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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, 1998
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 9, 1999 (see ITEM 5 for explanation of calculation): $1,496,250
---------------
Number of shares of common stock outstanding as of March 9, 1999: 4,085,727
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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 29, 1999.
PART I
ITEM 1. 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 developed a composite
building panel produced from expanded polystyrene and steel which it sold under
the trademark THERMASTRUCTURE. In November, 1995, The Company sold 80% interest
in its subsidiary, Thermastructure Ltd., which manufactured the building panels
and had rights to market licensing rights to territories in the United States
not previously licensed. During 1997, the Company reacquired 70% of common stock
of Thermastructure, Ltd increasing ownership to 90% of common stock. The Company
acquired the additional stock by giving up certain assets making this entire
transaction a noncash transaction. The Company and minority interest of
Thermastructure, Ltd transferred all of the assets and liabilities into a new
company, Thermastructure XT Corp, while maintaining the same ownership
percentages (90% for Company and 10% for minority interest). Thermastructure XT
Corp is consolidated into Company's financial statements. During 1998, the
Company acquired an additional 5% ownership in its consolidated subsidiary,
Thermastructure XT Corporation. Also, during 1998, the Company and its
subsidiary, Thermastructure XT, sold 95% of their assets and interest in the
composite building panel system. These assets were then transferred to a newly
organized company, ThermaSteel Corporation, which continues to market the system
worldwide.
INDUSTRY SEGMENTS
The Company's operations include three principal industry segments: the
manufacture of protective packaging and similar materials, the manufacture of
THERMASTRUCTURE building panels and other building products, and licensing and
related machinery sales. Each of these segments is discussed in note 14 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 1998 1997 1996
---------------- ---- ---- ----
PROTECTIVE PACKAGING AND
SIMILAR MATERIALS
Protective Packaging 87.0% 86.0% 92.9%
THERMASTRUCTURE Building Panels
License fees & machinery sales 2.8% 6.3% 2.9%
Panel sales & related revenue 10.2% 7.7% 4.2%
------ ------- ------
100.0% 100.0% 100.0%
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PROTECTIVE PACKAGING PRODUCTS
RADVA is an industry leader in the design and manufacture of shape molded and
fabricated foam products for material handling, protective packaging, specialty
designs, point of purchase displays, insulated shipping containers, and a
variety of other needs. RADVA products are used in businesses as varied as
consumer electronics, seafood, and furniture.
RADVA's shape molded product line includes a variety of flexible and rigid,
molded and fabricated items from foam resins. RADVA products are offered as
custom-fabricated solutions to customer needs, and as standard shapes and
containers. All products share the same high quality of manufacture.
More than 400 customers, including many Fortune 500 firms, count on RADVA
solutions to help them meet their own customer's needs in a quick,
cost-effective manner.
When RADVA was incorporated in 1962, its primary production material was
expanded polystyrene (EPS). EPS remains a significant base material because of
its low cost and relatively low environmental impact. However, RADVA products
also use a variety of other materials, depending upon the customer's need.
Common materials include ARCEL(R), GECET(R), R-MER(R), EPP and EPE, PE and PU
and thermoformed PVC and styrene.
RADVA is headquartered in Radford, Virginia, and has manufacturing facilities in
Radford and Portsmouth, Virginia. These locations are within a day's drive of 75
percent of the U.S. market. Each facility includes more than 75,000 square feet
of manufacturing and warehouse space with additional off-site warehousing. More
than 35 molding presses, including new, highly efficient Kurtz & Hirsch machines
enable RADVA to meet strict customer requirements quickly and with consistent
high quality. Complete prototype and drop testing capabilities, a tool and die
shop, and very strong supplier relationships enable the firm to develop
creative, cost-effective solutions for customers.
RADVA employs more than 140 people, and serves as one of the country's largest
three mid-Atlantic EPS recycling drop-off facilities.
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 from one supplier, similar copolymer resins may be obtained from other
suppliers.
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 also holds a patent for a new
construction material which the Company plans to market in the future. 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 building products 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 32.7% of protective packaging
revenues in 1998.
BACKLOG
The Company had approximately $1,221,533 in backlog orders for protective
packaging products as of December 31, 1998, compared to backlog orders of
approximately $1,162,000 as of December 31, 1997. Although the Company believes
that such backlog orders are firm, the purchase orders for protective packaging
products generally may be canceled without cause by the customer. The Company
expects to fill all of these orders during 1999.
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 1999. 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.
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EMPLOYEES
The Company employs approximately 140 persons. None of the Company's employees
is represented by a labor union, and the Company believes that its employee
relations are good.
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 66 Chief Executive Officer (1998)
Stephen L. Dickens 41 President (1998)
James M. Hylton 65 Secretary and Treasurer (1969)
William F. Fry 59 Chief Financial Officer (1989)
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, 1997,
aggregating approximately $3,111,266.
(2) The Company owns approximately 7 acres of land in Portsmouth, Virginia, and
a 74,000 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, 1997 of approximately $3,111,266.
(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 $1,500. 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.
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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.
The Company owns 3 trucks and 12 trailers and leases 2 tractors which it uses to
ship products to customers. The Company owns 1 van and 8 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.
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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.
1998 1997 1996
---- ----- ----
High Low High Low High Low
---- --- ---- --- ---- ---
First
Quarter 1/2 7/16 5/8 7/16 3/4 7/16
Second
Quarter 1 1/2 7/16 7/16 9/16 7/16
Third
Quarter 1 5/8 5/8 1/2 5/8 9/16
Fourth
Quarter 1 3/8 9/16 9/16 7/16 7/16
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 9, 1999 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 9, 1999 was subtracted from
4,085,727, the total number of shares outstanding on that date, and the
resulting figure was multiplied by $.875, the average of the bid and asked
prices of the Company's stock in the over-the-counter market on March 9, 1999.
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.
NUMBER OF STOCKHOLDERS
As of March 9, 1999, there were 334 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,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollar amounts in thousands except per share data)
Net Revenues $13,173 $10,955 $ 9,720 $10,777 $11,641
Income (loss) from
continuing operations
before income taxes and
extraordinary items 1,517 209 -- 492 534
Income (loss) before
extraordinary items 1,517 209 -- 482 524
Net income (loss) 1,517 209 -- 482 524
Income (loss) per common
share before extra-
ordinary items .37 .05 -- .13 .14
Net income (loss) per
common share .37 .05 -- .13 .14
SELECTED BALANCE SHEET DATA:
Years Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Working capital $ 1,051 $ (679) $ 1,871 $ 2,151 $ (865)
Net property, plant,
and equipment 4,443 4,688 2,497 2,308 3,567
Total assets 11,890 11,192 7,774 7,998 8,318
Long-term debt (including
current maturities) 4,583 4,371 2,971 3,075 2,383
Stockholders' equity 4,886 3,388 3,180 3,179 2,357
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATION
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, 1998. Additional financial
information as to the Company's three industry segments is set forth in note 14
to the financial statements.
Year Ended December 31
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
Manufacturing net revenues 90.1% 93.7% 97.1% 86.0% 89.5%
Licensing & related
machinery sales 9.9% 6.3 2.9 14.0 10.5
----- ----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost and expense:
Cost of sales 66.3 74.1 75.1 69.4 70.2
Shipping and sales 6.8 7.7 8.2 9.0 9.9
General and administrative 12.1 12.7 12.9 13.5 13.2
Research and development .2 .9 .5 0.3 0.0
----- ----- ----- ----- -----
85.4 95.4 96.7 92.2 93.3
----- ----- ----- ----- -----
Operating income 14.6 4.6 3.3 7.8 6.7
----- ----- ----- ----- -----
Other income (deductions)
Interest expense (3.6) (3.9) (3.3) (2.7) (2.5)
Interest income .3 .3 .0 .1 .1
Other .0 .0 .0 (.0) .3
----- ----- ----- ----- -----
(3.3) (3.6) (3.3) (2.6) (2.1)
----- ----- ----- ----- -----
Income before income taxes
and minority interest in
subsidiary 11.5 1.6 .0 4.6 4.6
Income tax expense .0 .0 .0 (.1) .1
----- ----- ----- ----- -----
Income before minority
interest in net loss of
subsidiary 11.5 1.6 .0 4.5 4.5
Minority interest in net
loss of subsidiary .0 .3 .0 .0 .0
----- ----- ----- ----- -----
Net income 11.5% 1.9% .0% 4.5% 4.5%
===== ===== ===== ===== =====
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1998 COMPARED TO 1997
The Company's operating income was $1,922,000 for 1998 compared to $508,000 for
1997. This $1,414,000 increase in operating income was primarily the result of
the Company's sale of its THERMASTRUCTURE panel manufacturing and licensing
rights, including equipment, at a profit of approximately $807,000 in May, 1998,
and increased profits in its shape molding operations before interest
allocations of approximately $950,000.
The Company retained a 5% ownership position in the company newly formed to hold
and operate the THERMASTRUCTURE assets, and has reported the $807,000 profit
from the sale as net licensing and machinery sales.
Manufacturing net revenues increased $1,602,000 for 1998 compared to 1997. This
increase was the result of strong sales growth in shape molding operations,
especially at the Company's plant in Portsmouth, Virginia, which accounted for
$1,662,000 of increased sales.
Cost of sales, as a percent of manufacturing net revenues, was 73.6% for 1998 as
compared to 79.1% for 1997. However, these percentages are effected greatly by
cost relationships in the THERMASTRUCTURE building product line sold in May,
1998. The cost of sale percentages within the remaining shape molding operations
for comparable period comparisons decreased from 75.7% in 1997 to 70.2% in 1998.
This reduction in cost percentages primarily resulted from manufacturing
efficiencies within the Company's shape molding operations. Labor rates in the
Radford and Portsmouth, Virginia plants were down 2.3% and 5.2%, respectively.
These increased manufacturing efficiencies were aided by the installation of new
and more modern equipment.
Shipping and selling expenses decreased .7% for 1998 as compared to 1997.
General and administrative expenses decreased as a percent of manufacturing net
revenues .1% for the same period comparisons. The largest factor contributing to
the decreased shipping and selling expense percentage of manufacturing net
revenues was a large increase in sales at the Portsmouth plant not subject to
shipping cost.
1997 COMPARED TO 1996
The Company's 1997 revenues were greater than 1996 revenues by $1,235,000, a
12.7% increase. These increased revenues were primarily the result of: increased
shape molding revenues of $383,000; increased license and machinery sales of
$416,000; increased panels sales of $813,000; all partly offset by reduced
shipments of building materials to Russia of $402,000.
The increased panel sales were the result of the Company's having reacquired 70%
of the rights to domestic panel sales on April 1, 1997. These rights, as well as
reacquired equipment, were added to the 20% rights to domestic panel sales
already owned by the Company and transferred to a newly formed company,
Thermastructure XT Corp., 90% owned by Radva Corporation. Thermastructure XT
Corp. had sales of $813,000 in 1997 and the Company recorded no panel sales in
1996, since the Company's 20% interest in panel sales were recorded on a cost
basis.
Operating income increased $192,000 in 1997 as compared to 1996. This increased
operating income was primarily the result of an increased Shape Molding Division
operating profit of $81,000 and of increased license and machinery sale income
of $484,000 partly offset by losses by Thermastructure XT of $281,000.
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1997 COMPARED TO 1996 (CONTINUED)
The Company's cost of sales as a percent of manufacturing net revenues increased
1.7%, from 77.4% in 1996 to 79.1% in 1997, primarily as a result of the
repurchase and inclusion of panel sales in 1997. The panel sales operation had a
higher cost of sales percentage due to operating at a low rate of manufacturing
capacity.
The Company's shipping and selling expenses decreased .3%, and the company's
general and administrative expenses increased by an almost identical .3%, both
as a percent of manufacturing net revenues. Research and development expenses
increased $47,000, from $51,000 in 1996 to $98,000 in 1997 due to work toward
the development of a new building material.
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 cost 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.
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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had one of its most profitable years in 1998. In addition, a major
refinancing of the Company was accomplished in 1998 under more favorable terms.
The new financing resulted in a $500,000 increase in the Company's operating
line to $1,500,000. At year-end, the balance available on this line of credit
was $646,000 and working capital was $1,051,000.
YEAR 2000 ISSUE
Most of RADVA processes utilize the Windows 95 platform and can handle the
Century 2000 date format presently without problems. We have upgraded our
environment to Windows NT Server and Workstations. Our server for EDI is Century
2000 date format compliant and our Accounting Department, which currently uses a
UNIX based system, will also upgrade by April 1999.
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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, 1998 and 1997............................. 15-16
Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996........................................ 17
Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997, and 1996.................................. 18
Statements of Cash Flows for the Years
Ended December 31, 1998, 1997, and 1996.................................. 19-21
Notes to Financial Statements as of December 31,
1998, 1997, and 1996..................................................... 22-31
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule V - Property, Plant and Equipment................................. 32
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant, and Equipment........................... 33
Schedule VIII - Valuation and Qualifying Accounts........................... 34
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PERSINGER & COMPANY, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
203 W. GRAYSON STREET
GALAX, VIRGINIA 24333
TELEPHONE: 540-236-8135
FAX: 540-236-0797
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, 1998 and 1997 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, 1998 and 1997, 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 1998
and 1997 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.
PERSINGER & COMPANY L.L.C.
Galax, Virginia
February 24, 1999
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RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents (Notes 2 and 3) $ 246,380 $ 78,963
----------- -----------
Accounts and notes receivable (Notes 7 and 8) 2,349,886 1,426,107
Receivable - other (Notes 3 and 15) 481,889 329,420
Less allowance for doubtful accounts 113,140 106,423
----------- -----------
Net receivables 2,718,635 1,649,104
----------- -----------
Inventories (Notes 7 and 8):
Finished goods 601,054 592,117
Work-in-process -- 23,015
Raw materials and supplies 331,666 395,101
Machinery inventory -- 274,676
----------- -----------
Total inventories 932,720 1,284,909
----------- -----------
Prepaid expenses 35,132 106,107
Other current assets 39,138 30,238
----------- -----------
Total current assets 3,972,005 3,149,321
----------- -----------
Property, plant and equipment, at cost (Notes 5, 7 and 8) 8,134,260 8,083,518
Less accumulated depreciation and amortization 3,691,264 3,395,645
----------- -----------
Net property, plant and equipment 4,442,996 4,687,873
----------- -----------
Other assets, at cost, less accumulated amortization:
Investment in Radoslav Joint Venture (Note 15) -- 336,103
Investment in Thermasteel (Note 15) 261,925 --
Trademark, marketing and manufacturing rights 506,325 1,354,128
Note receivable - long-term 2,481,964 321,913
Other (Note 16) 225,001 1,342,834
----------- -----------
3,475,215 3,354,978
----------- -----------
$11,890,216 $11,192,172
=========== ===========
continued
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RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Notes 3 and 8) $ 593,848 $ 527,793
Notes payable (Note 7) 854,204 569,112
Accounts payable 1,064,397 2,151,188
Accrued expenses (Note 6) 408,181 579,853
------------ ------------
Total current liabilities 2,920,630 3,827,946
------------ ------------
Long-term debt, excluding current installments
(Notes 3 and 8) 3,988,959 3,843,432
------------ ------------
Minority interest in subsidiary 94,316 132,390
------------ ------------
Total liabilities 7,003,905 7,803,768
------------ ------------
Commitments, contingencies and other matters
(Notes 8, 12, 15 and 16)
Stockholders' equity:
Common stock, par value $.01 per share; authorized
10,000,000 shares; issued 4,085,727 and 4,104,727
shares in 1998 and 1997 40,857 41,047
Additional paid-in capital 4,493,129 4,511,939
Retained earnings (deficit) 352,325 (1,164,582)
------------ ------------
Total stockholders' equity 4,886,311 3,388,404
------------ ------------
$ 11,890,216 $ 11,192,172
============ ============
See notes to consolidated financial statements.
16
17
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Net revenues:
Manufacturing net revenues $ 11,868,780 $ 10,267,053 $ 9,432,869
Licensing and related machinery sales (Note 15) 1,303,971 687,807 287,239
------------ ------------ ------------
13,172,751 10,954,860 9,720,108
------------ ------------ ------------
Costs and expenses:
Cost of sales 8,731,761 8,116,636 7,302,820
Shipping and selling expenses 894,938 840,549 798,641
General and administrative expenses 1,597,050 1,392,295 1,252,295
Research and development expenses 27,119 97,867 50,531
------------ ------------ ------------
11,250,868 10,447,347 9,404,287
------------ ------------ ------------
Operating income 1,921,883 507,513 315,821
------------ ------------ ------------
Other income (expense):
Interest expense (484,211) (425,947) (322,275)
Interest income 44,105 30,681 --
Other 4,200 4,200 4,281
------------ ------------ ------------
(435,906) (391,066) (317,994)
------------ ------------ ------------
1,485,977 116,447 (2,173)
------------ ------------ ------------
Gain (loss) on sale of assets:
Equipment -- 12,141 2,566
Real estate 32,857 47,874 --
------------ ------------ ------------
32,857 60,015 2,566
------------ ------------ ------------
Equity in net income (loss) of
investee -- -- --
------------ ------------ ------------
Minority interest in net (income) loss of subsidiary (1,927) 32,182 --
------------ ------------ ------------
Income before income taxes 1,516,907 208,644 393
Provision for income taxes (Note 9) -- -- --
------------ ------------ ------------
Net income $ 1,516,907 $ 208,644 $ 393
============ ============ ============
Income per common share:
Net income $ .37 $ .05 $ --
============ ============ ============
See notes to consolidated financial statements.
17
18
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
----------- ----------- ------------ -------------
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 (1,373,227) 3,179,760
Net income -- -- 208,644 208,644
----------- ----------- ----------- -----------
Balance at December 31, 1997 41,047 4,511,939 (1,164,582) 3,388,404
Treasury stock (190) (18,810) -- (19,000)
Net income -- -- 1,516,907 1,516,907
----------- ----------- ----------- -----------
Balance at December 31, 1998 $ 40,857 $ 4,493,129 $ 352,325 $ 4,886,311
=========== =========== =========== ===========
See notes to consolidated financial statements.
18
19
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 1,516,907 $ 208,644 $ 393
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 480,341 409,191 285,830
Amortization 137,904 169,402 118,601
Allowance for doubtful accounts 6,717 (66,137) (30,691)
(Gain) loss on sale of assets (32,857) (60,015) (2,566)
(Gain) loss on sale of assets included in
operating revenues (806,796) -- --
Minority interest in net income (loss) of
consolidated subsidiaries 1,927 (32,182) --
Changes in assets and liabilities:
Increase in accounts and notes receivable (923,779) (515,730) (34,458)
Decrease (increase) in receivable - other (152,469) (329,420) 75,000
Decrease (increase) in inventories 352,189 (259,227) 54,611
Decrease (increase) in prepaid expenses 70,975 27,712 (43,581)
Decrease (increase) in other current assets (8,900) -- 1,605
Increase in note receivable - noncurrent (2,160,051) -- --
Increase in investment in Thermasteel Corp. (261,925) -- --
Decrease in Radoslav Joint Venture 336,103 -- --
Decrease (increase) in trademark 847,803 (17,154) --
Decrease (increase) in other assets 1,255,737 (362,079) (54,062)
Increase (decrease) in accounts payable (1,086,791) 813,273 (143,100)
Increase (decrease) in accrued expenses (171,672) 373,246 (266,578)
Decrease in income taxes payable -- -- (10,385)
Net effect of sale of assets to Thermasteel Corp. 379,487 -- --
----------- ----------- ---------
Net cash provided by (used in) operating activities (219,150) 359,524 (49,381)
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 1,835,000 139,050 6,400
Company manufactured equipment and buildings (15,995) (220,491) (15,699)
Capital expenditures on equipment (1,910,112) (1,027,955) (463,558)
Purchase of Treasury stock (19,000) -- --
----------- ----------- ---------
Net cash used in investing activities (110,107) (1,109,396) (472,857)
----------- ----------- ---------
continued
19
20
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Net proceeds (payments) on notes payable 285,092 194,112 300,000
Proceeds from issuance of long-term debt 4,684,284 1,119,830 172,433
Principal payments under long-term debt (4,472,702) (508,732) (276,516)
Proceeds from sale of common stock -- -- --
----------- ---------- ---------
Net cash provided by financing activities 496,674 805,210 195,917
----------- ---------- ---------
Net increase (decrease) in cash $ 167,417 $ 55,338 $(326,321)
Cash and cash equivalents at beginning of year 78,963 23,625 349,946
----------- ---------- ---------
Cash and cash equivalents at end of year $ 246,380 $ 78,963 $ 23,625
=========== ========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 505,215 $ 411,043 $ 327,760
=========== ========== =========
Cash paid during the year for income taxes $ -- $ -- $ 10,385
=========== ========== =========
Supplemental disclosure of noncash investing activities:
During 1998 Radva transferred certain assets and liabilities for $6,200,000
(discounted to $4,976,585) which has been treated as disposal of a portion of a
line of business in which gain has been included in income from operations since
sale did not constitute a sale of a segment of business. This resulted in
transfer of the following assets and liabilities:
Assets and liabilities transferred:
Property, plant and equipment $1,525,483
Accounts receivable 516,460
Prepaid expenses 66,111
Inventory 151,519
Notes receivable 603,158
Licenses and trademarks 1,226,104
Patents 23,770
Manufacturing and marketing rights 635,744
Investments 406,199
Liabilities assumed (50,587)
Debt assumed (672,247)
Investment retained (5%) (261,925)
----------
$4,169,789
During 1997 Radva acquired ninety (90) percent of Thermastructure XT Corp. for
$1,481,141 which resulted in the transfer of the following assets:
Assets transferred:
Investment in Thermastructure, Ltd. $ 210,224
Notes receivable 1,197,308
Accounts receivable 42,928
Interest receivable 30,681
----------
$1,481,141
continued
20
21
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
During 1996 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.
21
22
RADVA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
RADVA Corporation and subsidiary (the Company) produce and sell molded and
fabricated expanded polystyrene foam products such as packaging materials and
containers. The Company operates facilities in Radford and Portsmouth, Virginia.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary, Thermastructure XT Corp. 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
During 1998 Radva sold this investment (see Note 15). Prior to sale the Company
accounted 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.
Investment in Thermasteel Corp.
As part of a transferring certain assets and liabilities to Thermasteel Corp.,
Radva retained a 5% ownership interest. Company accounts for this investment on
the cost basis.
Other Assets
Included in other assets are patents, loan costs and marketing and manufacturing
rights, which are amortized over their respective estimated lives, and trademark
rights, which are amortized over 12 years. Accumulated amortization was
$1,294,040 and $1,156,136 as of December 31, 1998 and 1997 respectively.
22
23
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.
23
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 4,091,560 in 1998, 4,104,727 in 1997, and 4,104,727 in 1996.
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:
1998 1997 1996
---- ---- ----
Petty cash and non-interest bearing accounts $246,380 $ 57,484 $ 23,625
Restricted by IDA bonds, series 1995 -- 21,479 --
-------- -------- --------
$246,380 $ 78,963 $ 23,625
======== ======== ========
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.
24
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair values of the Company's financial instruments as of
December 31, 1998 are as follows:
1998
--------------------------------
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 246,380 $ 246,380
Receivable - other 481,889 481,889
Long-term debt 4,582,807 4,582,807
NOTE 4. RECEIVABLES
Information about impaired receivables as of and for the years ended
December 31, 1998 and 1997 is as follows:
1998 1997
---- ----
Receivables for which there is a related
allowance for bad debts $ -- $ 70,000
Receivables for which there is no related
allowance for bad debts 48,000 50,000
---------- ----------
Total impaired receivables $ 48,000 $ 120,000
========== ==========
Related allowance for possible bad debts $ -- $ 17,500
========== ==========
Average balance (based on beginning and
ending of year) $ 84,000 $ 504,569
========== ==========
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
1998 1997
---- ----
Land and improvements $ 182,508 $ 312,737
Buildings and improvements 3,051,235 2,830,910
Machinery and equipment 4,312,478 4,411,300
Transportation equipment 338,915 278,793
Office equipment 249,124 249,778
---------- ----------
$8,134,260 $8,083,518
========== ==========
NOTE 6. ACCRUED EXPENSES
Accrued expenses are composed of the following:
1998 1997
---- ----
Payroll and employee benefits $ 270,762 $ 117,536
Interest 5,166 26,170
Customer deposits 890 38,993
Insurance 35,401 85,160
Licenses 65,000 206,544
Other 30,962 105,450
---------- ----------
$ 408,181 $ 579,853
========== ==========
25
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NOTES PAYABLE
A summary of notes payable follows:
1998 1997
---- ----
Line of credit with commercial bank, $500,000
limit, interest at prime plus 2% $ -- $494,112
Short-term note with commercial bank, interest
at 10.75%, due November 24, 1997 -- 75,000
Line of credit with commercial bank, $1,500,000
limit, interest variable (8% at December 31, 1998) 854,204 --
-------- --------
Total notes payable $854,204 $569,112
======== ========
NOTE 8. LONG-TERM DEBT
A summary of long-term debt follows:
1998 1997
---- ----
Installment notes payable due in aggregate monthly installments of $2,070,
including interest, with various maturities until February, 2001;
collateralized by equipment. Interest rates ranging from 7.5% to 12.5% $ 15,788 $ 45,812
Financing obligation recorded under capital lease, due in monthly installments
of $3,256, including interest at 8.3%; collateralized by equipment -- 98,237
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 --
2,535,491
Installment note payable to bank, due in monthly installments of $3,148,
including interest at 12%; collateralized by equipment -- 128,771
Industrial Development Authority of the City of Radford, Virginia, due in
monthly installments of $8,592, including interest at 7.75%, collateralized
by a deed of trust on real estate at 609 Rock Road, Radford, Virginia -- 645,000
Industrial Development Authority of the City of Radford, Virginia, due in
monthly installments of $674, including interest at 7%, collateralized by a
second deed of trust on real estate at 609 Rock Road, Radford, Virginia -- 64,804
Installment notes payable with financing company, due in monthly installments
of $16,404, including interest at 8.8%; collateralized by equipment 456,069 823,172
26
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT, CONTINUED
Installment note payable, due in monthly installments of $500, including
interest at 10.625% with a final balloon payment in August 1998,
collateralized by a deed of trust on certain real estate 26,978 29,938
Installment note payable, due in monthly installments of $428, including
interest at 8.5%; collateralized by equipment 10,126 --
Installment note payable to bank, due in monthly installments of $11,905,
including interest at 8%; collateralized by equipment 892,362 --
Installment note payable to bank, due in monthly installments of $27,533,
including interest at 8%; collateralized by real estate 3,111,266 --
Installment note payable to bank, due in monthly installments of $836,
including interest at 8%; collateralized by equipment 70,218 --
---------- ----------
Total long-term debt 4,582,807 4,371,225
Less current installments of long-term debt 593,848 527,793
---------- ----------
Long-term debt, excluding current installments $3,988,959 $3,843,432
========== ==========
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, 1998 follows:
Years Ended December 31,
------------------------
1999 $ 593,848
2000 597,203
2001 594,522
2002 595,393
2003 580,899
Thereafter 1,620,942
----------
$4,582,807
==========
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAX MATTERS
Net deferred tax assets and liabilities consist of the following components as
of December 31, 1998 and 1997:
1998 1997
Deferred tax assets:
Bad debt allowance $ 42,993 $ 40,440
Accrued expenses 23,373 30,513
Bonuses 16,184 --
Inventory allowance 17,100 10,260
Contributions carryover 2,164 1,545
Loss carryforward 218,746 672,872
Investment tax credit carryforward 89,060 177,659
Minimum tax credit carryforward 20,073 20,073
-------- --------
429,693 953,362
Less valuation allowance 129,187 726,222
-------- --------
$300,506 $227,140
======== ========
Deferred tax liabilities:
Property and equipment $300,506 $227,140
======== ========
$ -- $ --
======== ========
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, 1998 have the following
expiration dates:
Expiration Date Amount
--------------- ------
2005 $575,647
Investment tax credit carryforwards for tax purposes as of December 31, 1998
have the following expiration dates:
Expiration Date Amount
--------------- ------
1999 $ 40,976
2000 48,084
--------
$ 89,060
========
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, 1998, 1997 and 1996 due to the following:
1998 1997 1996
Computed "expected" tax benefit $ 515,748 $ 64,621 $ 59
Non-deductible expenses 21,562 4,801 2,179
State income taxes, net of federal income tax benefit 52,250 8,087 761
Benefit of operating loss carryforward (500,863) (77,509) (2,999)
Other (88,697) -- --
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. 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, 1996 and 1995, 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, 1998, 1997 and 1996 was
$ -0-, $ -0-, and $ -0-, 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, 1998 was $17,593.
NOTE 11. 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 12. OPERATING LEASES
The Company leases certain of its manufacturing and office facilities and
equipment. Rental expense for the years ended December 31, 1998, 1997 and 1996
was $180,771, $173,763, and $136,850, respectively. All leases have expired;
however, the Company continues to lease these facilities under the previous
lease schedules for $4,685 per month.
NOTE 13. MAJOR CUSTOMER AND SUPPLIER
The percentage of net revenue attributable to the Company's major customers
(exceeding 10% of total revenues) is 13% for 1998, 12.5% for 1997, and 23.4% for
1996.
The percentage of cost of sales attributable to the Company's major suppliers
(exceeding 10% of total cost of sales) is 18.0% for 1998.
NOTE 14. 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 1998, 1997, and 1996 is as follows:
1998 1997 1996
---- ---- ----
Net revenues:
Protective packaging and similar material $11,458,112 $ 9,421,180 $ 9,026,547
THERMASTRUCTURE products and similar materials 1,340,631 845,873 406,322
Licensing and related machinery sales 374,008 687,807 287,239
----------- ----------- -----------
Revenue $13,172,751 $10,954,860 $ 9,720,108
=========== =========== ===========
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INDUSTRY SEGMENTS, CONTINUED
Operating income (loss):
Protective packaging and similar materials $ 3,799,524 $ 2,477,830 $ 2,259,699
THERMASTRUCTURE products and similar materials 576,879 60,437 68,943
Licensing and related machinery sales 64,587 299,957 88,646
----------- ----------- -----------
Segment operating income 4,440,990 2,838,224 2,417,288
General corporate expense 2,519,107 2,330,711 2,101,467
----------- ----------- -----------
Operating profit $ 1,921,883 $ 507,513 $ 315,821
=========== =========== ===========
Capital expenditures:
Protective packaging and similar materials $ 1,815,983 $ 1,026,830 $ 440,631
THERMASTRUCTURE products - U.S. operations 63,697 206,892 --
General corporate 46,427 14,724 38,626
----------- ----------- -----------
Capital expenditures $ 1,926,107 $ 1,248,446 $ 479,257
=========== =========== ===========
Depreciation and amortization:
Protective packaging and similar materials $ 547,091 $ 468,762 $ 380,585
THERMASTRUCTURE products 45,217 82,257 --
General corporate 25,937 27,574 23,846
----------- ----------- -----------
Depreciation and amortization $ 618,245 $ 578,593 $ 404,431
=========== =========== ===========
Identifiable assets at December 31:
Protective packaging and similar materials $ 5,361,044 $ 3,970,025 $ 3,023,930
THERMASTRUCTURE products 1,577,933 2,938,691 433,286
Licensing and related machinery sales 63,515 1,745,769 1,058,447
General corporate 4,887,724 2,537,687 3,258,115
----------- ----------- -----------
Assets $11,890,216 $11,192,172 $ 7,773,778
=========== =========== ===========
NOTE 15. OTHER MATTERS
Company acquired an additional 70% of common stock of Thermastructure, Ltd.
increasing its ownership to 90% of common stock. Company acquired the additional
stock by giving up certain assets making this entire transaction a noncash
transaction. Company and minority interest of Thermastructure, Ltd. transferred
all of the assets and liabilities into a new company Thermastructure XT Corp
while maintaining the same ownership percentages (90% for Company and 10% for
minority interest). Thermastructure XT Corp is consolidated into Company's
financial statements.
During 1998, the Company transferred certain assets and liabilities to
Thermasteel Corp. for $6,200,000 (discounted to $4,976,585). Company retained a
5% ownership interest in Thermasteel Corp. Company received $1,250,000 down with
balance to be received in installments. Gain on this transaction ($806,796) has
been included in income from operation for current year. The discounted portion
($1,223,415) of the receivable will be recognized as interest income as future
collections are received. Gain is recognized as income from operations since
transfer is deemed a disposal of a portion of a line of business rather than a
sale of a segment of business.
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31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. OTHER MATTERS, CONTINUED
Company transferred its 100% owned subsidiary, RADVA RU, Inc. as part of sale to
Thermasteel Corp. Restatement of prior periods as a result of this transfer
resulted in no change to prior periods since RADVA RU, Inc. had no assets,
liabilities or activity during the periods presented.
NOTE 16. OTHER ASSETS - OTHER
Other assets - other consist of the following:
1998 1997 1996
Deposits $ 15,600 $ 15,600 $ 15,600
Loan costs 57,420 31,938 35,930
Patent costs 42,343 51,134 34,456
Mexican investment -- 70,096 70,096
Investment in Radva RU -- -- 35,000
Investment in Pereslav 55,000 55,000 55,000
Investment in licenses -- 1,105,135 --
Material rights 54,638 13,931 --
Other -- -- 60,172
---------- ---------- ----------
$ 225,001 $1,342,834 $ 306,254
========== ========== ==========
NOTE 17. CONTINGENCIES
Debt assumption:
On April 1, 1997 Company reacquired certain real estate of Thermastructure, Ltd.
by assuming obligations owed to the Industrial Development Authority (IDA)
amounting to $775,818.
As of December 31, 1998 Company remains primarily liable on debt assumed as part
of transfer of certain real estate. Outstanding balance on this debt amounted to
$610,000 as of December 31, 1998.
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.
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32
RADVA CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
OTHER
BALANCE CHANGES
AT ADD BALANCE
BEGINNING ADDITIONS (DEDUCT) AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS (A) (B) OF YEAR
-------------- --------- --------- ----------- -------- ---------
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
========== ========== ========== ========== ==========
Year ended December 31, 1997:
Land and improvements $ 225,984 $ -- $ 5,000 $ 91,753 $ 312,737
Buildings and improvements 2,102,263 115,835 82,298 695,110 2,830,910
Machinery and equipment 2,702,842 837,480 38,630 909,608 4,411,300
Transportation equipment 333,289 23,579 78,075 -- 278,793
Office equipment 200,200 51,061 1,483 -- 249,778
---------- ---------- ---------- ---------- ----------
$5,564,578 $1,027,955 $ 205,486 $1,696,471 $8,083,518
========== ========== ========== ========== ==========
Year ended December 31, 1998:
Land and improvements $ 312,737 $ -- $ 130,229 $ -- $ 182,508
Buildings and improvements 2,830,910 925,148 704,823 -- 3,051,235
Machinery and equipment 4,411,300 859,230 974,047 15,995 4,312,478
Transportation equipment 278,793 79,100 18,978 -- 338,915
Office equipment 249,778 46,634 47,288 -- 249,124
---------- ---------- ---------- ---------- ----------
$8,083,518 $1,910,112 $1,875,365 $ 15,995 $8,134,260
========== ========== ========== ========== ==========
(A) During 1998, 1997 and 1996, the Company placed in service certain
property which has previously been classified as inventory.
(B) During 1997 the Company acquired ninety (90) percent of Thermastructure
XT Corp. in a noncash transaction.
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33
RADVA CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, 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
========== ========== ========== ========== ==========
Year ended December 31, 1997:
Land and improvements $ 24,331 $ -- $ -- $ -- $ 24,331
Buildings and improvements 1,075,615 102,282 1,556 -- 1,176,341
Machinery and equipment 1,642,417 248,549 1,121 -- 1,889,845
Transportation equipment 193,817 35,466 78,075 -- 151,208
Office equipment 131,026 22,894 -- -- 153,920
---------- ---------- ---------- ---------- ----------
$3,067,206 $ 409,191 $ 80,752 $ -- $3,395,645
========== ========== ========== ========== ==========
Year ended December 31, 1998:
Land and improvements $ 24,331 $ -- $ -- $ -- $ 24,331
Buildings and improvements 1,176,341 102,350 27,040 -- 1,251,651
Machinery and equipment 1,889,845 298,193 117,479 -- 2,070,559
Transportation equipment 151,208 51,813 25,113 -- 177,908
Office equipment 153,920 27,985 15,090 -- 166,815
---------- ---------- ---------- ---------- ----------
$3,395,645 $ 480,341 $ 184,722 $ -- $3,691,264
========== ========== ========== ========== ==========
(A) During 1998, 1997 and 1996, the Company placed in service certain
property which has previously been classified as inventory.
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34
RADVA CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, 1996:
Allowance for doubtful
accounts $203,251 $(30,691) $ -- $ -- $172,560
======== ======== ======== ======= ========
Year ended December 31, 1997:
Allowance for doubtful
accounts $172,560 $(66,137) $ -- $ -- $106,423
======== ======== ======== ====== ========
Year ended December 31, 1998:
Allowance for doubtful
accounts $106,423 $ 6,717 $ -- $ -- $113,140
======== ======== ======== ====== ========
(A) Represents uncollectible amounts written off, net of recoveries.
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35
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 29,
1999.
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 29, 1999.
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 29, 1999.
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 29, 1999.
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
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36
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).
(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, 19897 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).
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37
(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.
(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
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38
(c) Exhibits
--------
See ITEM 14(a)(3) above.
(d) Financial Statement Schedules
-----------------------------
See ITEM 14(a)(2) above.
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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, 1999 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, 1999 By /s/ LUTHER I. DICKENS
------------------------------
Luther I. Dickens
President and Director
Dated: March 25, 1999 By /s/ JAMES M. HYLTON
------------------------------
James M. Hylton
Director
Dated: March 25, 1999 By /s/ RUSH G. ALLEN
------------------------------
Rush G. Allen
Director
Dated: March 25, 1999 By /s/ J. GRANGER MACFARLANE
------------------------------
J. Granger Macfarlane
Director
Dated: March 25, 1999 By /s/ WILLIAM H. WILSON
------------------------------
William H. Wilson
Director
Dated: March 25, 1999 By /s/ DAVID B. KINNEY
------------------------------
David B. Kinney
Director
39