-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NiAq2fVGpU8e0s4A7cOyleXWGUchx11vBm4Anmw3Zr4cxJKV1yt7wOezPZAr8maq zSxl9XzAwWKgCIhcm4fYWg== 0000862255-01-000003.txt : 20010417 0000862255-01-000003.hdr.sgml : 20010417 ACCESSION NUMBER: 0000862255-01-000003 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REINHOLD INDUSTRIES INC/DE/ CENTRAL INDEX KEY: 0000862255 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 132596288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40/A SEC ACT: SEC FILE NUMBER: 000-18434 FILM NUMBER: 1602784 BUSINESS ADDRESS: STREET 1: 12827 EAST IMPERIAL HWY CITY: SANTA FE SPRINGS STATE: CA ZIP: 90670-4713 BUSINESS PHONE: 5629443281 MAIL ADDRESS: STREET 1: 12827 EAST IMPERIAL HWY CITY: SANTA FE SPRINGS STATE: CA ZIP: 90670 FORMER COMPANY: FORMER CONFORMED NAME: KEENE CORP /DE/ DATE OF NAME CHANGE: 19930328 10KSB40/A 1 0001.txt 1999 10-KSB40/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Mark One) x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT - ----- OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ------ ACT OF 1934 FOR THE TRANSITION PERIOD FROM to --------------- -------------- COMMISSION FILE NUMBER 0-18434 REINHOLD INDUSTRIES, INC. - -------------------------------------------------------------------------------- (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) Delaware 13-2596288 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12827 East Imperial Hwy, Santa Fe Springs, California 90670 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Issuer's telephone number, including area code (562) 944-3281 Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: CLASS A COMMON STOCK, PAR VALUE $.01 - -------------------------------------------------------------------------------- (TITLE OF CLASS) CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES x NO --- --- CHECK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. X --- ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE $39,140,000 STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS. $20,489,299 as of March 20, 2000 Class A Common Stock - -------------------------------------------------------------------------------- CHECK WHETHER THE ISSUER HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE EXCHANGE ACT AFTER THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES X NO --- --- STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON EQUITY AS OF THE LATEST PRACTICABLE DATE: Class A Common Stock - par value $.01 per share - 1,998,956 as of March 20, 2000 DOCUMENTS INCORPORATED BY REFERENCE IF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE, BRIEFLY DESCRIBE THEM AND IDENTIFY THE PART OF THE FORM 10-KSB (E.G., PART I, PART II, ETC.) INTO WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. THE LISTED DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES. Reinhold Industries, Inc. 1999 Annual Report to Stockholders - Parts I, II Reinhold Industries, Inc. Proxy Statement - Part III TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES ; NO X --- --- The Company is filing this amendment to its 1999 Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on March 27, 2000, in order to revise the financial statements and management's discussion and analysis of financial condition and results of operations section in that report. The Company is revising its financial statements to account for income taxes in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code"(SOP 90-7) and to reverse recorded liabilities aggregating $1,565,000 in accordance with the requirements of EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." All amounts throughout the document have been restated accordingly. See also Note 13 to the consolidated financial statements. PART I Item 1. DESCRIPTION OF BUSINESS a. Business Development On December 3, 1993, Keene Corporation ("Keene") filed a voluntary petition for relief under Chapter 11 of Title 11 of the United State Code (the "Bankruptcy Code") in the United States Bankruptcy Court in the Southern District of New York (the "Bankruptcy Court"), Case No. 93-B-46090 (SMB). Keene's Chapter 11 filing came as a direct result of tens of thousands of asbestos-related lawsuits which named Keene as a party. On March 28, 1995, Keene, the Official Committee of Unsecured Creditors' and the Legal Representative for Future Claimants entered into a stipulation to file a consensual plan of reorganization that would resolve Keene's Chapter 11 Case. On March 11, 1996, the Bankruptcy Court approved the Second Amended Disclosure Statement regarding Keene's Fourth Amended Plan of Reorganization for solicitation. On June 12, 1996, the Bankruptcy Court and the U.S. District Court held a confirmation hearing on Keene's Fourth Amended Plan of Reorganization, as modified (the "Plan"). The Plan was confirmed by the U.S. District Court by order entered on June 14, 1996. On July 31, 1996, Keene's Fourth Amended Plan of Reorganization, as modified, became effective (the "Effective Date"). On the Effective Date, Keene's wholly-owned subsidiary, Reinhold Industries, Inc. ("Reinhold") was merged into and with Keene, with Keene becoming the surviving entity. Pursuant to the merger, all the issued and outstanding capital stock of Reinhold was canceled. Keene, as the surviving corporation of the merger, was renamed Reinhold. On the Effective Date, Reinhold issued 1,998,956 shares of Common Stock, of which 1,020,000 shares of Class B Common Stock were issued to the Trustees of a Creditors' Trust (the "Creditors' Trust") set up to administer Keene's asbestos claims. The remaining 978,956 shares, identified as Class A Common Stock, were issued to Keene's former shareholders as of record date, June 30, 1996. All of Keene's previously outstanding Common Stock was canceled. Keene was incorporated in Delaware in 1967, reincorporated in New York in 1979 and reincorporated in Delaware in 1990. The Common Stock of Keene was listed on the New York Stock Exchange from 1972 to 1981. In 1981, Keene became a direct wholly owned subsidiary of Bairnco Corporation ("Bairnco") pursuant to a corporate restructuring. On August 6, 1990, 100% of Keene's stock was distributed to the shareholders of Bairnco. Keene's asbestos-related liabilities stem entirely from its 1968 purchase of Baldwin-Ehret-Hill, Inc. ("BEH"), a manufacturer of acoustical ceilings, ventilation systems, and thermal insulation products. Over the past 20 years, Keene spent over $530 million (approximately 75% of which has been in the form of insurance proceeds) in connection with Asbestos-Related Claims asserted against Keene on behalf of tens of thousands of individuals and entities, all stemming from Keene's ownership, for a period of approximately five years, of BEH. By the end of 1992, Keene had exhausted substantially all of its insurance coverage for Asbestos-Related Personal Injury Claims and by 1993, Keene had exhausted substantially all of its insurance related to Asbestos In Building Claims. Therefore, Keene had to bear directly the costs of all Claims. In May 1993, Keene filed a limited fund, mandatory settlement action ("Limited Fund Action"). This Limited Fund Action sought a declaration that Keene had only limited funds available to resolve the numerous Asbestos-Related Claims against it, including Asbestos-Related Claims that might be filed in the future. In November 1993, Keene reached an agreement in principle with the lawyers representing each subclass with respect to the allocation of Keene's remaining assets. However, on December 1, 1993, the Court of Appeals for the Second Circuit issued a decision dismissing the Limited Fund Action on the grounds of lack of subject matter jurisdiction. In light of this decision, on December 3, 1993, Keene filed its voluntary petition for relief under Chapter 11. In 1984, Keene acquired the assets, and assumed certain liabilities, of Reinhold, which was operated as a division until October 1990, when it was incorporated in Delaware as a wholly owned subsidiary. Reinhold, which was originally founded in 1928 as a custom molder of thermosetting and thermoplastic materials, currently operates in Santa Fe Springs, California, Camarillo, California and Coventry, England. Today, Reinhold manufactures advanced composite components and sheet molding compounds for a variety of aerospace, defense and commercial applications. In March 1992, to strengthen its market position in defense and aerospace markets, Reinhold acquired 100% of the outstanding common stock of Reynolds & Taylor, Inc. ("R & T"), a California corporation and manufacturer of structural composite components serving, primarily, the defense and aerospace markets. R & T's operations were consolidated into Reinhold's existing facility. In May 1994, Reinhold acquired CompositAir from SP Systems, Inc. CompositAir is a niche manufacturer of commercial composite aircraft seatbacks and other commercial products. CompositAir operates in both Camarillo, California and Santa Fe Springs, California. On April 24, 1998, NP Aerospace Limited ("NP Aerospace"), a wholly owned subsidiary of Reinhold, purchased from Courtaulds Aerospace Limited ("CAL"), a U.K. Corporation, which is a wholly owned subsidiary of Courtaulds plc, a U.K. Corporation, certain assets (consisting of Accounts Receivable, Inventory, Machinery and Equipment, Land and Intellectual Property and Patents) and assumed certain liabilities of the Ballistic and Performance Composites Division of CAL. Reinhold, as the Guarantor for NP Aerospace, became obligated to pay to Courtaulds plc net consideration consisting of (a) Two Million Two Hundred Thousand pounds sterling ((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) cash on the Closing Date and (b) within 120 days following the end of each of the calendar years 1998 through 2001, a cash amount equal to 25% of the Pre-tax Profit on the light armored vehicle business only, the maximum aggregate amount of which shall not exceed Twenty Million pounds sterling ((pound)20,000,000). Additional payments of (pound)140,000 ($227,000) were capitalized in 1999 as part of the purchase price. The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of NP Aerospace have been included in the consolidated financial statements from April 24, 1998. Additional information on the NP Aerospace acquisition is set forth in Note 2 to the Consolidated Financial Statements on page 27 and "Management Discussion and Analysis of Financial Condition and Results of Operations " on page 17 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. SUBSEQUENT EVENT On March 9, 2000, Samuel Bingham Enterprises, Inc., a newly formed wholly-owned subsidiary of Reinhold Industries, Inc., purchased certain assets and assumed certain liabilities of Samuel Bingham Company for $15.5 million in cash. A majority of the purchase price was financed through a five year term loan with the Bank of America for $11.0 million with the balance being paid from cash on hand. Samuel Bingham Company is a manufacturer and supplier of graphic arts and industrial rollers for a variety of applications. b. Business of Issuer Products Reinhold's operations consist of the manufacturing of advanced composite components and sheet molding compounds for a variety of aerospace, defense and commercial applications. Reinhold's principal products include ablative composite components and structural composite components. Ablative composites are used for their heat absorbing properties and structural composites are used where lightness, strength and complex shapes are essential. Composites have certain properties superior to metals and are formed into components to replace metal components in applications where light weight, strength, heat absorption, corrosion resistance and complex shapes are required, such as rocket nozzles, lighting fixture housings, small water filtration system housings and aircraft seating frames. Additional information on operating segments is set forth in Note 8 to the Consolidated Financial Statements on page 33 and "Management Discussion and Analysis of Financial Condition and Results of Operations " on page 17 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. Distribution Products are marketed by company sales personnel and sales representatives in the United States and Europe. Competition Reinhold competes with many companies in the sale of ablative and structural composite products. The markets served by Reinhold are specialized and competitive. Several of its competitors have greater financial, technical and operating resources than Reinhold. Although Reinhold has competed successfully in the critical areas of price, product performance and engineering support services, there is no assurance that Reinhold will be able to continue to manufacture and sell its products profitably in competitive markets. Because a substantial portion of Reinhold's business has been as a supplier to government contractors, Reinhold has developed a limited number of customers with which it does significant amounts of business. Sales to two major customers constituted approximately 50% of the Company's net sales in 1999. Reinhold's future prospects will depend on the continued business of such customers and on Reinhold's continued status as a qualified supplier to such customers. Reinhold's success also depends on developing additional commercial composite products to replace heavier and shape restrictive metals-based products. With the purchase of CompositAir in 1994 and NP Aerospace in 1998, Reinhold expanded its development and sale of composite components into the commercial aircraft seatbacks market. The market for aircraft seating is expanding. CompositAir is a world leader in producing commercial composite aircraft seatback structures. With the seatback market expanding at a rate of 10% - 15% per year, composites are enjoying an increased acceptance by the airlines. Due to this acceptance, we expect an increase in competition in the future. Raw Materials and Purchased Components The principal raw materials for composite fabrication include pre-impregnated fiber cloth (made of carbon, graphite, aramid or fiberglass fibers which have been heat-treated), molding compounds, resins (phenolic and epoxy), hardware, adhesives and solvents. Occasionally, certain raw materials and parts are supplied by customers for incorporation into the finished product. Reinhold's principal suppliers of raw materials are Cytec Fiberite, Inc. and Newport Adhesives and Composites, Inc. No significant supply problems have been encountered in recent years. Reinhold uses PAN (polyacrylonitrile) and rayon in the manufacture of composites. However, the supply of rayon used to make carbon fiber cloth typically used in ablative composites is highly dependent upon the qualification of the rayon supplier by the United States Department of Defense. North American Rayon has ceased production of the rayon used in Reinhold's ablative products. This could have an effect on the rayon supply in the coming years. Also, a European company has become the world's sole supplier of graphite and carbon, which is used in Reinhold's ablative applications. At this time, Reinhold can not determine if there will be any significant impact on price or supply. Environmental Matters Reinhold's manufacturing facilities are subject to regulation by federal, state and local environmental agencies. Management believes all facilities meet or exceed all applicable environmental requirements in all material respects and believes that continued compliance will not materially affect capital expenditures, earnings or competitive position. Patents and Trademarks Reinhold owned one patent registered with the United States Patent and Trademark Office for the "Method of Making Perforated Articles" (U.S. Patent No. 5,252,279). The patent expired October 1997 and was not renewed. Reinhold does not hold any registered trademarks. Research and Development Research and Development expenditures were approximately $155,000 and $158,000 for the years ended December 31, 1999 and 1998, respectively. Employees At December 31, 1999, Reinhold had 256 full-time employees and 5 part-time employees. Of these employees, 241 ( 236 full-time and 5 part-time) were employed in manufacturing and 30 (all full-time) in administration, product development and sales. Approximately 29% of the personnel are based at Reinhold's Santa Fe Springs, California facility, approximately 22% are based in Camarillo, California and approximately 49% are based at NP Aerospace located in Coventry, England. Approximately 74 of the employees in Coventry, England are represented by a labor union. Reinhold believes its workforce to be relatively stable and considers its employee relations to be excellent. Item 2. DESCRIPTION OF PROPERTY The following chart lists the principal locations and size of Reinhold's facilities and indicates whether the property is owned or leased and, if leased, the lease expiration.
LEASED OR OWNED LOCATION USE SIZE LEASE EXPIRATION - -------------------- ------------------ --------------- --------------------- Santa Fe Springs, CA Administration and 113,000 sq. ft. Leased (Expires 2000) Manufacturing Camarillo, CA Manufacturing 18,000 sq. ft. Leased (Expires 2002) Coventry, England Administrative and 80,000 sq. ft Own Manufacturing Coventry, England Land 2.7 acres Own Rancho Cucamonga, CA Undeveloped Land 33 acres Own
Construction of a new building and additional improvements at the Santa Fe Springs location are expected to be completed by the end of the year 2000. Reinhold believes its facilities are utilized consistent with economic conditions and the requirements of its operations. Item 3. LEGAL PROCEEDINGS Reinhold is a defendant in a number of other legal actions arising from the normal course of business. Management believes that these actions are not meritorious and will not have a material adverse effect on the financial position of Reinhold. As part of the confirmed Plan, Reinhold received the benefit of a "Permanent Channeling Injunction". This Permanent Channeling Injunction bars asbestos-related claims and demands against Reinhold, as the reorganized company under the Plan, and channels those claims and demands to the Creditors' Trust. The Permanent Channeling Injunction also gives Reinhold the benefit of protection in the form of an indemnification by the Creditors' Trust for Keene's obligations to indemnify its Officers and Directors under Keene's Certificate of Incorporation, dated April 12, 1990, and Section 145 of Delaware General Corporation Law, for asbestos-related claims and demands asserted by or on behalf of a holder of an asbestos-related claim or demand against Keene. Pursuant to the Permanent Channeling Injunction, on or after the Effective Date, any person or entity who holds or may hold an asbestos-related claim or demand against Keene will be forever stayed, restrained, and enjoined from taking certain actions for the purpose of, directly or indirectly, collecting, recovering, or receiving payment of, on, or with respect to such asbestos-related claims or demands against Reinhold. The payments and distributions made to the Creditors' Trust pursuant to the terms and conditions of the Plan were made in complete satisfaction, release and discharge of all claims and demands against, liabilities of, liens on, obligations of and interest in Keene and Reinhold as the reorganized company under the Plan. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- On October 20, 1999, a Special Meeting of Stockholders of the Corporation was held to consider and vote on the following proposals: 1. To consider and act upon a proposal to amend the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock of the Corporation from 2,500,000 shares to 50,000,000 shares by (a) increasing the number of authorized shares of Class A New Common Stock, par value $.01 per share (the "Class A Common Stock" or "Common Stock") from 2,500,000 shares to 45,000,000 shares, and (b) authorizing a class of preferred stock, consisting of 5,000,000 authorized shares (the "Preferred Stock"), for which the Board of Directors will have authority to establish the rights and preferences of any series prior to the issuance of any such series and to issue such Preferred Stock in one or more series, without further approval of stockholders of the Company; 2. To consider and act upon a proposal to amend the Company's Amended and Restated By-laws to increase the size of the Board of Directors to between three and ten directors, with the exact number to be determined from time to time by vote of a majority of the Board of Directors; 3. To consider and act upon a proposal to approve and ratify the Company's Management Agreement with Hammond, Kennedy, Whitney & Company, Inc., a private equity firm; 4. To transact such other business as may properly be brought before the meeting or any adjournment thereof. Results of the voting were as follows: For Against Abstain Not Voted --------- ------- ------- --------- Item 1. 1,338,178 86,870 4,617 2,664 Item 2. 1,352,663 72,710 4,292 2,664 Item 3. 1,317,063 109,057 6,209 0 All proposals were approved by the stockholders. There were no further items of business discussed at the meeting. PART II Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -------------------------------------------------------- a. & c. Data regarding the market price of Reinhold's common stock is included in the "Selected Financial Data" on page 1 and under Stockholder Information on page 36 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. Reinhold's common stock is traded on the NASD OTC Bulletin Board under the symbol RNHDA. The stock price quotations incorporated herein reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. No dividends were paid in 1999 or 1998. b. The approximate number of common equity security holders is as follows: Approximate Number of Holders of Record Title of Class as of March 20, 2000 - -------------- -------------------- Class A Common Stock, par value $.01 per share 1,636 Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- Reference is made to the "Management Discussion and Analysis of Financial Condition and Results of Operations" on page 17 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. Item 7. FINANCIAL STATEMENTS Reference is made to the Independent Auditors' Reports and to the Consolidated Financial Statements included on page 19 through 25 and Notes to Consolidated Financial Statements on pages 26 through 35 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. As more fully described in Note 13 to the consolidated financial statements, the Company has restated its 1999 and 1998 consolidated financial statements. Financial data schedules are included in Part IV of this filing. Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- None PART III Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required with respect to directors of Reinhold is included in the definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of Reinhold, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year and is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title ---- --- ----- Michael T. Furry 62 President and CEO Mr. Furry has served as president of Reinhold Industries, Inc. since June 1986 and became President and Chief Executive Officer of the Reorganized Company on the Effective Date. Mr. Furry became a Director of Keene (the Predecessor Company) in April 1990 and Reinhold Industries, Inc. upon its incorporation in October 1990. From April 1976 to June 1986, Mr. Furry was Vice President and General Manager of the composites division of Reynolds & Taylor, Inc. Brett R. Meinsen 40 Vice President- Mr. Meinsen became Vice President - Finance and Finance and Administration in June Administration 1997. Prior to coming to Reinhold, from Treasurer and 1986 until January 1997, Mr. Meinsen Secretary worked as the Director of Finance and Administration, Manager of Financial Analysis and a senior financial analyst at Philips Medical Systems.
Item 10. EXECUTIVE COMPENSATION The information required by Item 10 is included in the definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of Reinhold, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year and is incorporated herein by reference. Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 11 is included in the definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of Reinhold, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year and is incorporated herein by reference. Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 12 is included in the definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of Reinhold, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year and is incorporated herein by reference. PART IV Item 13. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS 2.1 Keene Corporation's Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated March 11, 1996, incorporated herein by reference to Exhibit 99(a) to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 2.2 Motion to Approve Modifications to the Keene Corporation Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated June 12, 1996, incorporated herein by reference to Exhibit 99(b) to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 2.3 Finding of Fact, Conclusions of Law and Order Confirming Keene's Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as modified, entered June 14, 1996, incorporated herein by reference to Exhibit 99(c) to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 3.1 Amended and restated Certificate of Incorporation of Reinhold Industries, Inc., incorporated herein by reference to Exhibit 99(a), Exhibit A to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 3.2 Amended and restated By-laws of Reinhold Industries, Inc. (Formerly Keene Corporation), incorporated herein by reference to Exhibit 99(a), Exhibit B to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 3.3 Certificate of Merger of Reinhold Industries, Inc. into Keene Corporation, incorporated herein by reference to Exhibit 99(a), Exhibit C to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 4.1 Share Authorization Agreement, incorporated herein by reference to Exhibit 99(a), Exhibit H to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 4.2 Registration Rights Agreement, incorporated herein by reference to Exhibit 99(a), Exhibit G to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 9.1 Creditors' Trust Agreement, incorporated herein by reference to Exhibit 99(a), Exhibit D to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 10.1 Reinhold Industries, Inc. Stock Incentive Plan, on Form S-8, filed with the Commission on November 10, 1997. 10.2 Reinhold Management Incentive Compensation Plan, incorporated by reference to Page 34 to Keene's (Predecessor Co.) Form 10, dated April 4, 1990, as amended by Form 8, Exhibit 10(e), dated July 19, 1990. 10.3 Lease, dated January 4, 1990, by and between Imperial Industrial Properties, Inc. and Reinhold Industries, incorporated by reference to Exhibit 10(b) to Keene's Form 10 dated April 4, 1990, as amended by Form 8, dated July 19, 1990. 10.4 Reinhold Industries, Inc. Retirement Plan (formerly Keene Retirement Plan), incorporated by reference to Exhibit 10(i) to Keene's Form 10 dated April 4, 1990, as amended by Form 8, dated July 19, 1990. 10.5 Management Agreement between Reinhold Industries, Inc. and Hammond, Kennedy, Whitney & Company, Inc. dated May 31, 1999 on Form 10-QSB filed with the Commission on August 16, 1999. 10.6 Stock Option Agreement between Reinhold Industries, Inc. and Michael T. Furry dated June 3, 1999 on Form 10-QSB filed with the Commission on August 16, 1999. 10.7 Stock Price Deficiency Payment Agreement between Reinhold Industries, Inc. and various Stockholders dated June 16, 1999 on Form 10-QSB filed with the Commission on August 16, 1999. 13 Annual Report to Stockholders 20.1 New Keene Credit Facility, incorporated herein by reference to Exhibit 99(a), Exhibit F to the Plan, to Keene Corporation's Form 8-K filed with the Commission on June 28, 1996. 23.1 Consent of Independent Auditors 27 Financial Data Schedules b) REPORTS ON FORM 8-K A Form 8-K, Item 5 - Other Events, was filed with the Commission on November 11, 1999. The information reported was the voting results of the October 20, 1999 Special Stockholders Meeting. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Reinhold has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. REINHOLD INDUSTRIES, INC. ------------------------- Registrant Date: April 16, 2001 By:/s/ Brett R. Meinsen -------------------- -------------------- Brett R. Meinsen Vice President - Finance & Administration (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of Reinhold and in the capacities and on the date indicated. /s/ Michael T. Furry April 16, 2001 -------------------------------------- Michael T. Furry- President and Director (Principal Executive Officer) /s/ Ralph R. Whitney, Jr. April 16, 2001 --------------------------------------- Ralph R. Whitney, Jr.- Chairman /s/ Andrew McNally, IV April 16, 2001 ------------------------------------- Andrew McNally, IV- Director EX-13 2 0002.txt 1999 ANNUAL REPORT Reinhold Industries, Inc. Picture - Michael T. Furry Picture - Roger Medwell Picture - Joe Ball Picture - Joe Savage Picture - Ari Aleong Picture - Brett Meinsen 1999 Annual Report It is who we are Picture of Board of Directors Reinhold Industries Board of Directors (left to right): President and Chief Executive Officer Michael T. Furry, Chairman of the Board Ralph R. Whitney, Jr., and Director Andrew McNally IV.
Selected Financial Data (as restated) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Summary of operations (in thousands) Net sales $ 39,140 25,996 16,232 13,120 11,122 Gross profit $ 10,783 6,503 4,699 3,046 1,728 Operating income (loss) $ 5,704 2,196 1,595 17 (1,832) Interest (expense) income, net $ 100 (17) 103 1,159 2,202 Reorganization expenses $ - - - 3,139 9,492 Net income (loss) (Note 3) $ 3,570 1,435 1,004 (2,353) (8,983) - ------------------------------------------------------------------------------------------------------ Year end position (in thousands) Cash and marketable securities $ 9,419 3,622 3,169 2,522 34,660 Working capital $ 13,256 8,961 6,314 3,602 39,105 Net property and equipment $ 5,726 5,476 4,526 5,158 5,607 Total assets $ 25,234 20,215 13,215 12,540 64,705 Long-term debt $ 1,125 1,550 - - - Long-term liabilities $ 204 2,559 873 3,314 3,168 Stockholder equity $ 18,423 11,263 10,905 7,284 43,555 - ------------------------------------------------------------------------------------------------------ Per share data Net income (loss): Basic (Note 1) $ 1.79 0.72 0.50 N.M.* (0.86) Diluted (Note 1) $ 1.78 0.72 0.50 N.M.* (0.86) Stockholders' equity $ 9.18 5.63 5.46 N.M.* 4.17 Market price range: (Note 2) High $ 13 1/8 9 1/4 10 4 1/8 N.M.* Low $ 6 3/4 5 1/2 2 7/8 3 1/4 N.M.* - ------------------------------------------------------------------------------------------------------------------------------------ Other data (in thousands except stockholder & employee data) Orders on hand $ 13,841 16,194 5,989 4,935 6,635 Average shares outstanding - basic 1,999 1,999 1,999 Note 1 10,442 Average shares outstanding - diluted 2,006 1,999 1,999 Note 1 10,442 Average number of common stockholders 1,711 1,808 1,951 2,099 2,396 Average number of employees 289 220 124 105 104 Note 1: Keene emerged from bankruptcy on July 31, 1996. Reinhold was merged into and with Keene, with the surviving company being renamed Reinhold Industries, Inc. The outstanding common stock of Keene on July 31, 1996, 10,746,235 shares, was canceled and replaced by 978,956 shares of Class A Common Stock and 1,020,000 shares of Class B Common Stock. Therefore, the earnings per share and average shares outstanding information is not meaningful. Note 2: The historical market value of the old Keene stock (the predecessor company) is not meaningful since the company has been recapitalized as of July 31, 1996. Note 3: Selected financial data for all years presented have been restated. See note 13 to the consolidated financial statements for information regarding the restatement of the consolidated financial statements for income taxes and certain accrued liabilities. See management analysis and Note 1 to the consolidated financial statements for discussion of Chapter 11 bankruptcy proceedings and the Effective Date of the Fourth Amended Plan of Reorganization. *N.M. - Not Meaningful
1 Picture of Michael T. Furry Michael T. Furry President and Chief Executive Officer TO OUR STOCKHOLDERS The confluence of a number of favorable events resulted in an excellent year for Reinhold Industries in 1999, only our third full year as a public company. The charts on the following pages illustrate this success according to these criteria: net sales, net income, earnings per share, return on capital employed (ROCE), cash balances, and stockholder equity. My purpose here is to call your attention to these significant facts. Primary among them are a 50% increase in net sales from $26 million in 1998 to $39 million in 1999 and a 157% increase in net income from $1.4 million in 1998 to $3.6 million in 1999. For complete financial details, I urge you to read pages 17 and 18 - Management Discussion and Analysis of Financial Condition and Results of Operations - as well as the subsequent tables. 2 Reinhold revenue is derived from four business units: Aerospace (USA), Commercial (USA), CompositAir (USA-UK), and NP Aerospace (UK). Each made a positive contribution to the company's success in 1999. AEROSPACE (USA) This unit's products are made of structural and ablative (heat absorbing) composites and are related to the solid rocket propulsion industry. Most of them are sold directly or indirectly to the United States Defense Department. This unit has experienced a 10-year drought resulting primarily from reductions in defense spending. Sales dropped from $23 million in 1990 to $9.6 million in EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Net Sales (in millions) 1997 $16.2 1998 $26.0 1999 $39.1 141% increase 1991 and has averaged $5 to $6 million for the balance of the decade. Sales for 1999 were $5.9 million, down 5% from $6.2 million in 1998, and profit was $1.2 million, down 22% from $1.6 million in 1998. COMMERCIAL (USA) This unit serves a regional swimming pool customer, the USA lighting market, and various other commercial customers. All products are made using Reinhold-manufactured sheet molding compound (SMC) as the basic raw material. In the past year, this unit was able to bring to manufacturing maturity all of our previously introduced products, an improvement in efficiency that is reflected in the improved performance in 1999, and management is on the alert for new product design and development opportunities. Orders for six or seven new products are now in process. Sales increased by 23% over 1998 to $2.4 million, but profit leaped by 300% from $72,000 in 1998 to $287,000 in 1999. COMPOSITAIR (USA-UK) This unit, acquired in 1994, has been in continuous production of composite seatback frames since 1980. Composites of epoxy, phenolic, or other resin systems, reinforced with carbon, aramid, or glass fibers, are laminated into the complex shapes required of today's features-packed commercial aircraft seats. Our ability to manufacture these composite materials with preferred shapes and weight savings of 30% to 40% distinguishes our seatback products from aluminum frames. Sales and profit contribution for 1999 were $16 million and $2.1 million respectively. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Net Income (in millions) 1997 $1.0 1998 $1.4 1999 $3.6 260% increase NP AEROSPACE (UK) This business segment was acquired from Courtaulds Aerospace in the United Kingdom in April of 1998, so this is the first full year of its effect on operations. As it did for eight months of 1998, performance in 1999 exceeded forecasts. This acquisition was first pursued because of our mutual presence in the aircraft seating business, but it also brought other market niches: ballistic-protection products, a family of medical products, and products for the trade molding market for lighting, communications, United Kingdom defense, and automotive after-market industries. Ballistic products include military helmets for ground forces and air crews, armored vehicles, body armor, and ballistic shields. Medical products include graphite tables for X-ray and MRI treatment. Sales and profit contribution for 1999 were $14.9 million and $2.5 million respectively, a pro-rated increase of 133% in sales and 131% in profit. 3 A GLOBAL CONSORTIUM CompositAir (USA) and NP Aerospace (UK) have long been rooted in the aircraft seatback business. Now, our worldwide marketing strategy in pursuit of that business and the combination of USA and UK engineering and manufacturing resources in developing a superior hybrid product have led us to treat those two units as one for that segment of business. In our 1998 annual report, we predicted that the hybrid technology resulting from the fusion of two unique processes for making seatbacks would result in a better product at lower cost. That has been realized. Reinhold is now the world cost leader in the aircraft seatback field and can EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Earnings per share (in dollars) 1997 $0.50 1998 $0.72 1999 $1.78 276% increase offer that cost advantage to our customers in a collaborative effort to secure a greater share of the worldwide market. The increasing benefits of composite seatbacks in lieu of metal are described in more detail on pages 6 and 7 and 10 and 11. THE REINHOLD PHILOSOPHY We cannot expect to sustain indefinitely the growth that we have enjoyed for the past three years - 141% in net sales, 260% in net income, 276% in earnings per share, 193% in cash balance, 69% in stockholder equity, and from 17% in 1997 to a lofty 29% return on capital employed (ROCE) in 1999. Conditions that cannot be anticipated, such as the effects of a military crisis in Botswana or the breakdown of peace talks in Northern Ireland - to name two that have impacted our business recently - make forecasts around them imprudent. What we can do is sustain and extend the management philosophy and strategy that have made it possible for us to capitalize on the good fortune that comes our way and, at the same time, protect against the vagaries of a volatile world. Human resource management is a vital part of the Reinhold style. By adhering to sound management practices, we have developed a team concept that thrives in the culture of an enlightened work ethic, a sense of controlled urgency, mutual respect, and targeted financial goals. Our credo is "fewer people working harder and smarter." People are our most valuable asset, and our future growth depends on a work force of highly skilled and motivated EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC ROCE* (in percentages) 1997 17% 1998 15% 1999 29% 71% increase *Return on capital employed people. They are the primary feature of this annual report. ACQUISITIONS A major element of Reinhold's long-range business strategy is growth through acquisitions. On March 9, 2000, Reinhold acquired the Samuel Bingham Company. Founded in 1826 under that name, it is one of the oldest continuously-operated companies in the country. It will be managed as a wholly-owned subsidiary. Headquartered in Bloomingdale, Illinois, Bingham manufactures and distributes rubber and polyurethane rollers for graphic arts and industrial applications, employing 250 people in 12 plants in the US and two in Canada. Gross sales in 1999 were $24.2 million. This will be a year of consolidation, but Bingham's position in a stable industry, with a steady flow of income, will contribute to year 2000 earnings and have a positive long-term effect on shareholder value. 4 CHANGE IN CONTROL On May 21, 1999, Keene Creditors' Trust sold most of its Reinhold stock to a group of individual and institutional investors. Two of the investors, Ralph R. Whitney and Andrew McNally IV, were elected to our Board of Directors at a special Board meeting on June 3, 1999. The new directors are in accord with Reinhold management and company goals. We consider this change in ownership a liberating and informative event that will have a positive effect on our future. NEW FACILITY A long-term lease has been secured and plans approved by the planning commission for new and renovated buildings EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Cash Balance (in millions) 1997 $3.2 1998 $3.6 1999 $9.4 193% increase at our Santa Fe Springs location. We currently occupy eight buildings in Santa Fe Springs and one 65 miles away in Camarillo, where certain seatback operations occur. The new and renovated buildings comprise 134,000 square feet, an increase of 24,000. Each of the three business units, which now share work spaces, will occupy its own space, and procurement, inventory control, warehousing, and work flow will be greatly enhanced. Construction is expected to be complete within the year, and the results will have a positive impact on the bottom line in 2001. FORECAST Backlog at December 31, 1999 was $13.8 million, down 15% from December 31, 1998, primarily due to a softening of aircraft production and a temporary reduction in demand from our principal seating products customer. The concerted marketing and sales effort of CompositAir (USA-UK) should capture some part of the 65% market share now held by metal seatbacks, but we still anticipate a downturn in sales and earnings for this business segment in 2000. NP Aerospace (UK) experienced a surge in sales of armored vehicles in 1999 that cannot be again predicted, but that anticipated shortfall could be made up by an expected increase in sales of military helmets and medical tables, and what promises to be an expansion of our lighting products market. This unit will be profitable, but we anticipate little if any overall growth in 2000. We expect both sales and profits for Aerospace (USA) and Commercial (USA) Business Units to be up in 2000 and beyond. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Stockholder Equity (in millions) 1997 $10.9 1998 $11.3 1999 $18.4 69% increase In summation, we do not expect to reprise our 1999 performance, but we expect to be profitable and are bullish about our prospects for accelerating growth and profit in the immediate years to follow. For the nexus of our customers, our suppliers, and our skilled and committed employees, we are grateful. It is vital to our success. It is who we are. /s/ Michael T. Furry Michael T. Furry President and Chief Executive Officer March 20, 2000 5 NP AEROSPACE UK It is who we are Picture NP Aerospace team (left to right) Mike Linton, Ian Paterson, Martin Cheese, Gavin Friell, Roger Medwell, Debbie Wadge, Jim Cantes, Vaughan Collins Roger Medwell, Managing Director, NP Aerospace (UK) Business Unit Roger Medwell is Managing Director of NP Aerospace in Coventry, West Midlands, England, a position he held with Courtaulds Aerospace when that business was acquired in 1998. That acquisition brought to Reinhold a significant segment of aircraft seatback business and market niches for ballistic protection products, including military helmets for ground and air crews, armored vehicles, body armor, and ballistic shields. Complementary technology and new market niches were not the only benefits of the acquisition, however. In the course of due diligence, a kinship of shared Picture - Products Picture - Products Values and methods emerged, such as team concepts and work forces with overlapping skills and compatible techniques. It was also revealed that in 1926 Courtaulds was doing pioneering work with bakelite molding similar to what Reinhold was doing in 1928. With more than 40 years of direct experience in the industry, Roger has a well-informed vision and enthusiasm for the future of composites remarkably akin to that of Reinhold. "the potential has been stifled," he says, "because most composites manufacturers have been under the control of large petrochemical companies out of touch with the entrepreneurial spirit." All of these kinships made assimilation of this business unit into the Reinhold culture of targeted goals, an enlightened work ethic, and a sense of controlled urgency a smooth process. With an expanded view of the potential for growth of the combined businesses, Roger is also on the alert for other companies in the UK that might be apt candidates for acquisition. 6 Picture - Roger Medwell Picture - Products Picture - Products Picture - Products 7 Picture - Joe Ball Picture - Products Picture - Products Picture - Products 8 Joe Ball, Manager, Aerospace USA Business Unit Joe Ball has been with Reinhold for 20 years, a product of our policy of promoting from within. He became manager of this Business Unit in 1998. Reinhold has been developing and building ablative (heat absorbing) components for the U.S. space program since its inception. Current contracts include initial production of the insulation components for the Minuteman III Propulsion Replacement Program, airfoils for BAT anti-tank weapons, small nozzles for booster separation rockets, and aircraft structural composites for both government and commercial applications. Picture - Products Picture - Products Our continuing ability to do so is attributable to a team of highly skilled and motivated employees. Upon that base, we are building for the future. Through generous employee benefit programs, on-the-job training, education, and discriminating recruitment we are sustaining and invigorating a work force that prepares us for a new generation of exploration and discovery. Our goal is continued growth through an increasing share of existing markets and further successful acquisitions. The window of opportunity is open. AEROSPACE USA It is who we are Picture Aerospace team (left to right) Saul Osuna, Van Dreng, Dave Fuller, Rick Olson, Rich Ciauri, Gilbert Torres, Subinh Chanthavongsouk 9 COMPOSITAIR USA-UK It is who we are Picture CompositAir team (left to right) Steve Carmichael, Don Carmichael, Bob Buchanon, Paka Aina, Lester Gray, Hamid Gholami Joe Savage, Manager, CompositAir (USA-UK) Business Unit Joe Savage is a Reinhold veteran of more than 20 years and has managed the CompositAir Business Unit, whose primary product is aircraft seatbacks, since November, 1998. Joe believes that the passage of controlling interest in Reinhold to private investors in 1999 was a liberating event, initiating an aggressive policy of growth that was the natural tendency of management. This policy compliments Reinhold people, the company's greatest strength. "Their capability is unmatched, their experience, expertise, and process innovation make us the industry leader in technology and Picture - Products Picture - Products cost controls," says Joe. As the world leader, this team strives to develop a more robust manufacturing process and to distinguish composites from the standard metal seatback. The estimated worldwide market for new and retrofit seatbacks is 300,000 for the year 2000. Of that, 65% is projected as metal. Our goal is to increase the market share for composites, and the product is here. The CompositAir USA and UK teams have collaborated to develop a new, hybrid seatback that is lighter, stronger, more comfortable, more pleasing in shape and design, and can accommodate more features, all at a price that is equal to or better than metal seatbacks. With pressure mapping and other sophisticated testing methods, the benefits of composites can be convincingly demonstrated. Our goal for this year is to work in concert with our customers to assure that those benefits are made compellingly clear to the specification writers and airline companies. 10 Picture - Joe Savage Picture - Products Picture - Products Picture - Products 11 Picture - Ari Aleong Picture - Products Picture - Products Picture - Products 12 Ari Aleong, Manager, Commercial Business Unit Ari Aleong has been with Reinhold since 1989 and became Manager of the Commercial Business Unit in 1999. This tightly-knit unit makes products for a regional swimming pool filter company, the USA lighting market, and various other commercial customers. On this team, every employee is trained and cross-trained for a cellular-type manufacturing process in which an operator performs more than one function. Every employee is empowered to make decisions in the process of manufacturing a product from start to finish - molding, testing, packaging, and palletizing. Every employee is, Picture - Products Picture - Products in effect, a manager. In this environment, where understanding of company and team goals is fostered through open communication in daily meetings, there is little evidence of a hierarchy of authority. A sense of purpose and pride in workmanship runs deep. Achievement is recognized in a performance-based compensation program called PIE - an acronym for Performance, Incentive, Equity - - in which production employees receive a bonus for each week the company meets forecast sales. Cash awards are disbursed to proud recipients at monthly PIE barbecue luncheons. Always, the focus is constant and urgent: embrace customer needs, embrace company goals, make a better product. COMMERCIAL USA It is who we are Picture Commercial team (left to right) Davood Taslimi, Maria Muro, Bob Bockman, Maria Hernandez, Hector Gamboa, Danny Radillo 13 NEW FACILITY Picture - New Facility New and Renovated Facility Reinhold's USA operations currently occupy eight buildings in two locations 65 miles apart, with headquarters in Santa Fe Springs and manufacturing of aircraft seatbacks divided between there and Camarillo, the only facility less than 50 years old. Three Business Units now share work spaces where parts are moved from building to building in a circuitous manufacturing process. Moving materials and people long distances was tolerable when transportation costs and surface traffic were minor matters, but that is no longer so. A major project for the year 2000 is the consolidation of operations in Santa Fe Springs in new and reconfigured buildings comprising 134,000 square feet - an increase of 24,000 over the present. The utilization of space has been further enhanced by thorough space management. In the new facility, each Business Unit will be distinct and work flow, materials procurement and control, warehousing, and shipping will be much more efficient. Plans have been approved by the planning commission, and construction is expected to be complete within the year. A positive impact on the bottom line will be realized in 2001. 14 Picture - New Facility Engineering Gerry Gore, Chief Engineer This team of five engineers headed by Gerry Gore is a key component of Reinhold's expertise in solving challenging design and manufacturing problems. Engineering is responsible for reviewing plans and preparing estimates for all projects and designing special tools and dies for unique manufacturing needs. It serves all three business units at Reinhold USA and collaborates with the engineering team at NP Aerospace in the United Kingdom in seeking solutions to common problems. It is who we are Picture Engineering team (left to right) Tony Swezey, Jed Merrill, Fred Ngo, Bob Briggs, Gerry Gore 15 Picture - Brett R. Meinsen It is who we are Picture Administration team (left to right) Bruce Nguyen, Debbie Nicol, Judy Sanson, Brent Marcus, Linda Crawford Brett R. Meinsen Vice President - Finance and Administration, Treasurer and Secretary Brett Meinsen has been with Reinhold for only three years but brings almost twenty years of diversified accounting and finance experience to the company. His responsibilities include accounting, human resources, information systems, purchasing, and logistics. "With such a wide scope of responsibilities, it would be impossible to be effective without an outstanding team of dedicated people," he said. "The Administration team exemplifies the Reinhold philosophy of `fewer people working harder and smarter.'" The goal for this team in the coming year is to continue to manage our working capital aggressively, to assist in the assimilation of our Bingham acquisition into the Reinhold work ethic and management style, and to provide our employees with a challenging and satisfying work environment that offers ample opportunity for advancement. 16 Reinhold Industries, Inc. and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reinhold is a manufacturer of advanced custom composite components and sheet molding compounds for a variety of applications in the United States and Europe. Reinhold derives revenues from the defense contract industry, the aerospace industry and other commercial industries. 1999 COMPARED WITH 1998 Backlog at December 31, 1999 was $13.8 million, down 15% from December 31, 1998, primarily due to a decrease in aircraft seatback orders. In 1999, order input increased 23% to $36.7 million and net sales increased 51% to $39.1 million from $26.0 million in 1998, primarily reflecting a full year of sales for NP Aerospace . Sales also increased $4.7 million for CompositAir products and $0.5 million for Commercial products. However, there was a $0.3 million decrease in sales for Aerospace products. Gross profit margin increased to 27.6% from 25.0% due to increased sales and the resulting absorption of fixed overhead expenses. Gross margin in the United States increased to 31.3% in 1999 from 27.2% in 1998. Gross margin in the United Kingdom increased to 23.4% in 1999 from 20.8% in 1998. In 1999, selling, general and administrative expenses were $5.1 million (13.0% of sales) compared with $4.3 million (16.6% of sales) in 1998. Although selling, general and administrative expenses were higher in 1999, these expenses decreased 3.6% as a percent of sales. Selling, general and administrative expense increases are primarily associated with the costs incurred for NP Aerospace for a full year. Income before income taxes increased to $5.8 million (14.8% of sales) from $2.2 million (8.4% of sales), reflecting higher sales and gross margins. Income before income taxes for the United States was $3.6 million (17.8% of sales) in 1999 compared with $1.8 million (10.3% of sales) in 1998. Income before income taxes for the United Kingdom was $2.2 million (11.6% of sales) in 1999 compared with $0.4 million (4.6% of sales) in 1998. In 1999, net interest income was $0.1 million. Interest income of $0.2 million was offset by interest expense of $0.1 million. In 1998, net interest expense was $0.01 million. The average yield was 4.08% in 1999 compared with 4.18% in 1998. A tax provision of $2.2 million was recorded in 1999 compared with a provision of $0.7 million in 1998, due primarily to increased profitability in the United Kingdom. The effective tax rate in 1999 was 38% as compared to 34% in 1998. The change results principally from the rate difference on foreign income. At December 31, 1999 and 1998, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $31,782,000 and $34,664,000, respectively. At December 31, 1999, the Company also had net operating loss carryforwards for State income tax purposes of approximately $5,551,000. The Company may utilize the Federal net operating losses by carrying them forward to offset future Federal taxable income, if any, through 2011. The Company may utilize the State net operating losses by carrying them forward to offset future State taxable income, if any, through 2001. As more fully described in note 13 to the consolidated financial statements, benefits realized from loss carryforwards arising prior to the reorganization have been recorded directly to additional paid-in capital. Such benefits amounted to $1,471,000 in 1999 and $703,000 in 1998. Net income totaled $3.6 million, or $1.78 per diluted share in 1999 compared with $1.4 million, or $0.72 per diluted share in 1998. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, working capital was $13.3 million, up $4.3 million from December 31, 1998. Cash and cash equivalents of $9.4 million held at December 31, 1999 were $5.8 million higher than cash and cash equivalents held at December 31, 1998 primarily due to $7.4 million of net cash provided by operating activities. Net cash provided by operating activities amounted to $7.4 million in 1999 and $3.1 million in 1998. The increase over the prior period relates to the increased profitability of the Company. Net cash used in investing activities in 1999 totaled $1.2 million, which consisted of capital expenditures and deferred consideration payable to Courtaulds plc. Net cash used in investing activities in 1998 totaled $3.9 million , which consisted of the NP Aerospace acquisition totaling $3.7 million and property and equipment expenditures of $1.0 million offset by the maturity of $0.8 million of marketable securities. Net cash used in financing activities in 1999 totaled $0.4 million relating to the repayment of the CIT/ Bank of America loan. Net cash provided by financing activities in 1998 totaled $2.0 million consisting of the $2.3 million of proceeds from the CIT loan, less subsequent repayments. The Company does not have any current significant commitments for capital expenditures at December 31, 1999. As discussed in the notes to the consolidated financial statements, the Company acquired certain assets and assumed certain liabilities of the Ballistic and Performance Composites Division of Courtaulds Aerospace Ltd on April 24, 1998 (the Closing Date). On the Closing Date, Reinhold paid to Courtaulds plc Two Million Two Hundred Thousand pounds sterling ((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) and may make additional payments in the future as required by the Asset Sale Agreement. In the year ended December 31, 1999, additional payments earned totalled (pound)140,000 ($227,000). The source of funds for a portion of the Purchase Consideration due on the Closing Date was a Five Year Loan and Security Agreement with The CIT Group Credit/Finance (CIT) in the amount of Four Million Dollars ($4,000,000) at an interest rate of prime plus 1.75% (9.50%). The term portion of the loan in the amount of Two Million Two Hundred Sixty-Eight Thousand Dollars ($2,268,000) was received from CIT. The remainder of the CIT credit facility was a revolver of One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000), which was never used. The remaining portion of the purchase consideration not funded by the CIT loan was funded by Reinhold's cash on hand. Future payments required by the Agreement are expected to be financed from operating cash flows. 17 Reinhold Industries, Inc. and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D) On April 16, 1999, the Company repaid the outstanding loan with the CIT Group Credit/Finance through a refinancing with Bank of America National Trust and Savings Association ("B of A") and cancelled the revolver. The new credit facility with B of A is a term loan in the amount of $1,861,478 payable in 48 equal monthly principal installments of $38,780 plus interest at a rate which approximates LIBOR plus 1.75% and is secured by fixed assets.The Company had a credit facility with the Keene Creditors' Trust whereby the Company had the ability to draw on a $1.5 million line of credit. However, this credit facility expired on July 31, 1998. No amounts had been used under this facility. Management believes that the available cash, cash flows from operations and the amounts available under the Credit Facility described above, will be sufficient to fund the Company's operating and capital expenditure requirements. CHANGE IN CONTROL On May 21, 1999, pursuant to a Stock Purchase Agreement dated May 18, 1999, between Keene Creditors' Trust, the holder of all of the outstanding shares of the Class B Common Stock of the Company and Reinhold Enterprises, Inc., a newly formed Indiana corporation ("REI"), the Creditors' Trust sold 997,475 shares of Class B Common Stock owned by it to certain purchasers designated by REI (the "Purchasers"). These shares represent approximately 49.9% of the outstanding common stock of the Company. Pursuant to the Company's Certificate of Incorporation, upon consummation of the sale of the shares to the Purchasers, all of the 1,020,000 outstanding shares of Class B Common Stock (including those retained by the Creditors' Trust) were automatically converted into 1,020,000 shares of Class A Common Stock, and at the next meeting of the stockholders of the Company called for that purpose, the holders of the Class A Common Stock, voting as a class, will be entitled to elect all of the directors of the Company. Prior to the sale, the Creditors' Trust, as the holder of all of the Class B Common Stock, was entitled to elect two directors, and the holders of the Class A Common Stock were entitled to elect one director. In connection with the Stock Purchase Agreement, the amount of authorized Class A Common Stock changed from 1,480,000 shares to 2,500,000 shares. The sale of shares to the Purchasers constitutes an "ownership shift" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended. Section 382 limits the utilization of net operating loss carryforwards upon certain accumulations of stock of corporate issuers. Additional purchases of shares by the Purchasers prior to May 22, 2002, or purchases of shares by other shareholders that result in those shareholders owning more than 5% of the outstanding Common Stock of the Company prior to May 22, 2002, may result in significant limitations on the Company's ability to utilize its net operating loss carryforwards to offset its future income for federal income tax purposes. The stock purchase agreement provided that it was a condition to the closing of the sale of the shares that Lawrence H. Diamond and Robert B. Steinberg, the members of the Board of Directors elected by the Creditors' Trust (as the sole holder of Class B Common Stock), resign as directors. Messrs. Diamond and Steinberg resigned as directors on May 21, 1999. On June 3, 1999, Ralph R. Whitney, Jr. and Andrew McNally IV were appointed by the remaining director, Michael T. Furry, as successor directors. The Board of Directors of the Company now consists of: Michael T. Furry, Ralph R. Whitney, Jr., and Andrew McNally IV. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 modifies the accounting for derivatives and hedging activities and is effective for fiscal years beginning after June 15, 2000. At this time, the Company does not expect the adoption of SFAS No. 133 to have a significant impact on its financial position or results of operations. FORWARD LOOKING STATEMENTS This Annual Report contains statements which, to the extent that they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). The words "estimate," "anticipate," "project," "intend," "expect," and similar expressions are intended to identify forward looking statements. All forward looking statements involve risks and uncertainties, including, without limitation, statements and assumptions with respect to future revenues, program performance and cash flow. Readers are cautioned not to place undue reliance on these forward looking statements which speak only as of the date of this Annual Report. The Company does not undertake any obligation to publicly release any revisions to these forward looking statements to reflect events, circumstances or changes in expectations after the date of this Annual Report, or to reflect the occurrence of unanticipated events. The forward looking statements in this document are intended to be subject to safe harbor protection provided by Sections 27A of the Securities Act and 21E of the Exchange Act. YEAR 2000 Many existing computer programs use only two digits to identify a year in a date. If not corrected, many computer applications and systems could fail or create erroneous results before or after the year 2000. In The United States, the Company had anticipated the year 2000 problem in the mid-1980's and therefore created compliant systems. The internal computer systems in the United States are Year 2000 compliant. In the United Kingdom, the Company identified and remediated or replaced any other computer systems and software that may not function correctly in the year 2000. Additionally, the Company planned a program of communications with its significant suppliers, customers and affiliated companies to determine the readiness of these third parties and the impact on the Company as a consequence of their own year 2000 issues. The Company's manual assessment of the impact of the year 2000 date change was completed by December 31, 1999. The Company was able to identify, and, modify or replace such systems and software before any year 2000 associated problems. The Company has not experienced any significant Year 2000 issues to date. Due to the way the leap year occurs, the company believes that February 29, 2000 is the only remaining significant date on which potential Year 2000 issues could arise. 18 Reinhold Industries, Inc. and Subsidiary INDEPENDENT AUDITORS' REPORT The Board of Directors Reinhold Industries, Inc. We have audited the accompanying consolidated balance sheets of Reinhold Industries, Inc. and Subsidiary (the Company) as of December 31, 1999 and 1998 and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reinhold Industries, Inc. and Subsidiary as of December 31, 1999 and 1998 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in note 13 to the consolidated financial statements, the Company has restated its 1999 and 1998 financial statements to record certain income tax benefits directly to additional paid-in capital pursuant to Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" and to reverse certain accrued liabilities. /S/KPMG LLP Los Angeles, California February 16, 2000, except for Note 12 which is as of March 9, 2000 and Note 13 which is as of March 16, 2001 19 Reinhold Industries, Inc. and Subsidiary This page left blank 20 Reinhold Industries, Inc. and Subsidiary
Consolidated Statements of Earnings (as restated) (Amounts in thousands, except for per share data) - ------------------------------------------------------------------------------------------------------------------------------------ Year ended Year ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $39,140 25,996 Cost of sales 28,357 19,493 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 10,783 6,503 Selling, general and administrative expenses 5,079 4,307 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 5,704 2,196 Interest income (expense), net 100 (17) - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 5,804 2,179 Income taxes 2,234 744 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 3,570 1,435 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share: Basic $ 1.79 0.72 Diluted $ 1.78 0.72 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding: Basic 1,999 1,999 Diluted 2,006 1,999 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to the consolidated financial statements.
21 Reinhold Industries, Inc. and Subsidiary
Consolidated Balance Sheets (as restated) (Amounts in thousands, except share data) - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 9,419 3,622 Accounts receivable (less allowance for doubtful accounts of $60 and $287, respectively) 4,077 4,869 Inventories 4,085 4,385 Prepaid expenses and other current assets 1,157 928 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 18,738 13,804 - ------------------------------------------------------------------------------------------------------------------------------------ Property and equipment, at cost 10,436 9,532 Less accumulated depreciation and amortization 4,710 4,056 - ------------------------------------------------------------------------------------------------------------------------------------ Net property and equipment 5,726 5,476 - ------------------------------------------------------------------------------------------------------------------------------------ Other assets, less applicable amortization 770 935 - ------------------------------------------------------------------------------------------------------------------------------------ $25,234 20,215 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,825 2,976 Accrued expenses 3,154 1,413 Current installments of long term debt 503 454 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 5,482 4,843 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term pension liability - 2,290 Long-term debt, less current installments 1,125 1,550 Other long-term liabilities 204 269 Stockholders' equity: Preferred stock - Authorized: 5,000,000 shares Issued and outstanding: None - - Common stock, $0.01 par value: Class A - Authorized: 45,000,000 shares. Issued and outstanding: 1,998,956 and 978,956 shares, respectively. 20 10 Class B - Authorized, issued and outstanding: 1,020,000 shares at December 31, 1998 - 10 Additional paid-in capital 12,328 10,857 Retained earnings 6,255 2,685 Accumulated other comprehensive loss (180) (2,299) - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 18,423 11,263 - ------------------------------------------------------------------------------------------------------------------------------------ $25,234 20,215 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to the consolidated financial statements.
22 Reinhold Industries, Inc. and Subsidiary
Consolidated Statements of Cash Flows (as restated) (Amounts in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Year ended Year ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $3,570 1,435 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,028 899 Additions to paid-in capital resulting from tax benefits 1.471 703 Accounts receivable, net 792 (359) Inventories 300 (178) Prepaid expenses and other current assets (229) (143) Other assets - 32 Accounts payable (1,151) 1,007 Accrued expenses 1,741 (18) Other, net (146) (266) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 7,376 3,112 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows used in investing activities: Maturity of marketable securities - 750 Acquisitions and deferred consideration (227) (3,707) Capital expenditures (924) (956) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (1,151) (3,913) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long term debt - 2,268 Repayment of long term debt (376) (264) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (376) 2,004 - ------------------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivilents (52) - Net increase in cash and cash equivalents 5,797 1,203 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of year 3,622 2,419 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $9,419 3,622 - ------------------------------------------------------------------------------------------------------------------------------------ Supplementary disclosures of cash flow information - Cash paid during the year for: Income taxes - 38 Interest $ 158 137 - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to the consolidated financial statements.
23 Reinhold Industries, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity and Comprehensive Income (as restated) (Amounts in thousands, except share data) Common stock $0.01 par value ---------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Class A Class B Shares Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997, as previously reported - 978,956 10 1,020,000 10 Adjustment to correct income tax expense in prior periods (Note 13) - - - - Adjustment to reverse certain accrued liabilities (Note 13) - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997, as restated - 978,956 10 1,020,000 10 Net income - - - - Additions to paid-in capital resulting from tax benefits (Note 13) - - - - Increase in additional pension liability in excess of unrecognized prior service cost - - - - Foreign currency translation adjustment - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998, as restated - 978,956 $10 1,020,000 $10 Net income - - - - Additions to paid-in capital resulting from tax benefits (Note 13) - - - - Decrease in additional pension liability in excess of unrecognized prior service cost - - - - Conversion of Class B shares to Class A shares (Note 1) 1,020,000 10 (1,020,000) (10) Foreign currency translation adjustment - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999, as restated - 1,998,956 $20 - - - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
24 Reinhold Industries, Inc. and Subsidiary
Comprehensive Income ---------------------------------------------------------- Accumulated other comprehensive Total comprehensive Additional paid-in capital Retained earnings loss income Net stockholders' equity - ------------------------------------------------------------------------------------------------------------------------------------ 7,791 2,048 (519) 9,340 798 (798) - - 1,565 - - - 1,565 - ------------------------------------------------------------------------------------------------------------------------------------ 10,154 1,250 (519) - 10,905 - 1,435 - 1,435 1,435 703 - - - 703 - - (1,730) (1,730) (1,730) - - (50) (50) (50) - ------------------------------------------------------------------------------------------------------------------------------------ (345) - ------------------------------------------------------------------------------------------------------------------------------------ 10,857 2,685 (2,299) 11,263 - 3,570 - 3,570 3,570 1,471 - - - 1,471 - - 2,249 2,249 2,249 - - (130) (130) (130) - ------------------------------------------------------------------------------------------------------------------------------------ 5,689 - ------------------------------------------------------------------------------------------------------------------------------------ $12,328 $6,255 $(180) $18,423 - ------------------------------------------------------------------------------------------------------------------------------------
25 Reinhold Industries, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1999 and 1998 1 ORGANIZATION DESCRIPTION OF BUSINESS Reinhold Industries, Inc. and Subsidiary (Reinhold or the Company) is a manufacturer of advanced custom composite components and sheet molding compounds for a variety of applications in the United States and Europe. Reinhold derives revenues from the defense contract industry, the aerospace industry and other commercial industries. CHAPTER 11 REORGANIZATION Reinhold was acquired by Keene Corporation (Keene) in 1984 and operated as a division of Keene until 1990, when Reinhold was incorporated in the state of Delaware as a wholly owned subsidiary of Keene. On December 3, 1993, Keene filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court (Bankruptcy Court). Keene's Chapter 11 filing came as a direct result of the demands on Keene of thousands of asbestos-related lawsuits which named Keene as a party. On July 31, 1996 (the Effective Date), Keene consummated its Plan of Reorganization under the Bankruptcy Code (the Plan) and emerged from bankruptcy. On the Effective Date, Reinhold was merged into and with Keene, with Keene becoming the surviving corporation. Pursuant to the merger, all of the issued and outstanding capital stock of Reinhold was canceled. Keene, as the surviving corporation of the merger, was renamed Reinhold. On the Effective Date, Reinhold issued 1,998,956 shares of Common Stock, of which 1,020,000 of Class B Common Stock was issued to the Trustees of a Creditors' Trust (the Creditors' Trust) set up to administer Keene's asbestos claims. The remaining 978,956 shares of Class A Common Stock were issued to Keene's former stockholders as of record date, June 30, 1996. All of Keene's previous outstanding Common Stock was canceled. The payments and distributions made to the Creditors' Trust pursuant to the terms and conditions of the Plan were made in complete satisfaction, release and discharge of all claims and demands against, liabilities of, liens on, obligations of and interest in Reinhold (Reorganized Company). On May 21, 1999, pursuant to a Stock Purchase Agreement, dated May 18, 1999, between the Creditors' Trust, the holder of all of the outstanding shares of the Class B Common Stock of the Company and Reinhold Enterprises, Inc., a newly formed Indiana corporation ("REI"), the Creditors' Trust sold 997,475 shares of Class B Common Stock owned by it to certain purchasers designated by REI (the "Purchasers"). These shares represent approximately 49.9% of the outstanding common stock of the Company. Pursuant to the Company's Certificate of Incorporation, upon consummation of the sale of the shares to the Purchasers, all of the 1,020,000 outstanding shares of Class B Common Stock (including those retained by the Creditors' Trust) were automatically converted into 1,020,000 shares of Class A Common Stock. In connection with the Stock PurchaseAgreement, the amount of authorized Class A Common Stock changed from 1,480,000 shares to 2,500,000 shares. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements as of and for the years ended December 31, 1999 and 1998, include the accounts of Reinhold and its wholly owned subsidiary NP Aerospace Limited (NP Aerospace) which was acquired on April 24, 1998. All material intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers cash in banks, commercial paper, demand notes, and similar short-term investments purchased with maturities of less than three months as cash and cash equivalents for the purpose of the statements of cash flows.
Cash and cash equivalents consist of the following (in thousands): December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash in banks $ 707 722 Money market funds 8,712 2,900 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 9,419 3,622 - ------------------------------------------------------------------------------------------------------------------------------------
INVENTORIES Inventories are stated at the lower of cost or market on a first-in, first-out (FIFO) basis. Inventoried costs relating to long-term contracts and programs are stated at the actual production costs, including factory overhead, initial tooling, and other related non recurring costs incurred to date, reduced by amounts related to revenue recognized on units delivered. ACCOUNTING FOR GOVERNMENT CONTRACTS Substantially all of the Company's government contracts are firm fixed price. Sales and cost of sales on such contracts are recorded on units delivered. Estimates of cost to complete are reviewed and revised periodically throughout the contract term, and adjustments to profit resulting from such revisions are recorded in the accounting period in which the revisions are made. Losses on contracts are recorded in full as they are identified. Amounts billed to contractors of the U.S. Government included in accounts receivable at December 31, 1999 and 1998 were $1,065,000 and $889,000, respectively. 26 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) PROPERTY AND EQUIPMENT The Company depreciates property and equipment principally on a straight-line basis based over estimated useful lives. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.
Property and equipment, at cost, consists of the following (in thousands): Useful life December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Undeveloped land - $ 900 900 Buildings 10 years 848 352 Leasehold improvements 5-6 years 838 838 Machinery and equipment 5-25 years 7,178 6,763 Furniture and fixtures 3-10 years 672 674 Construction in process - - 5 - ------------------------------------------------------------------------------------------------------------------------------------ 10,436 9,532 Less accumulated depreciation and amortization 4,710 4,056 - ------------------------------------------------------------------------------------------------------------------------------------ $ 5,726 5,476 - ------------------------------------------------------------------------------------------------------------------------------------
When property is sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of earnings. Maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized. The undeveloped land aggregating $900,000 is held for sale by the Company. OTHER ASSETS Other assets consist primarily of goodwill. Goodwill represents the excess of purchase price over fair value of net assets acquired, and is amortized on a straight-line basis over 10 years. Goodwill and related accumulated amortization included in other assets at December 31, 1999 and 1998 amounted to $1,118,000 and $485,000, and $1,118,000 and $369,000, respectively. ACQUIRED BUSINESS On April 24, 1998, NP Aerospace Limited purchased from Courtaulds Aerospace Limited (CAL), a U.K. Corporation, which is a wholly owned subsidiary of Courtaulds plc, a U.K. Corporation, certain assets (consisting of Accounts Receivable, Inventory, Machinery and Equipment, Land and Intellectual Property and Patents) and assumed certain liabilities of the Ballistic and Performance Composites Division of CAL. Reinhold, as the Guarantor for NP Aerospace, became obligated to pay to Courtaulds plc net consideration consisting of (a) Two Million Two Hundred Thousand pounds sterling ((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) cash on the Closing Date and (b) within 120 days following the end of each of the calendar years 1998 through 2001, a cash amount equal to 25% of the Pre-tax Profit on the light armored vehicle business only, the maximum aggregate amount of which shall not exceed Twenty Million pounds sterling ((pound)20,000,000). Additional payments will be capitalized as part of the purchase price, when and if earned. In the year ended December 31, 1999, additional payments earned totalled (pound)140,000 ($227,000). The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of the acquired business have been included in the consolidated financial statements from April 24, 1998. The excess of the fair value of the net identifiable assets acquired over the purchase price has been allocated to fixed assets as follows (in thousands): Working capital $ 3,360 Severance costs (403) - -------------------------------------------------------------------------------- Net identifiable assets 2,957 - -------------------------------------------------------------------------------- Purchase price 3,707 Deferred consideration 227 - -------------------------------------------------------------------------------- Allocated to property, plant and equipment $ 977 - -------------------------------------------------------------------------------- 27 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) The pro forma unaudited results of operations for the year ended December 31, 1998, assuming consummation of the purchase as of January 1, 1998 are as follows (in thousands, except earnings per share data): Year ended December 31, 1998 - -------------------------------------------------------------------------------- Net sales $30,918 Net income $ 1,567 Basic and diluted earnings per share $ 0.78 INCOME TAXES The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. As more fully described in note 13 of notes to consolidated financial statements, income tax benefits realized from temporary differences and operating loss carry forwards prior to the chapter 11 reorganization described above are recorded directly to additional paid-in capital. 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.
The reconciliations of basic and diluted weighted average shares are as follows: December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $3,570 1,435 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares used in basic computation 1,999 1,999 Dilutive stock options 7 - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares used for diluted calculation 2,006 1,999 - ------------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME The Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income", effective January 1, 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Total comprehensive income is reported in the Consolidated Statements of Stockholders' Equity and Comprehensive Income in the financial statements and includes net income, changes in the additional pension liability in excess of unrecognized prior service cost and changes in foreign currency translation. STOCK OPTION PLAN The Company accounts for its stock-based compensation in accordance with the provisions of SFAS No. 123 "Accounting For Stock-Based Compensation". Under the provisions of SFAS No. 123, the Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. PENSION AND OTHER POSTRETIREMENT PLANS The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the last years of service before retirement. The cost of this program is being funded currently. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132 does not change the measurement or recognition of these plans, however, it standardizes the disclosure requirements. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and income and expense and disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 28 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company accounts for long lived assets and certain intangibles including goodwill at amortized cost. As part of an ongoing review of the valuation and amortization of long-lived assets, management assesses the carrying value of such assets, if facts and circumstances suggest that they may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. As of December 31, 1999 and 1998, no assets were considered impaired. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the following financial instruments approximate fair value because of the short maturity of those instruments: cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses and current installments of long term debt. The long term debt bears interest at a variable market rate, and thus has a carrying amount that approximates fair value. FOREIGN CURRENCY The reporting currency of the Company is the United States dollar. The functional currency of NP Aerospace is the UK pound sterling. For consolidation purposes, the assets and liabilities of the Company's subsidiary are translated at the exchange rate in effect at the balance sheet date. The consolidated statements of earnings are translated at the average exchange rate in effect for the year ended Dember 31, 1999 and from the date of acquisition through December 31, 1998. Exchange differences arise from the valuation rates of the intercompany accounts and are taken directly to Stockholders' equity. The exchange rate at December 31, 1999 and 1998 was $1.62 and $1.66, respectively for both the balance sheet and consolidated statement of earnings. RECLASSIFICATIONS Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation. 3 INCOME TAXES
The income tax provision consists of (in thousands): Year ended Year ended December 31, 1999 December 31, 1998 (as restated) (as restated) - ------------------------------------------------------------------------------------------------------------------------------------ Federal $1,201 612 State 383 129 Foreign 650 3 - ------------------------------------------------------------------------------------------------------------------------------------ Total $2,234 744 - ------------------------------------------------------------------------------------------------------------------------------------
The income tax expense for the years ended December 31, 1999 and 1998 was $2,234,000 and $744,000, respectively, and differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to pretax income as a result of the following (in thousands): Year ended Year ended December 31, 1999 December 31, 1998 (as restated) (as restated) - ------------------------------------------------------------------------------------------------------------------------------------ Taxes at statutory Federal rate $ 1,973 741 State taxes, net of Federal tax benefits 253 86 Rate difference on foreign income (85) (137) Non-deductible expenses 55 54 Other 38 - - ------------------------------------------------------------------------------------------------------------------------------------ Total provision for income tax expense $ 2,234 744 - ------------------------------------------------------------------------------------------------------------------------------------
29 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: December 31, 1999 December 31, 1998 (as restated) (as restated) - ------------------------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Adjustments from quasi-reorganization $ 595 595 Net operating loss carryforwards 11,083 12,221 Inventory reserves 210 240 Other reserves 32 396 - ------------------------------------------------------------------------------------------------------------------------------------ Total gross deferred tax assets 11,920 13,452 Less valuation allowance (11,199) (12,789) - ------------------------------------------------------------------------------------------------------------------------------------ Net deferred tax assets 721 663 Deferred tax liabilities: Pension (376) (183) Depreciation (345) (480) - ------------------------------------------------------------------------------------------------------------------------------------ Total gross deferred tax liabilities (721) (663) Net deferred tax assets $ - -
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will not realize the benefits of these deductible differences at December 31, 1999. At December 31, 1999 and 1998, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $31,782,000 and $34,664,000, respectively. At December 31, 1999, the Company also had net operating loss carryforwards for State income tax purposes of approximately $5,551,000. The Company may utilize the Federal net operating losses by carrying them forward to offset future Federal taxable income, if any, through 2011. The Company may utilize the State net operating losses by carrying them forward to offset future State taxable income, if any, through 2001. Benefits realized from loss carryforwards arising prior to the reorganization have been recorded directly to additional paid-in capital. Such benefits amounted to $1,471,000 in 1999 and $703,000 in 1998. See note 13 to notes to consolidated financial statements. Pursuant to the Plan, Keene (predecessor company) transferred certain assets on July 31, 1996 to the Creditors' Trust. Certain assets at the date of transfer were not capable of being valued until the resolution of pending litigation. The Company anticipates a future tax benefit; however, since the value of certain assets is not currently quantifiable and the extent of any potential benefit resultant upon the transfer of the assets is not estimable, the Company has not disclosed nor recorded a deferred tax benefit in the accompanying consolidated financial statements. 30 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) 4 LONG TERM DEBT On April 22, 1998, the Company borrowed $2,268,000 from The CIT Group Credit/Finance (CIT) to fund a portion of the purchase consideration due to Courtaulds Aerospace. The Company had previously entered into a Five Year Loan and Security Agreement with CIT in the amount of Four Million Dollars ($4,000,000). The term portion of the loan ($2,268,000) was payable in equal monthly principal payments of $37,800 plus interest at prime plus 1.75% and was secured by fixed assets and land. The remainder of the CIT credit facility was a revolver of One Million Seven Hundred Thirty-Two Thousand Dollars ($1,732,000), which had never been used. On April 16, 1999, the Company repaid the outstanding loan with the CIT Group Credit/Finance through a refinancing with Bank of America National Trust and Savings Association ("B of A") and cancelled the revolver. The new credit facility with B of A is a term loan in the amount of $1,861,478 payable in 48 equal monthly principal installments of $38,780 plus interest at a rate which approximates LIBOR plus 1.75% and is secured by fixed assets. The B of A term loan contains various covenants to which the Company must adhere. At December 31, 1999, the Company was in compliance with the covenants. At December 31, 1999, maturities of long term debt were as follows (in thousands): 2000 $ 503 2001 465 2002 465 2003 195 - -------------------------------------------------------------------------------- $1,628 - -------------------------------------------------------------------------------- 5 STOCKHOLDERS' EQUITY Capital stock consists of 45,000,000 and 2,500,000 authorized common shares, $0.01 par value per share, of which 1,998,956 and 978,956 of Class A were issued and outstanding at December 31, 1999 and 1998, respectively, and 1,020,000 shares of Class B were outstanding at December 31, 1998. There were 5,000,000 preferred shares authorized at December 31, 1999, however, none were issued or outstanding. 6 STOCK OPTIONS STOCK INCENTIVE PLAN On July 31, 1996, the Company established the Reinhold Stock Incentive Plan for key employees. The Reinhold Stock Incentive Plan permits the grant of stock options, stock appreciation rights and restricted stock. The total number of shares of stock subject to issuance under the Reinhold Stock Incentive Plan may not exceed 100,000. The maximum number of shares of stock with respect to which options or stock appreciation rights may be granted to any eligible employee during the term of the Reinhold Stock Incentive Plan may not exceed 10,000. The shares to be delivered under the Reinhold Stock Incentive Plan may consist of authorized but unissued stock or treasury stock, not reserved for any other purpose. On June 3, 1999, the Compensation Committee of the Board of Directors granted 73,000 stock options to key employees at an option price of $8.25 per share, the prevailing market rate on that date. The options shall not be exercisable in whole or in part until three years after the grant date and are exercisable up to ten years from the grant date. On June 3, 1999, the Board of Directors approved and adopted the Reinhold Industries, Inc. Stock Option Agreement by and between the Company and Michael T. Furry, granting Mr. Furry the option, effective June 3, 1999, to acquire up to 90,000 shares of Class A common stock of the Company at fair market value at that date ($8.25 per share). Terms of theAgreement are equivalent to those in the Reinhold Stock Incentive Plan. 31 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and the related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options approximates the fair value of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions for 1999: - -------------------------------------------------------------------------------- Risk free interest rate 6.5% - -------------------------------------------------------------------------------- Dividend yield - - -------------------------------------------------------------------------------- Volitility factor 70% - -------------------------------------------------------------------------------- Weighted average life (years) 4.1 Using the Black-Scholes Option Pricing Model, the estimated weighted-average grant date fair value of options granted in 1999 was $4.86. The pro forma net income assuming the amortization of the estimated fair values over the option vesting period and diluted earnings per common share, had the fair value method of accounting for stock options been used, would have been as follows (in thousand, except per share data): - -------------------------------------------------------------------------------- Pro forma net income $3,417 - -------------------------------------------------------------------------------- Pro forma earnings per share: Basic $1.71 Diluted $1.70 - -------------------------------------------------------------------------------- The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different than those of traded options, and because changes in the assumptions can materially affect the fair value estimate, in management's opinion, the existing models may not necessarily provide a reliable single measure of the fair value of its employee stock options. A summary of the status of the option plans as of and for the changes during the year ended December 31, 1999 is presented below: - ------------------------------------------------------------------------------------------------------------------------------------ Number of shares Low High Weighted average exercise price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding December 31, 1998 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Granted in 1999 169,000 $8.25 $11.25 $8.35 Forfeited during 1999 6,000 $8.25 $ 8.25 $8.25 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding December 31, 1999 163,000 $8.25 $11.25 $8.35 - ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999, the weighted average remaining contractual life of options outstanding is 9.4 years. No options are currently exercisable. 7 PENSION PLAN The Company has a pension plan covering substantially all employees. The benefits paid under the pension plan generally are based on an employee's years of service and compensation during the last years of employment (as defined). Annual contributions made to the pension plan are determined in compliance with the minimum funding requirements of ERISA, using a different actuarial cost method and different actuarial assumptions than are used for determining pension expense for financial reporting purposes. Plan assets consist principally of publicly traded equity and debt securities.
Net pension cost included the following (in thousands): Year Ended Year Ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost $ 142 113 Interest cost on benefits earned in prior years 800 839 Expected return on assets (921) (972) Amortization of net obligation at transition 25 20 Amortization of net loss 129 6 - ------------------------------------------------------------------------------------------------------------------------------------ Net pension cost $ 175 6
32 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd)
The following table sets forth a reconciliation of the pension plan's benefit obligation at December 31, 1999 and 1998 (in thousands): 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation at beginning of period $12,699 11,812 Service cost 142 137 Interest cost 800 1,051 Actuarial loss/(gain) (649) 1,049 Benefits paid (1,105) (1,350) - ------------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation at end of period $11,887 12,699 - ------------------------------------------------------------------------------------------------------------------------------------
The following table sets forth a reconciliation of the pension plan's assets at December 31, 1999 and 1998 (in thousands): 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at beginning of period $10,755 11,432 Actual return on assets 1,685 345 Employer contributions 479 328 Benefits paid (1,105) (1,350) - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of period $11,814 10,755
The following table sets forth a reconciliation of the pension plan's funded status at December 31, 1999 and 1998 (in thousands): 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation at end of period $11,887 12,699 Fair value of plan assets at end of period 11,814 10,755 - ------------------------------------------------------------------------------------------------------------------------------------ Funded status (73) (1,944) Unrecognized prior service cost (4) 1 Unrecognized net obligation at transition 20 40 Unrecognized net loss 1,020 2,562 - ------------------------------------------------------------------------------------------------------------------------------------ Prepaid pension cost at end of period $ 963 659 - ------------------------------------------------------------------------------------------------------------------------------------ Intangible asset at December 31, $ - 41 Additional minimum liability at December 31, - (2,290) - ------------------------------------------------------------------------------------------------------------------------------------ Additional pension liability in excess of prior service cost at December 31, $ - (2,249) - ------------------------------------------------------------------------------------------------------------------------------------
Assumptions used in accounting for the pension plan were: December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Discount rate 7.25% 6.5% Rate of increase in compensation levels 5.0 5.0 Expected long-term rate of return on assets 9.0 9.0
The unrecognized prior service cost and the unrecognized net loss are being amortized on a straight-line basis over the average future service of employees expected to receive benefits under the plans. The unrecognized net obligation at transition is being amortized on a straight-line basis over 15 years. 8 OPERATING SEGMENTS The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" as of December 31, 1998. SFAS No. 131 establishes new standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. Reinhold is a manufacturer of advanced custom composite components and sheet molding compounds for a variety of applications in the United States and Europe. The Company generates revenues from four operating segments: Aerospace, CompositAir, Commercial and NP Aerospace. Management has determined these to be Reinhold's operating segments based upon the nature of their products. Aerospace produces a variety of products for the U.S. military and space programs. CompositAir produces components for the commercial aircraft seating industry. The Commercial segment produces lighting housings and pool filters. The United Kingdom includes NP Aerospace, our subsidiary located in Coventry, England, and produces products for law enforcement, lighting, military, automotive and commercial aircraft. 33 Reinhold Industries, Inc. and Subsidiary 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). December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales Aerospace $ 5,863 6,165 CompositAir 15,955 11,214 Commercial 2,433 1,978 NP Aerospace 14,889 6,639 - ------------------------------------------------------------------------------------------------------------------------------------ Total sales $ 39,140 25,996 Income before income taxes Aerospace $ 1,241 1,587 CompositAir 2,088 94 Commercial 287 72 NP Aerospace 2,536 747 Unallocated corporate expenses (348) (321) - ------------------------------------------------------------------------------------------------------------------------------------ Total income before income taxes $ 5,804 2,179 Depreciation and amortization Aerospace $ 356 369 CompositAir 272 220 Commercial 155 150 NP Aerospace 163 64 - ------------------------------------------------------------------------------------------------------------------------------------ Unallocated corporate 82 96 Total depreciation and amortization $ 1,028 899 - ------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures Aerospace $ 117 63 CompositAir 540 458 Commercial 52 132 NP Aerospace 215 303 - ------------------------------------------------------------------------------------------------------------------------------------ Total capital expenditures $ 924 956 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets Aerospace $ 4,735 4,869 CompositAir 3,469 3,419 Commercial 1,024 1,144 NP Aerospace 9,455 8,015 Unallocated corporate 6,551 2,768 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 25,234 20,215 - ------------------------------------------------------------------------------------------------------------------------------------
The table below presents information related to geographic areas in which Reinhold operated in 1999 and 1998 (in thousands): December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales United States $18,662 14,920 United Kingdom 14,188 8,579 Botswana 1,942 - Germany 1,916 1,797 Northern Ireland 1,557 - Other Europe 875 700 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $39,140 25,996 - ------------------------------------------------------------------------------------------------------------------------------------
34 Reinhold Industries, Inc. and Subsidiary Notes to Consolidated Financial Statements (cont'd) 9 COMMITMENTS AND CONTINGENCIES LEASES The Company leases certain facilities and equipment under operating leases expiring through 2002. Total rental expense on all operating leases approximated $514,000 and $509,000 for 1999 and 1998, respectively. Minimum future rental commitments under noncancelable operating leases at December 31, 1999 are as follows (in thousands): 2000 $ 284 2001 133 2002 60 2003 4 - -------------------------------------------------------------------------------- $ 481 - -------------------------------------------------------------------------------- LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's financial position, results of operations, or liquidity. 10 BUSINESS AND CREDIT CONCENTRATIONS The Company's principal customers are prime contractors to the U.S. Government, other foreign governments and aircraft seat manufacturers. Sales to each customer that exceed 10% of total net sales for the periods presented were as follows (in thousands):
Year ended Year ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ B/E Aerospace $13,405 8,687 United Kingdom Ministry of Defense 6,356 * Alliant Techsystems * 3,077 - ------------------------------------------------------------------------------------------------------------------------------------ * Sales to these customers were less than 10% of total net sales for the period.
B/E Aerospace accounted for approximately 40% of the Company's accounts receivable balance at December 31, 1999 before any adjustments for the allowance for doubtful accounts. No other customer exceeded 10% of the Company's gross accounts receivable balance. The Company estimates an allowance for doubtful accounts based on the creditworthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company's estimate of its bad debts. 11 RELATED PARTY TRANSACTIONS On June 3, 1999, Reinhold entered into a two year agreement with Hammond, Kennedy, Whitney and Company ("HKW"), a private equity firm, to provide Reinhold and its subsidiaries with advise regarding strategic direction and merger and acquisition activities, including identifying potential acquisition candidates, for a fee of $20,000 per month. The agreement is automatically renewed thereafter for successive one year periods, unless termination notification is provided by either party within 120 days of the renewal date. Mssrs. Ralph R. Whitney, Jr. and Andrew McNally, IV, both members of the Board of Directors of Reinhold, are principals of HKW. Additionally, the Company pays a monthly legal retainer of $4,000 to Mr. Glenn Scolnick, also a principal of HKW. 12 SUBSEQUENT EVENT On March 9, 2000, Samuel Bingham Enterprises, Inc., a newly-formed wholly-owned subsidiary of Reinhold Industries, Inc., purchased certain assets and assumed certain liabilities of Samuel Bingham Company for $15.5 million in cash. A majority of the purchase price was financed through a five-year term loan with the Bank of America for $11.0 million with the balance being paid from cash on hand. Samuel Bingham Company is a manufacturer and supplier of graphic arts and industrial rollers for a variety of applications. 13 RESTATEMENT On July 31, 1996, the Company consummated its Plan of Reorganization under the Bankruptcy Code and emerged from bankruptcy. Pursuant to the guidelines provided by the American Institute of Certified Public Accountants in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), the Company adopted fresh start reporting as of the close of business on July 31, 1996. In accordance with SOP 90-7, benefits from net operating loss carryforwards arising prior to the Company's reorganization (emergence from bankruptcy proceedings) should be recorded as additional paid-in capital. The Company misapplied such benefits as reductions of income tax expense. The Company has recorded adjustments to restate its financial statements to correct the misapplication of such benefits. The effect of these adjustments was to reduce net income by $1,471,000 ($0.73 diluted earnings per share) in 1999 and $703,000 ($0.35 diluted earnings per share) in 1998. The impact of this restatement did not change total stockholders' equity for any period presented herein. Prior to 1995, the Company recorded liabilities of $1,565,000 for estimated costs related to a proposed plant relocation. The recognition of these liabilities did not meet the requirements of EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Accordingly, the Company has recorded adjustments to restate its financial statements to reverse these liabilities. The effect of these adjustments was to increase stockholders' equity and decrease accrued expenses by $1,565,000 for all periods presented. These adjustments did not impact the Company's results of operations for 1999 and 1998. 35 BOARD OF DIRECTORS Ralph R. Whitney, Jr. Chairman of The Board Chairman Hammond, Kennedy, Whitney & Company Michael T. Furry President and CEO Reinhold Industries, Inc. Andrew McNally, IV Managing Director Hammond, Kennedy, Whitney & Company CORPORATE OFFICERS Michael T. Furry President and CEO Brett R. Meinsen Vice President - Finance and Administration, Treasurer and Secretary CORPORATE OFFICES 12827 East Imperial Highway Santa Fe Springs, CA 90670 562 944-3281 562 944-7238 (fax) INVESTOR RELATIONS Contact Judy Sanson Reinhold Industries, Inc. REGISTRAR Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 ANNUAL MEETING The Annual Stockholders' Meeting will be held at the offices of Reinhold Industries, Inc. 12827 East Imperial Hwy Santa Fe Springs, CA on May 10, 2000 at 10:00 a.m. FORM 10-KSB Stockholders may obtain a copy of Reinhold's 10-KSB without charge by writing to Investor Relations Department TRANSFER AGENT Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 212 509-4000 INDEPENDENT AUDITORS KPMG LLP 355 South Grand Avenue Los Angeles, CA 90071 ATTORNEYS Petillon & Hansen 1260 Union Bank Tower 21515 Hawthorne Boulevard Torrance, California 90503 Wapnick & Alvarado 11268 W. Washington Blvd. Suite 200 Culver City, CA 90230 STOCK LISTING Reinhold common stock is listed on the OTC Bulletin Board Symbol - RNHDA STOCKHOLDER INFORMATION Market Price High Low - -------------------------------------------------------------------------------- First Quarter ended March 31, 1999 8 1/8 6 3/4 Second Quarter ended June 30, 1999 9 1/4 6 3/4 Third Quarter ended September 30, 1999 12 8 Fourth Quarter ended December 31, 1999 13 1/8 9 1/4 The Class A Common Stock of the Company is listed on the OTC Bulletin Board under the ticker symbol RNHDA. The table above sets forth the high and low sale prices of the Company's Class A Common Stock for each of the quarterly periods for the year ended December 31, 1999. 36 This page left blank Reinhold Industries, Inc. 12827 East Imperial Highway Santa Fe Springs, CA 90670 562 944-3281 EX-23 3 0003.txt CONSENT - KPMG EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Reinhold Industries, Inc. We consent to incorporation by reference on Form 10-KSB/A of Reinhold Industries, Inc. of our report dated February 16, 2000, except for Note 12, which is as of March 9, 2000, and Note 13, which is as of March 16, 2001, relating to the consolidated balance sheets of Reinhold Industries, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for the years ended December 31, 1999 and 1998 which reports appears in the December 31, 1999 Annual Report on Form 10-KSB/40 of Reinhold Industries, Inc. /S/ KPMG LLP Los Angeles, California April 12, 2001 EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary information extracted from the consolidated balance sheet and statement of earnings found on pages 21 and 22 of Reinhold's 1999 Annual Report to Stockholders, which is incorporated herein by reference. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 9,419 0 4,137 60 4,085 18,738 10,436 4,710 25,234 5,482 0 0 0 20 18,423 25,234 39,140 39,140 28,357 5,079 0 0 (100) 5,804 2,234 3,570 0 0 0 3,570 1.79 1.78
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