10-K 1 form10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (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, 2005 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. ------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED 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) Registrant's telephone number, including area code (562) 944-3281 Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which registered) NONE NONE ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, PAR VALUE $0.01 ------------------------------------------------------------------------------- Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO X --- ----- Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO X ---- ---- Indicate by check mark whether the registrant (1) filed all reports required to be filed by section 13 or 15(d) of the Securities 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 NO X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. X Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES NO X --- --- Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO X --- --- The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2005 was $76,409,000. The number of shares of common stock outstanding as of March 17, 2006 was 3,290,003. Documents incorporated in part by reference: Parts I, II and IV incorporate certain information by reference from the registrant's Annual Report to Stockholders for the fiscal year ended December 31, 2005. Part III incorporates certain information by reference from the registrant's definitive proxy statement for the annual meeting of Stockholders to be held on May 4, 2006, which proxy statement will be filed no later than 120 days after the close of the registrant's fiscal year ended December 31, 2005. From time to time, we make certain comments and disclosures in reports and statements filed with the Securities and Exchange Commission (SEC), including this report or statements made by our officers or directors which may be forward-looking in nature. Examples include statements related to Company growth, the adequacy of funds to service debt and our opinions about trends and factors which may impact future operating results. These forward-looking statements could also involve, among other things, statements regarding our intent, belief or expectation with respect to (i) the Company's results of operations and financial condition, (ii) the consummation of acquisition, disposition or financing transactions and the effect thereof on the Company's business, and (iii) the Company's plans and objectives for future operations and expansion or consolidation. Any forward-looking statements are subject to the risks and uncertainties that could cause actual results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements. Such risks and uncertainties may include: o Cyclicality of the markets for our products; o Loss of key customers; o Increased competition; o Technological obsolescence of our products; o Availability and prices of raw materials; o Significant product liability claims; or o Natural disasters. Any forward-looking statements are also subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions generally. These assumptions would be based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond the Company's control. As a result, you are cautioned not to rely on these forward-looking statements. You should be aware that forward-looking statements generally use words such as the Company "believes," "anticipates," "expects," "estimates" and similar statements. These statements are subject to certain risks and uncertainties which could cause actual results of operations to differ materially from expectations. You should consider any forward-looking statements in context with the various disclosures made by us about our businesses, including without limitation the risk factors more specifically described below in Item 1A. RISK FACTORS. Available Information We are subject to the informational requirements of the Securities Exchange Act of 1934 that require the Company to electronically file reports, proxy and information statements, and other information with the SEC. The public may read and copy our filings at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public can obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. We will provide electronic or paper copies of such filings free of charge upon request. We have adopted a Code of Ethics that applies to the Chief Executive Officer, Vice President - Finance and Administration and Controller. Nasdaq Rule 4350 (n) mandates that the Company adopt a Code of Ethics and require that it be applicable to all directors, officers and employees. A copy of the Business Ethics and Code of Conduct can be found on the Company's website at www.reinhold-ind.com. REINHOLD INDUSTRIES, INC. FORM 10-K INDEX PART 1 PAGE ------- Item 1 - Business 5 Item 1A - Risk Factors 11 Item 1B - Unresolved Staff Comments 14 Item 2 - Properties 14 Item 3 - Legal Proceedings 14 Item 4 - Submission of Matters to a Vote of Security Holders 15 PART II ------- Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6 - Selected Financial Data 16 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A - Quantitative and Qualitative Disclosures about Market Risk 17 Item 8 - Financial Statements and Supplementary Data 17 Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 18 Item 9A - Controls and Procedures 18 Item 9B - Other Information 18 PART III -------- Item 10 - Directors and Executive Officers of the Registrant 19 Item 11 - Executive Compensation 19 Item 12 - Security Ownership of Certain Beneficial Owners and Management 19 Item 13 - Certain Relationships and Related Transactions 19 Item 14 - Principal Accountant Fees and Services 19 PART IV ------- Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 20 SIGNATURES 25 EXHIBITS 27 CERTIFICATIONS 28 PART I Item 1. BUSINESS Reinhold Engineered Plastics, the forerunner to today's Reinhold Industries, Inc., was founded in 1928. The purpose of the business was the molding of components from Bakelite, the first commercially available polymer molding material. In the 1940's, Reinhold was a pioneer in making some of the earliest fiberglass plastic components for the aircraft industry such as radomes and antenna covers. In the early 1950's, with the advent of the missile industry, Reinhold moved into the newly created field of ablative composites. Ablative composites are fiber reinforced polymer structures which absorb, as they decay, the destructive thermal energy generated by burning rocket propellants or hypersonic re-entry. This field became Reinhold's core business for decades to come. In the 1970's, the molding of structures from fiberglass polyester sheet molding compound (SMC) was a new and growing industry in the Eastern United States. Reinhold was convinced that the potential of the SMC material was broad enough that markets in the West could be found and developed. These markets included swimming pool filter tanks and in-ground lighting housings. From the 1950's through the early 1980's, Reinhold went through a number of ownership and name changes. In June 1984, Reinhold was sold to Keene Corporation, an operating division of Bairnco Corporation. In 1990, following Bairnco's spin-off of its Keene Corporation subsidiary to Bairnco's shareholders, Reinhold became an incorporated (Delaware) entity and a direct wholly-owned subsidiary of Keene Corporation. 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. Reinhold did not file any petitions for relief under the Bankruptcy Code and continued to operate in the normal course of business. Keene's asbestos-related liabilities stem entirely from its 1968 purchase of Baldwin-Ehret-Hill, Inc. ("BEH"). Keene owned BEH, a manufacturer of acoustical ceilings, ventilation systems, and thermal insulation products, for approximately five 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, all stemming from Keene's ownership 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. 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, as modified (the "Plan") for solicitation. On June 12, 1996, the Bankruptcy Court and the U.S. District Court held a confirmation hearing on Keene's Plan . The Plan was confirmed by the U.S. District Court by order entered on June 14, 1996. On July 31, 1996, Keene's Plan became effective (the "Effective Date"). On the Effective Date, Keene's wholly-owned subsidiary, 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. 1,020,000 of the shares of common stock, identified as Class B Common Stock, were issued to the Trustees of a 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 stockholders of record as of June 30, 1996. All of Keene's previously outstanding common stock was canceled. Today, 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, aerospace and other commercial industries. Reinhold is currently organized in three operating segments as follows: Aerospace - The Aerospace business unit manufactures structural and ablative composite components mainly for subcontractors of the United States defense industry. These components include rocket nozzles, exit cones, re-entry heatshields, radomes, and airframe and missile frames. 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"). R&T is 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. On April 20, 2001, Reinhold purchased certain assets and assumed certain liabilities of Edler Industries, Inc. ("Edler"). Edler was a manufacturer of structural and ablative composite components mainly for subcontractors of the United States defense industry. The operation was renamed the "Thermal Insulation" division of Reinhold. Effective January 1, 2003, the Thermal Insulation operating segment was consolidated with the Aerospace operating segment. During 2005, Aerospace's sales decreased by 5% due primarily to decreased shipments of composite structures related to the space shuttle program. 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 Alliant Techsystems, Inc. constituted approximately 89% of this business unit's total sales in 2005. 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. Additionally, as a supplier to government contractors, nearly all of Aerospace's backlog is subject to termination. Cancellation of the Minuteman III Propulsion Replacement Program would have a significant impact on the profitability of this business unit. Sales related to this program are expected to continue through 2007 and drop significantly in 2008. Sales of components related to the Minuteman III Propulsion Replacement Program for 2005, 2004 and 2003 totaled approximately $14.5 million, $12.7 million and $14.5 million, respectively. Seating Products - In May 1994, Reinhold acquired CompositAir from SP Systems, Inc. In 2005, CompositAir was renamed the Seating Products business unit. Seating Products is a niche manufacturer of composite commercial aircraft seatbacks and other aircraft seating products. Seating Products has been in continuous production of composite seatback frames since 1980. Composites of epoxy, phenolic, or other resin systems, reinforced with aramid or other glass fibers, are laminated into the complex shapes required by today's feature-packed commercial aircraft seats. The weight of the frames is 30% to 40% less than equivalent aluminum frames. Seating Products operates in both Oxnard, California and Santa Fe Springs, California. Over 75% of Seating Products' 2005 sales were from one customer. Reinhold's future prospects will depend on the continued business of that customer and on Reinhold's continued status as a qualified supplier to that customer. In 2005, sales increased by 32% compared to 2004 due primarily to the addition of a new customer and improving economic conditions in the airline marketplace. Commercial - The Commercial business unit manufactures compression molded sheet molding compound (SMC) products for lighting, water filtration and other various commercial and aerospace applications. SMC formulations include thermosetting polymer matrix resins, glass fibers and other additives which provide strength, stiffness, and protection from corrosion, chemical environments and ultraviolet degradation. Sales in 2005 increased 8% from 2004 due primarily to higher selling prices for all products. NP Aerospace - On April 24, 1998, NP Aerospace Limited ("NP Aerospace"), a wholly-owned subsidiary of Reinhold, purchased from Courtaulds Aerospace Limited ("CAL"), 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. CAL is a U.K. Corporation, which is a wholly-owned subsidiary of Courtaulds plc, a U.K. Corporation. NP Aerospace operates in Coventry, England. NP Aerospace manufactures a wide variety of composite products including compression molded canopies for street lights, commercial aircraft seatback frames, aramid composite combat helmets, protective personal body armor, carbon composite radiography support couches and light-armored composite vehicle structures. On November 21, 2005, the Company sold 100% of the capital stock of NP Aerospace, to The Carlyle Group ("TCG") for $53.2 million, subject to a post-closing working capital adjustment. TCG required that NP Aerospace be cash free, free of all debt and delivered with a normal level of working capital. The purchase price was adjusted by $2.3 million during the first quarter 2006 to $50.9 million based on the final computation of closing date working capital. The purchase price adjustment was accrued as of December 31, 2005. Additional information on NP Aerospace is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 - 22 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Bingham - On March 9, 2000, Samuel Bingham Enterprises, Inc. ("Bingham"), a newly formed wholly-owned subsidiary of Reinhold, purchased certain assets and assumed certain liabilities of Samuel Bingham Company. Samuel Bingham Company is a manufacturer and supplier of graphic arts and industrial rollers for a variety of applications. Samuel Bingham was born in 1789 and began manufacturing rollers for the printing industry in 1848. Bingham has been in continuous existence since that date. In addition to serving the graphic arts marketplace, Bingham also serves other industries such as steel mills, paper mills, converters, metal coaters, textile mills and plastic processors. Products are manufactured from various elastomers including SBR, silicones, EPDM's, hypalons, Buna N, neoprenes, natural rubber, vinyl-nitriles, fluoroelastomers, polyether urethanes and polyester urethanes. During the three months ended September 30, 2004, management committed to a plan of action to sell Bingham. The decision to sell was based on continuing losses from operations and a negative long-term outlook in the marketplaces this subsidiary serves. On September 30, 2004, management determined that the plan of sale criteria in FASB No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," had been met. Accordingly, the carrying value of its fixed assets was adjusted to its fair value less costs to sell and goodwill was determined to be impaired in accordance with the criteria of FASB No 142. Fair value was determined based on the highest offer received from several potential strategic suitors. The resulting $5.7 million impairment charge was included in "Loss from operations of discontinued component" in the statement of operations. On December 17, 2004, Bingham sold certain assets and transferred certain liabilities to Finzer Roller, L.L.C. for $3.1 million in cash, subject to post-closing adjustments. The assets sold included accounts receivable, inventories, prepaid expenses, equipment, real property, tangible personal property, intellectual and other intangible property. Liabilities transferred include accounts payable, accrued expenses and defined benefit pension plan obligations. The purchase price was adjusted by $0.3 million during the first quarter 2005 to $2.8 million based on the final computation of closing date working capital. The purchase price adjustment was accrued as of December 31, 2004. The sales of Samuel Bingham Enterprises, Inc. and NP Aerospace Ltd. meet the criteria defined in FASB No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" as discontinued operations and are presented herein as such. Additional information on operating segments is set forth in Note 8 to the Consolidated Financial Statements on pages 46 through 47 and "Management's Discussion and Analysis of Financial Condition and Results of Operations " on pages 13 through 22 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Significant Customers Information about significant customers is set forth in Note 10 to the Consolidated Financial Statements on page 48 of Reinhold's 2005 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. 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. 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. 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 cannot 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. Refer to Item 3 for additional environmental legal proceedings. Patents and Trademarks Reinhold currently holds no registered patents or trademarks. Research and Development Research and development expenditures were approximately $278,000, $230,000 and $196,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Employees At December 31, 2005, Reinhold had 117 full-time employees and 32 part-time employees. Of these employees, 126 (94 full-time and 32 part-time) were employed in manufacturing and 23 (23 full-time and 0 part time) in administration, product development and sales. Approximately 97% of the personnel are based at Reinhold's Santa Fe Springs, California facility and approximately 3% are based at Reinhold's Oxnard, California facility. There are no employees represented by a labor union. Reinhold believes its workforce to be relatively stable and considers its employee relations to be excellent. Item 1A. RISK FACTORS Our business, financial condition, results of operations and cash flows may be affected by known and unknown risks, uncertainties and other factors. Any of these risks, uncertainties and other factors could cause the Company's future financial results to differ materially from recent financial results or from currently anticipated future financial results. In addition to those noted elsewhere in this report, the Company is subject to the following risks and uncertainties: Our markets are cyclical, leading to periodic declines in sales. The markets in which we sell our products are cyclical and have experienced periodic declines. Our sales are, therefore, unpredictable and tend to fluctuate based on a number of factors, including economic conditions and developments affecting the aerospace industry and the customers served. Although the market for our products sold for new commercial aircraft production currently appears to be experiencing a slight improvement, any downturn in commercial aircraft production could have a negative impact on our business, financial condition and operating results. We are dependent on a limited number of customers, which makes us vulnerable to the continued relationship with and financial health of those customers. Because a substantial portion of our business has been as a supplier to government contractors, we depend on a limited number of customers with which we do significant amounts of business. Our future prospects will depend on the continued business of such customers and on our continued status as a qualified supplier to such customers. We cannot guarantee that our current significant customers will continue to buy products from us at current levels. The loss of a key customer could have a material adverse effect on us. We compete with many companies that have greater financial, technical and operating resources than we do, and with whom we may not be able to compete successfully. We compete with many companies in the sale of ablative and structural composite products. The markets we serve are specialized and competitive. Several of our competitors have greater financial, technical and operating resources than we do. We cannot assure you that we will be able to continue to manufacture and sell our products profitably in competitive markets. Our products and processes are subject to risks from changes in technology. Our products and processes are subject to risks of obsolescence as a result of changes in technology. To address this risk, we invest in product design and development, and in capital expenditures. We cannot guarantee that our product design and development efforts will be successful, or that the amounts of money required to be invested for product design and development and capital expenditures will not increase materially in the future. Goodwill could be impaired in the future. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," we assess the fair value and recoverability of our long-lived assets, including goodwill. We make assessments whenever events and circumstances indicate the carrying value of an asset may not be recoverable from estimated future cash flows expected to result from the asset's use and eventual disposition. In doing so, we make assumptions and estimates regarding future cash flows and other factors to make our determination. The fair value of our long-lived assets and goodwill is dependent upon the forecasted performance of our business and the overall economic environment. When we determine that the carrying value of our long-lived assets and goodwill may not be recoverable, we measure any impairment based upon a forecasted discounted cash flow method. If these forecasts are not met, we may have to record additional impairment charges not previously recognized. In assessing the recoverability of our goodwill at December 31, 2005, we were required to make certain critical estimates and assumptions. These estimates and assumptions included that during the next several years we would make improvements in manufacturing efficiency, achieve reductions in operating costs, and obtain increases in sales and backlog. If any of these or other estimates and assumptions are not realized in the future, the Company may be required to record an impairment charge for the goodwill. The goodwill of the Company was $2,521,000 at December 31, 2005. Significant consolidation in the aerospace industry could adversely affect our business and financial results. The aerospace industry is experiencing significant consolidation, including among our customers, competitors and suppliers. Consolidation among our customers may result in delays in the award of new contracts and losses of existing business. Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely affect our ability to compete successfully. Consolidation among our suppliers may result in fewer sources of supply and increased cost to us. Our manufacturing operations may be adversely affected by the availability and increases in prices of raw materials and components. The failure of our suppliers to deliver on a timely basis raw materials and components to us, and increases in the prices of raw materials, may adversely affect our results of operations and cash flows. 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 our 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 used in our ablative applications. We cannot assure you that these developments will not have a significant impact on price or supply. Product liability claims in excess of insurance could adversely affect our financial results and financial condition. We face potential liability for personal injury or death as a result of the failure of products designed or manufactured by us. Although we maintain product liability insurance, any material product liability not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows. Damage or destruction of our facilities caused by earthquake or other causes could adversely affect our financial results and financial condition. Although we maintain standard property casualty insurance covering our properties, we do not carry any earthquake insurance because of the cost of such insurance. Our main property is located in California, an area subject to frequent and sometimes severe earthquake activity. Even if covered by insurance, any significant damage or destruction of our facilities could result in the inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to us. As a result, any significant damage or destruction of our properties could have a material adverse effect on our business, financial condition or results of operations. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES 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 130,000 sq. ft. Leased (Expires 2016) Manufacturing Oxnard, CA R&D 3,600 sq. ft. Leased (Expires 2008) Portland, OR Sub-Leased to Third Party 14,000 sq. ft. Leased (Expires 2006) Construction of a new building and additional improvements at the Santa Fe Springs location were substantially completed in 2001. Reinhold believes its facilities are utilized consistent with economic conditions and the requirements of its operations. Item 3. LEGAL PROCEEDINGS On August 11, 2000, the Environmental Protection Agency ("EPA") notified the Company that it may be a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), with respect to certain environmental liabilities arising at a site formerly known as the Casmalia Resources Hazardous Waste Management Facility, located in Santa Barbara County, California ("Casmalia Site"). The EPA has designated the Company as a "de minimis" waste generator at this site, based on the amount of waste at the Casmalia Site attributed to the Company. The Company is not currently a party to any litigation concerning the Casmalia Site, and based on currently available data, the Company believes that the Casmalia Site is not likely to have a material adverse impact on the Company's consolidated condensed financial position or results of operations. The Company is involved in various other 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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------- On November 17, 2005, on notice duly given, a special meeting of the stockholders of the Company (the "Special Meeting") was held, at which a quorum was present. At the Special Meeting, the stockholders of the Company approved the Share Sale Agreement dated as of September 26, 2005, and authorized the sale of all of the outstanding capital shares of the Company 's NP Aerospace subsidiary to TCG Guardian 2 Limited, an affiliate of The Carlyle Group The vote of the stockholders was 2,483,346 shares in favor, 39,722 shares against, and 3,369 shares abstaining. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) 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 55 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Reinhold's common stock is traded on the NASDAQ Capital Market 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. (b) The approximate number of common equity security holders is as follows: Approximate Number of Holders of Record Title of Class as of March 3, 2006 -------------- ------------------- Class A Common Stock, par value $.01 per share 1,224 (c) A 10% stock dividend was declared on May 1, 2002 payable to stockholders of record as of May 31, 2002. The dividend was paid on June 21, 2002. Fractional shares were paid in cash. Fractional share cash payments totaled $5,913.60. A 10% stock dividend was declared on April 30, 2003 payable to stockholders of record as of May 16, 2003. The dividend was paid on May 30, 2003. Fractional shares were paid in cash. Fractional share cash payments totaled $9,327.96. Data regarding the dividends paid on Reinhold's common stock for 2005 and 2004 is included in the "Selected Financial Data" on page 1 and under Stockholder Information on page 55 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA Reference is made to the "Selected Financial Data" on page 1 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 13 of Reinhold's 2005 Annual Report to Stockholders, which is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During 2005, the Company sold its NP Aerospace subsidiary and used a portion of the proceeds to pay off all of its outstanding debt. The Company's previously identified market risks, interest rates on outstanding debt and fluctuations in the value of the BPS to the United States Dollar, no longer exist at December 31, 2005. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information for Item 8 is included in Reinhold's consolidated financial statements as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005 and Reinhold's unaudited quarterly financial data for the two year period ended December 31, 2005, in the Consolidated Financial Statements (including the Consolidated Balance Sheet, Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income and Notes to Consolidated Financial Statements) and unaudited Quarterly Financial Data sections of Reinhold's 2005 Annual Report to Stockholders, which are incorporated herein by reference. The report of the independent registered public accounting firm on Reinhold's consolidated financial statements is on page 51 of Reinhold's 2005 Annual Report to Stockholders and is also incorporated herein by reference. Schedule II-A - Valuation and Qualifying Accounts Allowance for Doubtful Accounts Receivable (in thousands)
Balance at Additions Charged to Balance at Beginning of Costs and End of Period Expenses Other Deductions Period Fiscal Year Ended ---------------------------------------------------------------------------------------------------------- December 31, 2003 15 - - - 15 ---------------------------------------------------------------------------------------------------------- December 31, 2004 15 - - - 15 ------------------------------------------------------------------------------------------------------------ December 31, 2005 15 - - - 15 ------------------------------------------------------------------------------------------------------------
Schedule II-B - Valuation and Qualifying Accounts Inventory Reserves (in thousands)
Balance at Additions Charged to Balance at Beginning of Costs and End of Fiscal Year Ended Period Expenses Other Deductions Period ---------------------------------------------------------------------------------------------------------- December 31, 2003 125 - 113 - 238 ---------------------------------------------------------------------------------------------------------- December 31, 2004 238 - - 4 234 ---------------------------------------------------------------------------------------------------------- December 31, 2005 234 179 - - 413 ----------------------------------------------------------------------------------------------------------
Schedule II-C - Valuation and Qualifying Accounts Deferred Tax Valuation Allowance (in thousands)
Balance at Additions Charged to Balance at Beginning of Costs and End of Fiscal Year Ended Period Expenses Other Deductions Period --------------------------------------------------------------------------------------------------------- December 31, 2003 8,995 2,284 6,711 --------------------------------------------------------------------------------------------------------- December 31, 2004 6,711 2,482 4,229 ---------------------------------------------------------------------------------------------------------- December 31, 2005 4,229 4,229 - ----------------------------------------------------------------------------------------------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures As of December 31, 2005, an evaluation was performed by the Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. (b) Changes in Internal Controls There have been no significant changes in internal controls or in factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. Item 9B. OTHER INFORMATION None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to directors and officers of Reinhold is included in the definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, 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. EXECUTIVE COMPENSATION The information required by Item 11 is included in the definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is included in the definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is included in the definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, 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 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is included in the definitive proxy statement for the 2006 Annual Meeting of Stockholders, 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 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------- ----------- (a) Documents filed as part of this report: 1. Financial Statements: The following financial statements are contained in the Company's 2005 Annual Report to Stockholders: Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 Consolidated Balance Sheets at December 31, 2005 and 2004 Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income for the years ended December 31, 2005, 2004 and 2003 Notes to Consolidated Financial Statements See Part II, Item 8 of this report for information regarding the incorporation by reference herein of such financial statements. 2. Financial Statement Schedules: Certain schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. Schedule II -A - Valuation and Qualifying Accounts Schedule II - B - Valuation and Qualifying Accounts Schedule II - C - Valuation and Qualifying Accounts 3) EXHIBITS 2.1Keene 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, toKeene Corporation's Form 8-K filed with the Commission on June 28, 1996. 3.4 Second amended and restated Certificate of Incorporation and amended By-laws of Reinhold Industries, Inc., on Form DEFS14A filed with the Commission on September 24, 1999. 3.5 Third amended and restated Certificate of Incorporation of Reinhold Industries, Inc., on Form DEF14C filed with the Commission on October 10, 2000. 3.6 Amended and Restated By-Laws of Reinhold Industries, Inc. on form 8-K filed with the Commission on August 31, 2004. 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 referenceto 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 incorporated by reference to Exhibit 10.1 to the Company's Report 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 incorporated by reference to Exhibit 10.2 to the Company's Report 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 incorporated by reference to Exhibit 10.3 to the Company's Report on Form 10-QSB filed with the Commission on August 16, 1999. 10.8 Asset Purchase Agreement by and between Samuel Bingham Company, a Delaware corporation, and Samuel Bingham Enterprises, Inc. dated February 3, 2000 on Form 8-K/A filed with the Commission on May 23, 2000. 10.9 Credit Agreement between Reinhold Industries, Inc., Samuel Bingham Enterprises, Inc., NP Aerospace Limited (the "Borrowers") and LaSalle Bank National Association dated March 21, 2002 incorporated by reference to Exhibit 10.9 to the Company's Report on Form 10-Q filed with the Commission on May 9, 2002. 10.10 Amended and Restated Reinhold Industries, Inc. Stock Incentive Plan, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed with the Commission on December 1, 2002. ** 10.11 Directors Deferred Stock Plan dated September 30, 2002 incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-K filed with the Commission on March 28, 2003. ** 10.12 Asset Purchase Agreement by and among Reinhold Industries, Inc., Samuel Bingham Enterprises, Inc., and Finzer Roller, L.L.C. incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K filed with the Commission on December 17, 2004. 10.13 Amended and Restated Credit Agreement dated as of December 8, 2004 among Reinhold Industries, Inc., NP Aerospace Limited, as borrowers, and LaSalle Bank National Association filed on Form 10-K filed with the Commission on March 30, 2005. 10.14 Share Sale Agreement dated as of September 26, 2005 by and among Reinhold Industries, Inc. and TCG Guardian 2 Limited incorporated by reference to Annex A to the Company's Report on Form DEFM14A filed with the Commission on October 21, 2005. 10.15 First Amendment to Amended and Restated Credit Agreement dated as of November 18, 2005 among Reinhold Industries, Inc., as borrower, and LaSalle Bank National Association filed herewith. 13 Certain portions of 2005 Annual Report to Stockholders (with the exception of the information incorporated by reference into Items 1, 5, 6, 7, 7A and 8 of this report, Reinhold's 2005 Annual Report to Stockholders is not deemed to be filed as a part of this report) 21 Subsidiaries of the registrant NONE 23 Consent of Independent Registered Public Accounting Firm 31.1 Certification of CEO Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 31.2 Certification of CFO Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 32.1 Certification of CEO Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 32.2 Certification of CFO Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 ** Management compensation plans and agreements (b) REPORTS ON FORM 8-K Form 8-K was filed on November 21, 2005 announcing that the Company had completed the sale of its NP Aerospace Ltd. subsidiary to TCG Guardian 2 an affiliate of The Carlyle Group, for approximately 30 million pounds sterling in cash. Also on November 21, 2005, the Company entered into a First Amendment to its Amended and Restated Credit Agreement, dated December 8, 2004, with LaSalle Bank National Association and other participating lenders, pursuant to which the lenders made available to the Company a term loan in the maximum principal amount of $5.5 million and a revolving loan in the maximum principal amount of $4.5 million. Also on November 21, 2005, the Company announced that its Board of Directors declared a special dividend of $6.00 per share to all stockholders of record on December 16, 2005 payable on January 3, 2006. The special dividend will be funded by (1) the remaining net proceeds from the sale of NP Aerospace, and (2) the new credit facility with LaSalle Bank. The Company also announced that it will discontinue its previous policy of paying regular quarterly dividends. Form 8-K was filed on November 14, 2005 announcing the Company's third quarter 2005 financial results. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. REINHOLD INDUSTRIES, INC. Registrant Date: March 31, 2006 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 has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ Michael T. Furry March 31, 2006 -------------------------------------- Michael T. Furry- President and Director (Principal Executive Officer) /s/ Ralph R. Whitney, Jr. March 31, 2006 --------------------------------------- Ralph R. Whitney, Jr.- Chairman /s/ Andrew McNally, IV March 31, 2006 ------------------------------------- Andrew McNally, IV- Director /s/ Glenn Scolnik March 31, 2006 ------------------------------------------- Glenn Scolnik- Director /s/ Thomas A. Brand March 31, 2006 ----------------------------------------- Thomas A. Brand- Director /s/ Richard A. Place March 31, 2006 ------------------------------------------- Richard A. Place- Director /s/ C. Miles Schmidt, Jr. March 31, 2006 ---------------------------------------- C. Miles Schmidt, Jr.- Director /s/ Richard C. Morrison March 31, 2006 --------------------------------------- Richard C. Morrison - Director /s/ Matthew C. Hook March 31, 2006 --------------------------------------- Matthew C. Hook - Director