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: September 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 November 10, 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
September 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $13,281 $ 11,659
Cost of goods sold 9,286 8,417
------ ------
Gross profit 3,995 3,242
Selling, general and administrative expenses 2,660 1,303
------ ------
Operating income 1,335 1,939
Interest expense (income), net 183 (26)
------ ------
Income before income taxes 1,152 1,965
Income taxes 74 300
------ ------
Net income $ 1,078 $ 1,665
====== ======
Earnings per share - basic $ 0.49 $ 0.76
Earnings per share - diluted $ 0.48 $ 0.75
Weighted average common shares
outstanding - basic 2,198 2,198
Weighted average common shares
outstanding - diluted 2,239 2,227
<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>
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $36,784 $29,921
Cost of goods sold 25,708 21,877
------ ------
Gross profit 11,076 8,044
Selling, general and administrative expenses 6,755 3,352
------ ------
Operating income 4,321 4,692
Interest expense (income), net 358 (46)
------ ------
Income before income taxes 3,963 4,738
Income taxes 406 601
------ -------
Net income $ 3,557 $ 4,137
====== ======
Earnings per share - basic $ 1.62 $ 1.88
Earnings per share - diluted $ 1.59 $ 1.88
Weighted average common shares
outstanding - basic 2,198 2,198
Weighted average common shares
outstanding - diluted 2,243 2,200
<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>
September 30, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,680 $ 9,419
Accounts receivable 7,069 4,077
Inventories 5,290 4,085
Other current assets 2,175 1,157
------- -------
Total current assets 21,214 18,738
Property, plant and equipment, net 10,223 5,726
Cost in excess of fair value of net assets of
acquired companies - net 7,630 633
Other assets 357 137
------- --------
$ 39,424 $ 25,234
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - long term debt $ 1,715 $ 503
Accounts payable 2,531 1,825
Accrued expenses 4,998 4,719
------ ------
Total current liabilities 9,244 7,047
Long term debt - less current portion 10,213 1,125
Other long term liabilities 194 204
Stockholders' equity:
Preferred stock
Authorized: 5,000,000 shares
Issued and outstanding: None - -
Common stock
Class A - Authorized: 45,000,000 shares
Issued and outstanding: 2,198,058 shares 22 20
Additional paid-in capital 9,581 7,791
Retained earnings 10,985 9,227
Accumulated comprehensive loss (815) (180)
------ ------
Net stockholders' equity 19,773 16,858
------ ------
$ 39,424 $ 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 FLOW
(Amounts in thousands)
(Unaudited)
<CAPTION>
Nine months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,557 $ 4,137
Adjustments to reconcile net income to net
cash provided by operating activities (net of effects
of acquisition):
Depreciation and amortization 1,084 774
Foreign currency translation (635) (52)
Changes in assets and liabilities:
Accounts receivable 461 (964)
Inventories 547 (109)
Other current assets (674) (377)
Accounts payable (1,328) 157
Accrued expenses (294) 757
Other, net 162 (60)
------ ------
Net cash provided by operating activities 2,880 4,263
------ ------
Cash flow used in investing activities:
Acquisitions (15,030) -
Capital expenditures (882) (715)
------- ------
Net cash (used in) investing activities (15,912) (715)
------- ------
Cash flow from financing activities:
Proceeds from long-term debt 11,000 -
Repayment of long term debt (700) (337)
Dividends paid (7) -
------- ------
Net cash provided by (used in) financing activities 10,293 (337)
------- ------
Net increase (decrease) in cash and cash equivalents (2,739) 3,211
Cash and cash equivalents, beginning of period 9,419 3,622
------- -------
Cash and cash equivalents, end of period $ 6,680 $ 6,833
======= =======
Cash paid during period for:
Income taxes $ 183 $ -
Interest $ 244 $ 108
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 2000 and December 31, 1999 and for the
three and nine months ended September 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
nine months ended September 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 $14,741,789. 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 $11,000,000 with
the balance being paid from cash on hand.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
The acquisition of Samuel Bingham Company has 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 goodwill as follows (in thousands). The
goodwill is being amortized over 40 years.
Samuel Bingham
Company
Working capital $2,942
Fixed assets 4,561
-----
Net identifiable assets 7,503
Cash paid 14,742
------
Excess over cost allocated to goodwill $7,239
======
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 September 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
September 30, 1999 and nine months ended September 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 Nine Months Ended
September 30, September 30,
1999 2000 1999
---------- ------------------------
<S> <C> <C> <C>
Net sales $17,170 $41,110 $47,928
Net income $2,080 $3,925 $5,311
Earnings per share - basic $0.95 $1.79 $2.42
Earnings per share - diluted $0.93 $1.75 $2.41
</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 187,100 shares of common stock were outstanding during the
three month period ended September 30, 2000. For the three and nine month period
ended September 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
(in thousands, except exercise price data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $1,078 $1,665 $3,557 $4,137
====== ====== ====== ======
Weighted average shares used
in basic computation 2,198 2,198 2,198 2,198
Dilutive effect of stock options 41 29 45 2
----- ----- ----- -----
Weighted average shares used
for diluted calculation 2,239 2,227 2,243 2,200
===== ===== ===== =====
Stock options outstanding 187 173 187 173
Range of exercise price $7.50-$10.23 $7.50 $7.50-$10.23 $7.50
</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 nine
months ended September 30, 2000 and 1999 was a loss on foreign currency
translation of $635,000 and $52,000, 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
September 30, 2000.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
Aerospace $ 2,538 1,685 $ 6,090 3,965
CompositAir 1,668 3,180 5,923 9,736
Commercial 771 661 2,231 1,883
NP Aerospace 2,629 6,133 9,575 14,337
SBC 5,675 - 12,965 -
------------------------------------------------------------------------------------------------------------------------------------
Total sales 13,281 11,659 $ 36,784 29,921
Income before income taxes
Aerospace 790 428 $ 1,868 939
CompositAir 136 503 739 1,948
Commercial 101 104 328 251
NP Aerospace 96 863 1,231 1,849
SBC 64 - 222 -
Unallocated corporate expenses (149) (92) (425) (249)
-----------------------------------------------------------------------------------------------------------------------------------
Total income before income taxes 1,152 1,965 3,963 4,738
Depreciation and amortization
Aerospace 95 110 305 332
CompositAir 70 71 206 204
Commercial 36 39 113 117
NP Aerospace 38 39 122 121
SBC 149 - 338 -
------------------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization 388 259 1,084 774
Capital expenditures
Aerospace 225 20 345 84
CompositAir - 103 - 373
Commercial 9 (18) 2 13
NP Aerospace 102 119 277 245
SBC 107 - 258 -
------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 443 224 882 715
</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>
September 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets
Aerospace $ 5,042 4,735
CompositAir 2,589 3,469
Commercial 1,061 1,024
NP Aerospace 9,622 9,455
SBC 17,980 -
Unallocated corporate 3,130 6,551
------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 39,424 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
United States $ 9,529 4,940 $ 24,439 13,976
United Kingdom 2,439 4,591 8,507 12,526
Germany 183 589 715 1,558
Switzerland 300 - 1,285 244
Canada 486 - 1,123 -
Africa - 1,381 96 1,381
Other 344 158 619 236
------------------------------------------------------------------------------------------------------------------------------------
Total sales 13,281 11,659 $ 36,784 29,921
</TABLE>
SUBSEQUENT EVENT
The Company has been informed that it may be a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), with respect to certain
environmental liabilities arising at the Valley Forge National Historical Park
Site ("Valley Forge Site") located in Montgomery County, Pennsylvania and at a
site formerly known as the Casmalia Resources Hazardous Waste Management
Facility, located in Santa Barbara County, California ("Casmalia Site"). CERCLA
imposes liability for the costs of responding to a release or threatened release
of "hazardous substances" into the environment. CERCLA liability is imposed
without regard to fault. PRPs under CERCLA include current owners and operators
of the site, owners and operators at the time of disposal, as well as persons
who arranged for disposal or treatment of hazardous substances sent to the site,
or persons who accepted hazardous substances for transport to the site.
<PAGE>
Notes to Consolidated Financial Statements (cont'd)
On June 16, 2000 the U.S. Department of Justice notified the Company
that it may be a PRP with respect to the Valley Forge Site and demanded payment
for past costs incurred by the United States in connection with the site, which
the Department of Justice estimated at $1,753,726 incurred by the National Park
Service as of May 31, 2000 and $616,878 incurred by the United States
Environmental Protection Agency ("EPA") as of November 30, 1999.
With respect to the Casmalia Site, on August 11, 2000, the EPA notified the
Company that it is a PRP by virtue of waste materials deposited at the site. The
EPA has designated the Company as a "de minimis" waste generator at this site,
based on the amount of waste at the Casmalia Site attributed to the Company. The
Company is in the process of evaluating its potential environmental liability
exposure at the Casmalia Site, and based on currently available data, the
Company believes that the Casmalia Site is not likely to have a material adverse
impact on the Company's consolidated financial position or results of
operations.
The Company is in the process of investigating the claims brought forth by
the U.S. Department of Justice. As of November 10, 2000, it is uncertain if any
material negative determination will be made against the Company. As of
September 30, 2000, no liability has been recorded for future costs related to
this action. Further details are available on Form 8-K filed with the Securities
and Exchange Commission on November 1, 2000.
<PAGE>
REINHOLD INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
September 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 Third Quarter 2000 to 1999
In the third quarter of 2000, net sales increased $1.6 million, or 13.9%,
to $13.3 million, compared to third quarter 1999 sales of $11.7 million. The
acquisition of Samuel Bingham Company ("SBC") on March 9, 2000 added $6.1
million to third quarter 2000 sales. Sales decreased by $1.5 million (47.5%) at
CompositAir due to the ongoing commercial difficulties at our main customer, B/E
Aerospace. Sales increased $0.9 million in the Aerospace business unit due to
increased shipments of missile components and rocket nozzles. Sales at NP
Aerospace decreased by $3.5 million due to lower seatback ($0.6 million) and
armored vehicle ($2.9 million) shipments. Sales in the Commercial business unit
were $0.1 higher due to increased tooling shipments.
Excluding the impact of the SBC acquisition, gross profit margin increased
to 31.2% in the third quarter of 2000 compared to 27.8% in the third quarter
1999. This was primarily due to higher sales in the Aerospace business unit, and
the increased absorption of fixed overhead costs, and lower material costs at
CompositAir.
Selling, general and administrative expenses for the third quarter 2000
were $2.7 million (20.0% of sales) compared to $1.3 million (11.1% of sales) for
the same quarter of 1999. SBC accounted for $1.3 of the increased cost.
Interest expense in the third quarter of 2000 was $0.3 million compared to
interest expense of $0.03 million in the third quarter of 1999 due to the SBC
acquisition loan. Interest income for the quarter was $0.1 million compared to
$0.06 million in 1999.
<PAGE>
Management's Discussion and Analysis (cont'd)
Income before income taxes was $1.2 million (8.7% of sales) in the third
quarter of 2000 vs. $2.0 million (16.9% of sales) in the same period of 1999.
Income before income taxes at NP Aerospace was $0.2 million (8.0% of sales) in
2000 compared to $1.0 million (16.7% of sales) in 1999 due to lower seatback and
armored vehicle shipments. Income before income taxes for CompositAir was $0.1
million (8.2% of sales) in 2000 compared with $0.5 million (15.8% of sales) in
1999 due to substantially lower revenues. Income before income taxes for
Aerospace was $0.8 million (31.1% of sales) in 2000 compared with $0.4 million
(25.4% of sales) in 1999 due to higher revenues. Income before income taxes at
SBC was $0.1 million (1.1% of sales).
A tax provision of $0.1 million was recorded in the third 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 Nine Months 2000 to 1999
In the first nine months of 2000, net sales increased $6.9 million, or
23%, to $36.8 million, compared to the first nine months 1999 sales of $29.9
million. Sales increased by $13.0 million at SBC, due to the acquisition date of
March 2000. CompositAir sales were lower by $3.8 million (39.2%) due to the
ongoing commercial difficulties at our main customer, B/E Aerospace. Sales at NP
Aerospace decreased by $4.8 million due to lower seatback ($1.5 million) and
armored vehicle ($3.5 million) shipments offset by higher commercial sales.
Sales increased $2.1 million in the Aerospace business unit due to increased
shipments of missile components and rocket nozzles. Sales in the Commercial
business unit were $0.3 higher due to increased tooling shipments.
Gross profit margin increased to 30.1% in the first nine months of 2000
compared to 26.9% in the first nine 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 43.2% in 2000
from 37.1% in 1999. Gross profit margin for CompositAir increased to 30.8% in
2000 from 30.5% in 1999.Gross profit margin for Commercial increased to 27.7% in
2000 from 26.8% in 1999. Gross profit margin for NP Aerospace increased to 24.5%
in 2000 from 21.6% in 1999. Gross profit margin for SBC was 28.3%.
Selling, general and administrative expenses for the first nine months of
2000 were $6.8 million (18.4% of sales) compared to $3.4 million (11.2% of
sales) for the first nine months of 1999. SBC accounted for $2.9 of the
increased cost. Acquisition advisory fees and NASDAQ application fees were $0.2
million higher than 1999.
<PAGE>
Management's Discussion and Analysis (cont'd)
Interest expense for the first nine months of 2000 was $0.6 million
compared to interest expense of $0.1 in 1999 due to the SBC acquisition loan.
Interest income was $0.08 million higher due to larger cash balances.
Income before income taxes was $4.0 million (10.8% of sales) during the
first nine months of 2000 vs. $4.7 million (15.8% of sales) in the same period
of 1999. Income before income taxes at NP Aerospace was $1.2 million (12.9% of
sales) in 2000 compared to $1.8 million (12.9% of sales) in 1999 due to
decreased sales offset by lower scrap and other inventory related costs. Income
before income taxes for CompositAir was $0.7 million (12.5% of sales) in 2000
compared with $1.9 million (20.0% of sales) in 1999 due to substantially lower
revenues. Income before income taxes for Aerospace was $1.9 million (30.1% of
sales) in 2000 compared with $0.9 million (23.7% of sales) in 1999 due to higher
revenues. Income before income taxes at SBC was $0.2 million (1.7% of sales).
A tax provision of $0.4 million was recorded in the first nine 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 September 30, 2000, working capital was $12.0 million, up $0.3
million from December 31, 1999. Cash and cash equivalents of $6.7 million held
at September 30, 2000 were $2.7 million lower than cash and cash equivalents
held at December 31, 1999 primarily due to $4.0 million of net cash used for the
SBC acquisition.
Net cash provided by operating activities was $2.9 million for the nine
months ended September 30, 2000. Net cash provided by operating activities was
$4.3 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 the decreased profitability of the Company.
Net cash used in investing activities for the nine months ended September
30, 2000 totaled $15.9 million and consisted of the acquisition of SBC for $15.0
million and capital expenditures of $0.9 million. Net cash used in investing
activities for the nine months ended September 30, 1999 consisted of capital
expenditures totaling $0.7 million.
<PAGE>
Management's Discussion and Analysis (cont'd)
Net cash provided by financing activities for the nine months ended
September 30, 2000 totaled $10.3 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 nine months ended
September 30, 1999 totaled $0.3 million and consisted of repayment of long-term
debt.
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 September 30, 2000.
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. The Company is in compliance with the loan
covenants at September 30, 2000.
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 were 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.
Important factors that could cause actual results to differ materially from
assessments or projections contained in the forward-looking statements include
new developments in the law pertaining to CERCLA, the willingness of the
Department of Justice to negotiate a resolution of its claims against the
Company and the ability of the Company to investigate and establish facts
relating to Keene's operations at and/or use of the Valley Forge and Casmalia
Sites.
2000 Outlook
Net income for the first three quarters of 2000 is significantly lower
(14%) than 1999 for several reasons. CompositAir business unit revenues are 39%
lower than 1999. We did expect a 15% - 20% decline in sales for 2000 due to
ongoing commercial difficulties from our major customer, B/E Aerospace. However,
the increased business forecasted for the second half of 2000 did not
materialize and is not expected to until early 2001. Revenues at the NP
Aerospace business unit are 33% lower than 1999. Seatback sales were adversely
impacted by the B/E Aerospace situation. Additionally, sales of armored vehicles
are 90% lower than 1999. This business is cyclical in nature and very difficult
to predict.
In the fourth quarter, our Aerospace business unit must ship 33% of their
full year sales forecast to meet our internal projections. This task is
achievable but formidable. A restructuring completed during October at our SBC
business unit will eliminate excessive costs and begin to contribute more
positively to net income. We are also in the process of selling an unneeded
parcel of land for a profit. Our continuing expectation is that 2000 results,
including the one-time gain on the land sale, will be better than 1999.
<PAGE>
Subsequent Event
The Company has been informed that it may be a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), with respect to certain
environmental liabilities arising at the Valley Forge National Historical Park
Site ("Valley Forge Site") located in Montgomery County, Pennsylvania and at a
site formerly known as the Casmalia Resources Hazardous Waste Management
Facility, located in Santa Barbara County, California ("Casmalia Site"). CERCLA
imposes liability for the costs of responding to a release or threatened release
of "hazardous substances" into the environment. CERCLA liability is imposed
without regard to fault. PRPs under CERCLA include current owners and operators
of the site, owners and operators at the time of disposal, as well as persons
who arranged for disposal or treatment of hazardous substances sent to the site,
or persons who accepted hazardous substances for transport to the site.
On June 16, 2000 the U.S. Department of Justice notified the Company
that it may be a PRP with respect to the Valley Forge Site and demanded payment
for past costs incurred by the United States in connection with the site, which
the Department of Justice estimated at $1,753,726 incurred by the National Park
Service as of May 31, 2000 and $616,878 incurred by the United States
Environmental Protection Agency ("EPA") as of November 30, 1999.
With respect to the Casmalia Site, on August 11, 2000, the EPA notified the
Company that it is a PRP by virtue of waste materials deposited at the site. The
EPA has designated the Company as a "de minimis" waste generator at this site,
based on the amount of waste at the Casmalia Site attributed to the Company. The
Company is in the process of evaluating its potential environmental liability
exposure at the Casmalia Site, and based on currently available data, the
Company believes that the Casmalia Site is not likely to have a material adverse
impact on the Company's consolidated financial position or results of
operations.
The Company is in the process of investigating the claims brought forth by
the U.S. Department of Justice. As of November 10, 2000, it is uncertain if any
material negative determination will be made against the Company. As of
September 30, 2000, no liability has been recorded for future costs related to
this action. Further details are available on Form 8-K filed with the Securities
and Exchange Commission on November 1,2000.
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
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.
<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
8-K dated July 5, 2000 - 10% stock dividend
<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: November 14, 2000
By: /S/ Brett R. Meinsen
Brett R. Meinsen
Vice President - Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer)
