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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 March 31, 2005
--------------
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 April 29, 2005, there were 4,321,196 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:
MARCH 31, 2005 AND DECEMBER 31, 2004 3
CONSOLIDATED STATEMENTS OF OPERATIONS:
QUARTER ENDED MARCH 31, 2005 AND 2004 4
CONSOLIDATED STATEMENTS OF CASH FLOWS:
QUARTER ENDED MARCH 31, 2005 AND 2004 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
ITEM 4 - CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands of dollars)
March 31, December 31,
2005 2004
----------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 207 $ 599
Accounts receivable, net 1,901 1,876
Inventories:
Finished goods 1,597 1,625
Work in process 39 88
Raw materials 645 621
--------- ---------
2,281 2,334
Other current assets 1,155 1,302
--------- ---------
TOTAL CURRENT ASSETS 5,544 6,111
Property, plant and equipment, at cost:
Land 6 6
Buildings and improvements 5,343 5,333
Machinery and equipment 8,833 8,707
Construction in progress 421 261
--------- ---------
14,603 14,307
Less accumulated depreciation and amortization 9,004 8,791
--------- ---------
5,599 5,516
Other Assets 2,329 2,315
--------- ---------
$ 13,472 $ 13,942
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,308 $ 1,439
Current portion of long-term debt and leases 883 926
Accounts payable 1,975 1,786
Accrued expenses 2,824 3,020
--------- ---------
TOTAL CURRENT LIABILITIES 6,990 7,171
Long-term debt and leases 2,452 2,491
Other long-term liabilities 252 407
STOCKHOLDERS' EQUITY:
Common stock 4,398 4,398
Additional paid-in capital 29,638 29,651
Accumulated deficit (27,267) (27,138)
Accumulated other comprehensive loss (1,394) (1,441)
--------- ---------
5,375 5,470
Less cost of treasury shares 1,597 1,597
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 3,778 3,873
--------- ---------
$ 13,472 $ 13,942
========= =========
See notes to consolidated financial statements.
3
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands of dollars, except per share data)
(Unaudited)
Quarter Ended
March 31,
-----------------------
2005 2004
-------- --------
NET SALES $ 6,437 $ 7,049
-------- --------
Cost and expenses:
Cost of sales 4,290 4,279
Selling, shipping and advertising 912 831
General and administrative 1,037 1,159
Depreciation and amortization 219 169
Other charges -- 50
-------- --------
6,458 6,488
-------- --------
EARNINGS (LOSS) FROM OPERATIONS (21) 561
-------- --------
Other expense:
Interest expense 99 72
Other-net 21 11
-------- --------
120 83
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES (141) 478
Income tax provision (benefit) (53) 203
-------- --------
NET EARNINGS (LOSS) $ (88) $ 275
======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.02) $ 0.06
======== ========
Diluted $ (0.02) $ 0.06
======== ========
See notes to consolidated financial statements.
4
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands of dollars)
(Unaudited)
Quarter Ended
March 31,
-------------------
2005 2004
---- ----
Cash Flows from Operating Activities:
Net earnings (loss) $ (88) $ 275
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 219 169
Deferred income tax expense (benefit) (59) 196
Increase (decrease) in cash from changes in:
Current assets and current liabilities 302 (231)
Other non-current assets and other long-term
liabilities 16 (206)
Net change in pension-related accounts (214) (101)
Effect of exchange rate changes (4) 19
------- -------
Net cash provided by operating activities 172 121
------- -------
Cash Flows from Investing Activities:
Net cash used in investing activities,
capital expenditures (234) (193)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term debt -- 916
Payments of short-term debt (131) (404)
Payments of long-term debt (84) (75)
Payments of long-term lease obligations (62) (17)
Payments of dividends (41) (2)
Cost of stock option agreement (12) (12)
------- -------
Net cash provided by (used in)
financing activities (330) 406
------- -------
Net increase (decrease) in cash and cash equivalents (392) 334
Cash and cash equivalents at beginning of period 599 664
------- -------
Cash and cash equivalents at end of period $ 207 $ 998
======= =======
See notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE QUARTER ENDED MARCH 31, 2005 (UNAUDITED)
------------------------------------------------
Note 1: ACCOUNTING POLICIES
-------------------
Basis of Financial Statement Presentation - The information as of and for
the three month periods ended March 31, 2005 and 2004, 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 (Loss)
per Common Share were as follows (in thousands except per share data):
Quarter Ended March 31,
------------------------------------------------------------
2005 2004
---------------------------- ----------------------------
Per Per
Share Share
Loss Shares(1) Amount Earnings Shares Amount
------ --------- ------ -------- ------ ------
Net earnings (loss) ........ $ (88) $ 275
Less accrued dividends on
preferred stock .......... -- (2)
------ ------
BASIC $ (88) 4,321 $ (.02) $ 273 4,257 $ 0.06
====== ====== ====== ====== ====== ======
Effect of dilutive
securities:
Stock options ............ -- 71
Cumulative convertible
preferred stock ......... $ -- -- $ 2 42
------ ------ ------ ------
DILUTED $ (88) 4,321 $ (.02) $ 275 4,370 $ 0.06
====== ====== ====== ====== ====== ======
(1) Stock options were anti-dilutive for the quarter ended March 31, 2005,
and, therefore, were excluded from the computation and reconciliation of
Diluted Earnings (Loss) per Common Share for that period.
(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 February 15, 2005.
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 $1,303,000 at March 31, 2005,
6
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 March 31, 2005, 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 March 31, 2005, Ronson Aviation utilized no borrowings under the
Revolving Loan.
At March 31, 2005, Fleet provided RCPC and Ronson Aviation with a waiver
of their non-compliance with a financial ratio covenant in the lines of credit.
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 $1,312,000 at March 31, 2005. 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 March
31, 2005, totaling approximately $541,000. 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 March 31, 2005, the total
long-term debt payable on this agreement was $415,000.
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
7
amount of additional costs, if any, and their ultimate allocation cannot be
fully determined at this time, the estimate of additional loss, or range of
loss, if any, that is reasonably possible, cannot be made. Thus, 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 approximately $500,000 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 Corporation Business Tax
audit for the years ended December 31, 1997 through December 31, 2000. The total
claimed by the State of New Jersey is approximately $144,000, related to
availability of net operating loss carryforwards from 1995. The Company appealed
the determination by the New Jersey Division of Taxation to the Tax Court of New
Jersey, which found in favor of the State. The Company has appealed the decision
to the Superior Court of New Jersey, Appellate Division. Management believes
that the Company will not be liable for the assessment. Because the Company
offered to settle the matter for the amount of the tax, $117,000, the Company
has accrued this amount of the tax and the expected cost of defense in the
matter.
The Company is involved in a shareholder derivative lawsuit filed in 2003,
and a second lawsuit against the Company's directors and chief financial officer
filed in April 2005, both filed by the same shareholder. The Company incurred a
total of approximately $605,000 in net legal costs related to the matter in
2003, 2004 and the first three months of 2005. These costs were net of the
associated insurance reimbursements. 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 these proceedings.
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.
8
Note 6: INDUSTRY SEGMENTS INFORMATION
-----------------------------
The Company has two reportable segments: consumer products and aviation
services. The Company's reportable segments are strategic business units that
offer different products and services.
Financial information by industry segment is summarized below (in
thousands):
Quarter Ended
March 31,
-----------------------
2005 2004
-------- --------
Net sales:
Consumer Products $ 3,915 $ 4,749
Aviation Services 2,522 2,300
-------- --------
Consolidated $ 6,437 $ 7,049
======== ========
Earnings (loss) from operations:
Consumer Products $ 244 $ 767
Aviation Services 253 351
-------- --------
Total reportable segments 497 1,118
Corporate and others (518) (507)
Other charges -- (50)
-------- --------
Consolidated $ (21) $ 561
======== ========
Earnings (loss) from continuing
operations before intercompany
charges and income taxes:
Consumer Products $ 189 $ 756
Aviation Services 244 332
-------- --------
Total reportable segments 433 1,088
Corporate and others (574) (560)
Other charges -- (50)
-------- --------
Consolidated $ (141) $ 478
======== ========
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.
9
Changes in the components of Other Comprehensive (Income) Loss and in
Accumulated Other Comprehensive Loss were as follows (in thousands):
Quarter Ended March 31, 2005 and 2004
-------------------------------------
Foreign Currency Minimum Cash Flow Accumulated Other
Translation Pension Hedging Comprehensive
Adjustments Liability Adjustments Loss
----------- --------- ----------- --------
Balance at December 31, 2004 $ (51) $ 1,482 $ 10 $ 1,441
Current period change 6 (56) (27) (77)
Income tax expense (2) 22 10 30
-------- -------- -------- --------
Balance at March 31, 2005 $ (47) $ 1,448 $ (7) $ 1,394
======== ======== ======== ========
Balance at December 31, 2003 $ 12 $ 1,784 -- $ 1,796
Current period change (31) (66) -- (97)
Income tax expense 12 26 -- 38
-------- -------- -------- --------
Balance at March 31, 2004 $ (7) $ 1,744 $ -- $ 1,737
======== ======== ======== ========
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):
Quarter Ended
March 31,
------------------
2005 2004
---- ----
Cash payments for:
Interest $ 91 $ 82
Income Taxes -- 20
Financing & Investing Activities
Not Affecting Cash:
Capital lease obligations
incurred 64 145
Leasehold improvements financed
by lessor -- 440
10
Note 9: RETIREMENT PLANS
----------------
The Company's Consolidated Statements of Operations included pension
expense consisting of the following components (in thousands):
Quarter Ended
March 31,
------------------
2005 2004
---- ----
Service cost $ 8 $ 6
Interest cost 66 69
Expected return on plan assets (48) (40)
Recognized actuarial losses 56 66
Recognized prior service cost 2 4
------ ------
Net pension expense $ 84 $ 105
====== ======
Contributions to the pension plan during 2005 are expected as follows (in
thousands):
Paid in the three months ended March 31, 2005 $ 299
Expected to be paid in the balance of 2005 560
------
Total expected to be paid in the year ending December 31, 2005 $ 859
======
Note 10: FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
----------------------------------------------
In December 2003 the Company entered into an interest rate swap agreement
in order to manage interest rate exposure. Effectively, the Company converted
its Mortgage Loan payable of variable-rate debt to fixed-rate debt with an
effective interest rate of 7.45%. The interest rate swap is considered a cash
flow hedge and is 100% effective. As a result, the mark-to-market value of both
the fair value hedging instrument and the underlying debt obligation are
recorded as equal and offsetting gains or losses in other expense. At March 31,
2005, the interest rate swap had a fair value of $11,000 recorded in Other
Assets with the corresponding adjustment to Accumulated Other Comprehensive
Loss. The fair value of the interest rate swap agreement, obtained from the
financial institution, is based on current rates of interest and is computed as
the net present value of the remaining exchange obligations under the terms of
the contract.
Mr. Carl W. Dinger III has granted an option to the Company to purchase
the 509,735 shares now held by Mr. Dinger at an exercise price of $6.50 per
share. The cost of the option is $4,000 per month for the period of the option
or until exercised. At March 31, 2005, the fair value of the option was
approximately $29,000, using the Black-Scholes option pricing model. Key
assumptions included: a risk-free interest rate of 3.75%, a dividend yield of
1.91%, volatility of 46%, and the option life of 2.75 years. The fair value of
$29,000 compares to $101,000, the present value of the 27 remaining payments
under the contract, discounted at the Company's incremental borrowing rate of
6.25%. (Refer to Note 15 of Notes to Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2004.)
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
- ---------------------
First Quarter 2005 Compared to First Quarter 2004.
The Company's Net Sales were $6,437,000 in the first quarter of 2005 as
compared to $7,049,000 for the same period in 2004.
The Company's Loss from Operations was $21,000 in the first quarter of
2005 as compared to Earnings from Operations of $561,000 in the first quarter of
2004. The Company's Net Loss was $88,000 in the first quarter of 2005 as
compared to Net Earnings of $275,000 in the first quarter of 2004.
Ronson Consumer Products
- ------------------------
(in thousands)
Quarter Ended
March 31,
-------------------
2005 2004
---- ----
Net sales $ 3,915 $ 4,749
Earnings from operations 244 767
Earnings before income taxes and
intercompany charges 189 756
Net Sales of consumer products at Ronson Consumer Products Corporation
("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd.
("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products")
decreased by 18% in the first quarter of 2005 compared to the first quarter of
2004, consisting of an increase of about 5% due to higher average net selling
prices more than offset by a reduction of about 23% due to lower volume of
products sold.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products
increased to 60% in the first quarter of 2005 from 57% in the first quarter of
2004 due primarily to decreased volume of products sold. The amount of the Cost
of Sales decreased by about 13%, consisting of an increase of 2% in unit costs
of products sold due primarily to higher cost of fuels and related raw
materials, more than offset by a reduction of 15% due to lower sales volume.
Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as
a percentage of Net Sales, increased to 23% in the first quarter of 2005 from
17% in the first quarter of 2004 primarily due to the decreased sales in the
first quarter of 2005, to costs associated with the Company's new warehouse
facility, and to increased freight costs due to higher fuel prices. General and
Administrative Expenses, as a percentage of Net Sales, were 8% in the first
quarters of both 2005 and 2004.
12
Ronson Aviation
- ---------------
(in thousands)
Quarter Ended
March 31,
--------------------
2005 2004
---- ----
Net sales $ 2,522 $ 2,300
Earnings from operations 253 351
Earnings before income taxes and
intercompany charges 244 332
Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New
Jersey, increased by 10% in the first quarter of 2005 from the first quarter of
2004 primarily due to increased sales of aircraft maintenance and avionics
services.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased
to 77% in the first quarter of 2005 from 70% in the first quarter of 2004. The
increase in the Cost of Sales percentage in 2005 was primarily due to the higher
cost of fuel in 2005 due to increased oil prices and to a change in the mix of
products sold.
Ronson Aviation's Selling, Shipping and Advertising Expenses and General
and Administrative Expenses were reduced to 9% in the first quarter of 2005
compared to 10% in the first quarter of 2004 primarily due to the increased
sales in 2005.
Other Items
- -----------
The Other Charges in the first quarter of 2004 of $50,000 were the legal
fees incurred related to stockholder litigation. (Refer to Item 1 of Part II of
this Form 10-Q.)
FINANCIAL CONDITION
The Company's Stockholders' Equity decreased to $3,778,000 at March 31,
2005, from $3,873,000 at December 31, 2004. The decrease of $95,000 in
Stockholders' Equity was primarily due to the Net Loss in the first quarter of
2005. The Company had a deficiency in working capital of $1,446,000 at March 31,
2005, as compared to $1,060,000 at December 31, 2004. The decline in working
capital was primarily due to a reduction in the long-term pension obligation by
$138,000, to capital expenditures of $234,000, and the Net Loss in 2005.
Based on the amount of the loans outstanding and the levels of accounts
receivable and inventory at March 31, 2005, Ronson Consumer Products had unused
borrowings available at March 31, 2005 of about $194,000 under the Fleet Capital
Corporation ("Fleet") and Canadian Imperial Bank of Commerce lines of credit.
Based on the level of accounts receivable, Ronson Aviation had unused borrowings
of about $422,000 under the Fleet line of credit at March 31, 2005.
The Fleet lines of credit with RCPC and Ronson Aviation and the term loans
between Fleet and Ronson Aviation are scheduled to expire on June 30, 2005.
Discussions have begun between Fleet and the Company regarding the renewal of
these lines of credit and term loans. At December 31, 2004, and March 31, 2005,
Fleet provided RCPC and Ronson Aviation with a waiver of their non-compliance
with a financial ratio covenant in the lines of credit.
On February 15, 2005, the Company's Board of Directors declared a 5% stock
dividend on the Company's common stock. The 5% stock dividend was issued on
13
April 15, 2005, to stockholders of record April 1, 2005. Information as to the
number of shares and per share amounts has been retroactively adjusted to
reflect this stock dividend.
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 first three months of 2005. 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, 2004, 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 the end of the period covered by this quarterly report, the Company's
disclosure controls and procedures were adequate, are designed to ensure that
material information related to the Company and its consolidated subsidiaries
would be made known to the above officers, are effective and provide reasonable
assurance that they will meet their objectives.
14
(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
-----------------
The Company is involved in various product liability claims. The claimants
have claimed unspecified damages. 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 these matters. However, based on facts currently
available, management believes that damages awarded, if any, would be well
within existing insurance coverage.
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. The trial of the Special Litigation
Committee defense was conducted in March, 2005. The parties have submitted
post-trial memoranda, and await the Superior Court's determination of the
Special Litigation Committee defense.
15
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. All discovery and other proceedings in connection with
the Counterclaim and Third-Party Complaint are being held in abeyance pending
completion of the trial of the Special Litigation Committee defense.
Steel Partners II, L.P. v. Louis V. Aronson II, Robert A. Aronson, Barbara L.
- -----------------------------------------------------------------------------
Collins, Carl W. Dinger III, Paul H. Einhorn, Erwin M. Ganz, Daryl K. Holcomb,
- ------------------------------------------------------------------------------
I. Leo Motiuk, Gerard J. Quinnan, Justin P. Walder, and Saul H. Weisman
- -----------------------------------------------------------------------
On or about April 14, 2005, Steel Partners II, L.P. commenced an action,
on its own behalf as a shareholder of the Company, in the United States District
Court for the District of New Jersey, against the current directors of the
Company, as well as Daryl K. Holcomb, the Company's chief financial officer, and
Carl W. Dinger, a shareholder of and consultant to the Company. The Complaint
alleges, among other things, that defendants should be treated collectively as
an "Acquiring Person" under the Company's Shareholder Rights Agreement, and that
their acquisition and ownership of more than 12% of the outstanding stock of the
Company has triggered the provisions of the Shareholder Rights Agreement with
respect to the offering of rights to shareholders, including Steel Partners II
(notwithstanding that in its derivative action in the Superior Court of New
Jersey, Steel Partners has challenged the legality and enforceability of the
Company's Shareholder Rights Agreement). The Complaint alleges further that the
defendants have violated reporting requirements under Section 13(d) of the
Securities Exchange Act and Rule 13-d promulgated by the Securities Exchange
Commission by failing to disclose an alleged agreement to coordinate their
purchases of the Company's stock for the purposes of placing voting control in
the hands of Louis V. Aronson II and for other undisclosed purposes.
The Company's directors and its chief financial officer intend to contest
the allegations of this second complaint filed by Steel Partners and vigorously
defend the action.
Juraj Kosco and Maria Kosco vs. Ronson Consumer Products Corporation, Ronson
- ----------------------------------------------------------------------------
Corporation, Industrial Waste Management, Inc., Cuno Incorporated, XYZ
- ----------------------------------------------------------------------
Corporations #1-10 (fictitious parties), John and/or Jane Does #1-10 (fictitious
- --------------------------------------------------------------------------------
individuals)
- ------------
The plaintiffs, a former employee and his spouse, claim damages for burns
and other injuries allegedly received in an accident occurring during the
employee's performance of his job. The lawsuit was filed in the Superior Court
of New Jersey, Law Division, Middlesex County, on February 10, 2005, and claims
damages totaling $10,000,000. The claimant has received, and is receiving,
workers' compensation benefits related to the incident. Management believes that
damages, if any, awarded in addition to the statutory workers' compensation
benefits, will be well within the Company's insurance coverage.
16
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 January 18, 2005, in response to Item 8.01 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 January 21, 2005, in response to Item 8.01 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 February 16, 2005, in response to Item 8.01 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 March 7, 2005, in response to Item 2.02 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 April 29, 2005, in response to Item 8.01 of such
report. No financial statements or pro forma financial information were included
in this report.
17
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: May 13, 2005 /s/Louis V. Aronson II
----------------------------------
Louis V. Aronson II, President
& Chief Executive Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: May 13, 2005 /s/Daryl K. Holcomb
----------------------------------
Daryl K. Holcomb, Vice President
& Chief Financial Officer,
Controller and Treasurer
(Signing as Chief Financial
Officer of the Registrant)
18