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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, 2004
-------------------
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 October 29, 2004, there were 4,115,465 shares of the registrant's common
stock outstanding.
RONSON CORPORATION
FORM 10-Q INDEX
---------------
PAGE
----
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS:
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 3
CONSOLIDATED STATEMENTS OF EARNINGS:
QUARTER ENDED SEPTEMBER 30, 2004 and 2003 4
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 5
CONSOLIDATED STATEMENTS OF CASH FLOWS:
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 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 20
SIGNATURES 21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
September 30, December 31,
2004 2003
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 297 $ 664
Accounts receivable, net 1,795 2,198
Inventories:
Finished goods 2,479 1,495
Work in process 43 25
Raw materials 1,020 383
---------- ----------
3,542 1,903
Other current assets 1,350 1,183
---------- ----------
TOTAL CURRENT ASSETS 6,984 5,948
---------- ----------
Property, plant and equipment, at cost:
Land 6 6
Buildings and improvements 5,318 4,782
Machinery and equipment 7,685 7,232
Construction in progress 175 53
---------- ----------
13,184 12,073
Less accumulated depreciation and amortization 8,557 8,029
---------- ----------
4,627 4,044
Other assets 3,083 2,611
---------- ----------
$ 14,694 $ 12,603
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 2,440 $ 847
Current portion of long-term debt and leases 841 325
Accounts payable 2,122 1,632
Accrued expenses 2,608 2,683
Current liabilities of discontinued operations 318 324
---------- ----------
TOTAL CURRENT LIABILITIES 8,329 5,811
---------- ----------
Long-term debt and leases 1,824 1,946
Other long-term liabilities 790 1,371
STOCKHOLDERS' EQUITY:
Common stock 4,179 4,127
Additional paid-in capital 29,454 29,509
Accumulated deficit (26,659) (26,768)
Accumulated other comprehensive loss (1,626) (1,796)
---------- ----------
5,348 5,072
Less cost of treasury shares 1,597 1,597
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,751 3,475
---------- ----------
$ 14,694 $ 12,603
========== ==========
See notes to consolidated financial statements.
3
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share data)
(Unaudited)
Quarter Ended
September 30,
------------------------
2004 2003
--------- ---------
NET SALES $ 6,979 $ 6,344
--------- ---------
Cost and expenses:
Cost of sales 4,726 3,754
Selling, shipping and advertising 873 803
General and administrative 1,046 1,101
Depreciation and amortization 179 153
Other charges 15 143
--------- ---------
6,839 5,954
--------- ---------
EARNINGS FROM OPERATIONS 140 390
--------- ---------
Other expense:
Interest expense 104 72
Other-net 8 (50)
--------- ---------
112 22
--------- ---------
EARNINGS BEFORE INCOME TAXES 28 368
Income tax provision 17 165
--------- ---------
NET EARNINGS $ 11 $ 203
========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.00 $ 0.05
========= =========
Diluted $ 0.00 $ 0.05
========= =========
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)
Nine Months Ended
September 30,
--------------------------
2004 2003
---------- ----------
NET SALES $ 20,404 $ 19,696
---------- ----------
Cost and expenses:
Cost of sales 13,169 12,216
Selling, shipping and advertising 2,570 2,352
General and administrative 3,192 3,354
Depreciation and amortization 542 471
Other charges 115 373
---------- ----------
19,588 18,766
---------- ----------
EARNINGS FROM OPERATIONS 816 930
---------- ----------
Other expense:
Interest expense 257 238
Other-net 33 (22)
---------- ----------
290 216
---------- ----------
EARNINGS BEFORE INCOME TAXES 526 714
Income tax provision 314 286
---------- ----------
NET EARNINGS $ 212 $ 428
========== ==========
EARNINGS PER COMMON SHARE:
Basic $ 0.05 $ 0.10
========== ==========
Diluted $ 0.05 $ 0.10
========== ==========
See notes to consolidated financial statements.
5
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(Unaudited)
Nine Months Ended
September 30,
---------------------------
2004 2003
---------- ----------
Cash Flows from Operating Activities:
Net earnings $ 212 $ 428
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 542 471
Deferred income tax expense 175 117
Increase (decrease) in cash from change
in inventories (1,639) 69
Increase in cash from changes in current
assets and current liabilities 449 368
Net change in pension-related accounts (186) (25)
Discontinued operations (6) (33)
Other (678) (36)
---------- ----------
Net cash provided by (used in) operating
activities (1,131) 1,359
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (928) (330)
Proceeds from sale of property, plant & equipment -- 76
---------- ----------
Net cash used in investing activities (928) (254)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term debt 2,171 495
Proceeds from long-term debt 501 --
Proceeds from issuance of common stock 55 --
Payments of cash dividends (84) (5)
Redemption of preferred stock (46) --
Payments of short-term debt (578) (928)
Payments of long-term debt (242) (211)
Payments of long-term lease obligations (54) (28)
Other (31) (36)
---------- ----------
Net cash provided by (used in) financing
activities 1,692 (713)
---------- ----------
Net increase (decrease) in cash and cash equivalents (367) 392
Cash and cash equivalents at beginning of period 664 312
---------- ----------
Cash and cash equivalents at end of period $ 297 $ 704
========== ==========
See notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE QUARTER ENDED SEPTEMBER 30, 2004 (UNAUDITED)
----------------------------------------------------
Note 1: ACCOUNTING POLICIES
-------------------
Basis of Financial Statement Presentation - The information as of and for
the three and nine month periods ended September 30, 2004 and 2003, 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.
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,
------------------------------------------------------------------------------------
2004 2003
--------------------------------------- ---------------------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(1) Amount
--------- --------- --------- --------- --------- ---------
Net earnings ................ $ 11 $ 203
Less accrued dividends on
preferred stock ............ -- (2)
--------- ---------
BASIC $ 11 4,087 $ 0.00 $ 201 4,033 $ 0.05
========= ========= ========= ========= ========= =========
Effect of dilutive
securities:
Stock options ............... 48 57
Cumulative convertible
preferred stock ............ $ -- -- $ 2 40
--------- --------- --------- ---------
DILUTED $ 11 4,135 $ 0.00 $ 203 4,130 $ 0.05
========= ========= ========= ========= ========= =========
7
Nine Months Ended September 30,
--------------------------------------------------------------------------------
2004 2003
------------------------------------- -------------------------------------
Per Per
Share Share
Earnings Shares Amount Earnings Shares(1) Amount
-------- -------- -------- -------- --------- --------
Earnings from continuing
operations ................... $ 212 $ 428
Less accrued dividends on
preferred stock .............. (2) (5)
-------- --------
BASIC $ 210 4,068 $ 0.05 $ 423 4,033 $ 0.10
======== ======== ======== ======== ======== ========
Effect of dilutive
securities:
Stock options ................ 58 27
Cumulative convertible
preferred stock ............. $ 2 22 $ 5 40
-------- -------- -------- --------
DILUTED $ 212 4,148 $ 0.05 $ 428 4,100 $ 0.10
======== ======== ======== ======== ======== ========
(1) 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 February 12, 2004.
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 $1,201,000 at September 30,
2004, 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, 2004, Ronson-Canada utilized no
borrowings under the Revolving Loan.
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, 2004, Ronson Aviation utilized no borrowings under
the Revolving Loan.
During the quarter ended September 30, 2004, RCPC entered into an
agreement with Fleet Business Leasing for the lease of new equipment. Short-term
debt includes approximately $399,000 as deposits on the installation of this
equipment. This agreement was converted into a long-term lease during October
2004.
8
At September 30, 2004, Ronson Aviation had a note payable of $822,000 due
to Raytheon Aircraft Credit Corp. The note is collateralized by a specific
aircraft included in finished goods inventories and is to be repaid from the
proceeds from the sale of the aircraft.
Note 4: LONG-TERM DEBT
--------------
On December 1, 2003, the Company, RCPC and Fleet amended the Company's
Mortgage Loan, extending the expiration to December 1, 2008. The Mortgage Loan
balance was $1,360,000 at September 30, 2004. The Mortgage Loan agreement is
payable in monthly installments of $7,951, plus interest, with a final
installment on December 1, 2008, of approximately $962,000. The loan bears
interest at the rate of 0.5% above Fleet's prime rate. The Company and Fleet
have entered into an interest rate swap contract which effectively fixes the
interest rate on the Mortgage Loan at 7.45%.
Ronson Aviation has two term loans payable to Fleet with balances at
September 30, 2004, totaling approximately $639,000. The loans are
collateralized by a specific aircraft and expire on June 30, 2005.
In March 2004 a lease agreement became effective for a warehouse facility
utilized by RCPC for finished goods storage and product shipments. In connection
with the lease, the landlord provided improvements totaling $440,000. The
landlord provided RCPC with a long-term loan for the improvements, bearing
interest at 8.25%, payable at $4,800 per month, including interest, with a final
payment of $150,000 due at the end of the initial nine-year term, and secured by
a letter of credit in the amount of $150,000. At September 30, 2004, the total
balance payable on this lease agreement was $425,000.
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
9
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.
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 $179,000, tax of $122,000 and interest and
penalties of $57,000 related to availability of net operating loss carryforwards
from 1995. In June 2004, the Company's appeal of the determination by the New
Jersey Division of Taxation was denied by the Tax Court of New Jersey. Based on
statements by the Company's counsel, management believes that the Company should
not be liable for the assessment; the Company has appealed the decision of the
Tax Court of New Jersey. The Company has offered to settle the matter for the
amount of the tax, $122,000. The Company has accrued the amount of the tax and
the expected cost of defense in the matter.
The Company is involved in a shareholder derivative action, and the
Company incurred approximately $575,000 in net legal costs related to the matter
in 2003 and the first nine months of 2004. These costs were net of the
associated insurance reimbursement of about $484,000. 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: PREFERRED STOCK
---------------
On February 12, 2004, the Company's Board of Directors approved the
redemption of the 34,875 shares of the Company's 12% Cumulative Convertible
Preferred Stock which remained outstanding. The redemption of the preferred
shares was completed on May 31, 2004. In accordance with the terms of the
preferred stock, the redemption price was $2.25 per share. Prior to its
redemption, the preferred stock continued to be convertible into common stock,
at the rate of 1.157625 common shares per preferred share, after adjustment for
the 5% stock dividend issued April 15, 2004. Fractional shares of common stock
issued upon conversion were paid for in cash at $2.71 per common share, the
closing market price of the Company's common stock on April 15, 2004. A total of
20,322 shares were redeemed at a cost of $46,263, with the remaining 14,553
shares converted to common shares.
Note 7: INDUSTRY SEGMENTS INFORMATION
-----------------------------
10
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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales:
Consumer Products $ 4,166 $ 4,147 $ 12,815 $ 12,316
Aviation Services 2,813 2,197 7,589 7,380
---------- ---------- ---------- ----------
Consolidated $ 6,979 $ 6,344 $ 20,404 $ 19,696
========== ========== ========== ==========
Earnings from operations:
Consumer Products $ 447 $ 761 $ 1,521 $ 1,962
Aviation Services 201 301 881 944
---------- ---------- ---------- ----------
Total reportable segments 648 1,062 2,402 2,906
Corporate and others (493) (529) (1,471) (1,603)
Other charges (15) (143) (115) (373)
---------- ---------- ---------- ----------
Consolidated $ 140 $ 390 $ 816 $ 930
========== ========== ========== ==========
Earnings from continuing
operations before intercompany
charges and income taxes:
Consumer Products $ 410 $ 740 $ 1,452 $ 1,890
Aviation Services 176 287 812 888
---------- ---------- ---------- ----------
Total reportable segments 586 1,027 2,264 2,778
Corporate and others (543) (516) (1,623) (1,691)
Other charges (15) (143) (115) (373)
---------- ---------- ---------- ----------
Consolidated $ 28 $ 368 $ 526 $ 714
========== ========== ========== ==========
Note 8: 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 September 30, 2004 and 2003
------------------------------------------------------------
Foreign Currency Minimum Accumulated Other
Translation Pension Comprehensive
Adjustments Liability Loss
---------------- ---------- -----------------
Balance at June 30, 2004 $ (10) $ 1,705 $ 1,695
Current period change (48) (67) (115)
Income tax expense 19 27 46
---------- ---------- ----------
Balance at September 30, 2004 $ (39) $ 1,665 $ 1,626
========== ========== ==========
Balance at June 30, 2003 $ 34 $ 1,983 $ 2,017
Current period change (4) (72) (76)
Income tax expense 2 29 31
---------- ---------- ----------
Balance at September 30, 2003 $ 32 $ 1,940 $ 1,972
========== ========== ==========
Nine Months Ended September 30, 2004 and 2003
------------------------------------------------------------
Foreign Currency Minimum Accumulated Other
Translation Pension Comprehensive
Adjustments Liability Loss
---------------- ---------- -----------------
Balance at December 31, 2003 $ 12 $ 1,784 $ 1,796
Current period change (85) (199) (284)
Income tax expense 34 80 114
---------- ---------- ----------
Balance at September 30, 2004 $ (39) $ 1,665 $ 1,626
========== ========== ==========
Balance at December 31, 2002 $ 70 $ 2,071 $ 2,141
Current period change (63) (217) (280)
Income tax expense 25 86 111
---------- ---------- ----------
Balance at September 30, 2003 $ 32 $ 1,940 $ 1,972
========== ========== ==========
Note 9: 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,
-----------------
2004 2003
---- ----
Cash payments for:
Interest $ 237 $ 218
Income Taxes 227 35
12
Financing & Investing Activities
Not Affecting Cash:
Capital lease obligations
incurred 189 --
Note 10: RETIREMENT PLANS
----------------
The Company's Consolidated Statements of Earnings included pension expense
consisting of the following components (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Service cost $ 6 $ 6 $ 19 $ 17
Interest cost 69 67 206 201
Expected return on plan assets (40) (33) (120) (99)
Recognized actuarial losses 66 73 199 218
Recognized prior service cost 4 5 10 15
------ ------ ------ ------
Net pension expense $ 105 $ 118 $ 314 $ 352
====== ====== ====== ======
Contributions to the pension plan during 2004 are expected as follows (in
thousands):
Paid in the nine months ended September 30, 2004 $ 500
Expected to be paid in the balance of 2004 182
-----
Total expected to be paid in the year ending December 31, 2004 $ 682
=====
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
- ---------------------
Third Quarter 2004 Compared to Third Quarter 2003 and Nine Months 2004 Compared
to Nine Months 2003.
The Company's Net Sales were $20,404,000 in the nine months of 2004 as
compared to $19,696,000 in the nine months of 2003, an increase of 4%, and were
$6,979,000 in the third quarter of 2004 compared to $6,344,000 in the third
quarter of 2003, an increase of 10%.
The Company's Earnings from Operations before Other Charges in the nine
months of 2004 were $931,000 compared to $1,303,000 in the nine months of 2003.
The Company's Net Earnings in the nine months of 2004 were $212,000 as
compared to $428,000 in the nine months of 2003. The Net Earnings in the nine
months of 2004 were after a second quarter 2004 expense of $122,000 for state
income taxes related to an assessment by the State of New Jersey for prior
years.
Ronson Consumer Products
- ------------------------
(in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales $ 4,166 $ 4,147 $12,815 $12,316
Earnings from operations 447 761 1,521 1,962
Earnings before income taxes
and intercompany charges 410 740 1,452 1,890
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 4% in the nine months of 2004 compared to the nine months of 2003.
This increase in sales in the nine months of 2004 was primarily due to increased
sales of certain flame accessory products.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products
increased to 59% in the third quarter of 2004 from 53% in the third quarter of
2003 and to 59% in the nine months of 2004 from 55% in the nine months of 2003.
The increases in the Cost of Sales percentage in 2004 were primarily due to
increased material costs because of increases in oil prices and to increased
personnel costs.
Selling, Shipping and Advertising Expenses, as a percentage of Net Sales,
at Ronson Consumer Products increased to 21% in the third quarter of 2004 from
19% in the third quarter of 2003 and increased to 20% in the nine months of 2004
from 19% in the nine months of 2003. The increases in the third quarter and nine
months of 2004 were primarily due to the increased costs associated with the
Company's new warehouse facility, partially offset by a reduction in the portion
of sales subject to commission.
General and Administrative Expenses, as a percentage of Net Sales, were
unchanged at 8% in the third quarter and nine months of 2004 and 2003.
14
Ronson Aviation
- ---------------
(in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -----------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales $2,813 $2,197 $7,589 $7,380
Earnings from operations 201 301 881 944
Earnings before income taxes
and intercompany charges 176 287 812 888
Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New
Jersey, increased by 28% in the third quarter of 2004 from the third quarter of
2003 primarily due to increased sales of new aircraft and increased sales of
aircraft fuel. The Net Sales increased by 3% in the nine months of 2004 from the
nine months of 2003 primarily due to increased sales of aircraft fuel.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased
to 81% in the third quarter of 2004 from 71% in the third quarter of 2003
primarily due to the change in the mix of products sold and to increased cost of
aircraft fuel. The Cost of Sales percentage increased to 74% in the nine months
of 2004 from 73% in the nine months of 2003 primarily due to the increased cost
of aircraft fuel.
Ronson Aviation's Selling, Shipping and Advertising Expenses and General
and Administrative Expenses, as a percentage of Net Sales, were unchanged at 10%
in the nine months of 2004 and 2003, and decreased to 9% in the third quarter of
2004 from 11% in the third quarter of 2003. The decrease in the Cost of Sales
percentage in the third quarter of 2004 was primarily due to the increased sales
in the 2004 quarter.
Other Items
- -----------
The General and Administrative Expenses of Corporate and Others were lower
in the third quarter and nine months of 2004 as compared to the third quarter
and nine months of 2003 primarily due to reduced personnel costs and to lower
pension expense.
The Other Charges in the third quarters and nine months of 2004 and 2003
were the legal fees incurred related to stockholder litigation. (Refer to Item 1
of Part II of this Form 10-Q.)
Interest Expense increased in the third quarter and nine months of 2004
from the same periods in 2003 primarily due to increased Short-Term Debt.
FINANCIAL CONDITION
The Company's Stockholders' Equity increased to $3,751,000 at September
30, 2004, from $3,475,000 at December 31, 2003. The increase of $276,000 in
Stockholders' Equity was primarily due to the Net Earnings in the nine months of
2004. The Company had a deficiency in working capital of $1,345,000 at September
30, 2004, as compared to working capital of $137,000 at December 31, 2003. The
decline in working capital was primarily due: 1) to the reclassification of the
15
June 30, 2005 final payment of $492,000 on term loans at Ronson Aviation into
current liabilities from long-term liabilities; 2) a reduction in the long-term
pension obligation by $598,000; and 3) to deposits of $737,000 on equipment to
be leased, partially offset by the Net Earnings in 2004.
Inventories and Short-term Debt increased in the nine months of 2004 due
to the delivery of an aircraft to Ronson Aviation, at a cost of $946,000 for
resale, and due to increases in inventory at Ronson Consumer Products related to
new products and to timing of purchases. Accounts Payable increased to
$2,122,000 at September 30, 2004, from $1,632,000 at December 31, 2003, due to
the timing of purchases and payments.
The increases in Buildings and Improvements and Long-term Debt in the nine
months of 2004 were primarily due to the leasehold improvements of $440,000 at
RCPC's newly-leased warehouse. The leasehold improvements were financed by the
lessor.
Capital Expenditures and Proceeds from Long-term Debt included the
leasehold improvements of $440,000 at RCPC's newly-leased finished goods
warehouse financed by the lessor.
At September 30, 2004, Other Assets included $737,000 for deposits on
equipment to be leased at RCPC for its new Multi-Fill production line. At
September 30, 2004, Short-term Debt included $399,000 advanced to RCPC by the
equipment lessor. These advances were repaid in October 2004 with the funding of
the lease.
On February 12, 2004, the Company's Board of Directors declared a 5% stock
dividend on the Company's common stock. The 5% stock dividend was issued on
April 15, 2004, to stockholders of record April 1, 2004. Information as to the
number of shares and per share amounts has been retroactively adjusted to
reflect this stock dividend.
On May 7 and August 17, 2004, the Company's Board of Directors declared
regular quarterly cash dividends on common stock of $.01 per common share per
quarter. The cash dividends were paid on June 18 and September 18, 2004.
On May 31, 2004, the Company completed the redemption of the remaining
outstanding preferred stock. A total of 20,322 shares were redeemed at a cost of
$46,263, and 14,553 shares were converted into common shares.
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
16
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 2004. 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, 2003, 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
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.
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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 independent 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 was denied in February 2004.
The Company's directors will continue to contest and to vigorously defend
against the claims.
On June 21, 2004, the Superior Court of New Jersey granted the motion of
the Ronson directors, over the objection of Steel Partners II, L.P., to
bifurcate the case. As a result, trial of all claims and defenses in the
derivative suit, other than the defense based upon the report and findings of
the Special Litigation Committee, will be held in abeyance pending trial of the
Special Litigation Committee defense.
On July 23, 2004, Ronson Corporation and certain of its directors filed a
Counterclaim and Third-Party Complaint against Steel Partners II, L.P., Warren
G. Lichtenstein and certain close associates -- namely, Jack Howard, Howard M.
Lorber and Ronald Hayes. The Counterclaim and Third-Party Complaint is based
upon the New Jersey Shareholders Protection Act, and seeks compensatory and
punitive damages, costs of suit and interest, as well as entry of a judgment
directing the public disclosure of all limited partners of Steel Partners II,
L.P., and persons acting directly or indirectly in concert with them in
connection with the acquisition or attempted acquisition of stock in, or control
of, Ronson Corporation.
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
18
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. Several
of the named defendants have moved to dismiss the complaint, which motion was
granted in December 2003 on the basis of the Court's conclusion that plaintiff's
federal securities claims were "time-barred" by the statute of limitations, and
the Court declined to exercise jurisdiction over the plaintiffs' state law
claims. The merits of the complaint were not considered by the Court. Plaintiffs
have filed an appeal with respect to the decision, and the plaintiffs will
vigorously pursue their rights in this litigation.
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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 12, 2004, in response to Item 5 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 July 29, 2004, in response to Item 5 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 August 18, 2004, in response to Item 5 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 October 27, 2004, in response to Item 2.02, Item 5.02
and Item 9.01 of such report. No financial statements or pro forma financial
information were included in this report.
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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: November 12, 2004 /s/ Louis V. Aronson II
--------------------------------
Louis V. Aronson II, President
& Chief Executive Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: November 12, 2004 /s/ Daryl K. Holcomb
--------------------------------
Daryl K. Holcomb, Vice President
& Chief Financial Officer,
Controller and Treasurer
(Signing as Chief Financial
Officer of the Registrant)
21