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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 0-15464
RADVA CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0715892
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Drawer 2900 First Street Station
Radford, Virginia 24143
(540) 639-2458
-------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (par. 229.405 of this chapter) 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. [ ]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 19, 1997 (see ITEM 5 for explanation of calculation): $ 755,103
Number of shares of common stock outstanding as of March 19, 1997: 4,104,727
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference to the registrant's proxy
statement for its annual meeting of stockholders scheduled for April 16, 1997.
DESCRIPTION OF BUSINESS
General Development of Business
RADVA Corporation (the "Company") was organized in 1962 as a Virginia
corporation to engage in the production of molded and fabricated products from
expandable polystyrene. Historically, the Company has specialized in the
production of customized expanded polystyrene packaging materials used to
protect products during shipment; however, the Company has developed a
composite building panel produced from expanded polystyrene and steel which it
sells under the trademark THERMASTRUCTURE. In November, 1995, The Company sold
80% interest in its subsidiary, THERMASTRUCTURE Ltd., which manufactures the
building panels and has rights to market licensing rights to territories in the
United States not previously licensed. The Company continues to market
manufacturing rights to its patented building panel system in territories
outside of the United States. The Company also operates a Custom Mold Division
which produces aluminum molds to supply the tools and dies used in its
protective packaging business and manufactures specialized machinery used in
the production of THERMASTRUCTURE building panels.
Industry Segments
The Company's continuing operations includes three principal industry segments:
the manufacture of protective packaging and similar materials, the manufacture
of THERMASTRUCTURE building panels, and licensing and related machinery sales.
Each of these segments is discussed in note 16 to the financial statements.
Principal Classes of Products
The following table sets forth the approximate relative percentages of total
net revenues (after intersegment eliminations) generated by the principal
classes of products produced by the Company in each of its principal industry
segments for each of the past three fiscal years.
Class of Product 1996 1995 1994
---------------- ---- ---- ----
PROTECTIVE PACKAGING AND
SIMILAR MATERIALS
Protective Packaging 92.9% 73.6% 68.9%
THERMASTRUCTURE Building Panels
License fees & machinery sales 2.9% 14.0% 10.5%
Panel sales & related revenue 4.2% 12.4% 20.6%
----- ----- -----
100.0% 100.0% 100.0%
Protective Packaging Products
The Company's protective packaging products include inserts and containers used
in shipping products such as electronic equipment and medical supplies. The
products are designed to reduce vibration, absorb shock, and provide insulation
against temperature extremes in accordance with customer specifications. The
products are manufactured at plants in Portsmouth and Radford, Virginia.
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In general, the Company's protective packaging products are molded or
fabricated from expandable polystyrene - a thermoplastic which can be expanded
to a pre-selected density and, when injected into a mold and subjected to
controlled heat and pressure, can be formed to practically any shape. The
Company also has the capability to produce protective packaging products from
other cellular plastic materials such as polyethylene and polypropylene and in
July 1985, entered into an agreement with the Atlantic Richfield Company
("ARCO") to purchase a copolymer resin marketed by ARCO under the trademark
ARCEL. The copolymer resin is substantially more expensive than polystyrene
resin but produces a product which can meet customer requirements for reusable
handling units and higher customer specifications for durability. In addition
to custom molded protective packaging products, the Company produces
proprietary packaging products for which the Company owns the molds.
The Company generally sells its protective packaging products to customers
located within 200 miles of its manufacturing plants. The products are shipped
to customers in trucks owned by the Company or by common carrier.
THERMASTRUCTURE Building Panels
The Company's THERMASTRUCTURE building panels are designed for use in the
construction of residential housing and commercial products. The panels are
manufactured from a composite of expanded polystyrene and steel and offer a
lightweight and durable alternative to traditional building materials such as
timber or metal. The panels can be used in the construction of load bearing
walls or interior partitions and in the manufacture of structural systems for
floors or roofs. The panels also offer substantial design flexibility as they
can be molded into conventional configurations or nonconventional shapes. In
order to promote acceptance of the panels and to demonstrate the reliability of
the panels in various climatic conditions, the Company has constructed
buildings using the THERMASTRUCTURE system in various locations throughout the
United States. The Company operated panel manufacturing facilities in Radford,
Virginia and Agat, Guam. The Guam subsidiary was sold in October 1990. The
Company sold 80% interest in its division which manufactures the panels in
November, 1995.
During 1992, the Company began shipping equipment to RADOSLAV, a Joint Venture
in which the Company owns a 31% interest, located at Pereslavl-Zalessky,
Russia, approximately 75 miles north of Moscow. RADOSLAV produces
THERMASTRUCTURE panels for sale in Russia and other European countries. The
Company and three Russian entities, Pereslavlstroy Trust, Slavich Corporation
and Argamak Corporation are the primary joint venture participants. The Joint
Venture agreement called for the Company to contribute technology, the right
for RADOSLAV to produce THERMASTRUCTURE panels under the Company's trademarks
and U.S. currency that is included in the investment account. The Russian
principals contributed a manufacturing facility of approximately 24,000 square
feet, and a sum of Russian currency.
Raw Materials and Suppliers
The principal raw material used by the Company in the production of protective
packaging products is expandable polystyrene resin. This material may be
obtained from several major suppliers. In addition, the Company uses several
copolymer resins in the manufacture of engineered expanded foam protective
packaging. Although the copolymer resins currently used by the Company are only
available under an agreement with ARCO, similar copolymer resins may be
obtained from other suppliers.
The principal raw materials used by the Company in the production of
THERMASTRUCTURE building panels are expandable polystyrene resin, adhesives,
and coil steel. These materials are available from numerous suppliers in the
United States and elsewhere.
Patents and Trademarks
The Company holds three United States patents relating to the THERMASTRUCTURE
system and certain corresponding patents in Canada, Mexico, and Great Britain.
These patents cover the THERMASTRUCTURE building panels, the manufacture of
THERMASTRUCTURE building panels and a method of combining THERMASTRUCTURE
building panels to construct a house. The Company pursues a policy of filing
for patents on any product development that it considers to be significant. The
Company has registered the trademark THERMASTRUCTURE and WALLFRAMETM in the
United States and has applied for registration in Great Britain.
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Seasonality
The Company ordinarily experiences a reduction in the manufacture and sale of
protective packaging products during the winter months after filling holiday
season orders. The demand for THERMASTRUCTURE building panels is affected by
the level of activity in the construction industry and housing market and can
be expected to decrease during the fall and winter seasons when there has
historically been a decrease in construction activity and housing sales.
Customers
The Company's protective packaging business has a broad base of customers;
however, one customer accounted for approximately 10.5% of protective packaging
revenues in 1997.
Backlog
The Company had approximately $828,000 in backlog orders for protective
packaging products as of December 31, 1996, compared to backlog orders of
approximately $713,000 as of December 31, 1995. Although the Company believes
that such backlog orders are firm, the purchase orders for protective packaging
products generally may be cancelled without cause by the customer. The Company
expects to fill all of these orders during 1997.
Competition
The protective packaging business is highly competitive, and some of the
Company's competitors are large and have greater financial and other resources
than the Company. The Company's competition in protective packaging products is
primarily from four local and regional manufacturers with plants within or
close to the Company's market area. The principal elements of competition in
the sale of protective packaging products are price and the ability to service
customers. Because of shipping costs and other factors, the Company has found
it difficult to compete for protective packaging business beyond a 200 mile
radius of the point of manufacture. The Company believes that its custom mold
division and technical design facility give it an advantage over competitors
within its market area who do not have the capacity to design and produce their
own molds for their protective packaging customers.
Research and Development
The Company maintains two laboratory and testing facilities within its
manufacturing plant in Radford, Virginia. The laboratory and testing
facilities, which consist of 2,000 square feet and 1,800 square feet,
respectively, are used for product testing, development of new products, and
quality control evaluations.
Regulation
The Company is subject to state and federal laws and regulations affecting its
business, including those promulgated under the Occupational Safety and Health
Act ("OSHA") and by the Environmental Protection Agency. The Company's
manufacturing facilities are subject to compliance with comprehensive OSHA
standards. The Company believes that its manufacturing facilities and processes
are currently in compliance with OSHA and does not anticipate capital
expenditures for environmental control facilities or for compliance with OSHA
standards during 1997. The Company does not believe that its compliance with
federal and state environmental regulations has had or will have a material
effect on its capital expenditures, earnings, or competitive position.
Employees
The Company employs approximately 150 persons. None of the Company's employees
is represented by a labor union, and the Company believes that its employee
relations are good.
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Executive Officers
The following table identifies and sets forth certain information about the
executive officers of the Company.
Name Age Position and Year of Election
- ---- --- -----------------------------
Luther I. Dickens 64 President (1965)
James M. Hylton 63 Secretary and Treasurer (1969)
ITEM 2. PROPERTIES
Real Estate
The real estate owned or leased by the Company and used in the
Company's primary business operations is described below.
(1) The Company owns approximately 10 acres of land in Radford,
Virginia, and a 71,000 square foot building located on the Radford property.
The building includes approximately 5,000 square feet of office space and
approximately 66,000 square feet of manufacturing space. The Radford property
is subject to deeds of trust which had outstanding balances as of December 31,
1996, aggregating approximately $2,774,567.
(2) The Company owns approximately 7 acres of land in Portsmouth,
Virginia, and a 44,000 square foot building located on the Portsmouth property.
The building includes approximately 2,000 square feet of office space and
approximately 42,000 square feet of manufacturing space. The Portsmouth
property is subject to a deed of trust which had an outstanding balance as of
December 31, 1996 of approximately $2,774,567.
(3) The Company leases approximately 12,000 square feet of
manufacturing space in Radford, Virginia, under a month-to-month lease which
requires monthly rental payments of $1,000. The property is used by the
Company's Custom Mold Division and is leased to the Company by a partnership in
which Mr. Dickens and Dr. Hylton are general partners.
(4) The Company rents approximately 6,000 square feet of office space
in Radford, Virginia, under a lease which requires monthly rental payments of
$3,700. The property is rented to the Company by a partnership in which Mr.
Dickens and Dr. Hylton have an interest.
Personal Property and Equipment
The personal property and equipment at the main Radford plant and the
Portsmouth plant consist principally of machinery and equipment used to produce
expanded polystyrene products. The personal property and equipment at the
Custom Mold Division in Radford consists of machine shop tools and pattern shop
tools and related aluminum foundry equipment. The personal property and
equipment at the THERMASTRUCTURE Machine Division in Radford consist of machine
shop tools and welding and electronic test equipment used primarily in the
construction of THERMASTRUCTURE panel molding machines.
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The Company owns 3 trucks and 12 trailers and leases 2 tractors which it uses
to ship products to customers. The Company owns 2 vans and 6 cars which it uses
principally for sales and sales service functions. The Company believes that
its present equipment is adequate, well maintained, and in good operating
condition.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
STOCK INFORMATION
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market and Price Information
The Company's common stock, par value $.01 per share (the "Common Stock"), has
been traded in the over-the-counter market since June 1986. The following table
provides the high and low bid quotations with respect to shares of the Common
Stock for the periods indicated as reported by the Dow Jones Historical Stock
Quote Reporter Service.
1996 1995 1994
---- ---- ----
High Low High Low High Low
First
Quarter 3/4 7/16 9/16 7/16 1 1/8 1
Second
Quarter 9/16 7/16 7/8 3/4 5/8 9/16
Third
Quarter 5/8 9/16 1 1/8 3/4 13/16 3/4
Fourth
Quarter 7/16 7/16 1 1/8 1 1 1/4 7/8
The foregoing quotations of high and low bid prices represent prices between
dealers and do not include retail mark-up, mark-down, or commissions. They do
not necessarily represent actual transactions. There was no established public
trading market for the Common Stock before June 1986.
The aggregate market value of the voting stock held by non-affiliates of the
Company as of March 19, 1997 shown on the facing page of this report was
calculated as follows: the number of shares beneficially owned by the officers
and directors of the Company as a group as of March 19, 1997 was subtracted
from 4,104,727, the total number of shares outstanding on that date, and the
resulting figure was multiplied by $.4375, the average of the bid and asked
prices of the Company's stock in the over-the-counter market on March 19, 1997.
The foregoing calculation should not be deemed an admission that any of the
officers or directors of the Company is an "affiliate" of the Company.
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Number of Stockholders
As of March 19, 1997, there were 317 record holders of the Common Stock.
Dividends
The Company has not declared cash dividends on the Common Stock during its
three most recent fiscal years. The declaration and payment of dividends is
entirely within the discretion of the Board of Directors of the Company and
will depend upon the earnings, capital requirements, and financial condition of
the Company. The Company anticipates that it will retain earnings for the next
several years to finance the development of its business.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED STATEMENTS OF
INCOME (LOSS) DATA:
Years Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollar amounts in thousands except per share data)
Net Revenues $9,720 $10,777 $11,641 $10,405 $10,958
Income (loss) from
continuing operations
before income taxes
and extraordinary
items -- 492 534 93 514
Income (loss) before
extraordinary items -- 482 524 93 339
Net income (loss) -- 482 524 93 514
Income (loss) per
common share before
extraordinary items -- .13 .14 .02 .09
Net income (loss) per
common share -- .13 .14 .02 .14
SELECTED BALANCE Years Ended December 31,
SHEET DATA: ---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Working capital $1,871 $2,151 $ (865) $(1,805) $(1,390)
Net property, plant
and equipment 2,497 2,308 3,567 2,900 2,847
Total assets 7,774 7,998 8,318 7,206 7,503
Long-term debt
(including current
maturities) 2,971 3,075 2,383 1,515 1,600
Stockholders' equity 3,180 3,179 2,357 1,833 1,741
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth the percentage relationship that certain items
in the statements of operations bear to the net revenues of the Company for
each year during the five-year period ended December 31, 1996. Additional
financial information as to the Company's three industry segments is set forth
in note 16 to the financial statements.
Years Ended December 31
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Manufacturing net revenues 97.1% 86.0% 89.5% 91.7% 86.6%
Licensing & related
machinery sales 2.9 14.0 10.5 8.3 13.4
----- ----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost and expense:
Cost of sales 75.1 69.4 70.2 74.1 70.2
Shipping and sales 8.2 9.0 9.9 12.7 11.9
General and administrative 12.9 13.5 13.2 10.2 10.7
Research and development .5 0.3 0.0 0.0 .2
----- ----- ----- ----- -----
96.7 92.2 93.3 97.0 93.0
----- ----- ----- ----- -----
Operating income (loss) 3.3 7.8 6.7 3.0 7.0
----- ----- ----- ----- -----
Other income (deductions)
Interest expense (3.3) (2.7) (2.5) (2.5) (2.6)
Interest income -- .1 .1 .3 .2
Other -- ( .0) .3 .1 .1
----- ----- ----- ----- -----
(3.3) (2.6) (2.1) (2.1) (2.3)
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes
and extraordinary item -- 4.6 4.6 .9 4.7
Income tax expense -- ( .1) .1 (.0) (1.6)
----- ----- ----- ----- -----
Income (loss) before
extraordinary item -- 4.5 4.5 .9 3.1
Extraordinary items -- .0 .0 .0 1.6
----- ----- ----- ----- -----
Net income (loss) 0% 4.5% 4.5% .9% 4.7%
===== ===== ===== ===== =====
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1996 Compared to 1995
The Company's 1996 revenues of $9,720,000 were less than 1995 revenues by
$1,057,000. The major component of this reduction was the result of a
$1,062,000 net gain on the sale of 80% interest in the Company's
THERMASTRUCTURE Panel Division included in 1995 revenues and, of course, not
repeated in 1996. Revenue reductions from the panel and door core operations
which were sold in the last quarter of 1995 were $420,000 and $315,000,
respectively. However the Shape Molding Division had increased revenues of
$901,000, representing an 11.4% increase over 1995. Both the Shape Molding and
Thermastructure Licensing and Machine Divisions are expected to report
significant revenue increases in 1997.
After eliminating the cost of license and machinery sales of $234,000 and
$60,000 in 1996 and 1995, respectively, cost of sales as a percentage of
manufacturing revenues decreased 5.1%, to 74.9% in 1996 from 80.0% in 1995. A
large factor in this reduction was the 1995 sale of the panel and door core
manufacturing divisions, which carried higher than Company average cost of
sales percentages.
Shipping and selling expenses, as a percentage of manufacturing net revenues,
decreased 2.0%, to 8.5% in 1996 from 10.5% in 1995. The primary factor in this
reduction occurred within shipping expenses at the Radford, Virginia plant
where costs were down $95,000. Even though sales were down at the Radford plant
by 5.5%, shipping costs were down 23.6%. Driver wages and warehouse labor were
both down $28,000 and $30,000, respectively, accounting for a large portion of
the reduced costs.
General and administrative expenses, as a percentage of manufacturing net
revenues, decreased 2.4%, to 13.3% in 1996 from 15.7% in 1995. Within corporate
services, wages were down $22,000, primarily as a result of the retirement of
one individual. Also within corporate services, travel and bank charges were
down $32,000 and $39,000, respectively. The almost elimination of bank charges,
other than interest, was a result of bank refinancing achieved in December of
1995.
1995 Compared to 1994
The Company experienced some very positive developments in 1995. The long
sought bank refinancing was achieved in December. The new financing, along with
profits and some additional equity investment, was responsible for a shift in
working capital from a negative $865,000 at December 31, 1994 to a positive
$2,151,000 at December 31, 1995. This is a dramatic swing in working capital
and is expected to enable the Company to operate more efficiently in 1996.
Another development, although not substantially reflected in 1995 operations,
was the signing of a supply contract with one of the Company's largest shape
molding/packaging customers. As a result, sales are expected to increase
significantly in 1996.
Our Portsmouth, Virginia plant had an outstanding year in product improvement
in 1995. As evidence of this good work, we were recently notified by Canon of
Virginia that RADVA was the winner of one of their Outstanding Supplier awards
for which the Company is justly proud. RADVA Corporation was one of only 15
organizations of 110 major suppliers so selected!
The last major development that needs to be discussed before comparing 1995
revenues and expenses to 1994 revenues and expenses is the sale of 80% interest
in the previously wholly owned subsidiary, THERMASTRUCTURE Ltd. The Company has
been somewhat over extended in the past, making it difficult to effectively
promote and market its THERMASTRUCTURE panel. Therefore, in November, 1995, the
Company negotiated the sale of a license for all areas in the United States not
previously licensed to an organization with a strong marketing background and
the financial strength and commitment to effectively market the panel. The sale
also included THERMASTRUCTURE molding equipment and a plant, net of the
mortgage liability. What was not included was the Company's machine
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1995 Compared to 1994, continued
manufacturing division and international rights. Since management felt that it
was important for RADVA Corporation to maintain an equity position in the newly
organized company, the sale was accomplished through the sale of 80% of the
stock of THERMASTRUCTURE, Ltd., after taking steps to include only the agreed
upon assets and license rights.
The Company's 1995 revenues of $10,777,000 were lower than 1994 revenues by
$864,000 representing a 7% decrease. This decrease consisted of the following
increases or (decreases) in 1995 as compared to 1994:
Shape Molding Division $ 207,000
Miscellaneous:
Gain on discounted note payoff (229,000)
Other miscellaneous (4,000)
THERMASTRUCTURE Division:
Panel sales (1,252,000)
Door Core sales (438,000)
RADVA RU supply sales 566,000
License and machinery sales 286,000
-----------
$ (864,000)
Increased sales by the Shape Molding Division were primarily a result of price
increases however more dramatic increases in sales are expected in 1996. An
unusual decrease resulted from a Company negotiated discount payoff of a note
in 1994. This payoff resulted in a $229,000 gain not repeated in 1995. The
reduction in panel sales was primarily due to unusually large sales of panels
shipped to Mexico in 1994, not matched by similar sales in 1995. The reduction
of these sales was partly a result of the licensee to whom the sales were made
having purchased panel manufacturing equipment from the Company in 1995. The
reduced door core sales reflects the Company's decision to discontinue that
product line. The Company began a new project in 1995, identified above as
RADVA RU supply sales. These are building materials purchased in the United
States and shipped to Russia to contractors using THERMASTRUCTURE panels
manufactured by the Company's Russian joint venture.
After eliminating the cost of license and machinery sales from cost of sales of
$60,000 and $152,000 in 1995 and 1994, respectively, and after eliminating
miscellaneous revenues of $8,000 and $239,000 in 1995 and 1994, respectively,
cost of sales, as a percentage of manufacturing revenues increased to 80.1% in
1995 from 78.8% in 1994. The $239,000 miscellaneous revenues in 1994,
eliminated above, consisted primarily of $229,000 from a discounted payoff of a
note payable. This increase in the cost of sales percentage was primarily
caused by increases in cost of sales percentages in panels and door cores. The
cost of sales percentage for the largest component of manufacturing net
revenues, shape molding/packaging, went down to 73.4% in 1995 from 76.0% in
1994. The components of manufacturing net revenues largely responsible for the
overall increase will not be a factor in 1996. Panel manufacturing has been
transferred to the purchasers of THERMASTRUCTURE, Ltd. and the door core
manufacturing operation has been discontinued. The cost of panel manufacturing
had increased primarily due to the non repeat of the large sales to Mexico in
1994. It is expected that the new marketing efforts of THERMASTRUCTURE, Ltd.
will result in increased sales and, therefore, a reduced cost of sales
percentage in 1996.
Shipping and selling expenses decreased, as a percentage of adjusted
manufacturing net revenues, to 10.5% in 1995 from 11.3% in 1994. This reduction
was primarily due to reduced expenses in the Shape Molding Division. General
and administrative expenses decreased $76,000, to $1,456,000 in 1995 from
$1,532,000 in 1994. This favorable shift was largely a result of reductions in
travel, wages, and phone expenses.
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1994 Compared to 1993
The Company's 1994 revenues of $11,641,000 were greater than 1993 revenues by
$1,236,000, representing an approximate 12% increase. This increase consists of
the following changes among divisions or profit centers:
Shape Molding Division $ (859,000)
THERMASTRUCTURE Division:
Panel sales 1,267,000
Door core sales 279,000
License and machinery sales 549,000
----------
$1,236,000
==========
Within the Shape Molding Division, reduced sales to several large customers
resulted in reduced total revenues. However, this loss of revenue is expected
to be reversed in 1996 due to the implementation of a new and significant sales
contract with the Company's largest customer.
The increase in THERMASTRUCTURE panel sales was almost entirely the result of
one large project with one of the Company's licensees. Increases in license and
machinery sales resulted from the booking of a $1,000,000 license in December,
1994. The agreement originally called for a much larger fee for all unsold
rights (see note 3), however the areas covered by the agreement are being
reduced commensurate with reduced payments.
After eliminating the cost of license and machinery sales of $152,000 and
$433,000 in 1994 and 1993, respectively, cost of sales, as a percentage of
manufacturing revenues increased .8%, to 77.0% in 1994 from 76.2% in 1993.
Although the percentage change was small, there were two significant
differences. The cost of sales percentage for THERMASTRUCTURE panels was
dramatically reduced in 1994, primarily as a result of an approximate
$1,200,000 sales contract with a licensee, and cost of sales in 1993 were
reduced by a $230,000 discounted payoff of amounts owing to a raw material
supplier.
As a percentage of manufacturing revenues, shipping and selling expenses
decreased 2.9% and general and administrative expenses increased 3.6%. A
portion of these changes were caused by a shifting of cost from shipping and
selling to general and administrative expenses in such areas as phone expenses
and wages. In addition to these allocation shifts, general and administrative
travel increased $65,000, from $32,000 in 1993 to $97,000 in 1994, representing
.6% of 1994 manufacturing revenues.
Impact of Inflation
The Company's standard purchase order form allows it to increase the price of
its protective packaging products on 30 days' notice and, therefore, to pass on
increases in the cost of raw materials. A significant increase in the rate of
inflation and a concomitant increase in interest rates could adversely affect
the Company since a large portion of the Company's indebtedness is linked to
the prime interest rate.
Liquidity and Capital Resources
Even though the Company was only marginally profitable in 1996, more
significant earnings were achieved in each of the five previous years. The
Company obtained a major refinancing package in December, 1995 which
significantly improved its working capital position from a negative $865,000 in
December, 1994 to a positive balance of $2,151,000 in December, 1995. The
working capital position remained high at $1,871,000 at December, 1996. This
financing package consisted of a $3,000,000 term loan and a $500,000 line of
credit, of which $200,000 remained available at December, 1996.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
- -----------------------------
Page
----
Independent Auditors' Reports............................................ 14
Balance Sheets as of December 31, 1996 and 1995.......................... 15-16
Statements of Operations for the Years Ended
December 31, 1996, 1995, and 1994..................................... 17
Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995, and 1994............................... 18
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995, and 1994............................... 19-20
Notes to Financial Statements as of December 31,
1996, 1995, and 1994.................................................. 21-30
Index to Financial Statement Schedules
- --------------------------------------
Schedule V - Property, Plant and Equipment.............................. 31
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant, and Equipment........................ 32
Schedule VIII - Valuation and Qualifying Accounts........................ 33
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PERSINGER & COMPANY, L.L.C.
Certified Public Accountants
----------------------------
203 W. Grayson Street Telephone (540) 236-8135
P.O. Box 797 FAX (540) 236-0797
Galax, Virginia 24333
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
RADVA Corporation
We have audited the consolidated financial statements and the consolidated
financial statement schedules of RADVA Corporation and subsidiary as of and for
the years ended December 31, 1996 and 1995 as listed in the accompanying index.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RADVA Corporation
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. In addition, in our opinion, the 1996
and 1995 financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
/s/ Persinger & Company, L.L.C.
Galax, Virginia
January 24, 1997
A Virginia Limited Liability Company * Members American Institute of Certified
Public Accountants
14
15
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents (Notes 2 and 3) $ 23,625 $ 349,946
---------- ----------
Accounts and notes receivable (Notes 8 and 9) 1,665,234 1,630,776
Receivable - other (Notes 3 and 16) 1,197,308 1,272,308
Less allowance for doubtful accounts 172,560 203,251
---------- ----------
Net receivables 2,689,982 2,699,833
---------- ----------
Inventories (Notes 8 and 9):
Finished goods 397,404 374,595
Work-in-process 28,521 53,490
Raw materials and supplies 243,416 252,897
Machinery inventory 239,627 282,597
---------- ----------
Total inventories 908,968 963,579
---------- ----------
Prepaid expenses 133,819 90,238
Other current assets 30,238 31,843
---------- ----------
Total current assets 3,786,632 4,135,439
---------- ----------
Property, plant and equipment, at cost (Notes 5, 8 and 9) 5,564,578 6,451,212
Less accumulated depreciation and amortization 3,067,206 4,143,433
---------- ----------
Net property, plant and equipment 2,497,372 2,307,779
---------- ----------
Other assets, at cost, less accumulated amortization:
Investment in Radoslav Joint Venture (Note 6) 336,103 336,103
Investment in Thermastructure, LTD (Note 16) 210,224 210,224
Trademark right 223,062 295,128
Note receivable - noncurrent 414,131 414,131
Other 306,254 298,727
---------- ----------
1,489,774 1,554,313
---------- ----------
$7,773,778 $7,997,531
========== ==========
(continued)
15
16
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Notes 3 and 9) $ 292,534 $ 241,505
Notes payable (Note 8) 300,000 --
Accounts payable 1,124,142 1,267,242
Accrued expenses (Note 7) 199,215 465,793
Income taxes payable (Note 10) -- 10,385
---------- ----------
Total current liabilities 1,915,891 1,984,925
---------- ----------
Long-term debt, excluding current installments
(Notes 3 and 9) 2,678,127 2,833,239
---------- ---------
Total liabilities 4,594,018 4,818,164
---------- ---------
Commitments, contingencies and other matters
(Notes 9, 13, 16 and 17)
Stockholders' equity:
Common stock, par value $.01 per share; authorized
10,000,000 shares; issued 4,104,727 shares 41,047 41,047
Additional paid-in capital 4,511,939 4,511,939
Retained deficit (1,373,226) (1,373,619)
---------- ----------
Total stockholders' equity 3,179,760 3,179,367
---------- ----------
$7,773,778 $7,997,531
========== ==========
See notes to consolidated financial statements.
16
17
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Net revenues:
Manufacturing net revenues $9,432,869 $ 9,266,527 $10,415,712
Licensing and related machinery sales (Note 16) 287,239 1,510,684 1,225,004
---------- ----------- -----------
9,720,108 10,777,211 11,640,716
---------- ----------- -----------
Costs and expenses:
Cost of sales 7,302,820 7,475,498 8,170,258
Shipping and selling expenses 798,641 972,200 1,147,203
General and administrative expenses 1,252,295 1,456,474 1,532,473
Research and development expenses 50,531 29,834 8,500
---------- ----------- -----------
9,404,287 9,934,006 10,858,434
---------- ----------- -----------
Operating income 315,821 843,205 782,282
---------- ----------- -----------
Other income (expense):
Interest expense (322,275) (297,833) (294,981)
Interest income -- 11,159 18,424
Other 4,281 4,635 19,141
---------- ----------- -----------
(317,994) (282,039) (257,416)
---------- ----------- -----------
(2,173) 561,166 524,866
---------- ----------- -----------
Gain (loss) on sale of assets:
Equipment 2,566 2,794 9,000
Real estate -- (44,015) --
---------- ----------- -----------
2,566 (41,221) 9,000
---------- ----------- -----------
Equity in net income (loss) of
investee -- (27,583) --
---------- ----------- -----------
Income before income taxes 393 492,362 533,866
Provision for income taxes (Note 10) -- 10,385 (9,688)
---------- ----------- -----------
Net income $ 393 $ 481,977 $ 524,178
========== =========== ===========
Income per common share:
Net income $ -- $ .13 $ .14
========== =========== ===========
See notes to consolidated financial statements.
17
18
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
------ ----------- --------- -------------
Balance at December 31, 1993 $37,421 $4,175,565 $(2,379,774) $1,833,212
Net income -- -- 524,178 524,178
------- ---------- ----------- ----------
Balance at December 31, 1994 37,421 4,175,565 (1,855,596) 2,357,390
Stock issued 3,626 336,374 - 340,000
Net income -- -- 481,977 481,977
------- ---------- ----------- ----------
Balance at December 31, 1995 41,047 4,511,939 (1,373,619) 3,179,367
Net income -- -- 393 393
------- ---------- ----------- ----------
Balance at December 31, 1996 $41,047 $4,511,939 $(1,373,226) $3,179,760
======= ========== =========== ==========
See notes to consolidated financial statements.
18
19
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 393 $ 481,977 $ 524,178
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 285,830 371,938 416,788
Amortization 118,601 129,927 92,858
Allowance for doubtful accounts (30,691) (1,419) 105,765
(Gain) on sale of investment -- (1,061,558) --
Proceeds from sale of investment,
net of cash and cash equivalents sold -- 687,386 --
(Gain) loss on sale of assets (2,566) 41,221 (9,000)
Equity loss in investee -- 27,583 --
Changes in assets and liabilities:
Decrease (increase) in accounts and notes
receivable (34,458) (165,231) (72,425)
Decrease (increase) in receivable - other 75,000 500,000 (500,000)
Decrease (increase) in inventories 54,611 (101,046) 57,265
Decrease (increase) in prepaid expenses (43,581) 2,349 (30,732)
Decrease (increase) in other current assets 1,605 (1,605) 37,323
Decrease (increase) in note receivable-noncurrent -- 73,499 43,393
Decrease (increase) in account receivable-noncurrent -- 58,267 58,266
Increase in other assets (54,062) (52,422) (47,372)
Increase (decrease) in accounts payable (143,100) (522,873) 228,501
Increase (decrease) in accrued expenses (266,578) (134,212) (8,932)
Increase (decrease) in income taxes payable (10,385) 697 9,688
Increase (decrease) in other liabilities -- -- (274,187)
--------- ----------- -----------
Net cash provided by (used in) operating activities (49,381) 334,478 631,377
--------- ----------- -----------
Cash flows from investing activities:
Investment in Radoslav -- -- (6,360)
Proceeds from sale of assets 6,400 39,579 9,000
Company manufactured equipment and buildings (15,699) (413,804) (213,870)
Capital expenditures on equipment (463,558) (402,851) (870,538)
--------- ----------- -----------
Net cash used in investing activities (472,857) (777,076) (1,081,768)
--------- ----------- -----------
Cash flows from financing activities:
Cash overdraft -- -- (136,266)
Net proceeds (payments) on notes payable 300,000 (1,293,787) 20,278
Proceeds from issuance of long-term debt 172,433 3,011,287 1,308,206
Principal payments under long-term debt (276,516) (1,454,078) (559,981)
Proceeds from sale of common stock -- 340,000 --
--------- ----------- -----------
Net cash provided by financing activities $ 195,917 $ 603,422 $ 632,237
--------- ----------- -----------
19
20
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1996 1995 1994
---- ---- ----
Net increase (decrease) in cash $(326,321) $160,824 $181,846
Cash and cash equivalents at beginning of year 349,946 189,122 7,276
--------- -------- --------
Cash and cash equivalents at end of year $ 23,625 $349,946 $189,122
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 327,760 $329,700 $274,323
========= ======== ========
Cash paid during the year for income taxes $ 10,385 $ 9,688 $ --
========= ======== ========
Supplemental disclosure of noncash investing activities:
During 1994, the Company transferred other assets valued at $9,306 to the
investment in Radoslav Joint Venture. There were no transfers during 1996 and
1995.
The sale of eighty (80) percent of the investment in Thermastructure, Ltd for
$2,022,308 resulted in the transfer of the following assets and liabilities:
Assets and liabilities transferred:
Cash and cash equivalents (escrows) $ 53,092
Property, plant and equipment 1,657,849
Prepaid expenses 26,397
Inventory 122,945
Other assets 109,536
Debt assumed (780,784)
Expense of sale 9,522
Investment retained (20%) (237,807)
----------
$ 960,750
==========
See notes to consolidated financial statements.
20
21
RADVA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
RADVA Corporation and subsidiary (the Company) produces and sells molded and
fabricated expanded polystyrene foam products such as packaging materials and
containers. The Company has also developed and patented housing construction
panels utilizing expanded polystyrene foam reinforced with steel. In addition,
they build and sell machinery used to manufacture the panels along with the
licensing rights to market the panels. The Company operates facilities in
Radford and Portsmouth, Virginia.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, RADVA RU, Inc. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of demand deposits. For purposes of
the statements of cash flows, the Company considers all highly liquid
investments with an original maturity of less than three months to be cash
equivalents. The Company includes cash meeting this criteria whose use is
limited by restrictions contained in loan covenants.
Accounts Receivable
Accounts receivable are stated at cost less allowance for doubtful accounts.
The allowance for doubtful accounts is maintained at a level considered
adequate to provide for losses that can be reasonably anticipated.
Inventories
Inventories are stated at the lower of cost or market. Cost of raw materials,
supplies, work-in process and finished goods is determined by the first-in,
first-out method.
Investment in Radoslav Joint Venture
The Company is accounting for its investment in Radoslav, a 31% owned
affiliate, by the equity method of accounting under which the Company's
proportionate results of the affiliate's operations are recognized in the
Company's statement of operations and added to or taken from the investment
account. Distributions received from the affiliate are treated as a reduction
of the investment account.
Other assets
Included in other assets are patents and loan costs, which are amortized over
their respective estimated lives, and trademark rights, which are amortized
over 12 years. Accumulated amortization was $986,734 and $868,133 as of
December 31, 1996 and 1995, respectively.
21
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Depreciation of plant and equipment is provided on the straight-line basis over
the estimated useful lives of the respective assets as follows:
Buildings and improvements 5 to 30 years
Machinery and equipment 5 to 15 years
Automotive equipment 3 to 5 years
Office equipment 3 to 10 years
Leasehold improvements are amortized on a straight-line basis over the terms of
the respective leases.
Additions to property, plant and equipment are recorded at cost. All
expenditures for repairs, renewals and replacements which do not materially
extend the useful life of the property are charged to expense. Other
improvements and betterments are capitalized. With respect to dispositions, the
asset and accumulated depreciation accounts are relieved of cost and
accumulated depreciation with any resulting gain or loss credited or charged to
earnings.
Revenue Recognition
Net revenues represent sales of fabricated foam products, machines and fees
from licensing agreements. Revenues from sales and the licensing agreements are
recognized upon completion of the transaction.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method whereby
they reduce income taxes currently payable and the provision for income taxes
in the period the assets giving rise to such credits are placed in service. To
the extent such credits are not currently utilized on the Company's tax return,
deferred tax assets, subject to considerations about the need for a valuation
allowance, are recognized for the carryforward amount.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure about the fair value of
certain instruments. Cash, receivables, accounts payable and accrued
liabilities are reflected in the financial instruments at fair value because of
the short-term maturity of these instruments. The estimated fair values of the
company's financial instruments are disclosed in Note 3.
22
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Receivables and accounting change
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standard 114, Accounting by Creditors for Impairment of a Loan. Statement No.
114 has been amended by Statement of Financial Accounting Standard No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Statement 114, as amended, requires that the impairment of
receivables that have been separately identified for evaluation is to be
measured based on the present value of expected future cash flows or,
alternatively, the observable market price of the receivables or the fair value
of the collateral. However, for those receivables that are collateral dependent
(that is, if repayment of those receivables is expected to be provided solely
by the underlying collateral) and for which management has determined
foreclosure is probable, the measure of the impairment of those receivables is
to be based on the fair value of the collateral. Statement 114, as amended,
also requires certain disclosures about investments in impaired receivables and
the allowance for possible bad debts and interest income recognized. The
adoption of Statement 114 had no effect on the consolidated financial
statements.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could vary from the estimates that were used.
Per Share Information
Earnings per share are based on the average number of common shares of the
Company outstanding. The number of shares used in computing per share
information was 4,104,727 in 1996, 3,772,282 in 1995 and 3,742,060 in 1994.
Reclassification
Certain reclassifications have been made to prior years' financial statements
to place them on a comparable basis with the current year.
NOTE 2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
1996 1995 1994
---- ---- ----
Petty cash and non-interest bearing accounts $23,625 $349,946 $106,512
Restricted by IDA bonds, series 1995 -- -- 82,610
------- -------- --------
Total cash and cash equivalents $23,625 $349,946 $189,122
======= ======== ========
23
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short maturity of
those instruments.
Receivable - other:
The carrying amount is a reasonable estimate of fair value since entire amount
is due within one year.
Long-term debt:
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities with similar collateral
requirements.
The estimated fair values of the Company's financial instruments as of December
31, 1996 are as follows:
1996
--------------------------------------
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 23,625 $ 23,625
Receivable - other 1,197,308 1,197,308
Long-term debt 2,970,661 2,970,661
NOTE 4. RECEIVABLES
Information about impaired receivables as of and for the years ended December
31, 1996 and 1995 is as follows:
1996 1995
---- ----
Receivables for which there is a related
allowance for bad debts $451,005 $389,944
Receivables for which there is no related
allowance for bad debts 438,131 488,131
-------- --------
Total impaired receivables $889,136 $878,075
======== ========
Related allowance for possible bad debts $168,210 $153,349
======== ========
Average balance (based on beginning and
ending of year) $883,606 $847,686
======== ========
24
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
1996 1995
---- ----
Land and improvements $ 225,984 $ 204,150
Buildings and improvements 2,102,263 2,029,944
Machinery and equipment 2,702,842 3,379,584
Transportation equipment 333,289 410,140
Office equipment 200,200 427,394
---------- ---------
$5,564,578 $6,451,212
========== ==========
NOTE 6. INVESTMENT IN RADOSLAV JOINT VENTURE
The Company owns a 31% interest in Radoslav, a Joint Venture located at
Pereslavl - Zalessky, approximately 75 miles north of Moscow. Radoslav produces
THERMASTRUCTURE panels for sale in Russia and other European countries. The
Company and three Russian entities, Pereslavlstroy Trust, Slavich Corporation
and Argamak Corporation are the primary joint venture participants. The Joint
Venture agreement called for the Company to contribute technology, the right
for Radoslav to produce THERMASTRUCTURE panels under the Company's trademarks
and U.S. currency that is included in the investment account. The Russian
principals contributed a manufacturing facility of approximately 24,000 square
feet and a sum of Russian currency. The results of operations of Radoslav for
the years ended December 31, 1996, 1995 and 1994 are not material to the
financial statements of RADVA Corporation and are not included in the statement
of operations or the investment account.
NOTE 7. ACCRUED EXPENSES
Accrued expenses are composed of the following:
1996 1995
---- ----
Payroll and employee benefits $ 97,829 $228,107
Interest 11,266 16,751
Customer deposits 4,382 66,158
Other 85,738 154,777
-------- --------
$199,215 $465,793
======== ========
NOTE 8. NOTES PAYABLE
A summary of notes payable follows:
1996 1995
---- ----
Line of credit with commercial bank, $500,000
limit, interest at prime plus 2% $300,000 $ --
======== ========
25
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM DEBT
A summary of long-term debt follows:
1996 1995
---- ----
Installment notes payable due in aggregate monthly installments of $1,741,
including interest, with various maturities until February, 2001;
collateralized by equipment. Interest rates ranging from 7.5% to 12.5%. $ 50,304 $ 36,604
Financing obligation recorded under capital lease, due in monthly installments
of $2,685, including interest at 8.3%; collateralized by equipment. 113,169 --
Installment note payable to bank, due in monthly installments of $43,467,
including interest at prime plus 2% with a final balloon payment in
December 2000. 2,774,567 3,000,000
Installment note payable to bank, due in monthly installments of
31,225 Austrian shillings, including interest at 12%. -- 6,834
Installment note payable, due in monthly installments of $279, including
interest at 8.125% with a final balloon payment in August 1998,
collateralized by a deed of trust on certain real estate. 32,621 31,306
---------- ----------
Total long-term debt 2,970,661 3,074,744
Less current installments of long-term debt 292,534 241,505
---------- ----------
Long-term debt, excluding current installments $2,678,127 $2,833,239
========== ==========
Substantially all real property, equipment, accounts receivable and inventory
are pledged as collateral on various debt instruments.
The aggregate principal maturities of long-term debt during each of the five
years subsequent to December 31, 1996 follows:
Years Ended December 31,
------------------------
1997 $ 292,534
1998 319,578
1999 347,817
2000 377,965
2001 383,523
Thereafter 1,249,244
----------
$2,970,661
==========
26
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAX MATTERS
Net deferred tax assets and liabilities consist of the following components as
of December 31, 1996 and 1995:
1996 1995
---- ----
Deferred tax assets:
Bad debt allowance $ 92,209 $ 114,892
Accrued expenses 25,835 56,025
Inventory allowance 8,648 8,799
Contributions carryover 977 -
Loss carryforward 724,231 729,001
Investment tax credit carryforward 177,659 213,017
Minimum tax credit carryforward 20,073 9,688
---------- ----------
1,049,632 1,131,422
Less valuation allowance 889,366 998,645
---------- ----------
$ 160,266 $ 132,777
========== ==========
Deferred tax liabilities:
Property and equipment $ 160,266 $ 132,777
========== ==========
-- --
========== ==========
As noted, the deferred tax assets equal the deferred tax liabilities resulting
in no effect on the income statement or stockholders' equity for the year.
Loss carryforwards for tax purposes as of December 31, 1996 have the following
expiration dates:
Expiration Date Amount
--------------- ------
2005 $1,905,872
==========
Investment tax credit carryforwards for tax purposes as of December 31, 1996
have the following expiration dates:
Expiration Date Amount
--------------- ------
1998 $ 88,599
1999 40,976
2000 48,084
--------
$177,659
========
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the years ended
December 31, 1996, 1995 and 1994 due to the following:
1996 1995 1994
---- ---- ----
Computed "expected" tax benefit $ 59 $ 167,403 $ 181,514
Non-deductible expenses 2,179 171,808 81,722
State income taxes, net of federal income tax benefit 761 39,508 30,660
Benefit of operating loss carryforward (2,999) (378,719) (293,896)
Other -- 10,385 (9,688)
------- --------- ---------
$ -- $ 10,385 $ (9,688)
======= ========= =========
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLANS
The Company has a profit sharing plan (the Plan) which covers all full-time
officers and employees who have at least one year of service and attained the
age of 21. For the years ended December 31, 1995 and 1994, contributions to the
Plan were made at the rate of 5% of earnings before profit sharing and income
taxes, or the maximum deduction allowed for federal income tax purposes,
whichever is lower and was funded as incurred. During 1996, the Company
modified its profit sharing plan to make contributions at Company's discretion.
The Plan is a qualified plan under applicable sections of the Internal Revenue
Code. Profit sharing expense for the period ended December 31, 1996, 1995 and
1994 was $ -0-, $25,914, and $28,098, respectively.
The Company adopted a 401K retirement plan which covers all full-time officers
and employees who have at least one year of service and attained the age of 21.
Contributions to the plan are made at a rate of 25% of each employees
contribution up to a maximum of 4% of each employees earnings for the year. The
plan is a qualified plan under applicable sections of the Internal Revenue
Code. Company contributions for the year ended December 31, 1996 was $4,039.
NOTE 12. RELATED PARTY TRANSACTIONS
The Company has a month-to-month lease on certain operating and warehouse space
with Jalu, a partnership in which the Company's president is a partner. The
space is currently rented for $1,000 per month. The Company also rents on a
month-to-month basis certain office space from Chuckatuck, a partnership in
which the Company's president is a partner. The present rental payment is
$3,700 per month.
NOTE 13. OPERATING LEASES
The Company leases certain of its manufacturing and office facilities and
equipment. Rental expense for the years ended December 31, 1996, 1995 and 1994
was $136,850, $123,481, and $112,980, respectively. All leases have expired;
however, the Company continues to lease these facilities under the previous
lease schedules for $4,685 per month.
NOTE 14. MAJOR CUSTOMER
The percentage of net revenue attributable to the Company's major customers
(exceeding 10% of total revenues) is 23.4% for 1996, 10.5% for 1995 and 24.6%
for 1994.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. INDUSTRY SEGMENTS
The Company considers its operations to include principally three industry
segments; (1) manufacture of protective packaging and similar materials, (2)
manufacture of THERMASTRUCTURE building products, and (3) licensing and related
machinery sales. Summary data for 1996, 1995, and 1994 is as follows:
1996 1995 1994
---- ---- ----
Net revenues:
Protective packaging and similar material $9,026,547 $ 7,937,220 $ 8,015,461
THERMASTRUCTURE products and similar materials 406,322 1,329,307 2,400,251
Licensing and related machinery sales 287,239 1,510,684 1,225,004
---------- ----------- -----------
Revenue $9,720,108 $10,777,211 $11,640,716
========== =========== ===========
Operating income (loss):
Protective packaging and similar materials $2,259,699 $ 2,179,442 $ 2,066,357
THERMASTRUCTURE products and similar materials 68,943 (339,936) 342,345
Licensing and related machinery sales 88,646 1,462,207 1,061,756
---------- ----------- -----------
Segment operating income 2,417,288 3,301,713 3,470,458
General corporate expense 2,101,467 2,458,508 2,688,176
---------- ----------- -----------
Operating profit $ 315,821 $ 843,205 $ 782,282
========== =========== ===========
Capital expenditures:
Protective packaging and similar materials $ 440,631 $ 792,338 $ 198,262
THERMASTRUCTURE products - U.S. operations -- 10,187 867,010
General corporate 38,626 14,130 19,136
---------- ----------- -----------
Capital expenditures $ 479,257 $ 816,655 $ 1,084,408
========== =========== ===========
Depreciation and amortization:
Protective packaging and similar materials $ 380,585 $ 278,395 $ 284,804
THERMASTRUCTURE products - 191,117 170,706
General corporate 23,846 32,353 54,136
---------- ----------- -----------
Depreciation and amortization $ 404,431 $ 501,865 $ 509,646
========== =========== ===========
Identifiable assets at December 31:
Protective packaging and similar materials $3,023,930 $ 2,726,629 $ 3,399,324
THERMASTRUCTURE products 433,286 505,352 1,069,503
Licensing and related machinery sales 1,058,447 1,057,322 1,603,117
General corporate 3,258,115 3,708,228 2,245,669
---------- ----------- -----------
Assets $7,773,778 $ 7,997,531 $ 8,317,613
========== =========== ===========
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. OTHER MATTERS
The Company reached an agreement on February 15, 1994 whereby the Company was
to promptly spin off the THERMASTRUCTURE division into a new wholly owned
corporation. The party to the agreement immediately loaned $500,000 to the
Company with interest payable quarterly at 8% per annum. The terms of the
agreement granted the option to convert the loan into one-sixth (16.67%) of the
common stock of the new corporation and also the right and option to acquire up
to an additional one-third (33.33%) of the new corporation for $1,000,000 or
any portion thereof on a prorata basis. This option was terminated and the note
was repaid in November, 1995.
Company entered into an agreement dated November 3, 1995 for sale of 80% of
common stock of THERMASTRUCTURE, Ltd. Company received $750,000 down with the
balance to be paid on or before expiration of six months with a minimum of
$750,000 cash. This transaction resulted in a gain of $1,061,558 and is
reflected in net revenues from licensing and related machinery sales. Balance
due from sale at December 31, 1996 and 1995 amounted to $1,197,308 and
$1,272,308, respectively.
NOTE 17. CONTINGENCIES
Debt assumption:
As part of the agreement dated November 3, 1995 in which Radva sold 80% of
common stock of THERMASTRUCTURE, Ltd., the acquiring company assumed
obligations owed to the Industrial Development Authority (IDA) amounting to
$780,784. Radva remains liable on these obligations as of December 31, 1996
amounting to $748,378.
Legal matters:
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the Company's
consolidated financial statements.
30
31
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OTHER
BALANCE CHANGES
AT ADD BALANCE
BEGINNING ADDITIONS (DEDUCT) AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS (A) OF YEAR
-------------- ---------- --------- ----------- -------- -------
Year ended December 31, 1994:
Land and improvements $ 209,151 $ 86,753 $ -- $ -- $ 295,904
Buildings and improvements 2,167,388 609,077 -- -- 2,776,465
Machinery and equipment 3,908,912 118,565 1,348 213,870 4,239,999
Transportation equipment 391,115 51,236 16,800 -- 425,551
Office equipment 417,209 4,907 -- -- 422,116
---------- -------- ---------- -------- ----------
$7,093,775 $870,538 $ 18,148 $213,870 $8,160,035
========== ======== ========== ======== ==========
Year ended December 31, 1995:
Land and improvements $ 295,904 $ - $ 91,754 $ -- $ 204,150
Buildings and improvements 2,776,465 101,015 1,211,264 363,728 2,029,944
Machinery and equipment 4,239,999 272,419 1,182,910 50,076 3,379,584
Transportation equipment 425,551 15,287 30,698 -- 410,140
Office equipment 422,116 14,130 8,852 -- 427,394
---------- -------- ---------- -------- ----------
$8,160,035 $402,851 $2,525,478 $413,804 $6,451,212
========== ======== ========== ======== ==========
Year ended December 31, 1996:
Land and improvements $ 204,150 $ 21,834 $ -- $ -- $ 225,984
Buildings and improvements 2,029,944 87,747 15,428 -- 2,102,263
Machinery and equipment 3,379,584 264,133 956,574 15,699 2,702,842
Transportation equipment 410,140 53,368 130,219 -- 333,289
Office equipment 427,394 36,476 263,670 -- 200,200
---------- -------- ---------- -------- ----------
$6,451,212 $463,558 $1,365,891 $ 15,699 $5,564,578
========== ======== ========== ======== ==========
(A) During 1996, 1995 and 1994, the Company placed in service certain property
which has previously been classified as inventory.
31
32
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS OTHER
BALANCE CHARGED CHANGES
AT TO COST ADD BALANCE
BEGINNING AND (DEDUCT) AT END
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS (A) OF YEAR
-------------- --------- -------- ----------- -------- -------
Year ended December 31, 1994:
Land and improvements $ 24,331 $ -- $ -- $ -- $ 24,331
Buildings and improvements 882,731 95,429 -- -- 978,160
Machinery and equipment 2,680,562 248,670 1,348 -- 2,927,884
Transportation equipment 270,936 37,153 16,800 -- 291,289
Office equipment 335,526 35,536 -- -- 371,062
---------- -------- ---------- -------- ----------
$4,194,086 $416,788 $ 18,148 $ -- $4,592,726
========== ======== ========== ======== ==========
Year ended December 31, 1995:
Land and improvements $ 24,331 $ -- $ -- $ -- $ 24,331
Buildings and improvements 978,160 88,847 57,653 -- 1,009,354
Machinery and equipment 2,927,884 235,656 725,166 -- 2,438,374
Transportation equipment 291,289 32,136 30,698 -- 292,727
Office equipment 371,062 15,299 7,714 -- 378,647
---------- -------- ---------- -------- ----------
$4,592,726 $371,938 $ 821,231 $ -- $4,143,433
========== ======== ========== ======== ==========
Year ended December 31, 1996:
Land and improvements $ 24,331 $ -- $ -- $ -- $ 24,331
Buildings and improvements 1,009,354 81,689 15,428 -- 1,075,615
Machinery and equipment 2,438,374 160,616 956,573 -- 1,642,417
Transportation equipment 292,727 27,476 126,386 -- 193,817
Office equipment 378,647 16,049 263,670 -- 131,026
---------- -------- ---------- -------- ----------
$4,143,433 $285,830 $1,362,057 $ -- $3,067,206
========== ======== ========== ======== ==========
(A) During 1996, 1995 and 1994, the Company placed in service certain property
which has previously been classified as inventory.
32
33
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS
---------
BALANCE CHARGED CHARGED
AT TO TO BALANCE
BEGINNING COST AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS (A) OF YEAR
----------- --------- -------- -------- -------------- -------
Year ended December 31, 1994:
Allowance for doubtful
accounts $ 98,905 $105,765 $ -- $ -- $204,670
======== ======== ======= ======= ========
Year ended December 31, 1995:
Allowance for doubtful
accounts $204,670 $ (1,419) $ -- $ -- $203,251
======== ======== ======= ======= ========
Year ended December 31, 1996:
Allowance for doubtful
accounts $203,251 $(30,691) $ -- $ -- $172,560
======== ======== ======= ======= ========
(A) Represents uncollectible amounts written off, net of recoveries.
33
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the Company's directors is incorporated by
reference to material contained under the heading "Election of Directors" in
the Company's proxy statement for its annual meeting of stockholders scheduled
for April 16, 1997.
Information as to the Company's executive officers is set forth
under the heading "Executive Officers" in ITEM 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information as to executive compensation is incorporated by
reference to material contained under the headings "Cash Compensation" and
"Compensation Plans" in the Company's proxy statement for its annual meeting of
stockholders scheduled for April 16, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the security ownership of certain beneficial owners
and management is incorporated by reference to material contained under the
heading "Principal Stockholders" in the Company's proxy statement for its
annual meeting of stockholders scheduled for April 16, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to certain relationships and related transactions
is incorporated by reference to material contained under the heading "Certain
Relationships and Related Transactions" in the Company's proxy statement for
its annual meeting of stockholders scheduled for April 16, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements (Included in PART II)
See ITEM 8 in PART II
(a) (2) Financial Statement Schedules (Included in PART II)
See ITEM 8 in PART II
(a) (3) Exhibits
The exhibits filed with this report and the documents incorporated by
reference as exhibits to this report are described below.
(3)(a) Articles of Incorporation of the Company (Incorporated
by reference to Exhibit B to Registration Statement No. 0-15464 filed with the
Securities and Exchange Commission on March 9, 1987).
(3)(b) Bylaws of the Company (Incorporated by reference to
Exhibit C to Registration Statement No. 0- 15464 filed with the Securities and
Exchange Commission on March 9, 1987).
34
35
(4)(a) Bond Purchase Agreement dated as of October 1, 1981
among the Industrial Development Authority of the City of Portsmouth, First &
Merchants National Bank, and the Company; Agreement of Sale dated as of October
1, 1981 between the Industrial Development Authority of the City of Portsmouth
and the Company; Assignment Agreement dated as of October 1, 1981 between the
Industrial Development Authority of the City of Portsmouth and First &
Merchants National Bank; $550,000 promissory note of the Company; Deed of Trust
dated as of October 1, 1981 between the Industrial Development Authority of the
City of Portsmouth and Joseph S. Lovering, Jr. and William H. West, as trustees
(Incorporated by reference to Exhibit 4(a) to Registration Statement No.
33-5319 filed with the Securities and Exchange Commission on June 25, 1986).
(4)(b) Letter of Commitment dated October 9, 1984 between the
Company and Sovran Bank, N.A.; $1,000,000 promissory note of the Company; Deed
of Trust dated as of October 10, 1984 between the Company and Joel S. Rhew and
H. Gregory Kilduff, as trustees; Security Agreement dated as of October 10,
1984 between the Company and Sovran Bank, N.A. (Incorporated by reference to
Exhibit 4(b) to Registration Statement No. 33-5319 filed with the Securities
and Exchange Commission on June 25, 1986).
(4)(c) Letter of Commitment dated August 25, 1984 between the
Company and Sovran Bank, N.A. and related promissory note of the Company;
Security Agreement dated August 30, 1983 between the Company and First &
Merchants National Bank (*the predecessor to Sovran Bank, N.A.); Accounts
Receivable and Inventory Reporting Service Instructions dated March 18, 1986;
Collateral Services Rate Agreement dated August 17, 1983 between the Company
and First & Merchants National Bank (Incorporated by reference to Exhibit 4(c)
to Registration Statement No. 33-5319 filed with the Securities and Exchange
Commission on June 25, 1986).
(4)(d) Letter of Commitment dated September 16, 1987 between
the Company and Sovran Bank, N.A. relating to a $1,000,000 line of credit.
(Incorporated by reference to Exhibit 4(d) of Registrant's 1987 Form 10-K).
(4)(e) In addition to the matters reported in Exhibits (4)(a)
through (4)(d) above, the long-term debt as shown on the consolidated balance
sheet of the Company at December 31, 1989 included additional obligations each
of which is less than 10% of the total assets of the Company. The documents
evidencing these obligations are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K and will be furnished to the Securities and Exchange Commission
upon request.
(4)(f) See Article III, Section 4 of Exhibit 3(a).
(4)(g) See Articles II, III, VI, VIII and IX of Exhibit
(3)(b).
(4)(h) Form of Stock Purchase Warrant (Incorporated by
reference to Exhibit 4(g) to Registration Statement No. 33-5319 filed with the
Securities and Exchange Commission on June 25, 1986).
(10)(a) Lease Amendment #1 dated August 26, 1987 between the
Company and Gil Gillis, Gwenda Gillis, and Gayla Gillis relating to premises
located at 2500 South Main Street, Highway 293, Kennesaw, Georgia (Incorporated
by reference to Exhibit 10(a) of Registrant's 1987 Form 10-K).
(10)(b) Lease dated February 20, 1986 between Guam Capital
Investment Corporation and the Company relating to premises located at Lot No.
236, Agat, Guam (Incorporated by reference to Exhibit 10(c) to Registration
Statement No. 33-5319 filed with the Securities and Exchange Commission on June
25, 1986).
(10)(c) Lease dated April 29, 1986 between Chuckatuck
Partnership and the Company relating to the Company's principal executive
office space in Radford, Virginia (Incorporated by reference to Exhibit 10(d)
to Registration Statement No. 33-5319 filed with the Securities and Exchange
Commission on June 25, 1986).
(10)(d) Lease dated July 1, 1987 between the Atlantic
Richfield Company and James M. Chamberlain and Patsy L. Chamberlain, as
trustees of the Chamberlain Family Trust, relating to premises located at 3802
East Broadway, Phoenix, Arizona.
35
36
(10)(e) Agreement dated March 31, between the Department of
the Army and the Company relating to the construction of U.S. military housing
in Edgewood, Maryland. (Incorporated by reference to Exhibit 10(e) of
Registrant's 1987 Form 10-K).
(10)(f) Agreement dated September 1, 1987 between Zublin
Delaware, Inc. and the Company relating to the construction of U.S. military
housing in Vilseck, West Germany. (Incorporated by reference to Exhibit 10(f)
of Registrant's 1987 Form 10-K.)
(10)(g) Agreement dated as of July 1, 1985 between ARCO
Chemical Company and the Company relating to the sale of various copolymer
resins (Incorporated by reference to Exhibit 10(g) to Registration Statement
No. 33-5319 filed with the Securities and Exchange Commission on June 25,
1986.)
(10)(h) Agreement dated as of April 11, 1986 between ARCO
Technology, Inc. and the Company relating to a license of certain manufacturing
rights (Incorporated by reference to Exhibit 10(h) to Registration Statement
No. 33- 5319 filed with the Securities and Exchange Commission on June 5,
1986.)
(10(i) Bank of Virginia Trust Company Prototype Plan and
Trust Agreement and accompanying Joinder Agreement (Incorporated by reference
to Exhibit 10(i) to Registration Statement No. 33-5319 filed with the
Securities and Exchange Commission on June 24, 1986.)
(10)(j) 1986 Stock Option Plan for employees of the Company
(Incorporated by reference to Exhibit 10(j) to Registration Statement No.
33-5319 filed with the Securities and Exchange Commission on June 24, 1986.)
(10)(k) Settlement Agreement dated June 19, 1986 among the
Company, Luther I. Dickens, and Great Northern Corporation (Incorporated by
reference to Exhibit 10(k) to Registration Statement No. 33-5319 filed with the
Securities and Exchange Commission on June 24, 1986.)
(10)(l) Purchase Agreement dated December 31, 1987 between
the Company and the Atlantic Richfield Company (Incorporated by reference to
Exhibit 10 to the Company's current report on Form 8-K filed with the
Securities and Exchange Commission on January 13, 1988.
(11) Statement recomputation of per share earnings.
(b) Reports on Form 8-K
None
(c) Exhibits
See ITEM 14(a)(3) above.
(d) Financial Statement Schedules
See ITEM 14(a)(2) above.
36
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RADVA Corporation
Dated: March 25, 1997 By /s/ LUTHER I. DICKENS
-------------------------------
Luther I. Dickens
President
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 dates indicated.
Dated: March 25, 1997 By /s/ LUTHER I. DICKENS
-------------------------------
Luther I. Dickens
President and Director
Dated: March 25, 1997 By /s/ JAMES M. HYLTON
-------------------------------
James M. Hylton
Director
Dated: March 25, 1997 By /s/ RUSH G. ALLEN
-------------------------------
Rush G. Allen
Director
Dated: March 25, 1997 By /s/ J. GRANGER MACFARLANE
-------------------------------
J. Granger Macfarlane
Director
Dated: March 25, 1997 By /s/ WILLIAM C. NORTON
-------------------------------
William C. Norton
Director
Dated: March 25, 1997 By /s/ WILLIAM H. WILSON
-------------------------------
William H. Wilson
Director
Dated: March 25, 1997 By /s/ DAVID B. KINNEY
-------------------------------
David B. Kinney
Director
37