U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission file number: 0-18434
REINHOLD INDUSTRIES, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in charter)
Delaware 13-2596288
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12827 East Imperial Hwy, Santa Fe Springs, CA 90670
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (562) 944-3281
---------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to distribution of securities under a plan confirmed by the Court.
YES [ X ] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class A Common Stock, Par Value $.01 - 2,198,058 shares as of August 8, 2000.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION 20
SIGNATURES 22
EXHIBITS 23
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $13,902 $ 9,574
Cost of goods sold 9,558 6,944
----- -----
Gross profit 4,344 2,630
Selling, general and administrative expenses 2,657 1,124
------ ------
Operating income 1,687 1,506
Interest expense (income), net 170 (30)
------- -------
Income before income taxes 1,517 1,536
Income taxes 146 173
------ -------
Net income $ 1,371 $ 1,363
====== =====
Earnings per share - basic $ 0.62 $ 0.62
Earnings per share - diluted $ 0.61 $ 0.62
Weighted average common shares
outstanding - basic 2,198 2,198
Weighted average common shares
outstanding - diluted 2,230 2,198
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $23,503 $18,262
Cost of goods sold 16,422 13,460
------ ------
Gross profit 7,081 4,802
Selling, general and administrative expenses 4,095 2,049
------ ------
Operating income 2,986 2,753
Interest expense (income), net 175 (20)
------ -------
Income before income taxes 2,811 2,773
Income taxes 332 301
------ -------
Net income $ 2,479 $ 2,472
====== ======
Earnings per share - basic $ 1.13 $ 1.12
Earnings per share - diluted $ 1.11 $ 1.12
Weighted average common shares
outstanding - basic 2,198 2,198
Weighted average common shares
outstanding - diluted 2,230 2,198
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,044 $ 9,419
Accounts receivable 7,102 4,077
Inventories 5,637 4,085
Other current assets 2,238 1,157
------- -------
Total current assets 21,021 18,738
Property, plant and equipment, net 10,103 5,726
Cost in excess of fair value of net assets of
acquired companies - net 7,754 633
Other assets 381 137
------- --------
$ 39,259 $ 25,234
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - long term debt $ 1,403 $ 503
Accounts payable 2,765 1,825
Accrued expenses 5,091 4,719
------ ------
Total current liabilities 9,259 7,047
Long term debt - less current portion 10,954 1,125
Other long term liabilities 197 204
Stockholders' equity:
Preferred stock
Authorized: 5,000,000 shares
Issued and outstanding: None - -
Common stock
Class A - Authorized: 45,000,000 share
Issued and outstanding: 1,998,956 shares 20 20
Additional paid-in capital 7,791 7,791
Retained earnings 11,706 9,227
Accumulated comprehensive loss (668) (180)
------ ------
Net stockholders' equity 18,849 16,858
------ ------
$ 39,259 $ 25,234
====== ======
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Six months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,479 $ 2,472
Adjustments to reconcile net income to net
cash provided by operating activities (net of effects
of acquisition):
Depreciation and amortization 696 515
Foreign currency translation (488) (350)
Changes in assets and liabilities:
Accounts receivable 427 (686)
Inventories 188 (948)
Other current assets (465) 28
Accounts payable (617) 845
Accrued expenses (174) 1,311
Other, net ( 6) (34)
------ --------
Net cash provided by operating activities 2,040 3,153
------ --------
Cash flow from investing activities:
Acquisitions (15,705) -
Capital expenditures (439) (491)
-------- --------
Net cash (used in) investing activities (16,144) (491)
-------- --------
Cash flow from financing activities:
Proceeds from long-term debt 11,000 -
Repayment of long term debt (271) (231)
------- -------
Net cash provided by (used in) financing activities 10,729 (231)
------- -------
Net increase (decrease) in cash and cash equivalents (3,375) 2,431
Cash and cash equivalents, beginning of period 9,419 3,622
------- -------
Cash and cash equivalents, end of period $ 6,044 $ 6,053
======= =======
Cash paid during period for:
Income taxes $ 122 $ -
Interest $ 68 $ 88
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
DESCRIPTION OF BUSINESS
Reinhold Industries, Inc. and subsidiaries ("Reinhold" or the "Company")
is a manufacturer of advanced custom composite components, sheet molding
compounds, and graphic arts and industrial rollers for a variety of applications
in the United States and Europe. Reinhold derives revenues from the defense
contract industry, the aircraft industry, the printing industry and other
commercial industries.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements are
those of Reinhold as of June 30, 2000 and December 31, 1999 and for the three
and six months ended June 30, 2000 and 1999. The unaudited condensed
consolidated financial statements have been prepared by the Company as
contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation S-X and do not contain certain information that will be included in
the Company's annual financial statements and notes thereto. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all material adjustments and disclosures necessary for a fair
presentation have been made. Certain prior year amounts have been reclassified
to conform to 2000 presentation. The results of operations for the three and six
months ended June 30, 2000 are not necessarily indicative of the operating
results for the full year. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the annual report and
notes thereto for the year ended December 31, 1999, included in the Company's
Form 10-KSB filed with the Securities and Exchange Commission on March 27, 2000.
ACQUIRED BUSINESSES
On March 9, 2000, Reinhold Industries, Inc. (the "Company"), through its
wholly-owned subsidiary, Samuel Bingham Enterprises, Inc., an Indiana
corporation, purchased substantially all of the assets, including real, personal
and intellectual properties, and assumed certain liabilities of Samuel Bingham
Company, an industrial and graphic arts roller manufacturing and supplying
business, headquartered in Bloomingdale, Illinois ("Bingham").
The purchase price paid was $15,505,317, subject to final adjustment. The cost
in excess of fair value of net assets is being amortized over forty years. A
source of funds for the purchase price was a five-year term loan with the Bank
of America for Eleven Million Dollars ($11,000,000) with the balance being paid
from cash on hand.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
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 are capitalized as part of the purchase
price and amounted to $227,000 in 1999.
The acquisitions of Samuel Bingham Company and NP Aerospace have been
accounted for by the purchase method and, accordingly, the results of operations
have been included in the consolidated financial statements from the date of
acquisition.
The excess of the fair value of the net identifiable assets acquired over the
purchase price has been allocated to fixed assets and goodwill as follows (in
thousands). The goodwill is being amortized over 40 years.
<TABLE>
<CAPTION>
Samuel Bingham
Company NP Aerospace
------- ------------
<S> <C> <C>
Working capital $3,705 $3,360
Fixed assets 4,561 -
Severance costs - (403)
------- ------
Net identifiable assets 8,266 2,957
Cash paid 15,505 3,707
Deferred consideration - 227
------- ------
Excess over cost allocated to:
Property, plant and equipment - $ 977
======
Goodwill $7,239 -
======
</TABLE>
The Company is presently gathering information to complete the allocation of the
purchase price to the net assets acquired. In addition, the management of
Reinhold has not concluded on plans related to plant closures or involuntary
employee terminations at SBC. As of June 30, 2000, no liability has been
recorded in the company's financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
The pro forma unaudited results of operations for the three months ended June
30, 1999 and six months ended June 30, 2000 and 1999, assuming consummation of
the purchase of Samuel Bingham Company as of January 1, 1999 are as follows (in
thousands, except earnings per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 2000 1999
---------- ------------- ---------
<S> <C> <C> <C>
Net sales $15,604 $27,829 $30,758
Net income $1,689 $2,847 $2,798
Earnings per share - basic $0.77 $1.30 $1.27
Earnings per share - diluted $0.77 $1.28 $1.27
</TABLE>
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.
Options to purchase 162,000 shares of common stock were outstanding during the
three month period ended June 30, 2000. For the three and six month period ended
June 30, 2000, the difference between the weighted average number of shares used
in the basic computation compared to that used in the diluted computation was
due to the dilutive impact of options to purchase common stock.
The reconciliations of basic and diluted weighted average shares are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net income $1,371,000 $1,363,000 $2,479,000 $ 2,472,000
========== ========== ========== ===========
Weighted average shares used
in basic computation 2,198,058 2,198,058 2,198,058 2,198,058
Dilutive effect of stock options 32,252 -- 32,392 --
--------- --------- ---------- ---------
Weighted average shares used
for diluted calculation 2,230,310 2,198,058 2,230,450 2,198,058
========= ========= ========= =========
Stock options outstanding 162,000 173,000 162,000 173,000
Range of exercise price $8.25-$11.00 $8.25-$11.00 $8.25-$11.00 $8.25-$11.00
</TABLE>
On May 10, 2000, the Board of Directors approved the distribution of a 10%
stock dividend to shareholders of record on July 11, 2000, where an additional
199,102 shared were issued on July 28, 2000. The earnings per share computations
for all periods presented have been adjusted for the stock dividend.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
REPORTING COMPREHENSIVE INCOME
The Company reports comprehensive income under Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". The
difference between net income and total comprehensive income during the six
months ended June 30, 2000 and 1999 was a loss on foreign currency translation
of $488,000 and $350,000, respectively.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
modifies the accounting for derivatives and hedging activities and is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. In June
1999, the Financial Accounting Standards Board issued SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
date of FASB Statement No. 133" which defers the effective date of SFAS No. 133
by one year. At this time, the Company does not expect the adoption of SFAS No.
133 to have a significant impact on its financial position or results of
operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", which is an interpretation of APB Opinion No. 25. Interpretation
No. 44 is effective July 1, 2000, but certain elements of interpretation apply
to events occurring after December 15, 1998 and January 12, 2000. Interpretation
No. 44 clarifies the application of APB Opinion No. 25 for certain issues,
including (a) the definition of employee for purposes of applying APB Opinion
No. 25, (b) the criteria for determining whether a stock option plan qualifies
as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of Interpretation No. 44 is not expected to have a
material impact on the Company's financial statements.
INCOME TAXES
Income taxes for interim periods are computed using the effective tax rate
estimated to be applicable for the full financial year, which is subject to
ongoing review and evaluation by management.
LONG TERM DEBT
On April 22, 1998, the Company borrowed $2,268,000 from The CIT Group
Credit/Finance ("CIT") to fund a portion of the purchase consideration due to
Courtaulds Aerospace. The Company had previously entered into a Five Year Loan
and Security Agreement with CIT in the amount of Four Million Dollars
($4,000,000). The term portion of the loan ($2,268,000) 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 not been used as of April 15, 1999.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
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.
On March 9, 2000, the Company borrowed $11,000,000 from B of A to fund a portion
of the purchase consideration due to Samuel Bingham Company. The principal
portion of the loan is payable in twenty successive quarterly installments
beginning June 30, 2000. Interest is payable quarterly at a rate which
approximates LIBOR plus 1.75% and is secured by all financial assets of the
Company. The loan agreement is subject to various financial covenants to which
the Company must comply. The Company is in compliance with the loan covenants at
6/30/00.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the following financial instruments approximate
fair value because of the short maturity of those instruments: cash and cash
equivalents, accounts receivable, other current assets, other assets, accounts
payable, accrued expenses and current installments of long term debt. The
long-term debt bears interest at a variable market rate, and thus has a carrying
amount that approximates fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY
The reporting currency of the Company is the United States dollar. The
functional currency of NP Aerospace is the UK pound sterling. For consolidation
purposes, the assets and liabilities of the Company's subsidiaries are
translated at the exchange rate in effect at the balance sheet date. The
consolidated statement of income is translated at the average exchange rate in
effect during the period being reported. Exchange differences arise mainly from
the valuation rates of the intercompany accounts and are taken directly to
Stockholders' equity.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
OPERATING SEGMENTS
The Company reports operating segment data under SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information".
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 five operating segments: Aerospace,
CompositAir, Commercial, NP Aerospace and Samuel Bingham Company ("SBC").
Management has determined these to be Reinhold's operating segments based upon
the nature of their products. Aerospace produces a variety of products for the
U.S. military and space programs. CompositAir produces components for the
commercial aircraft seating industry. The Commercial segment produces lighting
housings and pool filters. NP Aerospace, our subsidiary located in Coventry,
England, produces products for law enforcement, lighting, military, automotive
and commercial aircraft. SBC manufactures rubber and urethane rollers for
graphic arts and industrial applications.
The information in the following tables is derived directly from the
segment's internal financial reporting for corporate management purposes (in
thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
Aerospace $ 2,003 1,033 $ 3,552 2,280
CompositAir 2,244 3,550 4,255 6,556
Commercial 869 656 1,460 1,222
NP Aerospace 3,098 4,335 6,946 8,204
SBC 5,688 - 7,290 -
------------------------------------------------------------------------------------------------------------------------------------
Total sales 13,902 9,574 $ 23,503 18,262
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes
Aerospace 711 155 $ 1,078 511
CompositAir 329 898 597 1,445
Commercial 135 71 227 147
NP Aerospace 413 495 1,027 832
SBC 113 - 158 -
Unallocated corporate expenses (184) (83) (276) (162)
------------------------------------------------------------------------------------------------------------------------------------
Total income before income taxes 1,517 1,536 2,811 2,773
------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization
Aerospace 107 113 210 222
CompositAir 68 69 136 133
Commercial 39 39 77 78
NP Aerospace 41 41 84 82
SBC 141 - 189 -
------------------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization 396 262 696 515
Capital expenditures
Aerospace 80 12 120 64
CompositAir - 91 - 270
Commercial - - (7) 31
NP Aerospace 146 102 175 126
SBC 122 - 151 -
------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 348 205 439 491
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (cont'd)
The information in the following tables is derived directly from the
segment's internal financial reporting for corporate management purposes (in
thousands).
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets
Aerospace $ 4,915 4,735
CompositAir 3,091 3,469
Commercial 1,123 1,024
NP Aerospace 9,672 9,455
SBC 18,377 -
Unallocated corporate 2,081 6,551
------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 39,259 25,234
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table below presents information related to geographic areas in which
Reinhold operated in 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
United States $ 9,524 4,280 $ 14,910 9,036
United Kingdom 2,635 4,207 6,068 7,935
Germany 424 934 532 969
Switzerland 671 244 985 244
Canada 432 - 637 -
Other 216 (91) 371 78
------------------------------------------------------------------------------------------------------------------------------------
Total sales 13,902 9,574 $ 23,503 18,262
</TABLE>
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
June 30, 2000
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Item 1 of this
filing, the financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
Reinhold Industries, Inc. and subsidiaries ("Reinhold" or the "Company")
is a manufacturer of advanced custom composite components, sheet molding
compounds, and graphic arts and industrial rollers for a variety of applications
in the United States and Europe. Reinhold derives revenues from the defense
contract industry, the aircraft industry, the printing industry and other
commercial industries.
Comparison of Second Quarter 2000 to 1999
In the second quarter of 2000, net sales increased $4.3 million, or 45.2%,
to $13.9 million, compared to second quarter 1999 sales of $9.6 million. The
acquisition of Samuel Bingham company ("SBC") on March 9, 2000 added $5.7
million to second quarter 2000 sales. Sales decreased by $1.3 million (58.1%) at
CompositAir due to the ongoing commercial difficulties at our main customer, B/E
Aerospace. Sales increased $1.0 million in the Aerospace business unit due to
increased shipments of missile components and rocket nozzles. Sales at NP
Aerospace decreased by $1.2 million due to lower seatback ($0.9 million) and
armored vehicle ($0.6 million) shipments. Sales in the Commercial business unit
were $0.2 higher due to increased tooling shipments.
Excluding the impact of the SBC acquisition, gross profit margin increased
to 32.9% in the second quarter of 2000 compared to 27.5% in the second quarter
1999. This was primarily due to higher sales in the Aerospace business unit, and
the increased absorption of fixed overhead costs, lower material costs at
CompositAir and lower scrap and other inventory related losses at NP Aerospace.
Selling, general and administrative expenses for the second quarter 2000
were $2.7 million (19.1% of sales) compared to $1.1 million (11.7% of sales) for
the same quarter of 1999. SBC accounted for $1.3 of the increased cost.
Acquisition advisory fees and NASDAQ national market application costs increased
by $0.1 during the quarter.
Interest expense in the second quarter of 2000 was $0.2 million compared
to interest expense of $0.04 million in the second quarter of 1999 due to the
SBC acquisition loan. Interest income for the quarter was unchanged at $0.07
million.
<PAGE>
Management's Discussion and Analysis (cont'd)
Income before income taxes was unchanged at $1.5 million (10.9% of sales)
in the second quarter of 2000 vs. $1.5 million (16.0% of sales) in the same
period of 1999. Income before income taxes at NP Aerospace was $0.5 million
(17.3% of sales) in 2000 compared to $0.5 million (11.3% of sales) in 1999 due
to lower scrap and other inventory related losses. Income before income taxes
for CompositAir was $0.2 million (9.3% of sales) in 2000 compared with $0.9
million (25.3% of sales) in 1999 due to substantially lower revenues. Income
before income taxes for Aerospace was $0.7 million (35.5% of sales) in 2000
compared with $0.2 million (15.0% of sales) in 1999 due to higher revenues.
Income before income taxes at SBC was $0.1 million (2.0% of sales).
A tax provision of $0.1 million was recorded in the second quarter of
2000. The effective tax rate for the United Kingdom is approximately 30%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. In determining the recognition of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets not utilized in 2000 is dependent upon the
generation of future taxable income during the periods in which the net
operating losses are deductible. Management considers the projected future
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
Comparison of First Six Months 2000 to 1999
In the first six months of 2000, sales increased $5.2 million, or 29%, to
$23.5 million, compared to the first six months 1999 sales of $18.3 million.
Sales increased by $7.3 million at SBC, due to the acquisition date of March
2000. CompositAir sales were lower by $2.3 million (35.1%) due to the ongoing
commercial difficulties at our main customer, B/E Aerospace. Sales at NP
Aerospace decreased by $1.3 million due to lower seatback ($1.0 million) and
armored vehicle ($0.6 million) shipments offset by higher helmet and commercial
sales. Sales increased $1.3 million in the Aerospace business unit due to
increased shipments of missile components and rocket nozzles. Sales in the
Commercial business unit were $0.2 higher due to increased tooling shipments.
Gross profit margin increased to 30.1% in the first six months of 2000
compared to 26.3% in the first six months of 1999 primarily due to higher
Aerospace sales and the elimination of scrap and other inventory related losses
at NP Aerospace. Gross profit margin for Aerospace increased to 42.7% in 2000
from 34.9% in 1999. Gross profit margin for CompositAir decreased to 30.6% in
2000 from 31.2% in 1999.Gross profit margin for Commercial increased to 28.1% in
2000 from 24.2% in 1999. Gross profit margin for NP Aerospace increased to 26.1%
in 2000 from 20.3% in 1999. Gross profit margin for SBC was 28.0%.
Selling, general and administrative expenses for the first six months of
2000 were $4.1 million (17.4% of sales) compared to $2.1 million (11.2% of
sales) for the first six months of 1999. SBC accounted for $1.6 of the increased
cost. Acquisition advisory fees were $0.1 million higher than 1999.
<PAGE>
Management's Discussion and Analysis (cont'd)
Interest expense for the first six months of 2000 was $0.3 million
compared to interest expense of $0.1 in 1999 due to the SBC acquisition loan.
Interest income was $0.06 million higher due to larger cash balances.
Income before income taxes was unchanged at $2.8 million (12.0% of sales)
during the first six months of 2000 vs. $2.8 million (15.2% of sales) in the
same period of 1999. Income before income taxes at NP Aerospace was $1.0 million
(14.8% of sales) in 2000 compared to $0.8 million (10.0% of sales) in 1999 due
to lower scrap and other inventory related losses. Income before income taxes
for CompositAir was $0.6 million (14.0% of sales) in 2000 compared with $1.4
million (22.0% of sales) in 1999 due to substantially lower revenues. Income
before income taxes for Aerospace was $1.1 million (30.3% of sales) in 2000
compared with $0.5 million (22.4% of sales) in 1999 due to higher revenues.
Income before income taxes at SBC was $0.2 million (2.2% of sales).
A tax provision of $0.3 million was recorded in the first six months of
2000. The effective tax rate for the United Kingdom is approximately 30%. In the
United States, the Company intends to use net operating loss carryovers to
offset future taxable income and, accordingly, has an effective tax rate of 3%
for alternative minimum taxes. In determining the recognition of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets not utilized in 2000 is dependent upon the
generation of future taxable income during the periods in which the net
operating losses are deductible. Management considers the projected future
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income (losses) and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will not realize the
benefits of these deductible differences. Income taxes for interim periods are
computed using the effective tax rate estimated to be applicable for the full
financial year, which is subject to ongoing review and adjustment.
Liquidity and Capital Resources
As of June 30, 2000, working capital was $11.8 million, up $0.1 million
from December 31, 1999. Cash and cash equivalents of $6.0 million held at June
30, 2000 were $3.4 million lower than cash and cash equivalents held at December
31, 1999 primarily due to $4.7 million of net cash used for the SBC acquisition.
Net cash provided by operating activities was $2.0 million for the six
months ended June 30, 2000. Net cash provided by operating activities to $3.2
million for the comparable period in 1999. The decrease over the prior period
relates to the increased payout of cash bonuses in the first quarter of 2000
relating to 1999 and a $1.0 million customer prepayment received in 1999.
Net cash used in investing activities for the six months ended June 30,
2000 totaled $16.1 million and consisted primarily of the acquisition of SBC for
$15.7 million. Net cash used in investing activities for the six months ended
June 30, 1999 consisted of property and equipment expenditures totaling $0.5
million.
Net cash provided by financing activities for the six months ended June
30, 2000 totaled $10.7 million and consisted of the proceeds of the SBC
acquisition loan from B of A of $11.0 million less repayment of other long-term
debt. Net cash used in financing activities for the six months ended June 30,
1999 totaled $0.2 million and consisted of repayment of long-term debt.
<PAGE>
Management's Discussion and Analysis (cont'd)
Expenditures in 2000 and 1999 related to investing and financing
activities were financed by existing cash and cash equivalents and proceeds from
the B of A loans.
The Company does not have any current material commitments of capital
expenditures at June 30, 2000.
As discussed in the notes to the condensed consolidated financial
statements, the Company acquired certain assets and assumed certain liabilities
of the Ballistic and Performance Composites Division of Courtaulds Aerospace Ltd
on April 24, 1998 (the "Closing Date"). On the Closing Date, Reinhold paid to
Courtaulds plc the Two Million Two Hundred Thousand pounds sterling
((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) cash due on
the Closing Date and will make additional payments in the future as required by
the Asset Sale Agreement. In the year ended December 31, 1999, additional
payments earned totaled (pound)140,000 ($227,000).
The source of the funds for a portion of the Purchase Consideration due on
the Closing Date was a Five Year Loan and Security Agreement with The CIT Group
Credit/Finance ("CIT") in the amount of Four Million Dollars ($4,000,000) at an
interest rate of prime plus 1.75%. The term portion of the loan in the amount of
Two Million Two Hundred Sixty-Eight Thousand Dollars ($2,268,000) was received
from CIT. The remainder of the CIT credit facility was a revolver of One Million
Seven Hundred Thirty-Two Thousand Dollars ($1,732,000). The remaining portion of
the purchase consideration not funded by the CIT loan was funded by Reinhold's
cash on hand. Future payments required by the Agreement are expected to be
financed from operating cash flows.
On April 16, 1999, the Company repaid the outstanding loan with the CIT Group
Credit/Finance through a refinancing with Bank of America National Trust and
Savings Association ("B of A") and cancelled the revolver. The new credit
facility with B of A is a term loan in the amount of $1,861,478 payable in 48
equal monthly principal installments of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets.
On March 9, 2000, the Company borrowed $11,000,000 from B of A to fund a
portion of the purchase consideration due to Samuel Bingham Company. The
principal portion of the loan is payable in twenty successive quarterly
installments beginning June 30, 2000. Interest is payable quarterly at a rate
which approximates LIBOR plus 1.75% and is secured by all financial assets of
the Company. The loan agreement is subject to various financial covenants to
which the Company must comply.
Management believes that the available cash and cash flows from operations
will be sufficient to fund the Company's operating and capital expenditure
requirements.
<PAGE>
Management's Discussion and Analysis (cont'd)
Stock Dividend
On May 10, 2000, the Board of Directors approved a 10% dividend, payable
in stock of the Company, to shareholders of record as of July 11, 2000.
Dividends calculated as fractional shares will be paid in cash. The dividend was
paid on July 28, 2000. The Company has retroactively reflected the impact of the
stock dividend on all earnings per share calculations presented.
Forward Looking Statements
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The words "estimate", "anticipate", "project", "intend",
"expect", and similar expressions are intended to identify forward looking
statements. All forward looking statements involve risks and uncertainties,
including, without limitation, statements and assumptions with respect to future
revenues, program performance and cash flow. Readers are cautioned not to place
undue reliance on these forward looking statements which speak only as of the
date of this 10-Q. The Company does not undertake any obligation to publicly
release any revisions to these forward looking statements to reflect events,
circumstances or changes in expectations after the date of this Form 10-Q, 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.
2000 Outlook
As announced in first quarter 10-Q, we expect mixed results during 2000.
Our new acquisition, Samuel Bingham Company, should contribute positively to
shareholder value in 2000, but not until later in the year. Our CompositAir
business unit has not seen the increase in demand from its major customer that
was expected to occur at the end of the first quarter. Sales are forecasted to
be off 25% from 1999. NP Aerospace sold approximately 40 armored vehicles during
1999 which represented nearly $4.0 million in sales. The probability of this
happening again is difficult to predict. Our Aerospace business, however, is
expected to substantially increase sales and profits due to expanded marketing
efforts, aggressive pricing and high quality manufacturing. Our Commercial
business unit should exceed 1999 volumes and profitability. We are also in the
process of selling an unneeded parcel of land for a significant profit. Our
expectation is that 2000 results will be better than 1999.
Recent Accounting Pronouncements
The effective recent accounting pronouncements are included in the notes
to the condensed consolidated financial statements included herein.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1 Keene Corporation's Fourth Amended Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code dated March 11, 1996, incorporated
herein by reference to Exhibit 99(a) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
2.2 Motion to Approve Modifications to the Keene Corporation Fourth
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code dated June 12, 1996, incorporated herein by reference to Exhibit
99(b) to Keene Corporation's Form 8-K filed with the Commission on
June 28, 1996.
2.3 Finding of Fact, Conclusions of Law and Order Confirming Keene's
Fourth Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, as modified, entered June 14, 1996, incorporated
herein by reference to Exhibit 99(c) to Keene Corporation's Form 8-K
filed with the Commission on June 28, 1996.
3.1 Amended and restated Certificate of Incorporation of Reinhold
Industries, Inc., incorporated herein by reference to Exhibit 99(a),
Exhibit A to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
3.2 Amended and restated By-laws of Reinhold Industries, Inc. (Formerly
Keene Corporation), incorporated herein by reference to Exhibit
99(a), Exhibit B to the Plan, to Keene Corporation's Form 8-K filed
with the Commission on June 28, 1996.
3.3 Certificate of Merger of Reinhold Industries, Inc. into Keene
Corporation, incorporated herein by reference to Exhibit 99(a),
Exhibit C to the Plan, to Keene Corporation's Form 8-K filed with the
Commission on June 28, 1996.
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
referenc e 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.
<PAGE>
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.
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.
27 Financial Data Schedule
b. Reports on Form 8-K
Purchase of certain assets and assumption of certain liabilities of
Samuel Bingham Company for $15,505,317.03 as filed with the Commission
on March 23, 2000 and amended and re-filed as of May 23, 2000.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REINHOLD INDUSTRIES, INC.
Registrant
DATE: August 14, 2000
By: /S/ Brett R. Meinsen
Brett R. Meinsen
Vice President - Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer)
