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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
-------------
Commission File Number 1-1031
------
RONSON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-0743290
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Corporate Park III-Campus Drive, P.O. Box 6707, Somerset, NJ 08875
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(732) 469-8300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
As of June 30, 2002, there were 3,628,316 shares of the registrant's common
stock outstanding.
2
RONSON CORPORATION
FORM 10-Q INDEX
---------------
PAGE
----
PART I - FINANCIAL INFORMATION:
CONSOLIDATED BALANCE SHEETS:
JUNE 30, 2002 AND DECEMBER 31, 2001 3
CONSOLIDATED STATEMENTS OF EARNINGS:
QUARTER ENDED JUNE 30, 2002 AND 2001 4
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 5
CONSOLIDATED STATEMENTS OF CASH FLOWS:
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
3
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------
(in thousands of dollars)
June 30, December 31,
2002 2001
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 725 $ 689
Accounts receivable, net 1,668 1,723
Inventories:
Finished goods 1,479 1,422
Work in process 84 55
Raw materials 431 361
-------- --------
1,994 1,838
Other current assets 895 953
Current assets of discontinued operations 294 325
-------- --------
TOTAL CURRENT ASSETS 5,576 5,528
-------- --------
Property, plant and equipment, at cost:
Land 19 19
Buildings and improvements 4,728 4,648
Machinery and equipment 6,771 6,075
Construction in progress 80 114
-------- --------
11,598 10,856
Less accumulated depreciation and amortization 7,076 6,763
-------- --------
4,522 4,093
Other assets 1,506 1,548
Other assets of discontinued operations 1,080 1,458
-------- --------
$ 12,684 $ 12,627
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 938 $ 858
Current portion of long-term debt and leases 305 377
Accounts payable 2,174 1,593
Accrued expenses 2,160 1,940
Current liabilities of discontinued operations 484 527
-------- --------
TOTAL CURRENT LIABILITIES 6,061 5,295
-------- --------
Long-term debt and leases 2,415 2,730
Other long-term liabilities 1,176 1,730
STOCKHOLDERS' EQUITY:
Common stock 3,692 3,520
Additional paid-in capital 29,260 29,221
Accumulated deficit (26,793) (26,671)
Accumulated other comprehensive loss (1,530) (1,602)
-------- --------
4,629 4,468
Less cost of treasury shares 1,597 1,596
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,032 2,872
-------- --------
$ 12,684 $ 12,627
======== ========
See notes to consolidated financial statements.
4
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
------------------------------------------------------------
(in thousands of dollars, except per share data) (unaudited)
Quarter Ended
June 30,
---------------------------------
2002 2001
---- ----
NET SALES $ 5,551 $ 7,003
------- -------
Cost and expenses:
Cost of sales 3,429 4,410
Selling, shipping and advertising 838 902
General and administrative 1,025 1,093
Depreciation and amortization 164 192
------- -------
5,456 6,597
------- -------
EARNINGS FROM OPERATIONS 95 406
------- -------
Other expense:
Interest expense 83 142
Other-net 23 30
------- -------
106 172
------- -------
EARNINGS (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) (11) 234
Income tax provision (benefit) (13) 66
------- -------
NET EARNINGS $ 2 $ 168
======= =======
NET EARNINGS PER COMMON SHARE:
Basic $ 0.00 $ 0.05
======= =======
Diluted $ 0.00 $ 0.05
======= =======
See notes to consolidated financial statements
5
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------------------------------
(in thousands of dollars, except per share data) (unaudited)
Six Months Ended
June 30,
----------------------------
2002 2001
---- ----
NET SALES $11,312 $13,161
------- -------
Cost and expenses:
Cost of sales 6,966 8,196
Selling, shipping and advertising 1,696 1,799
General and administrative 2,082 2,085
Depreciation and amortization 319 378
------- -------
11,063 12,458
------- -------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS 249 703
------- -------
Other expense:
Interest expense-net 173 301
Other-net 48 59
------- -------
221 360
------- -------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 28 343
Income tax provisions-net 13 108
------- -------
EARNINGS FROM CONTINUING OPERATIONS 15 235
Earnings from discontinued operations
(net of tax provisions of $115) 170 --
------- -------
NET EARNINGS $ 185 $ 235
======= =======
EARNINGS PER COMMON SHARE:
Basic:
Earnings from continuing operations $ 0.00 $ 0.06
Earnings from discontinued operations 0.05 0.00
------- -------
Net earnings $ 0.05 $ 0.06
======= =======
Diluted:
Earnings from continuing operations $ 0.00 $ 0.06
Earnings from discontinued operations 0.05 0.00
------- -------
Net earnings $ 0.05 $ 0.06
======= =======
See notes to consolidated financial statements.
6
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------
(in thousands of dollars, except per share data) (unaudited)
Six Months Ended
June 30,
------------------------
2002 2001
---- ----
Cash Flows from Operating Activities:
Net earnings $ 185 $ 235
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 319 378
Deferred income tax expenses 107 112
Increase in cash from changes in
current assets and current liabilities 375 97
Net change in pension-related accounts (66) 121
Discontinued operations 241 (76)
Other 11 19
------- -------
Net cash provided by operating activities 1,172 886
------- -------
Cash Flows from Investing Activities:
Net cash used in investing activities,
capital expenditures (734) (385)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term debt 98 183
Payments of preferred dividends (71) --
Payments of short-term debt (18) (264)
Payments of long-term debt (372) (226)
Payments of long-term lease obligations (15) (14)
Other (24) (24)
------- -------
Net cash used in financing activities (402) (345)
------- -------
Net increase in cash and cash equivalents 36 156
Cash and cash equivalents at beginning of period 689 81
------- -------
Cash and cash equivalents at end of period $ 725 $ 237
======= =======
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE QUARTER ENDED JUNE 30, 2002 (UNAUDITED)
-----------------------------------------------
Note 1: ACCOUNTING POLICIES
-------------------
Basis of Financial Statement Presentation - The information as of and for
the three month and six month periods ended June 30, 2002 and 2001, is
unaudited. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of such interim periods have been included.
Discontinued Operations - In December 1989 Ronson Corporation (the
"Company") adopted a plan to discontinue the operations in 1990 of one of its
New Jersey facilities, Ronson Metals Corporation, subsequently renamed
Prometcor, Inc. ("Prometcor"). As a result, the operations of Prometcor have
been classified as discontinued operations in the accompanying Consolidated
Statements of Earnings and other related operating statement data.
This quarterly report should be read in conjunction with the Company's
Annual Report on Form 10-K.
Note 2: PER COMMON SHARE DATA
---------------------
The calculation and reconciliation of Basic and Diluted Earnings per Common
Share were as follows (in thousands except per share data):
Quarter Ended June 30,
--------------------------------------------------------
2002 2001
------------------------- -----------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(2) Amt.(2)
-------- ------ ------ -------- --------- -------
Net earnings . . . . . . $ 2 $ 168
Less accrued dividends on
preferred stock . . . . (2) (2)
-------- -------
BASIC -- 3,628 $ 0.00 166 3,629 $ 0.05
====== ======
Effect of dilutive
securities (1):
Stock options . . . . . -- --
Cumulative convertible
preferred stock . . . -- -- -- --
-------- ------ ------- ------
DILUTED $ -- 3,628 $ 0.00 $ 166 3,629 $ 0.05
======== ====== ====== ======= ====== ======
8
Six Months Ended June 30,
--------------------------------------------------------
2002 2001
------------------------- -----------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(2) Amt.(2)
-------- ------ ------ -------- --------- -------
Earnings from continuing
operations . . . . . . $ 15 $ 235
Less accrued dividends on
preferred stock . . . . (4) (4)
-------- -------
Continuing operations . . 11 3,628 $ 0.00 231 3,629 $ 0.06
Earnings from discontinued
operations . . . . . . 170 3,628 0.05 -- 3,629 --
-------- ------ ------- --------
BASIC $ 181 3,628 $ 0.05 $ 231 3,629 $ 0.06
======== ====== ====== ======= ======= ========
Effect of dilutive
securities (1):
Stock options . . . . . -- --
Cumulative convertible
preferred stock . . . $ -- -- $ -- --
-------- ------ ------- ------
Continuing operations . . 11 3,628 $ 0.00 231 3,629 $ 0.06
Earnings from discontinued
operations . . . . . . 170 3,628 0.05 -- 3,629 --
-------- ------ ------- --------
DILUTED $ 181 3,628 $ 0.05 $ 231 3,629 $ 0.06
======== ====== ====== ======= ======= ========
(1) The assumed conversion of preferred shares to common shares and the
stock options were anti-dilutive for all periods presented, and,
therefore, were excluded from the computation and reconciliation of
Diluted Earnings per Common Share.
(2) Information as to the number of shares and per share amounts has been
retroactively adjusted to reflect the 5% stock dividend on common
stock.
Note 3: SHORT-TERM DEBT
---------------
In 1995 Ronson Consumer Products Corporation ("RCPC") entered into an
agreement with Fleet Capital Corporation ("Fleet") for a Revolving Loan. On June
30, 2002, RCPC and Fleet extended RCPC's Revolving Loan to June 30, 2005. The
extended agreement also amended certain other terms of the Revolving Loan
agreement. The Revolving Loan of $918,000 at June 30, 2002, provides a line of
credit up to $2,500,000 to RCPC based on accounts receivable and inventory.
In 1995 Ronson Corporation of Canada, Ltd. ("Ronson-Canada") entered into
an agreement with Canadian Imperial Bank of Commerce ("CIBC") for a line of
credit of C$250,000. The Revolving Loan balance of $20,000 (C$30,000) at June
30, 2002, of Ronson-Canada under the line of credit is secured by its accounts
receivable and inventory.
In 1997 Ronson Aviation entered into an agreement with Fleet for a
Revolving Loan. On June 30, 2002, the Revolving Loan was extended for three
years to June 30, 2005. The Revolving Loan provides a line of credit up to
$500,000 to Ronson
9
Aviation based on the level of its accounts receivable. At June 30, 2002, Ronson
Aviation utilized no borrowings under the Revolving Loan.
Note 4: LONG-TERM DEBT
--------------
In May 1999 the Company, RCPC and Fleet entered into an agreement, in the
original amount of $1,760,000, which refinanced the existing Mortgage Loan
agreement on the RCPC property. The Mortgage Loan balance was $1,553,000 at June
30, 2002, and is payable in sixty monthly installments of $17,218, including
interest, and a final installment on May 1, 2004.
Ronson Aviation has two term loans payable to Fleet with balances at June
30, 2002, totaling approximately $1,078,000. The loans are collateralized by
specific aircraft. On June 30, 2002, Ronson Aviation and Fleet amended a term
loan to extend the payment terms to June 30, 2005.
Note 5: CONTINGENCIES
-------------
In 1999 Ronson Aviation completed the installation of a new fueling
facility and ceased use of most of its former underground storage tanks. The
primary underground fuel storage tanks formerly used by Ronson Aviation were
removed in 1999 as required by the New Jersey Department of Environmental
Protection ("NJDEP"). Related contaminated soil was removed and remediated. In
2000 initial groundwater tests were completed. Ronson Aviation's environmental
consultants have advised the Company that preliminary results of that testing
indicate that no further actions should be required. The extent of groundwater
contamination cannot be determined until final testing has been completed and
accepted by the NJDEP. The Company intends to vigorously pursue its rights under
the leasehold and under the statutory and regulatory requirements. Since the
amount of additional costs, if any, and their ultimate allocation cannot be
fully determined at this time, the effect on the Company's financial position or
results of future operations cannot yet be determined, but management believes
that the effect will not be material.
The Company is involved in a State of New Jersey Gross Income Tax audit for
the years ended December 31, 1997 through December 31, 2000. The total claimed
by the State of New Jersey is $144,000, related to availability of net operating
loss carryforwards from 1995. The Company has appealed the determination by the
New Jersey Division of Taxation. Based on statements of the Company's counsel in
the matter, management believes that the Company will not be liable for the
assessment. The Company has accrued the expected cost of defense in the matter.
The Company is involved in various lawsuits, tax audits, and claims. While
the amounts claimed may be substantial, the ultimate liability cannot now be
determined because of the considerable uncertainties that exist. Therefore, it
is possible that results of operations or liquidity in a particular period could
be materially affected by certain contingencies. However, based on facts
currently available including the insurance coverage that the Company has in
place, management believes that the outcome of these lawsuits and claims will
not have a material adverse effect on the Company's financial position.
10
Note 6: INDUSTRY SEGMENTS INFORMATION
-----------------------------
The Company has two reportable segments: consumer products and aviation
services. The Company's reportable segments are strategic business units that
offer different products and services.
Financial information by industry segment is summarized below (in
thousands):
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales:
Consumer Products $ 3,394 $ 3,942 $ 7,118 $ 7,938
Aviation Services 2,157 3,061 4,194 5,223
-------- -------- -------- --------
Consolidated $ 5,551 $ 7,003 $ 11,312 $ 13,161
======== ======== ======== ========
Earnings from operations:
Consumer Products $ 232 $ 434 $ 479 $ 917
Aviation Services 358 455 749 675
-------- -------- -------- --------
Total reportable segments 590 889 1,228 1,592
Corporate and others (495) (483) (979) (889)
-------- -------- -------- --------
Consolidated $ 95 $ 406 $ 249 $ 703
======== ======== ======== ========
Earnings from continuing
operations before intercompany
charges and income taxes:
Consumer Products $ 201 $ 385 $ 416 $ 808
Aviation Services 341 397 711 553
-------- -------- -------- --------
Total reportable segments 542 782 1,127 1,361
Corporate and others (553) (548) (1,099) (1,018)
-------- -------- -------- --------
Consolidated $ (11) $ 234 $ 28 $ 343
======== ======== ======== ========
Note 7: COMPREHENSIVE INCOME
--------------------
Comprehensive Income is the change in equity during a period from
transactions and other events from nonowner sources. The Company is required to
classify items of other comprehensive income in financial statements and to
display the accumulated balance of other comprehensive income (loss) separately
in the equity section of the Consolidated Balance Sheets.
11
Changes in the components of Other Comprehensive Income (Loss) and in
Accumulated Other Comprehensive Loss were as follows (in thousands):
Quarter Ended June 30, 2002 and 2001
------------------------------------
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment (1) Adjustment (2) Loss
-------------- -------------- --------------
Balance at
March 31, 2002 $ (71) $(1,500) $(1,571)
Change in period 16 52 68
Tax Effect (6) (21) (27)
Balance at -------- -------- --------
June 30, 2002 $ (61) $(1,469) $(1,530)
======== ======== ========
Balance at
March 31, 2001 $ (56) $(1,015) $(1,071)
Change in period 3 34 37
Tax effect (1) (13) (14)
Balance at -------- -------- --------
June 30, 2001 $ (54) $ (994) $(1,048)
======== ======== ========
Six Months Ended June 30, 2002 and 2001
---------------------------------------
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment (1) Adjustment (2) Loss
-------------- -------------- --------------
Balance at
December 31, 2001 $ (70) $(1,532) $(1,602)
Change in period 15 105 120
Tax Effect (6) (42) (48)
Balance at ------- ------- --------
June 30, 2002 $ (61) $(1,469) $(1,530)
======= ======= =======
Balance at
December 31, 2000 $ (58) $(1,035) $(1,093)
Change in period 7 67 74
Tax Effect (3) (26) (29)
Balance at ------- ------- -------
June 30, 2001 $ (54) $ (994) $(1,048)
======= ======= =======
(1) The foreign currency translation adjustment component of Accumulated Other
Comprehensive Loss is presented above net of related tax benefits of
$41,000 and $36,000 as of June 30, 2002 and 2001, respectively, $47,000 and
$37,000 as of March 31, 2002 and 2001, respectively, and $47,000 and
$39,000 as of December 31, 2001 and 2000, respectively.
12
(2) The minimum pension liability component of Accumulated Other Comprehensive
Loss is presented above net of related tax benefits of $977,000 and
$662,000 as of June 30, 2002 and 2001, respectively, $998,000 and $675,000
as of March 31, 2002 and 2001, respectively, and $1,019,000 and $688,000 as
of December 31, 2001 and 2000, respectively.
Note 8: STATEMENTS OF CASH FLOWS
------------------------
Certificates of deposit that have a maturity of less than 90 days are
considered cash equivalents for purposes of the accompanying Consolidated
Statements of Cash Flows.
Supplemental disclosures of cash flow information are as follows (in
thousands):
Six Months Ended
June 30,
----------------
2002 2001
---- ----
Cash Payments for:
Interest $ 195 $ 274
Income Taxes 2 9
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 2002 Compared to Second Quarter 2001 and First Half 2002 Compared
to First Half 2001.
The Company's Net Sales were $5,551,000 in the second quarter of 2002 as
compared to $7,003,000 in the second quarter of 2001 and were $11,312,000 in the
first half of 2002 as compared to $13,161,000 in the first half of 2001.
The Company's Net Earnings in the first half of 2002 were $185,000 compared
to $235,000 in the first half of 2001. The Net Earnings in the first half of
2002 included Earnings from Discontinued Operations of $170,000 due to income
from an environmental insurance settlement. The Company's Earnings from
Continuing Operations were $15,000 in the first half of 2002 as compared to
$235,000 in the first half of 2001.
Ronson Consumer Products
- ------------------------
(in thousands)
Quarter Ended Six Months Ended
June 30, June 30,
-------------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $3,394 $3,942 $7,118 $7,938
Earnings from operations 232 434 479 917
Earnings before income taxes and
intercompany charges 201 385 416 808
Net Sales of consumer products at Ronson Consumer Products Corporation
("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd.
("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products")
decreased by 14% in the second quarter of 2002 compared to the second quarter of
2001, and the Net Sales at Ronson Consumer Products decreased by 10% in the
first half of 2002 compared to the first half of 2001 primarily due to decreased
sales of flame accessory products.
Reclassifications have been made of certain of last year's amounts to
conform with the current year's presentation required in accordance with EITF
Issue No. 00-25. Effective January 1, 2002, certain selling expenses incurred by
Ronson Consumer Products are classified as reductions in Net Sales, in lieu of
as selling or advertising expenses. There is no effect on earnings, and the
impact on Ronson Consumer Products' Net Sales is not material.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products
increased to 58% in the second quarter of 2002 from 56% in the second quarter of
2001 and to 59% in the first half of 2002 from 56% in the first half of 2001.
These increases in the Cost of Sales percentage was due primarily to the lower
sales and to increased packaging costs on certain products.
Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as
a percentage of Net Sales, increased to 25% in the second quarter of 2002 and to
24% in the first half of 2002 from 23% in the second quarter and first half of
2001 primarily due to the lower sales in 2002. General and Administrative
Expenses, as a percentage of Net Sales, were unchanged at 9% in the second
quarters and first halves of 2002 and 2001.
14
Interest Expense at Ronson Consumer Products was reduced by $16,000 to
$27,000 in the second quarter of 2002 from $43,000 in the second quarter of 2001
and by $42,000 to $55,000 in the first half of 2002 from $97,000 in the first
half of 2001 primarily due to lower interest rates.
Ronson Aviation
- ---------------
(in thousands)
Quarter Ended Six Months Ended
June 30, June 30,
--------------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $2,157 $3,061 $4,194 $5,223
Earnings from operations 358 455 749 675
Earnings before income taxes and
intercompany charges 341 397 711 553
Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New
Jersey, decreased by 30% in the second quarter of 2002 from the second quarter
of 2001 and by 20% in the first half of 2002 from the first half of 2001. These
decreases were primarily due to lower aircraft sales and because the Net Sales
in the second quarter and first half of 2001 included sales of charter services
on Ronson Aviation's two C-99 aircraft, which were sold in the fourth quarter of
2001.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, was reduced
to 68% in the second quarter of 2002 and to 66% in the first half of 2002 from
73% in the second quarter and first half of 2001. The decreases in the Cost of
Sales percentage in 2002 were primarily due to improved gross profit margins on
certain products and to the change in the mix of products sold.
Ronson Aviation's Selling, Shipping and Advertising Expenses and General
and Administrative Expenses, as a percentage of Net Sales, increased to 11% in
the second quarter of 2002 from 9% in the second quarter of 2001 and to 12% in
the first half of 2002 from 10% in the first half of 2001 primarily due to the
lower sales in 2002.
Interest Expense at Ronson Aviation was reduced by $39,000 to $18,000 in
the second quarter of 2002 from $57,000 in the second quarter of 2001 and by
$81,000 to $39,000 in the first half of 2002 from $120,000 in the first half of
2001 primarily due to lower interest rates in 2002 and to reduced debt because
of the fourth quarter 2001 sale of the two C-99 aircraft.
Other Items
- -----------
The General and Administrative Expenses of Corporate and Other were higher
in the second quarter and first half of 2002 as compared to the second quarter
and first half of 2001 primarily due to significantly higher pension expense as
the result of increased amortization related to the lower valuation of pension
assets in 2001.
Income Taxes
- ------------
Income tax benefits were recognized in the second quarter of 2002 because
earnings in the second quarter 2002 in Ronson-Canada offset its losses in the
first quarter 2002. In the first half of 2002, the Company's
15
effective tax rate of 46% exceeded the statutory tax rate due to minimum state
income taxes.
Discontinued Operations
- -----------------------
On March 6, 2002, the Company reached settlement with the last insurance
carrier in the Company's 1999 lawsuit to recover incurred and anticipated
environmental cleanup costs, primarily relating to the Company's discontinued
Prometcor operations. The Company had settled with the other insurance carriers
in 2000 and 2001. This last settlement amounted to $600,000, bringing total
recoveries to over $1.8 million. As a result of this final settlement, the
Company had Earnings from Discontinued Operations of $285,000 after related
expenses and before income taxes ($170,000 after taxes) in the first half of
2002.
FINANCIAL CONDITION
The Company's Stockholders' Equity improved to $3,032,000 at June 30, 2002,
from $2,872,000 at December 31, 2001. The improvement of $160,000 in
Stockholders' Equity was primarily due to the Net Earnings in the first half of
2002. The Company had a deficiency in working capital of $485,000 at June 30,
2002, as compared to working capital of $233,000 at December 31, 2001. The
decline in working capital was primarily due to three factors: a reduction in
the long-term pension obligation by $576,000, Ronson Aviation's replacement of
an engine on its Citation II charter aircraft of about $400,000 and a reduction
in the non-current portion of long-term debt of $299,000, partially offset by
the Company's Net Earnings in the first half of 2002.
In the first half of 2002, the Company's machinery and equipment increased
by $696,000 primarily due to Ronson Aviation's replacement of an engine on its
Citation II charter aircraft at a cost of about $400,000.
In the first half of 2002, the Company's Accounts Payable and Accrued
Expenses increased from December 31, 2001, primarily due to the timing of
purchases and payments.
In the first quarter of 2002, the Company completed the environmental
clearance of Prometcor's Newark, NJ, property. The property was released for
sale in March 2002 by the New Jersey Department of Environmental Protection.
Closing on the sale of the property under an existing sale agreement was
completed in the second quarter of 2002. The reduction in Other Assets of
Discontinued Operations from December 31, 2001, to June 30, 2002, was primarily
due to the sale of the property.
In the second quarter of 2002, the Company reached agreement with its
principal lender, Fleet Business Capital ("Fleet") extending: 1) Fleet's lines
of credit with RCPC and Ronson Aviation, and 2) certain of Fleet's term loans to
Ronson Aviation related to the Citation II jet. The lines of credit and term
loans were extended by three years from their prior expiration dates to June 30,
2005. The revised terms of the agreements provide for reduced interest rates to
prime plus 1% from prime plus 1-1/2%. For the lines of credit, these rate
reductions are upon attainment of certain financial ratios. The revised
agreements also eliminate and revise various financial covenants.
The Company has continued to meet its obligations as they have matured and
management believes that the Company will continue to meet its obligations
16
through internally generated funds from future net earnings and depreciation,
established external financial arrangements, potential additional sources of
financing and existing cash balances.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report contain forward-looking
statements that anticipate results based on management's plans that are subject
to uncertainty. The use of the words "expects", "plans", "anticipates" and other
similar words in conjunction with discussions of future operations or financial
performance identifies these statements.
Forward-looking statements are based on current expectations of future
events. The Company cannot ensure that any forward-looking statement will be
accurate, although the Company believes that it has been reasonable in its
expectations and assumptions. Investors should realize that if underlying
assumptions prove inaccurate or that unknown risks or uncertainties materialize,
actual results could vary materially from our projections. The Company assumes
no obligation to update any forward-looking statements as a result of future
events or developments.
Investors are cautioned not to place undue reliance on such statements that
speak only as of the date made. Investors also should understand that it is not
possible to predict or identify all such factors and should not consider this to
be a complete statement of all potential risks and uncertainties.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
Gary & Margaret Minnich vs. Ronson Consumer Products Corporation and
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Wal-Mart Stores East, Inc.
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The Company is the defendant in a product liability lawsuit pending in the
Circuit Court for Washington County, Maryland, in which Plaintiffs seek
substantial damages that allegedly occurred in February 1999, when a cigarette
lighter ignited the clothing of Gary Minnich. The Company was notified of the
lawsuit in June 2002. Discovery has not been completed, and, therefore, the
Company's counsel is unable to render an opinion about whether the likelihood of
an unfavorable outcome is either "probable" or "remote". However, counsel for
the Company has advised that substantial defenses exist and is vigorously
defending this litigation. Management believes that the claim is without merit
and a loss, if any, would be well within the limits of insurance coverage.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(10) Material Contracts.
On June 30, 2002, RCPC and Summit Business Capital Corp., doing business as
Fleet Capital ("Fleet"), amended the Revolving Loan agreement (refer to Note 3
of the Notes to Consolidated Financial Statements). The amended Revolving Loan
agreement and related agreements are attached as Exhibits 10(a)-10(d) as
follows:
(a) Fourth Amendment to Loan and Security Agreement between Summit Business
Capital Corp. and Ronson Consumer Products Corporation dated June 30, 2002.
(b) Amended and Restated Master Note in the amount of $2,500,000 between Summit
Business Capital Corp. and Ronson Consumer Products Corporation dated June
30, 2002.
(c) Consent and Reaffirmation of Guarantor by Ronson Corporation to Summit
Business Capital Corp. dated June 30, 2002.
(d) Consent and Reaffirmation of Guarantor by Ronson Aviation, Inc. to Summit
Business Capital Corp. dated June 30, 2002.
On June 30, 2002, Ronson Aviation and Fleet amended the Revolving Loan
Agreement and a Term Loan Agreement (refer to Notes 3 and 4 of the Notes to
Consolidated Financial Statements). The amended Revolving Loan Agreement, the
Term Loan Agreement and related agreements are attached hereto as Exhibits
10(e)-10(i) as follows:
(e) Second Amendment to Loan and Security Agreement between Summit Business
Capital Corp. and Ronson Aviation, Inc. dated June 30, 2002.
(f) Third Amended and Restated Master Note in the amount of $500,000 between
Summit Business Capital Corp. and Ronson Aviation, Inc. dated June 30, 2002.
(g) Allonge to Promissory Note dated November 20, 1997 in the sum of
$1,726,725.00 as of June 30, 2002, between Summit Business Capital Corp. and
Ronson Aviation, Inc.
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(h) Consent and Reaffirmation of Guarantor by Ronson Corporation to Summit
Business Capital Corp. dated June 30, 2002.
(i) Consent and Reaffirmation of Guarantor by Ronson Consumer Products
Corporation to Summit Business Capital Corp. dated June 30, 2002.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RONSON CORPORATION
Date: August 14, 2002 /s/ Louis V. Aronson II
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Louis V. Aronson II, President
& Chief Executive Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: August 14, 2002 /s/ Daryl K. Holcomb
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Daryl K. Holcomb, Vice President
& Chief Financial Officer,
Controller & Treasurer
(Signing as Chief Financial
Officer of the Registrant)