Volitility factor 70%
- --------------------------------------------------------------------------------
Weighted average life (years) 4.1
Using the Black-Scholes Option Pricing Model, the estimated weighted-average
grant date fair value of options granted in 1999 was $4.86. The pro forma net
income assuming the amortization of the estimated fair values over the option
vesting period and diluted earnings per common share, had the fair value method
of accounting for stock options been used, would have been as follows (in
thousand, except per share data):
- --------------------------------------------------------------------------------
Pro forma net income $4,888
- --------------------------------------------------------------------------------
Pro forma earnings per share:
Basic $2.45
Diluted $2.44
- --------------------------------------------------------------------------------
The Black-Scholes Option Pricing Model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different than those
of traded options, and because changes in the assumptions can materially affect
the fair value estimate, in management's opinion, the existing models may not
necessarily provide a reliable single measure of the fair value of its employee
stock options. A summary of the status of the option plans as of and for the
changes during the year ended December 31, 1999 is presented below:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of shares Low High Weighted average
exercise price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1998 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Granted in 1999 169,000 $8.25 $11.25 $8.35
Forfeited during 1999 6,000 $8.25 $ 8.25 $8.25
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding December 31, 1999 163,000 $8.25 $11.25 $8.35
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, the weighted average remaining contractual life of options
outstanding is 9.4 years. No options are currently exercisable.
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.
<TABLE>
<CAPTION>
Net pension cost included the following (in thousands):
Year Ended Year Ended
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 142 113
Interest cost on benefits earned in prior years 800 839
Expected return on assets (921) (972)
Amortization of net obligation at transition 25 20
Amortization of net loss 129 6
- ------------------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 175 6
</TABLE>
32
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's benefit
obligation at December 31, 1999 and 1998 (in thousands):
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at beginning of period $12,699 11,812
Service cost 142 137
Interest cost 800 1,051
Actuarial loss/(gain) (649) 1,049
Benefits paid (1,105) (1,350)
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of period $11,887 12,699
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's assets at
December 31, 1999 and 1998 (in thousands):
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets at beginning of period $10,755 11,432
Actual return on assets 1,685 345
Employer contributions 479 328
Benefits paid (1,105) (1,350)
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period $11,814 10,755
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth a reconciliation of the pension plan's funded
status at December 31, 1999 and 1998 (in thousands):
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at end of period $11,887 12,699
Fair value of plan assets at end of period 11,814 10,755
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status (73) (1,944)
Unrecognized prior service cost (4) 1
Unrecognized net obligation at transition 20 40
Unrecognized net loss 1,020 2,562
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost at end of period $ 963 659
- ------------------------------------------------------------------------------------------------------------------------------------
Intangible asset at December 31, $ - 41
Additional minimum liability at December 31, - (2,290)
- ------------------------------------------------------------------------------------------------------------------------------------
Additional pension liability in excess of
prior service cost at December 31, $ - (2,249)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions used in accounting for the pension plan were:
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.25% 6.5%
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.
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. The United
Kingdom includes NP Aerospace, our subsidiary located in Coventry, England, and
produces products for law enforcement, lighting, military, automotive and
commercial aircraft.
33
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
<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, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
Aerospace $ 5,863 6,165
CompositAir 15,955 11,214
Commercial 2,433 1,978
NP Aerospace 14,889 6,639
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 39,140 25,996
Income before income taxes
Aerospace $ 1,241 1,587
CompositAir 2,088 94
Commercial 287 72
NP Aerospace 2,536 747
Unallocated corporate expenses (348) (321)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income before income taxes $ 5,804 2,179
Depreciation and amortization
Aerospace $ 356 369
CompositAir 272 220
Commercial 155 150
NP Aerospace 163 64
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated corporate 82 96
Total depreciation and amortization $ 1,028 899
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures
Aerospace $ 117 63
CompositAir 540 458
Commercial 52 132
NP Aerospace 215 303
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 924 956
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets
Aerospace $ 4,735 4,869
CompositAir 3,469 3,419
Commercial 1,024 1,144
NP Aerospace 9,455 8,015
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated corporate 6,551 2,768
Total assets $ 25,234 20,215
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The table below presents information related to geographic areas in which
Reinhold operated in 1999 and 1998 (in thousands):
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
United States $18,662 14,920
United Kingdom 14,188 8,579
Botswana 1,942 -
Germany 1,916 1,797
Northern Ireland 1,557 -
Other Europe 875 700
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $39,140 25,996
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Reinhold Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont'd)
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 $514,000 and $509,000 for 1999 and 1998, respectively.
Minimum future rental commitments under noncancelable operating leases at
December 31, 1999 are as follows (in thousands):
2000 $ 284
2001 133
2002 60
2003 4
- --------------------------------------------------------------------------------
$ 481
- --------------------------------------------------------------------------------
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
The Company's principal customers are prime contractors to the U.S. Government,
other foreign governments and aircraft seat manufacturers.
Sales to each customer that exceed 10% of total net sales for the periods
presented were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
B/E Aerospace $13,405 8,687
United Kingdom Ministry of Defense 6,356 *
Alliant Techsystems * 3,077
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Sales to these customers were less than 10% of total net sales for the period.
</FN>
</TABLE>
B/E Aerospace accounted for approximately 40% of the Company's accounts
receivable balance at December 31, 1999 before any adjustments for the allowance
for doubtful accounts. No other customer exceeded 10% of the Company's gross
accounts receivable balance. The Company estimates an allowance for doubtful
accounts based on the creditworthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts.
11 RELATED PARTY TRANSACTIONS On June 3, 1999, Reinhold entered into a two year
agreement with Hammond, Kennedy, Whitney and Company ("HKW"), a private equity
firm, to provide Reinhold and its subsidiaries with advise regarding strategic
direction and merger and acquisition activities, including identifying potential
acquisition candidates, for a fee of $20,000 per month. The agreement is
automatically renewed thereafter for successive one year periods, unless
termination notification is provided by either party within 120 days of the
renewal date. Mssrs. Ralph R. Whitney, Jr. and Andrew McNally, IV, both members
of the Board of Directors of Reinhold, are principals of HKW. Additionally, the
Company pays a monthly legal retainer of $4,000 to Mr. Glenn Scolnick, also a
principal of HKW.
12 SUBSEQUENT EVENT On March 9, 2000, Samuel Bingham Enterprises, Inc., a
newly-formed wholly-owned subsidiary of Reinhold Industries, Inc., purchased
certain assets and assumed certain liabilities of Samuel Bingham Company for
$15.5 million in cash. A majority of the purchase price was financed through a
five-year term loan with the Bank of America for $11.0 million with the balance
being paid from cash on hand. Samuel Bingham Company is a manufacturer and
supplier of graphic arts and industrial rollers for a variety of applications.
35
<PAGE>
BOARD OF DIRECTORS
Ralph R. Whitney, Jr.
Chairman of The Board
Chairman
Hammond, Kennedy, Whitney & Company
Michael T. Furry
President and CEO
Reinhold Industries, Inc.
Andrew McNally, IV
Managing Director
Hammond, Kennedy, Whitney & Company
CORPORATE OFFICERS
Michael T. Furry
President and CEO
Brett R. Meinsen
Vice President - Finance and
Administration, Treasurer
and Secretary
CORPORATE OFFICES
12827 East Imperial Highway
Santa Fe Springs, CA 90670
562 944-3281
562 944-7238 (fax)
INVESTOR RELATIONS
Contact Judy Sanson
Reinhold Industries, Inc.
REGISTRAR
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004
ANNUAL MEETING
The Annual Stockholders' Meeting will be held at the offices of Reinhold
Industries, Inc. 12827 East Imperial Hwy Santa Fe Springs, CA on May 10, 2000 at
10:00 a.m.
FORM 10-KSB
Stockholders may obtain a copy of Reinhold's 10-KSB without charge by writing to
Investor Relations Department
TRANSFER AGENT
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004
212 509-4000
INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071
ATTORNEYS
Petillon & Hansen
1260 Union Bank Tower
21515 Hawthorne Boulevard
Torrance, California 90503
Wapnick & Alvarado
11268 W. Washington Blvd.
Suite 200
Culver City, CA 90230
STOCK LISTING
Reinhold common stock is listed on the OTC Bulletin Board Symbol - RNHDA
STOCKHOLDER INFORMATION
Market Price High Low
- --------------------------------------------------------------------------------
First Quarter ended March 31, 1999 8 1/8 6 3/4
Second Quarter ended June 30, 1999 9 1/4 6 3/4
Third Quarter ended September 30, 1999 12 8
Fourth Quarter ended December 31, 1999 13 1/8 9 1/4
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, 1999.
36
<PAGE>
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<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 on Form 10-KSB of Reinhold Industries,
Inc. of our report dated February 16, 2000, except for Note 12, which is as of
March 9, 2000, relating to the consolidated balance sheets of Reinhold
Industries, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income and cash flows for the years ended December 31, 1999 and 1998 which
reports appears in the December 31, 1999 Annual Report on Form 10-KSB of
Reinhold Industries, Inc..
/S/ KPMG LLP
Los Angeles, California
March 27, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheet and statement of earnings found on pages 21 and 22 of Reinhold's
1999 Annual Report to Stockholders, which is incorporated herein by reference.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,419
<SECURITIES> 0
<RECEIVABLES> 4,137
<ALLOWANCES> 60
<INVENTORY> 4,085
<CURRENT-ASSETS> 18,738
<PP&E> 10,436
<DEPRECIATION> 4,710
<TOTAL-ASSETS> 25,234
<CURRENT-LIABILITIES> 7,047
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 16,838
<TOTAL-LIABILITY-AND-EQUITY> 25,234
<SALES> 39,140
<TOTAL-REVENUES> 39,140
<CGS> 28,357
<TOTAL-COSTS> 5,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (100)
<INCOME-PRETAX> 5,804
<INCOME-TAX> 763
<INCOME-CONTINUING> 5,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,041
<EPS-BASIC> 2.52
<EPS-DILUTED> 2.51
</TABLE>
