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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, 2003
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Commission File Number 1-1031
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RONSON CORPORATION
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(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
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(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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of June 30, 2003, there were 3,841,071 shares of the registrant's common
stock outstanding.
2
RONSON CORPORATION
FORM 10-Q INDEX
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PAGE
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PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS:
JUNE 30, 2003 AND DECEMBER 31, 2002 3
CONSOLIDATED STATEMENTS OF OPERATIONS:
QUARTER ENDED JUNE 30, 2003 and 2002 4
SIX MONTHS ENDED JUNE 30, 2003 AND 2002 5
CONSOLIDATED STATEMENTS OF CASH FLOWS:
SIX MONTHS ENDED JUNE 30, 2003 AND 2002 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 17
ITEM 4 - CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
--------------------
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands of dollars)
June 30, December 31,
2003 2002
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 660 $ 312
Accounts receivable, net 1,790 1,754
Inventories:
Finished goods 1,034 1,874
Work in process 35 103
Raw materials 394 360
------------ ------------
1,463 2,337
Other current assets 911 935
Current assets of discontinued operations 214 214
------------ ------------
TOTAL CURRENT ASSETS 5,038 5,552
------------ ------------
Property, plant and equipment, at cost:
Land 19 19
Buildings and improvements 4,769 4,740
Machinery and equipment 7,140 6,938
Construction in progress 40 28
------------ ------------
11,968 11,725
Less accumulated depreciation and amortization 7,780 7,435
------------ ------------
4,188 4,290
Other assets 1,756 1,848
Other assets of discontinued operations 1,198 1,198
------------ ------------
$ 12,180 $ 12,888
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 726 $ 1,654
Current portion of long-term debt and leases 1,701 317
Accounts payable 1,704 1,629
Accrued expenses 2,484 2,155
Current liabilities of discontinued operations 335 354
------------ ------------
TOTAL CURRENT LIABILITIES 6,950 6,109
------------ ------------
Long-term debt and leases 732 2,273
Other long-term liabilities 1,720 2,048
STOCKHOLDERS' EQUITY:
Common stock 3,911 3,911
Additional paid-in capital 29,225 29,250
Accumulated deficit (26,744) (26,965)
Accumulated other comprehensive loss (2,017) (2,141)
------------ ------------
4,375 4,055
Less cost of treasury shares 1,597 1,597
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,778 2,458
------------ ------------
$ 12,180 $ 12,888
============ ============
See notes to consolidated financial statements.
4
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands of dollars, except per share data)(unaudited)
Quarter Ended June 30,
-----------------------------------
2003 2002
---------- -----------
NET SALES $ 7,514 $ 5,551
---------- -----------
Cost and expenses:
Cost of sales 4,669 3,429
Selling, shipping and advertising 760 838
General and administrative 1,146 1,025
Depreciation and amortization 154 164
Non-recurring expenses 210 --
---------- -----------
6,939 5,456
---------- -----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS 575 95
---------- -----------
Other expense:
Interest expense 79 83
Other-net 16 23
---------- -----------
95 106
---------- -----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 480 (11)
Income tax provision (benefit) 183 (13)
---------- -----------
EARNINGS FROM CONTINUING OPERATIONS 297 2
Earnings from discontinued operations -- --
---------- -----------
NET EARNINGS $ 297 $ 2
========== ===========
EARNINGS PER COMMON SHARE:
Basic:
Earnings from continuing operations $ 0.08 $ --
Earnings from discontinued operations -- --
---------- -----------
Net earnings $ 0.08 $ --
========== ===========
Diluted:
Earnings from continuing operations $ 0.08 $ --
Earnings from discontinued operations -- --
---------- -----------
Net earnings $ 0.08 $ --
========== ===========
See notes to consolidated financial statements.
5
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands of dollars, except per share data)(unaudited)
Six Months Ended June 30,
-------------------------------------
2003 2002
----------- -----------
NET SALES $ 13,352 $ 11,312
----------- -----------
Cost and expenses:
Cost of sales 8,462 6,966
Selling, shipping and advertising 1,549 1,696
General and administrative 2,253 2,082
Depreciation and amortization 318 319
Non-recurring expenses 230 --
----------- -----------
12,812 11,063
----------- -----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS 540 249
----------- -----------
Other expense:
Interest expense 166 173
Other-net 28 48
----------- -----------
194 221
----------- -----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 346 28
Income tax provisions 121 13
----------- -----------
EARNINGS FROM CONTINUING OPERATIONS 225 15
Earnings from discontinued operations -- 170
----------- -----------
NET EARNINGS $ 225 $ 185
=========== ===========
EARNINGS PER COMMON SHARE:
Basic:
Earnings from continuing operations $ 0.06 $ --
Earnings from discontinued operations -- 0.05
----------- -----------
Net earnings $ 0.06 $ 0.05
=========== ===========
Diluted:
Earnings from continuing operations $ 0.06 $ --
Earnings from discontinued operations -- 0.05
----------- -----------
Net earnings $ 0.06 $ 0.05
=========== ===========
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,
----------------------------------
2003 2002
----------- -----------
Cash Flows from Operating Activities:
Net earnings $ 225 $ 185
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 318 319
Deferred income tax expenses 33 107
Increase in cash from changes in
current assets and current liabilities 1,121 375
Net change in pension-related accounts (15) (66)
Discontinued operations (29) 241
Other 20 11
----------- -----------
Net cash provided by operating activities 1,673 1,172
----------- -----------
Cash Flows from Investing Activities:
Net cash used in investing activities,
capital expenditures (212) (734)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from short-term debt -- 98
Payments of preferred dividends (4) (71)
Payments of short-term debt (928) (18)
Payments of long-term debt (141) (372)
Payments of long-term lease obligations (16) (15)
Other (24) (24)
----------- -----------
Net cash used in financing activities (1,113) (402)
----------- -----------
Net increase in cash and cash equivalents 348 36
Cash and cash equivalents at beginning of period 312 689
----------- -----------
Cash and cash equivalents at end of period $ 660 $ 725
=========== ===========
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 2003 (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, 2003 and 2002, 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 Operations 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,
-------------------------------------------------------------------
2003 2002
----------------------------- -------------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(2) Amount
-------- ------ ------ -------- -------- ------
Net earnings. . . . . . . . . . $ 297 $ 2
Less accrued dividends on
preferred stock . . . . . . . (2) (2)
-------- -------
BASIC $ 295 3,841 $ 0.08 $ -- 3,809 $ 0.00
Effect of dilutive
securities (1):
Stock options . . . . . . . . -- --
Cumulative convertible
preferred stock. . . . . . . $ 2 38 $ -- --
-------- ----- ------- ------
DILUTED $ 297 3,879 $ 0.08 $ -- 3,809 $ 0.00
======== ===== ====== ======= ====== ======
8
Six Months Ended June 30,
-------------------------------------------------------------------
2003 2002
----------------------------- -------------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(2) Amount
-------- ------ ------ -------- -------- ------
Earnings from continuing
Operations. . . . . . . . . . $ 225 $ 15
Less accrued dividends on
preferred stock . . . . . . . (4) (4)
-------- --------
Continuing operations . . . . . 221 3,841 $ 0.06 11 3,809 $ 0.00
Earnings from discontinued
operations. . . . . . . . . . -- 3,841 -- 170 3,809 0.05
-------- ------ -------- ------
BASIC $ 221 3,841 $ 0.06 $ 181 3,809 $ 0.05
======== ====== ====== ======== ====== ======
Effect of dilutive
securities (1):
Stock options . . . . . . . . -- --
Cumulative convertible
preferred stock. . . . . . . $ -- -- $ -- --
-------- ----- -------- ------
Continuing operations . . . . . 221 3,841 $ 0.06 11 3,809 $ 0.00
Earnings from discontinued
operations. . . . . . . . . . -- 3,841 -- 170 3,809 0.05
-------- ------ -------- ------
DILUTED $ 221 3,841 $ 0.06 $ 181 3,809 $ 0.05
======== ====== ====== ======== ====== ======
(1) The assumed conversion of preferred shares to common shares and the
stock options were anti-dilutive for the six months ended June 30,
2003, and for the quarter and six months ended June 30, 2002, and,
therefore, were excluded from the computation and reconciliation of
Diluted Earnings per Common Share for those periods.
(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
declared March 18, 2003.
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, now
expiring on June 30, 2005. The Revolving Loan of $726,000 at June 30, 2003,
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. Ronson-Canada's line of credit is secured by its accounts
receivable and inventory. At June 30, 2003, Ronson-Canada utilized no borrowings
under the Revolving Loan.
9
In 1997 Ronson Aviation, Inc. ("Ronson Aviation") entered into an
agreement with Fleet for a Revolving Loan. The Revolving Loan provides a line of
credit up to $500,000 to Ronson Aviation based on the level of its accounts
receivable. At June 30, 2003, 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 in Woodbridge, New Jersey. The Mortgage Loan
balance was $1,473,000 at June 30, 2003, and is payable in sixty monthly
installments of $17,218, including interest, and a final installment on May 1,
2004. The Company, RCPC, and Fleet are in discussions regarding the extension of
the mortgage loan.
Ronson Aviation has two term loans payable to Fleet with balances at June
30, 2003, totaling approximately $882,000. The loans are collateralized by
specific aircraft and expire on 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.
In 2002 Prometcor completed the environmental clearance of its property in
Newark, N.J. The final parcel of the property was sold in May 2002 with the
Company retaining responsibility for the groundwater-related activities. The
Company's plan to resolve groundwater issues has not yet been approved by the
NJDEP. Testing completed in 2000 resulted in increased estimates of the range of
costs to be incurred. These costs will be incurred over an extended number of
years. In calculating and accruing these costs, the Company has discounted the
costs to the present value. The liability for these estimated costs and expenses
as recorded in the financial statements was based, in accordance with normal
accounting practices, on the lower limit of the range of costs as projected by
the Company and its consultants. The estimated upper limit of the range of costs
is approximately $600,000 above the lower limit. The full extent of the costs
and time required for completion of the NJDEP environmental clearance is not
determinable until the remediation and confirmatory testing of the properties
have been completed and accepted by the NJDEP.
10
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. 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 a shareholder derivative action, and the
Company incurred approximately $230,000 in legal costs related to the matter in
the first half of 2003. The Company believes that its directors' and officers'
liability insurance coverage is adequate to meet the future direct costs of the
litigation; however, the Company is not able to estimate at this time the extent
to which it will incur additional legal or other expenses, which may be
substantial, in connection with this proceeding.
The Company is involved in various other lawsuits 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.
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.
11
Financial information by industry segment is summarized below (in
thousands):
Quarter Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
------- ------- ------- -------
Net sales:
Consumer Products $ 4,561 $ 3,394 $ 8,169 $ 7,118
Aviation Services 2,953 2,157 5,183 4,194
------- ------- ------- -------
Consolidated $ 7,514 $ 5,551 $13,352 $11,312
======= ======= ======= =======
Earnings (loss) from operations:
Consumer Products $ 883 $ 232 $ 1,201 $ 479
Aviation Services 424 358 643 749
------- ------- ------- -------
Total reportable segments 1,307 590 1,844 1,228
Corporate and others (522) (495) (1,074) (979)
Non-recurring expense (210) -- (230) --
------- ------- ------- -------
Consolidated $ 575 $ 95 $ 540 $ 249
======= ======= ======= =======
Earnings (loss) from continuing
operations before intercompany
charges and income taxes:
Consumer Products $ 857 $ 201 $ 1,150 $ 416
Aviation Services 404 341 601 711
------- ------- ------- -------
Total reportable segments 1,261 542 1,751 1,127
Corporate and others (571) (553) (1,175) (1,099)
Non-recurring expense (210) -- (230) --
------- ------- ------- -------
Consolidated $ 480 $ (11) $ 346 $ 28
======= ======= ======= =======
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.
12
Changes in the components of Other Comprehensive Income (Loss) and in
Accumulated Other Comprehensive Loss were as follows (in thousands):
Quarter Ended June 30, 2003 and 2002
------------------------------------
Foreign Currency Minimum Pension Accumulated
Translation Liability Other Comprehensive
Adjustment (1) Adjustment (2) Loss
---------------- --------------- -------------------
Balance at
March 31, 2003 $ (55) $ (2,027) $ (2,082)
Change during second
quarter 2003 21 44 65
---------- --------- ---------
Balance at
June 30, 2003 $ (34) $ (1,983) $ (2,017)
========== ========= =========
Balance at
March 31, 2002 $ (71) $ (1,500) $ (1,571)
Change during second
quarter 2002 10 31 41
---------- --------- ---------
Balance at
June 30, 2002 $ (61) $ (1,469) $ (1,530)
========== ========= =========
Six Months Ended June 30, 2003 and 2002
---------------------------------------
Foreign Currency Minimum Pension Accumulated
Translation Liability Other Comprehensive
Adjustment (1) Adjustment (2) Loss
---------------- --------------- -------------------
Balance at
December 31, 2002 $ (70) $ (2,071) $ (2,141)
Change during first
half 2003 36 88 124
---------- --------- ---------
Balance at
June 30, 2003 $ (34) $ (1,983) $ (2,017)
========== ========= =========
Balance at
December 31, 2001 $ (70) $ (1,532) $ (1,602)
Change during first
half 2002 9 63 72
---------- --------- ---------
Balance at
June 30, 2002 $ (61) $ (1,469) $ (1,530)
========== ========= =========
(1) The foreign currency translation adjustment component of Accumulated
Other Comprehensive Loss is presented above net of related tax benefits
of $23,000 and $41,000 as of June 30, 2003 and 2002, respectively,
$37,000 and $47,000 as of March 31, 2003 and 2002, respectively, and
$46,000 and $47,000 as of December 31, 2002 and 2001, respectively. For
the quarter and six month periods ended June 30, 2003, the change in
the foreign currency translation component is presented above net of
related tax provisions of $14,000 and $23,000, respectively.
13
(2) The minimum pension liability component of Accumulated Other
Comprehensive Loss is presented above net of related tax benefits of
$1,319,000 and $977,000 as of June 30, 2003 and 2002, respectively,
$1,348,000 and $998,000 as of March 31, 2003 and 2002, respectively,
and $1,377,000 and $1,019,000 as of December 31, 2002 and 2001,
respectively. For the quarters ended June 30, 2003 and 2002, the change
in the minimum pension liability component is presented above net of
related tax provisions of $29,000 and $21,000, respectively, and for
the six month periods ended June 30, 2003 and 2002, $58,000 and
$42,000, 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,
------------------
2003 2002
-------- -------
Cash payments for:
Interest $ 154 $ 195
Income Taxes 35 2
14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
RESULTS OF OPERATIONS
Second Quarter 2003 Compared to Second Quarter 2002 and First Half 2003 Compared
to First Half 2002.
The Company's Net Sales increased by 35% to $7,514,000 in the second
quarter of 2003 from $5,551,000 in the second quarter of 2002 and increased by
18% to $13,352,000 in the first half of 2003 from $11,312,000 in the first half
of 2002.
The Company's Earnings from Continuing Operations in the second quarter of
2003 were $297,000 compared to $2,000 in the second quarter of 2002. The
Company's Earnings from Continuing Operations in the first half of 2003
increased to $225,000 from $15,000 in the first half of 2002. The Company's
Earnings from Continuing Operations before Non-recurring Expenses and Income
Taxes improved to $690,000 in the second quarter of 2003 from a loss of $11,000
in the second quarter of 2002 and improved to $576,000 in the first half of 2003
from $28,000 in the first half of 2002.
The Earnings from Continuing Operations and Net Earnings for the second
quarter and first half 2003 included non-recurring expenses of $210,000 and
$230,000 (before income taxes), respectively, associated with litigation related
to a shareholder derivative action.
The Company's Net Earnings in the second quarter of 2003 improved to
$297,000 from $2,000 in the second quarter of 2002. The Company's Net Earnings
in the first half of 2003 were $225,000 as compared to $185,000 in the first
half of 2002. 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.
Ronson Consumer Products
- ------------------------
(in thousands)
Quarter Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2003 2002 2003 2002
------- ------- ------- -------
Net sales $ 4,561 $ 3,394 $ 8,169 $ 7,118
Earnings from operations 883 232 1,201 479
Earnings before income taxes
and intercompany charges 857 201 1,150 416
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")
increased by 34% in the second quarter of 2003 compared to the second quarter of
2002 and the Net Sales at Ronson Consumer Products increased by 15% in the first
half of 2003 compared to the first half of 2002 primarily due to sales of the
new Ronson Tech Torch to Wal-Mart which began in May 2003 and to increased sales
of flame accessory products.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products
decreased to 55% in the second quarter of 2003 from 58% in the second quarter of
2002 and to 57% in the first half of 2003 from 59% in the first half of 2002.
15
These decreases in the Cost of Sales percentage in 2003 were due primarily to
the increased sales, to reduced packaging costs on certain products, and to
improved packaging processes in the first half of 2003.
Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as
a percentage of Net Sales, decreased to 17% in the second quarter of 2003 and to
19% in the first half of 2003 from 25% in the second quarter and 24% in the
first half of 2002 primarily due to the higher sales in 2003 and to a reduction
in personnel-related costs. General and Administrative Expenses, as a percentage
of Net Sales, were unchanged at 9% in the first halves of 2003 and 2002.
Ronson Aviation
- ---------------
(in thousands)
Quarter Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2003 2002 2003 2002
------- ------- ------- -------
Net sales $ 2,953 $ 2,157 $ 5,183 $ 4,194
Earnings from operations 424 358 643 749
Earnings before income taxes
and intercompany charges 404 341 601 711
Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New
Jersey, increased by 37% in the second quarter of 2003 from the second quarter
of 2002 and by 24% in the first half of 2003 from the first half of 2002. These
increases were primarily due to increased aircraft sales and increased sales of
aircraft maintenance services.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased
to 74% in the second quarter and first half of 2003 from 68% in the second
quarter and 66% in the first half of 2002. The increases in the Cost of Sales
percentage in 2003 were primarily due 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, decreased to 9% in
the second quarter of 2003 from 11% in the second quarter of 2002 and to 10% in
the first half of 2003 from 12% in the first half of 2002 primarily due to the
increased sales in 2003.
Other Items
The General and Administrative Expenses of Corporate and Others were
higher in the first half of 2003 as compared to the first half of 2002 primarily
due to increased legal fees and to significantly higher pension expense as the
result of increased amortization related to the lower valuation of pension
assets in 2002.
The Non-recurring Expenses in the second quarter and first half of 2003
were the legal fees incurred in 2003 as a result of the derivative action filed
by a stockholder. (Refer to Item 3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 2002.)
Discontinued Operations
In March 2002 the Company reached settlement with the last insurance
carrier in the Company's 1999 lawsuit to recover incurred and anticipated
environmental
16
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 increased to $2,778,000 at June 30,
2003, from $2,458,000 at December 31, 2002. The increase of $320,000 in
Stockholders' Equity was primarily due to the Net Earnings in the first half of
2003. The Company had a deficiency in working capital of $1,912,000 at June 30,
2003, as compared to $557,000 at December 31, 2002. The decline in working
capital was primarily due to the classification from long-term debt to a current
liability (due in less than one year) of the May 2004 RCPC mortgage payment of
$1,402,000 and a reduction in the long-term pension obligation by $316,000,
partially improved by the Net Earnings in 2003. The extension of the mortgage
loan is currently being negotiated by the Company with Fleet.
The Increase in Cash from Changes in Current Assets and Current
Liabilities is higher in the first half of 2003 than in the first half of 2002
due to reduced aircraft inventory at Ronson Aviation and reduced inventory at
Ronson Consumer Products at June 30, 2003, and to differences in timing of
payments of accounts payable and accrued expenses.
The cash provided by discontinued operations in the first half of 2002 was
due to the sale of the Prometcor property and to the proceeds from the final
insurance settlement.
The cash used for capital expenditures was significantly lower in the
first half of 2003 as compared to the first half of 2002 primarily because the
first half of 2002 included Ronson Aviation's replacement of an engine on its
Citation II charter aircraft at a cost of about $400,000.
The Company's short-term debt was reduced at June 30, 2003 and payments of
short-term debt were higher in the first half of 2003 from the first half of
2002 primarily due to the sale of Ronson Aviation's aircraft inventory which had
been financed with short-term debt of $514,000 and to reduced inventory at
Ronson Consumer Products.
The Company's payments of long-term debt were lower in the first half of
2003 as compared to the first half of 2002 because of Ronson Aviation's first
half 2002 repayment of long-term debt to Texaco Refining and Marketing, Inc.
Based on the amount of the loans outstanding and the levels of accounts
receivable and inventory at December 31, 2002, Ronson Consumer Products and
Ronson Aviation had unused borrowings of about $890,000 under the lines of
credit at June 30, 2003.
The Company has continued to meet its obligations as they have matured and
management believes that the Company will continue to meet its obligations
through internally generated funds from future net earnings and depreciation,
established external financial arrangements, potential additional sources of
financing and existing cash balances.
17
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 involve risks and uncertainties, as well as assumptions that, if
they never materialize or prove incorrect, could cause the results of the
Company to differ materially from those expressed or implied by such
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any projections of earnings, revenue, margins, costs or other financial items;
any statements of the plans, strategies and objectives of management for future
operations; any statement concerning new products, services or developments; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
The risks, uncertainties and assumptions referred to above include the success
of new products; competition; prices of key materials, such as petroleum
products; the challenge of managing asset levels, including inventory; the
difficulty of aligning expense levels with revenue changes; assumptions relating
to pension costs; and other risks that are described herein and that are
otherwise described from time to time in the Company's Securities and Exchange
Commission reports. The Company assumes no obligation and does not intend to
update these forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
There has been no significant change in the Company's exposure to market
risk during the first half of 2003. For discussion of the Company's exposure to
market risk, refer to Item 7A, Quantitative and Qualitative Disclosure about
Market Risk, contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, incorporated herein by reference.
ITEM 4 - CONTROLS AND PROCEDURES
-----------------------
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer, after the evaluation of the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in Rules 13a-4(c) and 15-14(c) under the Securities Exchange Act of 1934) as of
a date (the "Evaluation Date") within 90 days before the filing date of this
quarterly report, have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and designed to ensure that
material information related to the Company and its consolidated subsidiaries
would be made known to them.
(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
18
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
-----------------
Steel Partners II, L.P., et al v. Louis V. Aronson II, Robert A. Aronson,
- --------------------------------------------------------------------------
Erwin M. Ganz, I. Leo Motiuk, Gerard J. Quinnan, Justin P. Walder,
- ------------------------------------------------------------------
Saul H. Weisman, Carl W. Dinger III and Ronson Corporation
- ----------------------------------------------------------
On March 25, 2003, a derivative lawsuit was filed against the directors of
Ronson in the Superior Court of New Jersey, Chancery Division, Essex County by
Steel Partners II, L.P. and Warren G. Lichtenstein. The lawsuit alleges, among
other matters, breach of fiduciary duty and an absence of disinterestedness by
the defendants, and use of corporate control to advance their own interests. The
lawsuit seeks monetary damages on behalf of Ronson as well as equitable relief
to invalidate the Company's shareholder rights agreement and certain consulting
agreements, to enjoin performance of agreements with certain directors and to
require the Company's President and C.E.O. to divest those shares acquired, and
not to acquire additional shares while the shareholder rights agreement has been
or remains in place. A special committee of two outside directors was created by
the Board of Directors of the Company to investigate and evaluate the
allegations made in the lawsuit. The special committee is expected to complete
its investigation and report to the Board in the third quarter. The Company's
directors will continue to vigorously defend these matters and take all such
action as they deem appropriate.
Ronson Corporation, Louis V. Aronson II, Robert A. Aronson, Erwin M. Ganz,
- --------------------------------------------------------------------------
Gerard J. Quinnan, and Justin P. Walder v. Steel Partners II, L.P., Steel
- --------------------------------------------------------------------------
Partners, L.L.C., Warren G. Lichtenstein, Jack Howard, Howard M. Lorber, Ronald
- -------------------------------------------------------------------------------
Hayes, Travis Bradford, et al
- -----------------------------
In June 2003, the Company and certain members of its Board of Directors
filed a complaint in the United States District Court, District of New Jersey,
against Steel Partners II, L.P., Steel Partners L.L.C., Warren G. Lichtenstein,
and others (i) claiming that Steel Partners II, L.P., Steel Partners L.L.C., and
others acting in concert with them had failed to comply with their disclosure
obligations under the federal securities law, and thereby violated Section 13D
of the Securities Exchange Act of 1934, as amended, (ii) seeking a declaration
that the defendants have beneficial ownership in excess of twelve percent of the
Company's common stock and, accordingly, are an "acquiring person" as defined in
the Company's shareholder rights agreement, (iii) seeking a further declaration
that defendants are an "interested stockholder" for purposes of the New Jersey
Shareholders Protection Act, and, accordingly, are subject to specified
prohibitions there under and (iv) seeking damages for defendants alleged
tortious interference with the Company's prospective economic advantage. The
plaintiffs will vigorously pursue their rights in this litigation.
19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Section 1350 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the
Securities Exchange Act of 1934).
20
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, 2003 /s/Louis V. Aronson II
---------------------------------
Louis V. Aronson II, President
& Chief Executive Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: August 14, 2003 /s/Daryl K. Holcomb
---------------------------------
Daryl K. Holcomb, Vice President
& Chief Financial Officer,
Controller and Treasurer
(Signing as Chief Financial
Officer of the Registrant)