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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 September 30, 2003
------------------
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 |_|
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 September 30, 2003, there were 3,841,071 shares of the registrant's common
stock outstanding.
2
RONSON CORPORATION
FORM 10-Q INDEX
PAGE
----
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS:
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 3
CONSOLIDATED STATEMENTS OF OPERATIONS:
QUARTER ENDED SEPTEMBER 30, 2003 AND 2002 4
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 5
CONSOLIDATED STATEMENTS OF CASH FLOWS:
NINE MONTHS ENDED SEPTEMBER 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 15
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
ITEM 4 - CONTROLS AND PROCEDURES 18
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
--------------------
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------
(in thousands of dollars)
September 30, December 31,
2003 2002
------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 704 $ 312
Accounts receivable, net 1,692 1,754
Inventories:
Finished goods 1,560 1,874
Work in process 51 103
Raw materials 657 360
-------- --------
2,268 2,337
Other current assets 1,103 935
Current assets of discontinued operations 214 214
-------- --------
TOTAL CURRENT ASSETS 5,981 5,552
-------- --------
Property, plant and equipment, at cost:
Land 6 19
Buildings and improvements 4,775 4,740
Machinery and equipment 7,243 6,938
Construction in progress 49 28
-------- --------
12,073 11,725
Less accumulated depreciation and amortization 7,935 7,435
-------- --------
4,138 4,290
Other assets 1,633 1,848
Other assets of discontinued operations 1,198 1,198
-------- --------
$ 12,950 $ 12,888
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,221 $ 1,654
Current portion of long-term debt and leases 1,679 317
Accounts payable 1,842 1,629
Accrued expenses 2,581 2,155
Current liabilities of discontinued operations 332 354
-------- --------
TOTAL CURRENT LIABILITIES 7,655 6,109
-------- --------
Long-term debt and leases 672 2,273
Other long-term liabilities 1,610 2,048
STOCKHOLDERS' EQUITY:
Common stock 3,911 3,911
Additional paid-in capital 29,213 29,250
Accumulated deficit (26,542) (26,965)
Accumulated other comprehensive loss (1,972) (2,141)
-------- --------
4,610 4,055
Less cost of treasury shares 1,597 1,597
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,013 2,458
-------- --------
$ 12,950 $ 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
September 30,
----------------------
2003 2002
------- -------
NET SALES $ 6,344 $ 5,421
------- -------
Cost and expenses:
Cost of sales 3,754 3,394
Selling, shipping and advertising 803 847
General and administrative 1,101 1,015
Depreciation and amortization 153 179
Non-recurring expenses, net 143 --
------- -------
5,954 5,435
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS 390 (14)
------- -------
Other expense:
Interest expense 72 82
Other-net (50) 21
------- -------
22 103
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 368 (117)
Income tax provision (benefit) 165 (38)
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 203 (79)
Earnings from discontinued operations -- --
------- -------
NET EARNINGS (LOSS) $ 203 $ (79)
======= =======
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Earnings (loss) from continuing operations $ 0.05 $ (0.02)
Earnings from discontinued operations -- --
------- -------
Net earnings (loss) $ 0.05 $ (0.02)
======= =======
Diluted:
Earnings (loss) from continuing operations $ 0.05 $ (0.02)
Earnings from discontinued operations -- --
------- -------
Net earnings (loss) $ 0.05 $ (0.02)
======= =======
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)
Nine Months Ended
September 30,
-----------------------
2003 2002
-------- --------
NET SALES $ 19,696 $ 16,733
-------- --------
Cost and expenses:
Cost of sales 12,216 10,360
Selling, shipping and advertising 2,352 2,543
General and administrative 3,354 3,097
Depreciation and amortization 471 498
Non-recurring expenses, net 373 --
-------- --------
18,766 16,498
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS 930 235
-------- --------
Other expense:
Interest expense 238 255
Other-net (22) 69
-------- --------
216 324
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 714 (89)
Income tax provision (benefit) 286 (25)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 428 (64)
Earnings from discontinued operations -- 170
-------- --------
NET EARNINGS $ 428 $ 106
======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Earnings (loss) from continuing operations $ 0.11 $ (0.02)
Earnings from discontinued operations -- 0.05
-------- --------
Net earnings $ 0.11 $ 0.03
======== ========
Diluted:
Earnings (loss) from continuing operations $ 0.11 $ (0.02)
Earnings from discontinued operations -- 0.05
-------- --------
Net earnings $ 0.11 $ 0.03
======== ========
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)
Nine Months Ended
September 30,
--------------------
2003 2002
------- -------
Cash Flows from Operating Activities:
Net earnings $ 428 $ 106
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 471 498
Deferred income tax expenses 117 71
Increase (decrease) in cash from change
in inventories 69 (1,326)
Increase in cash from changes in
current assets and current liabilities 368 458
Net change in pension-related accounts (25) (86)
Discontinued operations (33) 186
Other (36) (34)
------- -------
Net cash provided by (used in) operating
activities 1,359 (127)
------- -------
Cash Flows from Investing Activities:
Capital expenditures (330) (816)
Proceeds from sale of property, plant, & equipment 76 --
------- -------
Net cash used in investing activities (254) (816)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term debt 495 1,092
Proceeds from issuance of common stock -- 38
Payments of preferred dividends (5) (73)
Payments of short-term debt (928) --
Payments of long-term debt (211) (440)
Payments of long-term lease obligations (28) (24)
Other (36) (36)
------- -------
Net cash provided by (used in) financing
activities (713) 557
------- -------
Net increase (decrease) in cash and cash equivalents 392 (386)
Cash and cash equivalents at beginning of period 312 689
------- -------
Cash and cash equivalents at end of period $ 704 $ 303
======= =======
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
--------------------------------------------------------------------
Note 1: ACCOUNTING POLICIES
-------------------
Basis of Financial Statement Presentation - The information as of and for
the three month and nine month periods ended September 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 September 30,
--------------------------------------------------------------------------
2003 2002
---------------------------------- ----------------------------------
Per Per
Share Earnings Share
Earnings Shares Amount (Loss) Shares(2) Amount
-------- ------ ------ ------ --------- ------
Net earnings (loss) ........... $ 203 $ (79)
Less accrued dividends on
preferred stock ............. (2) (2)
----- -----
BASIC ....................... $ 201 3,841 $ 0.05 $ (81) 3,815 $ (0.02)
======== ========
Effect of dilutive
securities (1):
Stock options ............... 55 --
Cumulative convertible
preferred stock ............ $ 2 38 $ -- --
----- ----- ----- -----
DILUTED ..................... $ 203 3,934 $ 0.05 $ 81 3,815 $ (0.02)
===== ===== ======== ===== ===== ========
8
Nine Months Ended September 30,
--------------------------------------------------------------------------
2003 2002
---------------------------------- ----------------------------------
Per Per
Share Earnings Share
Earnings Shares Amount (Loss) Shares(2) Amount
-------- ------ ------ ------ --------- ------
Earnings (loss) from
continuing operations ....... $ 428 $ (64)
Less accrued dividends on
preferred stock ............. (5) (5)
----- -----
Continuing operations ......... 423 3,841 $ 0.11 (69) 3,811 $ (0.02)
Earnings from discontinued
operations .................. -- 3,841 -- 170 3,811 0.05
----- -------- ----- --------
BASIC ....................... $ 423 3,841 $ 0.11 $ 101 3,811 $ 0.03
===== ===== ======== ===== ===== ========
Effect of dilutive
securities (1):
Stock options ............... 26 --
Cumulative convertible
preferred stock ............ $ 5 38 $ -- --
----- ----- ----- -----
Continuing operations ......... 428 3,905 $ 0.11 (69) 3,811 $ (0.02)
Earnings from discontinued
operations .................. -- 3,905 -- 170 3,811 0.05
----- -------- ----- --------
DILUTED ..................... $ 428 3,905 $ 0.11 $ 101 3,811 $ 0.03
===== ===== ======== ===== ===== ========
(1) The assumed conversion of preferred shares to common shares and the
stock options were anti-dilutive for the quarter and nine months
ended September 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 September 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 September 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 September 30, 2003, Ronson Aviation utilized no borrowings under
the Revolving Loan.
At September 30, 2003, Ronson Aviation had a note payable of $495,000 due
to Raytheon Aircraft Credit Corp. The note is collateralized by a specific
aircraft and is to be repaid from the proceeds from the sale of the aircraft.
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 $1,452,000 at September 30, 2003, and is payable in monthly
installments of $17,218, including interest, and a final installment on May 1,
2004. The extension of the Mortgage Loan for five years from the date of
closing is expected in the fourth quater of 2003.
Ronson Aviation has two term loans payable to Fleet with balances at
September 30, 2003, totaling approximately $834,000. The loans are
collateralized by specific aircraft and expire on September 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
10
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.
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 $143,000 and $373,000 in net legal costs related
to the matter in the third quarter and nine months of 2003, respectively. These
costs were net of the associated insurance reimbursements of about $245,000 in
the periods. 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 Nine Months Ended
September 30, September 30,
------------------ --------------------
2003 2002 2003 2002
------- ------- -------- --------
Net sales:
Consumer Products $ 4,147 $ 3,458 $ 12,316 $ 10,576
Aviation Services 2,197 1,963 7,380 6,157
------- ------- -------- --------
Consolidated $ 6,344 $ 5,421 $ 19,696 $ 16,733
======= ======= ======== ========
Earnings (loss) from operations:
Consumer Products $ 761 $ 200 $ 1,962 $ 679
Aviation Services 301 288 944 1,037
------- ------- -------- --------
Total reportable segments 1,062 488 2,906 1,716
Corporate and others (529) (502) (1,603) (1,481)
Non-recurring expense (143) -- (373) --
------- ------- -------- --------
Consolidated $ 390 $ (14) $ 930 $ 235
======= ======= ======== ========
Earnings (loss) from continuing
operations before intercompany
charges and income taxes:
Consumer Products $ 740 $ 171 $ 1,890 $ 587
Aviation Services 287 273 888 984
------- ------- -------- --------
Total reportable segments 1,027 444 2,778 1,571
Corporate and others (516) (561) (1,691) (1,660)
Non-recurring expense (143) -- (373) --
------- ------- -------- --------
Consolidated $ 368 $ (117) $ 714 $ (89)
======= ======= ======== ========
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 September 30, 2003 and 2002
-----------------------------------------
Foreign Currency Minimum Pension Accumulated
Translation Liability Other Comprehensive
Adjustment (1) Adjustment (2) Loss
---------------- --------------- -------------------
Balance at
June 30, 2003 $(34) $(1,983) $(2,017)
Change during third
quarter 2003 2 43 45
---- ------- -------
Balance at
September 30, 2003 $(32) $(1,940) $(1,972)
==== ======= =======
Balance at
June 30, 2002 $(61) $(1,469) $(1,530)
Change during third
quarter 2002 (12) 31 19
---- ------- -------
Balance at
September 30, 2002 $(73) $(1,438) $(1,511)
==== ======= =======
Nine Months Ended September 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 nine
months 2003 38 131 169
---- ------- -------
Balance at
September 30, 2003 $(32) $(1,940) $(1,972)
==== ======= =======
Balance at
December 31, 2001 $(70) $(1,532) $(1,602)
Change during nine
months 2002 (3) 94 91
---- ------- -------
Balance at
September 30, 2002 $(73) $(1,438) $(1,511)
==== ======= =======
(1) The foreign currency translation adjustment component of Accumulated
Other Comprehensive Loss is presented above net of related tax
benefits of $21,000 and $48,000 as of September 30, 2003 and 2002,
respectively, $23,000 and $41,000 as of June 30, 2003 and 2002,
respectively, and $46,000 and $47,000 as of December 31, 2002 and
2001, respectively. For the quarter and nine month periods ended
September 30, 2003, the change in the foreign currency translation
component is presented above net of related tax provisions of $2,000
and $25,000, respectively.
13
(2) The minimum pension liability component of Accumulated Other
Comprehensive Loss is presented above net of related tax benefits of
$1,290,000 and $956,000 as of September 30, 2003 and 2002,
respectively, $1,319,000 and $977,000 as of June 30, 2003 and 2002,
respectively, and $1,377,000 and $1,019,000 as of December 31, 2002
and 2001, respectively. For the quarters ended September 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 nine month periods ended
September 30, 2003 and 2002, $87,000 and $63,000, 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):
Nine Months Ended
September 30,
-----------------
2003 2002
---- ----
Cash payments for:
Interest $218 $286
Income Taxes 35 2
Note 9: STOCK OPTIONS
-------------
Effective January 1, 2003, the Company adopted the provisions of SFAS No.
148 "Accounting for Stock-Based Compensation-Transition and Disclosure" on a
prospective basis. Awards are granted under the Company's two stock option
plans. No options have been granted in the nine months ended September 30, 2003.
The cost related to stock based compensation included in net loss for the three
and nine month periods ended September 30, 2002 is less than that which would
have been recognized if the fair value based method had been applied to all
awards since the original effective date of Statement 123.
The following table illustrates the effect on results of operations and
earnings (loss) per share if the fair value based method had been applied to all
outstanding awards in each period (in thousands, except per share data):
14
Quarter Ended
September 30,
----------------------
2003 2002
-------- --------
Earnings (loss) from continuing operations
less accrued dividends on preferred stock,
as reported $ 201 $ (81)
Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards granted,
modified or settled during each period,
net of related tax effects -- (27)
-------- --------
Pro forma earnings (loss) from continuing
operations $ 201 $ (108)
======== ========
Earnings (loss), basic as reported $ .05 $ (.02)
Basic, pro forma .05 (.03)
Diluted, as reported .05 (.02)
Diluted, pro forma .05 (.03)
Nine Months Ended
September 30,
----------------------
2003 2002
-------- --------
Earnings (loss) from continuing operations
less accrued dividends on preferred stock,
as reported $ 423 $ (69)
Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards granted,
modified or settled during each period,
net of related tax effects -- (27)
-------- --------
Pro forma earnings (loss) from continuing
operations $ 423 $ (96)
======== ========
Earnings (loss), basic as reported $ .11 $ (.02)
Basic, pro forma .11 (.03)
Diluted, as reported .11 (.02)
Diluted, pro forma .11 (.03)
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
- ---------------------
Third Quarter 2003 Compared to Third Quarter 2002 and Nine Months 2003 Compared
to Nine Months 2002.
The Company's Net Sales increased by 17% to $6,344,000 in the third
quarter of 2003 from $5,421,000 in the third quarter of 2002 and increased by
18% to $19,696,000 in the nine months of 2003 from $16,733,000 in the nine
months of 2002.
The Company's Earnings from Continuing Operations in the third quarter of
2003 were $203,000 compared to a loss of $79,000 in the third quarter of 2002.
The Company's Earnings from Continuing Operations in the nine months of 2003
increased to $428,000 from a loss of $64,000 in the nine months of 2002.
The Company's Earnings from Continuing Operations before Non-recurring
Expenses and Income Taxes improved to $511,000 in the third quarter of 2003 from
a loss of $117,000 in the third quarter of 2002 and improved to $1,087,000 in
the nine months of 2003 from a loss of $89,000 in the nine months of 2002.
The Earnings from Continuing Operations and Net Earnings for the third
quarter and nine months of 2003 included non-recurring expenses of $143,000 and
$373,000 (before income taxes), respectively, associated with litigation related
to a shareholder derivative action. These non-recurring expenses are presented
net of the associated insurance reimbursements of about $245,000 in the periods.
In the nine months of 2003, prior to the insurance reimbursements, the
non-recurring costs totaled $618,000.
The Company's Net Earnings in the third quarter of 2003 improved to
$203,000 from a loss of $79,000 in the third quarter of 2002. The Company's Net
Earnings in the nine months of 2003 were $428,000 as compared to $106,000 in the
nine months of 2002. The Net Earnings in the nine months 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 Nine Months Ended
September 30, September 30,
----------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $4,147 $3,458 $12,316 $10,576
Earnings from operations 761 200 1,962 679
Earnings before income taxes
and intercompany charges 740 171 1,890 587
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 20% in the third quarter of 2003 compared to the third quarter of
2002, and the Net Sales at Ronson Consumer Products increased by 16% in the nine
months of 2003 compared to the nine months of 2002 primarily due to sales of the
new Ronson
16
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 53% in the third quarter of 2003 from 59% in the third quarter of
2002 and to 55% in the nine months of 2003 from 59% in the nine months of 2002.
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 nine months of 2003.
Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as
a percentage of Net Sales, decreased to 19% in the third quarter and nine months
of 2003 from 24% in the third quarter and nine months 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 reduced to 8% in
the nine months of 2003 from 9% in the nine months of 2002, primarily due to the
higher Net Sales in 2003.
Ronson Aviation
- ---------------
(in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $2,197 $1,963 $7,380 $6,157
Earnings from operations 301 288 944 1,037
Earnings before income taxes
and intercompany charges 287 273 888 984
Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New
Jersey, increased by 12% in the third quarter of 2003 from the third quarter of
2002 and by 20% in the nine months of 2003 from the nine months of 2002. The
increase in the third quarter of 2003 was primarily due to increased aircraft
fuel sales and increased sales of aircraft maintenance services, and the
increase in the nine months of 2003 was 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 71% in the third quarter and 73% in the nine months of 2003 from 69% in the
third quarter and 67% in the nine months of 2002. The increases in the Cost of
Sales percentage in 2003 were primarily due to the change in the mix of products
sold as the result of increased aircraft sales and reduced sales of charter
services in the periods in 2003.
Ronson Aviation's Selling, Shipping and Advertising Expenses and General
and Administrative Expenses, as a percentage of Net Sales, increased to 11% in
the third quarter of 2003 from 10% in the third quarter of 2002 and decreased to
10% in the nine months of 2003 from 11% in the nine months of 2002. This
decrease in the nine months of 2003 was primarily due to the increased Net Sales
in 2003.
Other Items
- -----------
The General and Administrative Expenses of Corporate and Others were
higher in the nine months of 2003 as compared to the nine months of 2002
primarily due to increased legal fees and to significantly higher pension
expense as the result
17
of increased amortization related to the lower valuation of pension assets in
2002.
The Non-recurring Expenses in the third quarter and nine months of 2003
were the legal fees incurred in 2003 as a result of the derivative action filed
by a stockholder. These non-recurring expenses were net of the associated
insurance reimbursements of about $245,000 in the periods. In the nine months of
2003, prior to the insurance reimbursements, the non-recurring costs totaled
$618,000.
In the third quarter and nine months of 2003, Other-Net included a gain of
$63,000 from the sale of vacant land at Delaware Water Gap, PA.
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 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 nine months of
2002.
FINANCIAL CONDITION
The Company's Stockholders' Equity increased to $3,013,000 at September 30,
2003, from $2,458,000 at December 31, 2002. The increase of $555,000 in
Stockholders' Equity was primarily due to the Net Earnings in the nine months of
2003. The Company had a deficiency in working capital of $1,674,000 at September
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 (due in more
than one year) 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 $424,000, partially improved by the Net Earnings in 2003.
The extension of the Mortgage Loan for five years from the date of closing is
expected in the fourth quater of 2003.
The Decrease in Cash from Changes in Inventory in the nine months of 2002
was primarily due to increased aircraft inventory at Ronson Aviation at
September 30, 2002.
The cash provided by discontinued operations in the nine months 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 nine
months of 2003 as compared to the nine months of 2002 primarily because the nine
months 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 September 30, 2003 and
payments of short-term debt were higher in the nine months of 2003 from the nine
months of 2002 primarily due to the sale of Ronson Aviation's aircraft inventory
which had been financed with short-term debt and to reduced inventory at Ronson
Consumer Products.
18
The Company's payments of long-term debt were lower in the nine months of
2003 as compared to the nine months of 2002 because of Ronson Aviation's nine
months 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 September 30, 2003, Ronson Consumer Products and
Ronson Aviation had unused borrowings of about $948,000 under the lines of
credit at September 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.
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 nine months 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
19
the end of the period covered by this quarterly report, have concluded that, as
of that 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.
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 committee concluded that none of the
directors breached any fiduciary duty owed to the Company or its shareholders,
that it is not in the best interests of the Company or its shareholders to
continue legal action against the directors on any of the claims asserted in the
derivative complaint and that the Company seek to dismiss the derivative action.
The Company's directors have vigorously denied the claims and have moved to have
the complaint dismissed. That motion to dismiss is now pending.
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
20
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. Several
of the named defendants have moved to dismiss the complaint, which motion is now
pending. The plaintiffs will vigorously pursue their rights in this litigation.
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).
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated July 15, 2003, in response to Item 9 of such report.
The following financial statements were included in this report:
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
Consolidated Statements of Operations
Quarter Ended June 30, 2003 and 2002
Six Months Ended June 30, 2003 and 2002
The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated July 28, 2003, in response to Item 9 of such report.
No financial statements or pro forma financial information were included in this
report.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated September 12, 2003, in response to Item 9 of such
report. No financial statements or pro forma financial information were included
in this report.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated September 24, 2003, in response to Item 5 of such
report. No financial statements or pro forma financial information were included
in this report.
21
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: November 14, 2003 /s/ Louis V. Aronson II
----------------------------------
Louis V. Aronson II, President
& Chief Executive Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: November 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)