Item 1. Business. 4
2. Properties. 7
3. Legal Proceedings. 8
4. Submission of Matters to a Vote of Security Holders. 10
Part II - -------
Item 5. Market for the Company's Common Stock and Related 11 Stockholder Matters and Issuer Purchases of Equity Securities.
6. Selected Financial Data. 12
7. Management's Discussion and Analysis of 12 Financial Condition and Results of Operations.
7A. Quantitative and Qualitative Disclosures 20 about Market Risk.
8. Financial Statements and Supplementary Data. 24
9. Changes in and Disagreements with Accountants 25 on Accounting and Financial Disclosure.
9A. Controls and Procedures. 25
9B. Other Information. 26
Part III - --------
Item 10. Directors and Executive Officers of the Company, 26 Compliance with Section 16(a) of the Exchange Act.
11. Executive Compensation. 29
12. Security Ownership of Certain Beneficial Owners and 34 Management and Related Stockholder Matters.
13. Certain Relationships and Related Transactions. 36
14. Principal Accountant Fees and Services. 37
Part IV - -------
Item 15. Exhibits, Financial Statement Schedules and 37 Reports on Form 8-K.
Signatures. 41
Financial Statements. 42
PART I ------
Item 1 - DESCRIPTION OF BUSINESS -----------------------
(a) General Development of Business.
The Registrant, Ronson Corporation (the "Company"), is a company incorporated in 1928.
The Company is engaged principally in the following businesses:
1. Consumer Products; and
2. Aviation-Fixed Wing Operations and Services and Helicopter Services.
The Company's common shares are listed on the Nasdaq SmallCap Market. The Company's common shares are quoted under the symbol RONC.
The Company's preferred shares were listed on the NASD Over-the-Counter ("OTC") Bulletin Board under the symbol RONCP. On February 12, 2004, the Company's Board of Directors approved the redemption of the preferred stock which was completed May 31, 2004 (refer to Note 9 of Notes to Consolidated Financial Statements).
(b) Financial Information about Segments.
Refer to Note 12 of the Notes to Consolidated Financial Statements below.
(c) Narrative Description of Business.
(1) Consumer Products -----------------
The Company's consumer packaged products, which are manufactured in Woodbridge, New Jersey, and distributed in the United States by the Company's wholly owned subsidiary, Ronson Consumer Products Corporation ("RCPC"), include Ronsonol lighter fluid, Multi-Fill butane fuel injectors, flints, wicks for lighters, a multi-use penetrant spray lubricant product under the tradename "Multi-Lube", and a spot remover under the product tradename "Kleenol". In addition, the Company's consumer packaged products are marketed in Canada through Ronson Corporation of Canada Ltd. ("Ronson-Canada"), a wholly owned subsidiary of the Company. RCPC and Ronson-Canada together comprise Ronson Consumer Products. The Company also distributes its consumer products in Mexico. The consumer products segment has a greater than 10% customer, which is a distributor, supplying Ronson's products to numerous retailers. Management does not believe that this segment is substantially dependent on this distributor because of the presence of many other distributors which provide retailers with Ronson's consumer products. Sales to this distributor in 2004 and 2003 accounted for 13% and 16%, respectively, of Consolidated Net Sales of the Company and 22% and 25%, respectively, of Net Sales of the segment.
The consumer products are distributed through distributors, food brokers, automotive and hardware representatives and mass merchandisers, drug chains and convenience stores in the United States and Canada. Ronson Consumer Products is a principal supplier of packaged flints and lighter fuels in the United States and Canada. These subsidiaries' consumer products face substantial competition from other nationally distributed products and from numerous local and private label packaged products. Since Ronson Consumer Products produces packaged products in accordance with its sales forecasts, which are frequently reviewed and revised, inventory accumulation has not been a significant factor, and this segment does not have a significant order backlog. The sources and availability of raw materials for this segment's packaged products are not significant factors.
Ronson Consumer Products also distributes seven lighter and torch products - - the "COMET" refillable butane lighter; the Ronson "WINDII" liquid fuel windproof lighter; the Ronson "AmeroFlame Ignitor", used for lighting fireplaces, barbecues,
camping stoves and candles; the "EURO LITE" and "AMERO LITE" blue point flame butane lighters, excellent for pipes and cigars; the "Tech Torch", used for craft and hobby work, cooking specialties, and soldering; and a new torch, the "AERO TORCH", geared for bigger projects requiring a larger flame. The lighter products are marketed in the United States and Canada.
The Ronson WINDII windproof lighter is sold in the United States and Canada. The WINDII uses Ronson flints, Ronsonol lighter fuel and Ronson wicks. The WINDII faces strong competition from another nationally distributed brand and from unbranded imports. The Ronson WINDII lighter is manufactured in China in accordance with the engineering and quality specifications of the Company. The Company has the exclusive right to market this product in the United States, Canada and Mexico, and does so through its established distribution channels.
In 2002 the Company introduced the refillable ignitor called the Ronson AmeroFlame Ignitor. The AmeroFlame Ignitor is manufactured in China, in accordance with the Company's engineering and quality specifications. It has a patented child resistant/adult friendly mechanism. It is sold as a single ignitor or in kit form with a 26-gram Ronson Multi-Fill Butane. The AmeroFlame Ignitor faces strong competition from imported disposable and refillable ignitors.
In 2002 the Company introduced the "Tech Torch". The Tech Torch has a precision "hi heat" blue flame. The Tech Torch is manufactured in Taiwan for the Company in accordance with the Company's engineering and quality specifications. The Tech Torch faces competition from other nationally distributed brands of torches, but the Company believes the Tech Torch is a unique product in the marketplace.
In 2003 Ronson Consumer Products introduced the EURO LITE and AMERO LITE blue point flame butane lighters, in both the United States and Canada. The EURO LITE and AMERO LITE use Ronson Multi-Fill butane fuel injectors and are manufactured in China in accordance with the Company's engineering and quality specifications. The EURO LITE and AMERO LITE face strong competition from other nationally distributed brands and unbranded imports.
In the second half of 2004 the Company began distribution of the COMET, a new high quality, low cost refillable butane lighter with electronic ignition, adjustable flame and child-resistance feature. The COMET uses Ronson Multi-Fill butane fuel injectors, and is manufactured in China in accordance with the Company's engineering and quality specifications. The COMET is priced competitively with leading brand name disposable lighters, but has strong competition from several other brands of disposable lighters as well as much lower priced unbranded imports from China and other Far Eastern countries.
Also in the fourth quarter of 2004, the Company began distribution of the new AERO TORCH, a torch with a larger flame for greater heat output. The new AERO TORCH is manufactured in Taiwan for the Company in accordance with the Company's engineering and quality specifications. The AERO TORCH faces competition from other nationally distributed brands of torches, but the Company believes the AERO TORCH is a unique product in the marketplace.
(2) Aviation - Fixed Wing Operations and ------------------------------------ Services and Helicopter Services --------------------------------
Ronson Aviation, Inc. ("Ronson Aviation"), a wholly owned subsidiary of the Company, headquartered at Trenton-Mercer Airport, Trenton, New Jersey, provides a wide range of general aviation services to the general public and to government agencies. Services include air charter, air cargo, cargo handling, avionics, management aviation services, new and used aircraft sales, aircraft repairs, aircraft fueling, storage and office rental. This subsidiary's facility is located on 18 acres, exclusive of four acres on which Ronson Aviation has a first right of refusal, and includes a 52,000 square foot hangar/office complex, two aircraft storage units ("T" hangars) and a 58,500 gallon fuel storage complex (refer to Item 2
Item 2 - DESCRIPTION OF PROPERTIES -------------------------
The following list sets forth the location and certain other information concerning the Company's manufacturing and office facilities. The Company's facilities are in relatively modern buildings which were designed for their present purpose. The Company believes its manufacturing and other facilities to be suitable for the operations conducted. In the list below, "medium" facilities are those which have between 20,000 and 100,000 square feet; and "small" facilities are those which have less than 20,000 square feet.
The facilities in Woodbridge and South Brunswick, New Jersey, and Canada comprise the consumer products segment. The Trenton, New Jersey, facilities are used by the aviation services segment.
(1) Woodbridge, New Jersey
Facilities included in (a) and (b) below are owned subject to first and second mortgages in favor of Fleet Capital Corporation.
(a) One medium facility for manufacturing consumer products. This facility is owned and is constructed of brick, steel and cinder block.
(b) One small facility for storage. This facility is owned and is constructed of metal, cinder block and cement.
(2) South Brunswick, New Jersey
One small facility for shipping and storage of finished goods. In March 2004 RCPC began to occupy this facility which is subject to a lease expiring in March 2013, with two additional three-year options.
(3) Somerset, New Jersey
One small facility for executive and consumer products offices. This facility is subject to a lease which expires in June 2006. The facility is constructed of metal, cinder block and cement.
(4) Trenton, New Jersey
(a) One medium facility for fixed wing operations and services and helicopter services, sales and office space leased to others. This building is owned and is constructed of steel and concrete. The land on which this building is located is leased under a leasehold with six five-year terms automatically renewed, with the last five-year term expiring in November 2007. The lease may be extended for five additional five-year terms through November 2032, provided that during the five-year term ending November 2007, Ronson Aviation invests $1,500,000 in capital improvements. In March 2004 Ronson Aviation announced plans for the expansion of its facilities more than sufficient to extend the lease for five additional five-year terms.
(b) One medium facility - "T" hangars. These structures are owned and are constructed of aluminum and concrete. The land upon which these structures are located is leased under a leasehold on the same terms as in 4 (a) above.
(5) Mississauga, Ontario, Canada
One small facility for sales and marketing, distribution center and storage. This facility is subject to a lease which expires in March 2006. This facility is constructed of brick and cinder block.
Item 3
Item 3 - 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 commenced on March 21, 2005.
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.
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. Several of the named defendants 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 filed an appeal with respect to the decision. On January 13, 2005, the United States Court of Appeals for the Third Circuit affirmed the dismissal by the U.S. District Court of the lawsuit filed in 2003 by Ronson Corporation, together with several of its Directors, against Steel Partners II, Warren Lichtenstein, Howard Lorber, several Steel Partner employees and a number of secret, unidentified investors of Steel Partners. The dismissal of Ronson Corporation's claims was based solely on the time requirements of the applicable statute of limitations which bars
litigation deemed to be untimely filed. Neither the Federal District Court nor the Federal Court of Appeals considered the merits of the claims asserted by Ronson in its Complaint.
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.
Item 4
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
(a) At the Company's Annual Stockholders' Meeting (the "Meeting") on December 9, 2004, the matters set forth in the Company's 2004 Notice of Meeting and Proxy Statement, which is incorporated herein by reference, were submitted to the Company's stockholders.
(b) The Election of Directors by 87.7% or more of the votes cast at the meeting is summarized as follows:
- Ms. Barbara L. Collins was elected as the new Class I director, with a term expiring at the 2006 Annual Meeting;
- Messrs. Robert A. Aronson, Erwin M. Ganz, and Justin P. Walder were reelected for three-year terms as Class II directors, expiring at the 2007 Annual Meeting; and
- Mr. Paul H. Einhorn was elected as the new Class III director, with a term expiring at the 2005 Annual Meeting.
(c) The appointment of Demetrius & Company, L.L.C., independent auditors, to audit the consolidated financial statements of the Company for the year 2004 was ratified by 88.0% of the votes cast at the Meeting.
The number of affirmative votes, negative votes and abstentions on each matter is set forth below:
1. ELECTION OF DIRECTORS
FOR % WITHHOLD % --- - -------- -
Class I (term expires at 2006 Annual Meeting of Stockholders):
Barbara L. Collins 3,235,706 87.7 451,988 12.3
Class II (terms expire at 2007 Annual Meeting of Stockholders):
Robert A. Aronson 3,233,534 87.7 454,160 12.3 Erwin M. Ganz 3,234,359 87.7 453,335 12.3 Justin P. Walder 3,234,388 87.7 453,306 12.3
Class III (term expires at 2005 Annual Meeting of Stockholders):
Paul H. Einhorn 3,234,945 87.7 452,749 12.3
2. To ratify the appointment of DEMETRIUS & COMPANY, L.L.C., as independent auditors for the year 2004.
FOR % AGAINST % ABSTAIN % --- - ------- - ------- -
3,244,909 88.0 439,996 11.9 2,789 0.1
PART II -------
Item 5
Item 5 - MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------
(a) The principal market for trading in Ronson common stock is the Nasdaq SmallCap Market. Market data for the last two fiscal years are listed below for information and analysis. The data presented reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.
--------------------------------------------------
Quarter 1st 2nd 3rd 4th -------------------------------------------------- High Bid $3.02 $2.98 $2.54 $2.06 Low Bid $1.90 $2.02 $1.28 $1.50
--------------------------------------------------
Quarter 1st 2nd 3rd 4th -------------------------------------------------- High Bid $0.93 $1.06 $2.61 $2.90 Low Bid $0.78 $0.65 $0.95 $1.76
(b) At March 23, 2005, there were 2,294 stockholders of record of the Company's common stock.
(c) Dividends -
1. Cash dividends - On February 15, 2005, the Company's Board of Directors declared a regular quarterly cash dividend of $0.01 per common share. Cash dividends of $0.01 per share were also declared and paid during the second, third and fourth quarters of 2004. No cash dividends were declared or paid during the twelve months ended December 31, 2003.
2. Stock dividends - On February 15, 2005, the Company's Board of Directors declared a 5% stock dividend on the Company's outstanding common stock, in addition to a 5% common stock dividend declared during each of the last two fiscal years, on February 12, 2004 and March 18, 2003, respectively. Information regarding the number of shares and per share amounts has been retroactively adjusted for the stock dividends declared on the Company's common stock.
(d) See Item 12 below for information as to securities authorized for issuance under equity compensation plans.
(e) The following table contains information about purchases of equity securities by the Company and affiliated persons during the fourth quarter of 2004:
(1) All transactions for the period were made by Directors of the issuer as open market purchases.
Item 6
Item 6 - SELECTED FINANCIAL DATA -----------------------
The information required by this item is filed with this report on page 43 and is incorporated herein by reference.
Item 7
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS -------------
RESULTS OF OPERATIONS - ---------------------
2004 Compared to 2003
The Company's Net Sales were $28,483,000 in the year 2004 as compared to $26,740,000 in the year 2003, an increase of 7%. The Company's Net Earnings in the year 2004 were $193,000 as compared to $703,000 in the year 2003.
The Company's Earnings from Operations in the year 2004 were $922,000 as compared to $1,461,000 in the year 2003. The Company's Earnings from Operations were after other charges of $145,000 and $460,000 (before income taxes) in 2004 and 2003, respectively, due to litigation costs related to a stockholder derivative action, net of the associated insurance reimbursements.
Ronson Consumer Products - ------------------------ (in thousands) Year Ended December 31, 2004 2003 ---- ----
Net sales $16,768 $16,773 Earnings before interest, other items, intercompany charges, and taxes 1,807 2,610 Earnings before intercompany charges and taxes 1,691 2,521
Net Sales of consumer products at Ronson Consumer Products ("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products") were unchanged, composed of a 4% increase due to increased volume of products sold offset by a decline of about 4% due to reduced average net selling prices.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products increased to 59% in 2004 from 56% in 2003. The increase in the Cost of Sales percentage in 2004 was primarily due to increased material costs because of the increases in the price of oil and to increased personnel costs. The amount of the Cost of Sales increased in 2004 from 2003 by 5%, composed of about 3% due to increased product unit costs, 4% due to increased volume of products sold, and 3% due to increased manufacturing costs, partially offset by (5)% resulting from the effect of a change in the mix of products sold.
Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, at Ronson Consumer Products increased to 21% in 2004 from 19% in 2003 primarily due to the increased costs associated with the Company's new warehouse facility and to increased shipping costs due to higher fuel prices, partially offset by a reduction in the portion of sales subject to commission.
Interest Expense at Ronson Consumer Products increased to $112,000 in 2004 from $85,000 in 2003 primarily due to increased Short-term and Long-term Debt. Interest Expense will more likely than not increase in 2005 from 2004 due to increased Short-term Debt and Long-term Capital Leases.
Ronson Aviation - --------------- (in thousands)
Year Ended December 31, 2004 2003 ---- ----
Net sales $11,715 $9,967 Earnings before interest, other items, intercompany charges, and taxes 1,253 1,454 Earnings before intercompany charges and taxes 1,158 1,374
Net Sales at Ronson Aviation increased by 18% in 2004 from 2003 primarily because of an increase in aircraft sales of $1,500,000. Increased aircraft fuel sales, primarily due to oil price increases, were offset by reduced sales of maintenance services.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased to 77% in 2004 from 71% in 2003 primarily due to the change in the mix of products sold and to the increased cost of aircraft fuel due to higher oil prices.
Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were reduced to 8% in 2004 from 11% in 2003 primarily due to the increased sales in 2004.
Interest Expense at Ronson Aviation increased to $100,000 in 2004 from $67,000 in 2003 primarily due to increased average Short-term Debt in 2004 related to aircraft inventory for sale.
Other Items - -----------
The General and Administrative Expenses of Corporate and Others were lower at $1,993,000 in 2004 as compared to $2,143,000 in 2003 primarily due to reduced professional fees and lower pension expenses as the result of reduced amortization related to pension asset increases in 2003.
The net Other Charges of $145,000 and $460,000 in 2004 and 2003, respectively, were the legal fees incurred as a result of the derivative action filed by a stockholder. The net shareholder litigation expenses are included in General and Administrative Expenses in the Consolidated Statements of Earnings. These litigation expenses were net of the associated insurance reimbursements.
In 2003 Other-Net included a gain of $63,000 from the sale of vacant land at Delaware Water Gap, PA.
2003 Compared to 2002
The Company's Net Earnings in the year 2003 were $703,000 as compared to $212,000 in the year 2002, an increase of over 200%. The Net Earnings in the year 2002 included Earnings from Discontinued Operations of $170,000 due to income from an environmental insurance settlement.
The Company's Net Sales were $26,740,000 in the year 2003 as compared to $23,601,000 in the year 2002, an increase of 13%.
The Company's Earnings from Continuing Operations in the year 2003 increased to $703,000 from $42,000 in the year 2002. The Company's Earnings from Continuing Operations before Other Charges, Interest, Other Items, and Taxes increased in 2003 to $1,921,000 from $599,000 in the year 2002.
The Company's Earnings from Continuing Operations before Other Charges, Expenses and Income Taxes increased to $1,611,000 in the year 2003 from $112,000 in the year 2002. Earnings from Continuing Operations for the year 2003 included expenses of $460,000 (before income taxes) due to litigation costs related to a shareholder derivative action, net of the associated insurance reimbursements.
Ronson Consumer Products - ------------------------ (in thousands) Year Ended December 31, 2003 2002 ---- ----
Net sales $16,773 $14,232 Earnings before interest, other items, intercompany charges, and taxes 2,610 1,201 Earnings before intercompany charges and taxes 2,521 1,019
Net Sales of consumer products at Ronson Consumer Products increased by 18% in 2003 compared to 2002 primarily due to sales of the new Ronson Tech Torch to Wal-Mart which began in May 2003 and to increased sales of flame accessory products. The 18% increase in Net Sales at Ronson Consumer Products was composed of an increase of about 1% due to increased net selling prices and 17% due to increased volume of products sold.
Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products decreased to 56% in 2003 from 58% due primarily to the increased sales, to reduced packaging costs on certain products, and to improved packaging processes in 2003. The amount of the Cost of Sales increased in 2003 from 2002 by 14%, composed of 16% due to increased volume of products sold, partially offset by a 1% reduction due to lower manufacturing costs, and a 1% reduction due to increased material costs.
Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as a percentage of Net Sales, decreased to 19% in 2003 from 23% in 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 2003 from 9% in 2002, primarily due to the higher Net Sales in 2003.
Interest Expense at Ronson Consumer Products decreased by $31,000 to $85,000 in 2003 from 2002 primarily due to decreases in the level of borrowings.
Ronson Aviation - --------------- (in thousands)
Year Ended December 31, 2003 2002 ---- ----
Net sales $9,967 $9,369 Earnings before interest, other items, intercompany charges, and taxes 1,454 1,370 Earnings before intercompany charges and taxes 1,374 1,305
Net Sales at Ronson Aviation increased by 6% in 2003 from 2002 primarily because increases in aircraft fuel sales, sales of aircraft maintenance services, and space rentals were partially offset by lower sales of aircraft and of charter services.
Ronson Aviation's Cost of Sales, as a percentage of Net Sales, were unchanged at 71% in 2003 and 2002. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 11% in 2003 and 2002.
Other Items - -----------
The General and Administrative Expenses of Corporate and Others were higher at $2,143,000 in 2003 as compared to $1,972,000 in 2002 primarily due to higher pension expenses as the result of increased amortization related to pension asset reductions in 2002 and to increased insurance costs in 2003.
The net Other Charges of $460,000 in 2003 were the legal fees incurred in 2003 as a result of the derivative action filed by a stockholder. The net shareholder litigation expenses are included in General and Administrative Expenses in the Consolidated Statements of Earnings. These litigation expenses were net of the associated insurance reimbursements.
In 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 2002.
Income Taxes - ------------
In accordance with Statement of Financial Accounting Standards ("SFAS") #109, "Accounting for Income Taxes", in 2004, 2003, and 2002, the Company recognized deferred income tax expenses of $154,000, $313,000, and $20,000, respectively, related to continuing operations primarily due to the Earnings from Continuing Operations before Taxes. The Company recognized deferred income tax expenses related to discontinued operations of $115,000 in 2002 as the result of the insurance recovery income discussed above.
Current income taxes in the years ended December 31, 2004, 2003, and 2002, were presented net of credits of $110,000, $420,000, and $29,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance
with SFAS #109. In 2004, 2003 and 2002, current income tax expenses (benefits) were as follows (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ---- Federal $ (4) $ 20 $ (5) State 152 110 47 Foreign 9 5 8 ----- ---- ---- Total $ 157 $135 $ 50 ===== ==== ====
At December 31, 2004, the Company had net operating loss carryforwards for federal income tax purposes of approximately $2,800,000 and federal and state alternative minimum tax credit carryforwards of $96,000. (Refer to Note 3 of the Notes to Consolidated Financial Statements.)
The Company's effective income tax rate related to Continuing Operations was 62% in 2004, 39% in 2003, and 63% in 2002. The increase in the effective tax rate in 2004 was primarily due to the provision of $122,000 for state income tax related to an assessment of the State of New Jersey. The Company is appealing the assessment (refer to Note 8 of the Notes to Consolidated Financial Statements). The increased tax rate in 2002 was due to foreign income taxes, to non-deductible expenses, and to increased minimum state income taxes.
FINANCIAL CONDITION - -------------------
The Company's Stockholders' Equity was $3,873,000 at December 31, 2004, compared to $3,475,000 at December 31, 2003. The increase in Stockholders' Equity in 2004 was primarily due to the Net Earnings of $193,000 in 2004, and to a $302,000 reduction, net of related income tax benefits, in the Minimum Pension Liability Adjustment component of Accumulated Other Comprehensive Loss. This reduction was primarily due to earnings on Retirement Plan assets greater than Plan assumptions and to amortization of prior unrecognized losses, partially offset by cash dividends of $125,000 during 2004.
The Company had a deficiency in working capital of $1,060,000 at December 31, 2004, as compared to working capital of $137,000 at December 31, 2003. The decrease in working capital was primarily due to: 1) the reclassification of the June 30, 2005, fixed payment of $492,000 on term loans at Ronson Aviation to current liabilities from long-term liabilities; and 2) the transfer to current liabilities of about $859,000 of the long-term portion of pension obligations.
The Company's Inventories increased at December 31, 2004, from December 31, 2003, primarily due to increased Inventories at Ronson Consumer Products related to new products and to a lower than normal inventory level at December 31, 2003, partially offset by a reduction because there were no aircraft for sale in Ronson Aviation's inventory at December 31, 2004.
The increase in Buildings and Improvements was due primarily to the leasehold improvements at RCPC's newly-leased warehouse, financed by $440,000 in Long-Term Debt provided by the lessor. The increase in Machinery and Equipment was primarily due to a new production line for RCPC's Multi-Fill butane refills, financed by a long-term capitalized lease.
The Increase in Cash from Discontinued Operations in 2002 was due to the proceeds of $600,000 from the final insurance settlement and the proceeds of $295,000 from the sale of the final parcel of the Prometcor property. Those proceeds were partially offset by payment of costs related to the insurance settlements, costs related to the sale of the property, and previously accrued environmental costs. Substantially all of the payments for the costs related to Prometcor's environmental
clearance were completed in 2002, with the exception of the costs related to groundwater which are expected to be incurred over a period of many years.
Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at December 31, 2004, Ronson Consumer Products had unused borrowings available at December 31, 2004, of about $165,000 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 $337,000 under the Fleet line of credit at December 31, 2004.
In January 2005, Fleet and the Company amended the lines of credit with RCPC and Ronson Aviation, amending certain terms of the agreements. Primarily, the amendments reduced the interest rates on the lines of credit to 0.5% above Fleet's prime rate or, at the Company's option, a portion at 2.0% above LIBOR (the London Interbank Offering Rate).
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, 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 will be issued on 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.
On May 7, August 17, and November 18, 2004, and on February 15, 2005, 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, September 18, and December 17, 2004, and March 18, 2005.
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.
Ronson Aviation's property is subject to a long-term lease with an existing expiration of November 2007. The lease may be extended by Ronson Aviation for an additional 25 years with an investment in capital improvements of $1,500,000. In March 2004 Ronson Aviation announced plans to proceed with an expansion of its facilities to be completed in the second half of 2006 which will meet the requirements of the lease extension. At December 31, 2004, Ronson Aviation had expended approximately $167,000 and had outstanding commitments to expend approximately $120,000 for architectural and engineering services on the project.
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.
The Company's capital commitments including long-term debt and leases are discussed more fully in Notes 5 and 6 of the Notes to Consolidated Financial Statements. A summary of the maturities of contractual obligations and other commitments is as follows (in thousands):
(1) Other long-term obligations include amounts due under an employment agreement, a consulting agreement and a stock option agreement.
(2) The payments of pension obligations assume necessary required contributions are made annually and that the plan incurs no actuarial or asset gains or losses. No estimate of contributions after five years can be made at this time because actuarial gains and losses cannot be estimated at this time.
The Company will continue to incur interest expenses related to its outstanding short-term and long-term debt. In the years ended December 31, 2004, 2003, and 2002, the Company's interest expenses were $367,000, $308,000, and $354,000, respectively. Management expects its interest expenses (excluding interest related to capital lease obligations) in the years ending December 31, 2005 through 2009 to be approximately (in thousands):
2005 $ 193 2006-2007 314 2008-2009 203 After 2009 55
The estimated interest payments assume: 1) that the long-term debt and capital lease obligations are repaid according to the maturities; 2) the Company's revolving loans will continue through 2009 at the same terms and at the average balances of 2004; 3) interest rates remain at the December 31, 2004, levels; 4) no aircraft inventory loans will be required; and 5) interest expense related to capital lease obligations are included in the table of Contractual Obligations above.
Other commercial commitments include outstanding letters of credit of a $60,000 standby letter of credit related to Ronson Aviation aircraft on order from Raytheon Aircraft Corporation, and a standby letter of credit of $150,000 related to the RCPC lease of additional warehouse space.
The Company has no off-balance sheet financing arrangements other than the operating leases discussed above, no guarantees of the obligations of others, and no unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which require that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted
significantly by judgments, assumptions and estimates, affect the Company's consolidated financial statements.
Allowance For Doubtful Accounts
The preparation of financial statements requires our management to make estimates and assumptions relating to the collectibility of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
Accounting For Sales Incentives
The Company records sales incentives as a reduction of sales in our statements of operations. Sales incentives include rebates, consideration and allowances given to retailers for space in their stores (slotting fees), consideration and allowances given to obtain favorable display positions in the retailer's stores and other promotional activity. The Company records these promotional incentives in the period during which the related product is shipped to the customer, or when the expense is incurred.
Estimated sales incentives are calculated and recorded at the time related sales are made and are based primarily on historical rates and consideration of recent promotional activities. We review our assumptions and adjust our allowances quarterly. Our financial statements could be materially impacted if the actual promotion costs fluctuate from the standard rate. The allowances are classified as a reduction of accounts receivable.
Revenue Recognition
Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to customers, prior to which an arrangement exists, the price is fixed, and it has been determined that collectibility is reasonably assured.
Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. For aircraft, this occurs at the time the title for the aircraft has been transferred and the sales proceeds received. For aircraft fueling, repairs and other aircraft services, delivery occurs only after an arrangement exists, the price is fixed, and collectibility is reasonably assured.
Inventory Valuations
Inventories are valued at lower of cost or market determined by the average cost method. Management regularly reviews inventory for salability and establishes obsolescence reserves to absorb estimated lower market values. On an annual basis, the Company takes a physical inventory verifying the units on hand and comparing its perpetual records to physical counts.
Impairment Of Long-Lived Assets
The Company periodically evaluates whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the estimated undiscounted future cash flows resulting from the use of the asset. In the event the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.
Other Loss Accruals
The Company has a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims, product liability, litigation, and appeal of a tax audit by the State of New Jersey. Establishing accruals for these matters required management's estimate and judgment with regard to maximum risk exposure and ultimate liability or realization. As a result, these estimates are often developed with the Company's counsel, or other appropriate advisors, and are based on management's current understanding of the underlying facts and circumstances. Because of uncertainties related to the ultimate outcome of these issues or the possibility of changes in the underlying facts and circumstances, additional charges related to these issues could be required in the future.
Pension Plans
The valuation of our pension plans requires the use of assumptions and estimates that are used to develop actuarial valuation of expenses, assets and liabilities. These assumptions include discount rates, investment returns, and mortality rates. The actuarial assumptions used in our pension reporting are reviewed annually by management and the Company's independent actuary and compared with external benchmarks to ensure that they accurately account for our future pension obligations. Changes in assumptions and future investment returns could potentially have a material impact on pension expenses and related funding requirements.
Accounting for Income Taxes
The Company assesses the need for a valuation allowance against deferred tax assets by considering future taxable income and ongoing prudent and feasible tax planning strategies. Should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the valuation allowance against the deferred tax assets would be charged to income in the period such determination was made.
New Accounting Pronouncement
In November 2004 the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as current period charges, and that fixed production overheads should be allocated to inventory based on normal capacity of production facilities. SFAS No. 151 will be effective for our fiscal year beginning January 1, 2006, and since the Company already complies with this statement, its adoption will not have a material impact on our financial position or results of operations.
Item 7A
Item 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
The Company is exposed to changes in prevailing market interest rates affecting the return on its investments, but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and very short-term (less than 90 days) maturities. The carrying amount of these investments approximates fair value.
All of the Company's Short-term Debt ($1,439,000 at December 31, 2004) carries a variable rate of interest, and, therefore, the carrying value of the Short-term Debt approximates fair value. The Company's outstanding Long-term Debt as of December 31, 2004, consisted of indebtedness in the amount of $590,000 with a variable rate of interest and $1,806,000 with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. Of the long-term debt with fixed interest rates, the $1,431,000 mortgage loan effectively carries a fixed rate of 7.45% due to an interest rate swap contract even though the loan has a variable rate. Because the interest rate swap contract is 100% effective, the contract will result in no future gains or losses being recognized. Based on the Company's average borrowings with variable interest rates during 2004 and assuming a one percentage point change in average interest rates, it is estimated that the Company's interest expense during 2004 would have increased or decreased by approximately $23,000.
The Company is also exposed to changes in foreign currency exchange rates due to its investment in its Canadian subsidiary, Ronson-Canada and because approximately 5% of its Consolidated Net Sales were in Canada. As of December 31, 2004, the
Company's net investment in Ronson-Canada was approximately $507,000. Because the Company's foreign currency exchange exposure is limited to one relatively stable currency and the relatively small size of its net investment in Ronson-Canada, the Company does not consider this foreign currency exchange exposure to be material to its financial condition and results of operations. The cumulative effect of translating balance sheet accounts from the Canadian dollars into the US dollars at the current exchange rate is included in Accumulated Other Comprehensive Loss in the Consolidated Balance Sheets.
The Company, due to the nature of its operations, is also exposed to changes in the prices of fuels. In the years ended December 31, 2004 and 2003, the Company's cost of fuels included in its consumer products and its cost of aircraft fuel totaled approximately $3,726,000 and $3,341,000, respectively, or approximately 20% of Cost of Sales in each year. The price of the fuels fluctuates more or less in conjunction with oil prices. An increase or decrease of 1% in the average cost of the Company's fuels would have increased or decreased the Company's Cost of Sales by approximately $37,000 in 2004. Costs of fuel also impacts the cost of various other components used in the Company's products. Increases in the price of fuels, to the extent the Company is not able to increase the prices of its products to its customers, could have an adverse impact on the Company's results of operations.
Under its current policies, except for an interest rate swap contract noted above, the Company does not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage its exposure to changes in interest rates, foreign currency exchange rates, commodity prices or equity prices.
OTHER RISK FACTORS:
Political and Economic Risks
The Company's operations are exposed to the risk of political and economic uncertainties. Changes in political and economic conditions may affect product cost, availability, distribution, pricing, purchasing, and consumption patterns. While the Company seeks to manage its business in consideration of these risks, there can be no assurance that the Company will be successful in doing so.
Operating Results and Net Earnings May Not Meet Expectations
The Company cannot be sure that its operating results and net earnings will meet its expectations. If the Company's assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of its key goals, then the Company's actual performance could vary materially from its expectations. The Company's operating results and net earnings may be influenced by a number of factors, including the following:
* the introduction of new products and line extensions by the Company or its competitors;
* the Company's ability to control its internal costs and the cost of raw materials;
* the effectiveness of the Company's advertising, marketing and promotional programs;
* the changes in product pricing policies by the Company or its competitors;
* the ability of the Company to achieve business plans, including volume and pricing plans, as a result of high levels of competitive activity;
* the ability to maintain key customer relationships;
* the ability of major customers and other creditors to meet their obligations as they come due;
* the ability to successfully manage regulatory, tax and legal matters, including resolution of pending matters within current estimates;
* the ability of the Company to attract and retain qualified personnel;
* the costs, distraction of management, and disruption that may be incurred due to the actions of a dissident shareholder / hedge fund.
Regulatory Risks
The Company is subject to numerous environmental laws and regulations that impose various environmental controls on its business operations, including among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes, and the investigation and remediation of soil and groundwater affected by hazardous substances. Such laws and regulations may otherwise relate to various health and safety matters that impose burdens upon the Company's operations. These laws and regulations govern actions that may have adverse environmental effects and also require compliance with certain practices when handling and disposing of hazardous wastes. These laws and regulations also impose strict and joint and several liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposal and other releases of hazardous substances. The Company believes that its expenditures related to environmental matters are not currently expected to have a material adverse effect on its financial condition, results of operations or cash flows. However, the environmental laws under which the Company operates are complicated and often increasingly more stringent, and may be applied retroactively. Accordingly, there can be no assurance that the Company will not be required to make additional expenditures to remain in or to achieve compliance with environmental laws in the future or that any such additional expenditures will not have a material adverse effect on the Company's financial condition, results of operations and cash flows.
Certain of the Company's products have chemical compositions that are controlled by various state, federal and international laws and regulations. The Company complies with these laws and regulations and seeks to anticipate developments that could impact the Company's products. These laws and regulations could have a material adverse effect on the Company's financial condition, results of operations and cash flows.
Volatility in the Insurance Market
The Company evaluates its insurance coverage annually. Trends in the insurance industry suggest that such coverage may be much more expensive, less protective or even unavailable which could have a material adverse effect on the Company's financial condition, results of operations and cash flows. In such a case, the Company may decide to self-insure more, thereby undertaking additional risks.
Ronson Consumer Products:
Component Supply Risk
Ronson Consumer Products depends upon its vendors for the supply of the primary components for its flame accessory and chemical products. Certain of these components are subject to significant price volatility beyond the control or influence of the Company. Petroleum products have had significant price volatility in the past and may in the future. Rising oil prices can also impact the Company's cost of transporting its products. The Company has historically been successful in
managing its component costs and product pricing to maintain historical gross margins. Additionally, the Company has generally found alternative sources of constituent chemicals for its products readily available. As component and raw material costs are the main contribution to cost of goods sold for all of the Company's products, any significant fluctuation in the costs of components could also have a material impact on the gross margins realized on the Company's products. Increases in the prices for the components could have a material adverse effect on the Company's business, operating results, financial position and cash flows.
Reliance on Supply Chain
Each of Ronson Consumer Products' lighter and torch products is manufactured by a single vendor. Since there are a number of sources of similar lighter products, the Company believes that other suppliers could provide lighters and torches on comparable terms. The loss of any of these suppliers or manufacturers could, however, temporarily disrupt or interrupt the production of the Company's products.
Competition
The market for the Company's products is highly competitive and is expected to continue to be competitive in the future. The Company's products compete both within their own product classes as well as within product distribution channels, competing with many other products for store placement and shelf space. The Company is aware of many competing products, some of which sell for lower prices; however, the Company relies on the awareness of its brands among consumers, the value offered by those brands as perceived by consumers, and competitive pricing as its primary competitive strategies.
These considerations as well as increased competition generally could result in price reductions, reduced gross margins, and a loss of market share, any of which could have a material adverse effect on the Company's business, operating results, financial position and cash flows. In addition, many of the Company's competitors have significantly greater financial, technical, product development, marketing and other resources. There can be no assurance that the Company will be able to compete successfully against current and future competitors. Competitive pressures faced by the Company could have a material adverse effect on its business, operating results, financial position and cash flows.
Business Risks
With the trend toward consolidation in the retail marketplace, the Company's customer base is shifting toward fewer, but larger, customers who purchase in larger volumes. The loss of, or reduction in, orders from any of the Company's most significant customers could have a material adverse effect on the Company's business and its financial results.
Large customers also seek price reductions and promotional concessions. In this regard, the Company has expanded its customer promotions and allowances which has negatively impacted, and will likely continue to impact, the Company's maintenance of existing profit margins.
In addition, the Company is subject to changes in customer purchasing patterns. These types of changes may result from changes in the manner in which customers purchase and manage inventory levels, or display and promote products within their stores. Other potential factors such as customer disputes regarding shipments, fees, merchandise condition or related matters may also impact operating results.
The manufacture, packaging, storage, distribution and labeling of the Company's products and the Company's business operations all must comply with extensive federal and state laws and regulations. It is possible that the government
will increase regulation of the transportation, storage or use of certain chemicals, to enhance homeland security or protect the environment and that such regulation could negatively impact raw material supply or costs.
Some of the Company's consumer products are associated in part with tobacco. These products are also utilized for other purposes such as replacing the match. The Company's research and development department is continuing to develop products utilizing the Company's fuels with products not associated with tobacco. The potential decline in smoking, however, may have a negative impact on the Company.
Protection of Intellectual Property
The Company relies on trademark, trade secret, patent and copyright laws to protect its most important asset, the Ronson brand name, and its other intellectual property. The Company cannot be certain that the intellectual property rights will be successfully asserted in the future or that they will not be invalidated or circumvented.
Ronson Aviation:
Supply Risk
Ronson Aviation depends upon its vendors for the supply of its principal products. Aircraft fuels are subject to significant price volatility. Ronson Aviation has historically been successful in the pricing of its fuel to maintain its gross margins. Increases in the price of the aircraft fuels could have an adverse effect on the demand for Ronson Aviation products and aviation services, and on its operating results, financial position and cash flows.
Ronson Aviation relies on Raytheon Aircraft Corporation as its sole supplier of new piston engine(s) aircraft for sale. Loss of availability of such aircraft and delays in deliveries of aircraft have had from time to time, and may in the future temporarily have, an adverse effect on Ronson Aviation's Net Sales.
Business Risk
Ronson Aviation depends upon demand for general aviation services, including corporate air travel and private charter. Increased security requirements and concerns may have an effect, positive or adverse, on Ronson Aviation's future operating results, financial position and cash flows.
Item 8
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
Financial statements required by this item are included in Item 15.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited quarterly consolidated financial information for each of the two years in the period ending December 31, 2004.
(Dollars in thousands, except per share amounts)
(a) Net Sales, less Cost of Sales, less a portion of Depreciation and Amortization. (b) Items are presented net of income tax effect. (c) The costs included in the 2004 and 2003 quarters were the legal fees incurred as a result of the derivative action filed by a shareholder. (d) Does not add due to rounding.
Item 9
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
There were no disagreements with accountants in the years ended December 31, 2004, 2003 and 2002.
Item 9A
Item 9A - CONTROLS AND PROCEDURES -----------------------
a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this annual report, the Company's disclosure controls and procedures were adequate, are designed to ensure that material information related to the Company (including its consolidated subsidiaries) would be made known to the above officers, are effective and provide reasonable assurance that they will meet their objectives.
The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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 in the last fiscal quarter or subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 9B
Item 9B - OTHER INFORMATION -----------------
None.
PART III --------
Item 10
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, COMPLIANCE WITH ---------------------------------------------------------------- SECTION 16(a) OF THE EXCHANGE ACT ---------------------------------
(a) Identification of directors.
The following table indicates certain information about the Company's nine (9) directors:
No director also serves as a director of another company registered under the Securities Exchange Act of 1934.
Audit Committee
The Audit Committee of the Board of Directors reports to the Board regarding the appointment of the Company's public accountants, the scope and results of its annual audits, compliance with accounting and financial policies and management's procedures and policies relative to the adequacy of internal accounting controls.
The Company's Board of Directors has adopted a written charter for the Audit Committee which can be found on the investor relations page of the Company's website www.ronsoncorp.com.
The Audit Committee consists of three independent directors: Messrs. Einhorn (Chairman), Motiuk, and Weisman. Each member of the Audit Committee is an independent director, as independence is defined in the listing standards of the NASDAQ relating to audit committee members. Each member of the Audit Committee is "financially literate" as required by NASDAQ rules. The Board of Directors has determined that Mr. Einhorn, the Audit Committee Chairman, is an "audit committee financial expert" as defined by regulations adopted by the Securities and Exchange Commission and meets the qualifications of "financial sophistication" in accordance with NASDAQ rules. Stockholders should understand that these designations related to our Audit Committee members' experience and understanding with respect to certain accounting and auditing matters do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of the Audit Committee or of the Board.
(b) Identification of executive officers.
The following table sets forth certain information concerning the executive officers of the Company, each of whom is serving a one-year term of office, except Mr. Louis V. Aronson II, who is a party to an employment contract with the Company which expires on December 31, 2007:
Positions and Offices Period Served with Company; Name Age as Officer Family Relationships - --------------------- --- ---------- ---------------------
Louis V. Aronson II.. 82 1953 - Present President & Chief Executive Officer; Chairman of the Executive Committee; Director.
Daryl K. Holcomb..... 54 1996 - Present Vice President & Chief Financial Officer, Controller & Treasurer;
1993 - 1996 Chief Financial Officer, Controller & Treasurer;
1988 - 1993 Controller & Treasurer; No family relationship.
Justin P. Walder..... 69 1989 - Present Secretary;
1972 - Present Assistant Corporation Counsel; Director; No family relationship.
Messrs. L.V. Aronson and Holcomb have been employed by the Company in an executive capacity for at least the five-year period immediately preceding the date hereof. Mr. Walder has been Secretary, Assistant Corporation Counsel and Director of the Company and a principal in Walder, Hayden & Brogan, P.A., Attorneys at Law, for at least the five-year period preceding the date hereof.
(c) Section 16(a) Beneficial Ownership Reporting Compliance.
Under Securities and Exchange Commission ("SEC") rules, the Company is required to review copies of beneficial ownership reports filed with the Company which are required under Section 16(a) of the Exchange Act by officers, directors and greater than 10% beneficial owners. Based solely on the Company's review of forms filed with the Company, the Company believes no information is required to be reported under this item.
(d) Code of ethics.
The Company has adopted a code of ethics entitled, Standards of Integrity, applicable to it and all its subsidiaries. The Standards of Integrity are an integral part of the Company's business conduct compliance program and embody the commitment of the Company and its subsidiaries to conduct operations in accordance with the highest legal and ethical standards. A copy of the Standards of Integrity may be obtained without charge upon written request to: Investor Relations, Ronson Corporation, P.O. Box 6707, Somerset, NJ 08875-6707.
Item 11
Item 11 - EXECUTIVE COMPENSATION ----------------------
SUMMARY COMPENSATION TABLE
The Summary Compensation Table presents compensation information for the years ended December 31, 2004, 2003, and 2002, for the Chief Executive Officer and the other executive officer of the Company whose salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE - --------------------------
Footnotes - ---------------
(1) The compensation included in the bonus column is an incentive payment resulting from the attainment by the Company's operating subsidiaries of certain levels of net sales and profits before taxes. The incentive compensation, however, earned in 2002 by Messrs. L.V. Aronson and Holcomb of $37,421 and $12,995, respectively, was waived by them.
(2) The options included in Long-Term Compensation have been retroactively adjusted to reflect the 5% common stock dividends declared February 15, 2005.
(3) In 2004 All Other Compensation included matching credits by the Company under its Employees' Savings Plan (Mr. L.V. Aronson, $4,100; Mr. Holcomb, $3,809) and the cost of term life insurance included in split-dollar life insurance policies (Mr. L.V. Aronson, $15,336).
OPTION GRANTS IN LAST FISCAL YEAR - ---------------------------------
None.
AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES - ------------------------------------------------------
The following table summarizes, for each of the named executive officers, options exercised during the year and the number of stock options unexercised at December 31, 2004. "In-the-money" options are those where the fair market value of the underlying securities exceeds the exercise price of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND - --------------------------------------------------- FISCAL YEAR END OPTION VALUES - -----------------------------
Footnotes - ---------------
(1) The value realized equals the market value of the common stock acquired on the date of exercise minus the exercise price.
(2) The exercisable options held by the named executive officers at December 31, 2004 are exercisable at any time and expire on July 6, 2006, and September 12, 2007.
(3) The value of the unexercised options was determined by comparing the average of the bid and ask prices of the Company's common stock at December 31, 2004 to the option prices.
(4) The exercise prices of the options held at December 31, 2004 were as follows:
Number Exercise Price ------ --------------
D.K. Holcomb 9,840 $ 0.9905 11,576 0.9823
(5) The number of shares acquired on exercise and of unexercised options held at December 31, 2004, has been adjusted for the 5% common stock dividend declared February 15, 2005.
LONG-TERM INCENTIVE PLANS
None.
PENSION PLANS
No named executive officer is a participant in the Company's defined benefit pension plan.
COMPENSATION OF DIRECTORS
Effective October 21, 2004, directors who are not officers of the Company receive an annual fee of $10,000 and, in addition, are compensated at the rate of $750 for each meeting of the Company's Board of Directors actually attended and $450 for each meeting of a Committee of the Company's Board of Directors actually attended. Officers receive no compensation for their services on the Board or on any Committee.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. L.V. Aronson II has been a party to an employment contract with the Company dated September 21, 1978, which, as amended on July 24, 1980, July 1, 1982, October 11, 1985, July 7, 1988, May 10, 1989, August 22, 1991, May 22, 1995, June 11, 1997, December 17, 1998, and September 19, 2001, provided for a term expiring December 31, 2004. The employment contract provided for the payment of a base salary which is to be increased 7% as of January 1 of each year. Mr. L.V. Aronson waived a 7% salary increase due January 1, 2004. Also, Mr. L.V. Aronson had waived a 7% salary increase due January 1, 2003, under the terms of the existing contract. In addition, in February 2002 Mr. L.V. Aronson offered and accepted a 5% reduction in his base salary provided for by the terms of his employment contract. Previously, Mr. L.V. Aronson had offered and accepted other reductions in his base salary provided by the terms of his employment contract. During 1990 Mr. L.V. Aronson offered and accepted a 5% reduction in his base salary provided for by the terms of his employment contract, and, in addition, waived a 7% salary increase due January 1, 1991, under the terms of the contract. During 1992 Mr. L.V. Aronson offered and accepted a 7% reduction in his base salary. Effective September 1, 1993, Mr. L.V. Aronson offered and accepted a further 5% reduction in his base salary.
On November 24, 2003, the Company and Mr. L.V. Aronson entered into a new employment agreement which became effective upon the December 31, 2004 expiration of the existing agreement. The new three-year agreement provides for a term expiring on December 31, 2007, and provides for the payment of a base salary which is to be increased 3.5% as of January 1 of each year beginning in 2005, subject to the Company
reporting operating earnings in the year prior to each increase. Mr. L.V. Aronson waived the 3.5% increase due on January 1, 2005. Both the existing and new contracts also provide that the Company shall reimburse Mr. L.V. Aronson for expenses, provide him with an automobile, and pay a death benefit equal to two years' salary. The Company has purchased term insurance to provide coverage for a substantial portion of the potential death benefit. Under both of the employment contracts, Mr. L.V. Aronson's full compensation will continue in the event of Mr. L.V. Aronson's disability for the duration of the agreement or one full year, whichever is later. The employment contracts also provide that if, following a Change in Control (as defined in the employment contract), Mr. L.V. Aronson's employment with the Company terminated under prescribed circumstances as set forth in the employment contract, the Company will pay Mr. L.V. Aronson a lump sum equal to the base salary (including the required increases in base salary) for the remaining term of the employment contracts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of the Company, as a whole, has historically provided overall guidance of the Company's executive compensation program. All members of the Board have participated in the review and approval of each of the components of the Company's executive compensation program described below, except that no director who is also a Company employee has participated in the review and approval of his compensation. Directors of the Company who are also current employees of the Company are Messrs. L.V. Aronson and Walder. Directors of the Company who are also former employees of the Company are Messrs. R.A. Aronson, whose employment with the Company ceased in 1987, Ganz, who retired from the Company in 1993, and Quinnan, who retired from Ronson Consumer Products in 1990. Mr. Ganz has a consulting agreement with the Company for the period ending December 31, 2006, which is cancelable at any time by either party with 180 days notice and effective January 1, 2005, provides compensation at the annual rate of $95,000, plus participation in the Company's health and life insurance plans and the use of an automobile. In the year ended December 31, 2004, Mr. Ganz was compensated $87,500 for his services. Mr. Quinnan provides consulting services for the Company at a specified daily rate. In 2004 Mr. Quinnan was compensated $24,300 for his services.
REPORT ON EXECUTIVE COMPENSATION
As stated above, the Board, as a whole, has provided overall guidance of the Company's executive compensation program. The program covers the named executive officers, all other executive officers and other key employees. The program has three principal components: base salary, annual cash incentives under the Company's Management Incentive Plan ("MIP"), and stock options under the Company's Incentive Stock Option Plans ("ISO Plans"). Mr. L.V. Aronson's base salary is determined by the terms of his employment contract discussed above, except for the reductions which have been offered and accepted from time to time by Mr. L.V. Aronson. The amendments, also detailed above, to Mr. L.V. Aronson's employment contract and the reductions offered and accepted from time to time by Mr. L.V. Aronson have been reviewed and approved by the Board. The Board also reviewed and approved the salaries of all of the other executive officers. Prior to the beginning of the fiscal year, the Board reviewed and approved which employees participate in the Company's MIP and the criteria which will determine the cash awards under the plan to the participants after the close of the fiscal year. The Board also reviewed and approved all awards under the Company's ISO Plans.
On October 21, 2004, the Board formed a separate Compensation Committee composed of Ms. Collins and Messrs. Einhorn and Quinnan. The Compensation Committee is now responsible for making recommendations to the Board regarding the executive compensation program.
The base salaries are intended to meet the requirements of the employment contract in effect for Mr. L.V. Aronson and to fairly compensate all the officers of the Company for the effective exercise of their responsibilities, their management of
the business functions for which they are responsible, their extended period of service to the Company and their dedication and diligence in carrying out their responsibilities for the Company and its subsidiaries. In 2004 and prior years, increases have been granted to Mr. L.V. Aronson in accordance with terms of the employment contract, except for the above mentioned salary reductions offered and accepted from time to time by him. In 2004 and prior years, the Board, after review, has approved increases to the other executive officers.
The Company's MIP is based on the financial performance of the Company's subsidiaries and is adopted annually, after review, for the ensuing year by the Board. Each year the Board sets the formula for determining incentive compensation under the MIP for the Company and each subsidiary based upon (1) the amount net sales exceed thresholds established by the Board and (2) pretax profits as a percent of net sales. The Board determines who of the Company's and its subsidiaries' key employees are eligible to participate in the MIP and what each employee's level of participation may be. The thresholds set by the Board must be met by the end of the fiscal year in order for each eligible employee to receive an award under the MIP for that year.
The stock options granted under the Company's ISO Plans are designed to create a proprietary interest in the Company among its executive officers and other key employees and reward these executive officers and other key employees directly for appreciation in the long-term price of the Company's Common Stock. The ISO Plans directly link the compensation of executive officers and other key employees to gains by the stockholders and encourages the executive officers, directors, and other key employees to adopt a strong stockholder orientation in their work. In 2004 options were granted to one key employee of the Company.
The above report is presented by the Board of Directors:
Louis V. Aronson II I. Leo Motiuk Robert A. Aronson Gerard J. Quinnan Barbara L. Collins Justin P. Walder Paul H. Einhorn Saul H. Weisman Erwin M. Ganz
PERFORMANCE GRAPH
The following table compares the yearly percentage change in the cumulative total stockholder returns on the Company's Common Stock during the five fiscal years ended December 31, 2004, with the cumulative total returns of the NASDAQ Stock Market (U.S. Companies) Index and the Russell 2000 Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS AMONG THE COMPANY, NASDAQ STOCK MARKET INDEX AND RUSSELL 2000 INDEX
TABLE OF VALUES
This comparison assumes that $100 was invested in the Company's Common Stock on December 31, 1999, in the NASDAQ Stock Market (U.S. Companies) Index and in the Russell 2000 Index, and that dividends are reinvested.
The Company has determined that it is not possible to identify a published industry or line-of-business index or a peer group of companies since the Company has two distinct lines of business. The Company has selected the Russell 2000 Index since it is composed of companies with small capitalizations.
Item 12
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
(a) Security ownership of certain beneficial owners.
Set forth below are the persons who, to the best of management's knowledge, own beneficially more than five percent of any class of the Company's voting securities, together with the number of shares so owned and the percentage which such number constitutes of the total number of shares of such class presently outstanding:
(1) The Ronson Corporation Retirement Plan ("Retirement Plan") is the beneficial owner of 208,214 common shares. The shares held by the Retirement Plan are voted by the Retirement Plan's trustees, Messrs. L.V. Aronson and Ganz. If the shares held by the Retirement Plan were included in Mr. L.V. Aronson's beneficial ownership, Mr. L.V. Aronson's beneficial ownership would be increased to 1,423,670 shares, or 32.94% of the class. The Retirement Plan's holdings were reported in 1988 on Schedule 13G, as amended September 22, 1997, adjusted for the 5% common stock dividend declared February 15, 2005.
(2) 506,480 shares of common stock owned directly, adjusted for the 5% common stock dividend declared February 15, 2005. This information was from a Form 4 filed by Mr. Dinger on December 8, 2004. Mr. Dinger has provided the Company's Board of Directors an irrevocable proxy to vote these shares. (Refer to "Transactions with Management and Others" in Item 13
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
(a) Transactions with management and others.
In October 1998 the Company entered into a consulting agreement with Mr. Carl W. Dinger III, a greater than 5% shareholder of the Company. The agreement provided that Mr. Dinger perform certain consulting services for the Company for a period ending on April 7, 2000. The Company and Mr. Dinger entered into a second consulting agreement effective upon the expiration date of the original agreement. This agreement provided that Mr. Dinger continue to perform consulting services for the Company through April 7, 2004 at a fee of $7,000 per month. During 2004 the agreement was extended on a month-to-month basis through July 7, 2004. A new consulting agreement was effective on July 8, 2004, which provides that Mr. Dinger continue to perform consulting services at a fee of $7,000 per month for the Company for a period of thirty-six months through July 7, 2007. Mr. Dinger was compensated $84,000 during each of the years ended December 31, 2004, 2003 and 2002, under the agreements.
In October 1998 Mr. Dinger granted an option to the Company to purchase the 186,166 shares of the Company's common stock then held by Mr. Dinger. The option was for a period of 18 months expiring on April 7, 2000, and the exercise price of the option was $5.25 per share. In 2000 Mr. Dinger granted a new option to the Company, to purchase the shares of the Company's common stock held by Mr. Dinger. The option was for a period of 48 months, expiring April 7, 2004. The exercise price of the option was $5.25 per share for the first two years and $7.50 per share in the second two-year period. The cost of the option was $4,000 per month for the period of the
option or until exercised. In March 2000 Mr. Dinger purchased 276,528 shares of newly issued restricted common stock of the Company at a price of $2.06 per share. During 2004 the option agreement was extended on a month-to-month basis through July 7, 2004. A new option agreement was effective on July 8, 2004. The new option granted by Mr. Dinger is for a period of 36 months, expiring on July 7, 2007. The exercise price of the option is $6.50 per share for the 506,480 shares now held by Mr. Dinger. The cost of the option is $4,000 per month for the period of the option or until exercised. As part of each of the option agreements, Mr. Dinger has granted the Board of Directors of the Company an irrevocable proxy to vote the optioned shares during the term of the option. The Company expended $48,000 for the options during each of the years ended December 31, 2004, 2003 and 2002, which were charged to Additional Paid-in Capital.
During the year ended December 31, 2004, the Company and Ronson Consumer Products were provided printing services by Michael Graphics, Inc., a New Jersey corporation, amounting to $82,488. A greater than 10% shareholder of Michael Graphics, Inc. is the son-in-law of the Company's president.
Refer to Item 11 above for additional information regarding this item.
(b) Certain business relationships.
Refer to Item 11 above for information regarding this item.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
Item 14
Item 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES --------------------------------------
The fees billed for services provided to the Company by Demetrius & Company, L.L.C., for the year ended December 31, 2004 and 2003, were as follows:
2004 2003 ---- ----
Audit fees $80,400 $82,600 Audit-related fees -- -- Tax fees, principally related to tax return preparation 14,000 15,900 All other fees -- 575
The Audit Committee of the Board of Directors pre-approves substantially all of the services of the Company's auditing firm. These pre-approved services are approved by the Audit Committee based upon "not to exceed" proposals in advance of the Company's Annual Meeting of Stockholders. In the year ended December 31, 2003, fees from services provided which had not been pre-approved, but were subsequently reviewed and approved, were $1,000 (none in 2004).
PART IV -------
Item 15
Item 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------------------------------------------------
(a) (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report.
(3) Listing of exhibits, as applicable:
(3) Articles of incorporation are incorporated herein by reference. The By-Laws of the Company were amended on March 5, 1997, to include a new Section 9 of Article I, Nomination for Board of Directors. The amended By-Laws were filed as Exhibit 3 with the 1996 Form 10-K and are incorporated herein by reference.
Reference is made to Company's Form S-2 filed on September 18, 1987, and incorporated herein by reference.
Reference is made to Company's Form S-2 filed on April 8, 1988, and incorporated herein by reference.
(10) Material contracts.
On January 6, 1995, RCPC entered into an agreement with Summit Business Capital Corp., doing business as Fleet Capital, ("Fleet") for a Revolving Loan and a Term Loan. On March 6, 1997, the Revolving Loan was amended and extended to June 30, 2000. On May 13, 1999, the Revolving Loan was further extended to June 30, 2002. On June 30, 2002, the Revolving Loan was amended and further extended to June 30, 2005. The 1995 agreements were attached to the Company's 1994 Form 10-K as Exhibits 10(a)-10(f). The March 1997 amendments to the Revolving Loan were attached to the Company's 1996 Form 10-K as Exhibits 10(a)-10(c). A July 1997 amendment was attached to the Company's September 30, 1997, Form 10-Q as Exhibit 10(g). The May 1999 amendment was attached to the Company's June 30, 1999, Form 10-Q as Exhibits 10(a) and 10(f). The June 2002 amendment was attached to the Company's June 30, 2002, Form 10-Q as Exhibits 10(a)-10(d).
On December 1, 1995, the Company and RCPC entered into a mortgage loan agreement with Fleet. The agreement and note were attached to the Company's 1995 Form 10-K as Exhibits 10(a) and 10(b). On May 13, 1999, the Company and RCPC refinanced the existing mortgage. The new mortgage loan was attached to the Company's June 30, 1999, Form 10-Q as Exhibits 10(b)-10(e). On December 3, 2003, the Company, RCPC and Fleet extended the mortgage loan. The amendments to the mortgage loan were attached to the Company's Form 8-K filed January 6, 2004, as Exhibits 10(a)-10(d).
On August 28, 1997, Ronson Aviation entered into an agreement with Fleet for a Revolving Loan and a Term Loan. On May 13, 1999, Ronson Aviation and Fleet extended the Revolving Loan and Term Loan to June 30, 2002. On June 30, 2002, the Revolving Loan and Term Loan were further extended to June 30, 2005. The Revolving Loan and Term Loan agreements were attached to the Company's September 30, 1997, Form 10-Q as Exhibits 10(a)-10(f). The May 1999 amendment agreements were attached to the Company's June 30, 1999, Form 10-Q as Exhibits 10(g)-10(k). The June 2002 amendment agreements were attached to the Company's June 30, 2002, Form 10-Q as Exhibits 10(e)-10(i).
For further information on the Company's loan agreements, reference is made to Notes 4 and 5 of the Notes to Consolidated Financial Statements contained in the Company's financial statements for the year ended December 31, 2004, filed with this report pursuant to Item 8, which is incorporated herein by reference.
The Company has been a party to an employment contract with Mr. Louis V. Aronson II dated December 21, 1978, as amended July 24, 1980, July 1, 1982, October 11, 1985, July 7, 1988, May 10, 1989, August 22, 1991, May 22, 1995, June 11, 1997, December 17, 1998, and September 19, 2001. This contract is incorporated herein by reference as filed as Exhibit 10.16 to Registration Statement No. 33-13696 on Form S-2 dated September 18, 1987. The amendment dated September 19, 2001, was attached to the Company's Form 8-K filed on October 23, 2001, as Exhibit 10. On November 24, 2003, the Company and Mr. Aronson entered into a new three-year employment agreement which became effective upon the December 31, 2004 expiration of the existing agreement. The new agreement provides for a term expiring on December 31, 2007. The
new agreement was attached to the Company's Form 8-K filed January 6, 2004, as Exhibit 10(e).
(20) Other documents or statements to security holders.
The Ronson Corporation Notice of Meeting of Stockholders held on December 9, 2004, and Proxy Statement was filed on November 5, 2004, and is incorporated herein by reference.
(21) Subsidiaries of the Company.
The Company is the owner of 100% of the voting power of the following subsidiaries, each of which is included in the consolidated financial statements of the Company:
Wholly Owned Subsidiary State or Other Jurisdiction and Business Name of Incorporation or Organization ----------------- --------------------------------
Domestic --------
Ronson Consumer Products Corporation New Jersey Ronson Aviation, Inc. New Jersey
Foreign -------
Ronson Corporation of Canada Ltd. Canada
The Company also holds 100% of the voting power of five additional subsidiaries which are included in its consolidated financial statements and which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
(23) Consent of experts and counsel attached hereto as Exhibit 23(a).
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).
(99) Additional exhibits.
(a) None.
(b) Reports on Form 8-K filed.
On October 27, 2004, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Items 2.02 and 5.02 of such report. No financial statements or pro forma financial information were included in the report.
On November 29, 2004, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 8.01 of such report. No financial statements or pro forma financial information were included in the report.
On December 22, 2004, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 8.01 of such report. No financial statements or pro forma financial information were included in the report.
On January 18, 2005, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 8.01 of such report. No financial statements or pro forma financial information were included in the report.
On January 21, 2005, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 8.01 of such report. No financial statements or pro forma financial information were included in the report.
On February 16, 2005, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 8.01 of such report. No financial statements or pro forma financial information were included in the report.
On March 7, 2005, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 2.02 of such report. No financial statements or pro forma financial information were included in the report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
RONSON CORPORATION
Dated: March 30, 2005 By: /s/ Louis V. Aronson II ------------------------------------ Louis V. Aronson II, President & Chief Executive Officer and Director
Dated: March 30, 2005 By: /s/ Daryl K. Holcomb ------------------------------------ Daryl K. Holcomb, Vice President & Chief Financial Officer, Controller and Treasurer
Dated: March 30, 2005 By: /s/ Justin P. Walder ------------------------------------ Justin P. Walder, Secretary and Director
Dated: March 30, 2005 By: /s/ Robert A. Aronson ------------------------------------ Robert A. Aronson, Director
Dated: March 30, 2005 By: /s/ Barbara L. Collins ------------------------------------ Barbara L. Collins, Director
Dated: March 30, 2005 By: /s/ Paul H. Einhorn ------------------------------------ Paul H. Einhorn, Director
Dated: March 30, 2005 By: /s/ Erwin M. Ganz ------------------------------------ Erwin M. Ganz, Director
Dated: March 30, 2005 By: /s/ I. Leo Motiuk ------------------------------------ I. Leo Motiuk, Director
Dated: March 30, 2005 By: /s/ Gerard J. Quinnan ------------------------------------ Gerard J. Quinnan, Director
Dated: March 30, 2005 By: /s/ Saul H. Weisman ------------------------------------ Saul H. Weisman, Director
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2004
RONSON CORPORATION
SOMERSET, NEW JERSEY
RONSON CORPORATION FIVE-YEAR SELECTED FINANCIAL DATA - ---------------------------------------------------- Dollars in thousands (except per share data)
(1) Basic Net Earnings per Common Share provides for quarterly cumulative preferred dividends with no conversion of preferred shares to common shares. Diluted Net Earnings per Common Share assumes no provision for the quarterly cumulative preferred dividends with full conversion of all preferred shares to common shares and includes the dilutive effect of outstanding stock options. The assumed conversion of preferred to common and the stock options were anti-dilutive for the years ended December 31, 2002, 2001 and 2000, and, therefore, were excluded from the computation of Diluted Net Earnings Per Common Share for those years.
(2) A 5% stock dividend on the Company's outstanding common stock was declared on February 15, 2005, payable on April 15, 2005. Previously, 5% stock dividends on the Company's outstanding common stock were issued on April 15, 2004, 2003, and 2002.
(3) A cash dividend of $0.01 per share was paid on June 18, September 17 and December 17, 2004 to stockholders of record on June 1, September 1 and December 1, 2004, respectively.
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Ronson Corporation and its wholly owned subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 2004 and 2003
Consolidated Statements of Earnings - Years Ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows - Years Ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ronson Corporation
We have audited the accompanying consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2004. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ronson Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey March 8, 2005
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands
ASSETS ------
See notes to consolidated financial statements.
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands (except share data)
See notes to consolidated financial statements.
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - ----------------------------------- Dollars in thousands (except per share data)
See notes to consolidated financial statements.
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- For the Years Ended December 31, 2004, 2003 and 2002 Dollars in thousands
See notes to consolidated financial statements.
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Dollars in thousands
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements include the accounts of Ronson Corporation (the "Company") and its subsidiaries, all of which are wholly owned. Its principal subsidiaries are Ronson Consumer Products Corporation ("RCPC"), Woodbridge, New Jersey; Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, Canada (these together are "Ronson Consumer Products"); Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New Jersey; and Prometcor, Inc., ("Prometcor"), formerly known as Ronson Metals Corporation, Newark, New Jersey, now discontinued. All significant intercompany accounts and transactions have been eliminated in consolidation.
Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Allowances for Doubtful Accounts and Sales Incentives - Management must make estimates of the uncollectibility of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
Estimated sales incentives are calculated and recorded at the time related sales are made and are based primarily on historical rates and in consideration of recent promotional activities. In the Company's financial statements, the allowance for sales incentives is classified as a reduction of accounts receivable.
Self-insurance - The Company does not self-insure any significant insurable risks. The Company accounts for potential losses due to the deductible on its product liability insurance coverage for consumer products claims with an accrual of potential losses based on open claims and prior years' loss experience.
Inventories - Inventories, other than aircraft, are valued at the lower of average cost or market. Aircraft inventory is carried at the lower of cost, specific identification, or market.
Property and Depreciation - Property, plant and equipment are carried at cost and are depreciated over their estimated useful lives using the straight-line method. Capitalized leases are amortized over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over their estimated useful lives or the remaining lease terms, whichever is shorter. Aircraft utilized by Ronson Aviation in its charter operations and related capitalized costs of overhauls and refurbishments are classified as property, plant and equipment. The term notes payable secured by this aircraft are also classified as long-term debt.
Foreign Currency Translation - All balance sheet accounts of the Company's foreign subsidiary, Ronson-Canada, are translated at the current exchange rate as of the end of the year. All income statement accounts are translated at average currency exchange rates. Stockholders' Equity accounts are translated at historical exchange rates. The resulting translation adjustment is recorded as part of Accumulated Other Comprehensive Loss in Stockholders' Equity. Transaction gains and losses are not significant in the periods presented.
Fair Value of Financial Instruments - The Company's financial instruments include cash, cash equivalents, accounts receivable, accounts payable, accrued
expenses, other current liabilities and short-term and long-term debt. The book values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and short-term debt are representative of their fair values due to the short-term maturity of these instruments. The Company's mortgage loan and term loans with Fleet Capital Corporation ("Fleet") are at variable interest rates and, therefore, their book values are considered representative of their fair values. The book value of the Company's other long-term debt is considered to approximate its fair value based on current market rates and conditions (refer to Note 5).
Derivative Financial Instruments - The Company utilizes a derivative instrument, an interest rate swap, to modify the Company's exposure to interest rate risk. The Company accounts for this derivative instrument under the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. For derivatives that are designated as a hedge and used to hedge an existing asset or liability, both the derivative and hedged item are recognized at fair value with any changes recognized immediately in the Statements of Consolidated Earnings. By policy, the Company has not historically entered into derivative financial instruments for trading purposes or for speculation.
The Company has entered into an interest rate swap agreement (see Note 5). The interest rate swap agreement effectively modifies the Company's exposure to interest risk by converting a portion of the Company's floating-rate long-term debt to a fixed rate. Based on criteria defined in SFAS 133, the interest rate swap is considered a cash flow hedge and is 100% effective. The interest rate swap is marked to market in the balance sheet. The mark-to-market value of the cash flow hedge is recorded in Other Long-term Liabilities and the offsetting gains or losses in Accumulated Other Comprehensive Loss. If the contract is terminated prior to maturity, the amount paid or received in settlement is established by agreement at the time of termination, and usually represents the net present value, at current rates of interest, of the remaining obligations to exchange payments under the terms of the contract. Any gains or losses upon the early termination of the interest rate swap contracts would be deferred and recognized over the remaining life of the contract.
Impairment Of Long-Lived Assets - The Company periodically evaluates whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the estimated undiscounted future cash flows resulting from the use of the asset. In the event the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.
Declaration of 5% Common Stock Dividend - The Company's Board of Directors on February 15, 2005, declared a 5% stock dividend on the Company's outstanding common stock. The 5% stock dividend is payable on April 15, 2005, to stockholders of record April 1, 2005. The 5% stock dividend will increase the outstanding common shares of the Company by about 206,000 to about 4,322,000 shares.
Revenue Recognition - Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to customers, prior to which an arrangement exists, the price is fixed, and it has been determined that collectibility is reasonably assured.
Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. For aircraft, this occurs at the time the title for the aircraft has been transferred and the sales proceeds received. For aircraft fueling, repairs and other aircraft services, delivery occurs only after an arrangement exists, the price is fixed, and collectibility is reasonably assured.
Research and Development Costs - Costs of research and new product development are charged to operations as incurred and amounted to approximately $313,000, $339,000, and $348,000, for the years ended December 31, 2004, 2003, and 2002, respectively.
Shipping and Handling Costs - The Company records shipping and handling costs within Selling, Shipping and Advertising Expenses. Such costs amounted to
about $1,595,000, $1,176,000, and $1,152,000 for the years ended December 31, 2004, 2003, and 2002, respectively.
Advertising Expenses - Costs of advertising are expensed as incurred and amounted to approximately $164,000, $131,000, and $161,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
Accrued Expenses - On December 31, 2004, Accrued Expenses included: accrued vacation pay and other compensation, $744,000; and accrued pension costs, $859,000. No other item amounted to greater than 5% of total current liabilities. At December 31, 2004 and 2003, Accrued Expenses included accrued expenses of discontinued operations of $318,000 and $324,000, respectively.
Other Current Assets - On December 31, 2004, Other Current Assets included deferred income tax assets of $634,000 and prepaid insurance of $412,000. No other item amounted to greater than 5% of total current assets.
Stock Options - In 2003 the Company adopted SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123". SFAS No. 148 amended SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for employee stock-based compensation. The Company has elected to apply the prospective method as permitted by SFAS No. 148. Accordingly all options granted on and after January 1, 2003 are charged against income at their fair value. Those issued prior to adoption are accounted for on the intrinsic method in accordance with Accounting Principles Board Opinion (APB) No. 25. See Note 10 to the Consolidated Financial Statements.
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):
Year Ended December 31, 2004 Per Share Earnings Shares Amount -------- ------ --------- (2) (2) Earnings from continuing operations ...................... $ 193 Less accrued dividends on preferred stock ................. (2) ------ Continuing operations .................. 191 4,284 $ 0.04 Earnings from discontinued operations ................... -- 4,284 -- ------ ------
BASIC ........................... $ 191 4,284 $ 0.04 ====== ===== ======
Effect of dilutive securities (1): Stock options ................... 67 Cumulative convertible preferred stock .............. $ 2 17 ------ ----- Continuing operations .................. 193 4,368 $ 0.04 Earnings from discontinued operations ................... -- 4,368 -- ------ ------
DILUTED ......................... $ 193 4,368 $ 0.04 ====== ===== ======
Year Ended December 31, 2003 Per Share Earnings Shares Amount -------- ------ --------- (2) (2) Earnings from continuing operations ........................... $ 703
Less accrued dividends on preferred stock ...................... (7) ------- Continuing operations ................ 696 4,241 $ 0.16 Earnings from discontinued operations ......................... -- 4,241 -- ------- -------
BASIC ................................ $ 696 4,241 $ 0.16 ======= ===== =======
Effect of dilutive securities (1): Stock options ........................ 39 Cumulative convertible preferred stock .................... $ 7 42 ------- ----- Continuing operations ................ 703 4,322 $ 0.16 Earnings from discontinued operations ......................... -- 4,322 -- ------- -------
DILUTED .............................. $ 703 4,322 $ 0.16 ======= ===== =======
Year Ended December 31, 2002 Per Share Earnings Shares Amount -------- ------ --------- (2) (2)
Earnings from continuing operations ........................... $ 42 Less accrued dividends on preferred stock ...................... (7) ------- Continuing operations ................ 35 4,211 $ 0.01 Earnings from discontinued operations ......................... 170 4,211 0.04 ------- -------
BASIC ................................ $ 205 4,211 $ 0.05 ======= ===== =======
Effect of dilutive securities (1): Stock options ........................ -- Cumulative convertible preferred stock ..................... $ -- -- ------- ----- Continuing operations ................ 35 4,211 $ 0.01
Earnings from discontinued operations ......................... 170 4,211 0.04 ------- -------
DILUTED .............................. $ 205 4,211 $ 0.05 ======= ===== =======
(1) The assumed conversion of preferred shares to common shares and the stock options were anti-dilutive for the year ended December 31, 2002 and, therefore, were excluded from the calculation and reconciliation of Diluted Earnings per Common Share for that year.
(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.
At December 31, 2004, the Company had outstanding 4,322,317 shares of common stock, after the 5% stock dividend declared on February 15, 2005.
Reclassification - Certain reclassifications of prior years' amounts have been made to conform with the current year's presentation.
Note 2. DISCONTINUED OPERATIONS:
The Earnings from Discontinued Operations for the year ended December 31, 2002, included the insurance recovery income and the discontinuance costs recorded by the Company related to the discontinuation of Prometcor as follows (in thousands):
Insurance recovery income accrued, net.............................. $ 355 Discontinuance costs accrued....... 70 ------ Deferred income tax benefits....... 115 ------ Earnings from discontinued operations....................... $ 170 ======
In December 1989 the Company adopted a plan to discontinue the operations of its wholly owned subsidiary, Ronson Metals Corporation, subsequently renamed Prometcor. Upon the cessation of operations, Prometcor began its compliance with the environmental requirements of all applicable laws with the objective of selling the property previously used in the discontinued operations. The costs and expenses related to the termination of Prometcor's business operations in 1990, less the gain from the sale of Prometcor's assets, net of deferred income tax benefits, have been charged against the Company's Earnings (Loss) from Discontinued Operations and Net Earnings (Loss) between 1990 and 2002.
Prometcor is being accounted for as a discontinued operation, and, accordingly, its operating results are reported in this manner in all years presented in the accompanying Consolidated Statements of Earnings and other related operating statement data.
The full extent of the costs and time required for completion is not determinable until the remediation, if any is required, and confirmatory testing related to the remaining groundwater matter have been completed and accepted by the New Jersey Department of Environmental Protection ("NJDEP"). The liability for these estimated costs and expenses as recorded in the financial statements at December 31, 2004, was approximately $500,000 based 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 discounted at approximately $600,000 above the lower limit.
Note 3. INCOME TAXES:
At December 31, 2004, the Company had, for federal income tax purposes, net operating loss carryforwards of approximately $2,800,000, expiring as follows: $1,410,000 in 2010 to 2012; and $1,390,000 in 2018 to 2022. The Company also had available federal and state alternative minimum tax credit carryforwards of approximately $96,000.
The income tax expenses (benefits) consisted of the following (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ----
Current: Federal ............................. $ (4) $ 20 $ (5) State ............................... 152 110 47 Foreign ............................. 9 5 8 ----- ----- ----- 157 135 50 ----- ----- -----
Deferred: Federal ............................. 144 343 28 State ............................... 10 (30) (8) ----- ----- ----- 154 313 20 ----- ----- ----- 311 448 70 Allocated to discontinued operations .. -- -- 115 ----- ----- ----- Income tax expenses-net ............. $ 311 $ 448 $ 185 ===== ===== =====
Current income taxes in the years ended December 31, 2004, 2003, and 2002, were presented net of credits of $110,000, $420,000, and $29,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109.
The reconciliation of estimated income taxes attributed to continuing operations at the United States statutory tax rate to reported income tax expenses was as follows (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ----
Tax expense amount computed using statutory rate .......................... $ 171 $ 392 $ 38 State taxes, net of federal benefit ....... 110 53 26 Operations outside the US ................. (10) (28) 7 Discontinued operations and other ......... 40 31 114 ----- ----- ----- Income tax expenses-net ................. $ 311 $ 448 $ 185 ===== ===== =====
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below (in thousands):
December 31, 2004 2003 ---- ---- Deferred income tax assets: Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 and valuation reserves for financial reporting purposes ...................... $ 97 $ 85 Compensated absences, principally due to accrual for financial reporting purposes ...................... 138 138 Compensation, principally due to accrual for financial reporting purposes .................. 127 158 Accrual of projected environmental costs, principally related to Prometcor's compliance with NJDEP requirements ...................................... 201 202 Net operating loss carryforwards .................... 1,392 1,554 Alternative minimum tax credit carryforwards ........ 96 86 Unrecognized net loss on pension plan ............... 986 1,187 Other ............................................... 256 136 ------ ------ Total gross deferred income tax assets ............ 3,293 3,546 Less valuation allowance .......................... 126 183 ------ ------ Net deferred income tax assets .................... 3,167 3,363 ------ ------ Deferred income tax liabilities: Pension expense, due to contributions in excess of net accruals ...................................... 650 524 Other ............................................... 32 33 ------ ------ Total gross deferred income tax liabilities ....... 682 557 ------ ------ Net deferred income taxes ......................... $2,485 $2,806 ====== ======
A valuation allowance has been established based on the likelihood that a portion of the deferred income tax assets will not be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The ultimate realization of the deferred income tax assets will require aggregate taxable income of approximately $3,050,000 in the years prior to the expiration of the net operating loss carryforwards in 2022. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced. A portion of the deferred income tax asset is the result of a tax planning strategy for state income tax purposes of merging certain of the Company's subsidiaries resulting in realization of net operating loss carryforwards.
The net deferred income tax assets were classified in the Consolidated Balance Sheets as follows (in thousands):
December 31, 2004 2003 ---- ----
Current: Other current assets ................................. $ 435 $ 460 Current assets of discontinued operations ............ 199 202 ------ ------ Total current ...................................... 634 662 ------ ------
Long Term: Other assets ......................................... 895 1,153 Other assets of discontinued operations .............. 956 991 ------ ------ Total long term .................................... 1,851 2,144 ------ ------
Total net deferred income tax assets ................... $2,485 $2,806 ====== ======
Note 4. SHORT-TERM DEBT:
Composition (in thousands): December 31, 2004 2003 ---- ----
Revolving loans (a) ................................. $1,429 $ 378 Note payable, commercial finance company (b) ........ -- 469 Other ............................................... 10 -- ------ ------ $1,439 $ 847 ====== ======
(a) In 1995 RCPC entered into an agreement with Fleet for a Revolving Loan. In June 2002 RCPC and Fleet extended RCPC's Revolving Loan to June 30, 2005. The extended agreement also amended certain other terms of the Revolving Loan agreement. The agreement was further amended in January 2005 primarily to reduce the interest rate. The Revolving Loan of $1,429,000 at December 31, 2004, provides a line of credit up to $2,500,000 to RCPC based on accounts receivable and inventory. The balance available under the Revolving Loan is determined by the level of receivables and inventory. Effective January 15, 2005, the Revolving Loan bears interest at the rate of 0.5% above Fleet's prime rate (5.25% at December 31, 2004), or at the Company's option, a portion at 2.0% above LIBOR (the London Interbank Offering Rate). The Revolving Loan is payable on demand and is secured by the accounts receivable, inventory and machinery and equipment of RCPC; a second mortgage on the land, buildings and improvements of RCPC; and the guarantee of the Company. The Fleet agreement also has restrictive covenants which, among other things, limit the transfer of assets between the Company and its subsidiaries.
In 1995 Ronson-Canada entered into an agreement with Canadian Imperial Bank of Commerce ("CIBC") for a line of credit of C$250,000. The Revolving Loan is secured by the accounts receivable and inventory of Ronson-Canada, and the amounts available under the line are based on the level of accounts receivable. The loan bears interest at the rate of 1.25% over the CIBC prime rate (4.25% at December 31, 2004). The line of credit, payable on demand, is guaranteed by the Company. The CIBC agreement has restrictive covenants which, among other things, limit the transfer of assets from Ronson-Canada to RCPC and the Company. At December 31, 2004, Ronson-Canada utilized no borrowings under the Revolving Loan.
Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at December 31, 2004, Ronson Consumer Products had unused borrowings available at December 31, 2004, of about $165,000 under the Fleet and CIBC lines of credit described above. (Refer to Note 5 below for information regarding the book value of assets pledged as collateral for the debt above.)
In 1997 Ronson Aviation entered into an agreement with Fleet for a Revolving Loan. In June 2002 Ronson Aviation and Fleet extended Ronson Aviation's Revolving Loan to June 30, 2005. The extended agreement also amended certain other terms of the Revolving Loan agreement. The agreement was further amended in January 2005 primarily to reduce the interest rate. The Revolving Loan is under a line of credit up to $500,000 to Ronson Aviation based on the level of its accounts receivable. The Revolving Loan currently bears interest at the rate of 0.5% above Fleet's prime rate (5.25% at December 31, 2004), or at the Company's option, a portion at 2.0% above LIBOR (the London Interbank Offering Rate). The Revolving Loan is payable on demand and is secured by the accounts receivable, inventory and machinery and equipment (excluding aircraft) of Ronson Aviation; and the guarantees of the Company and RCPC. The Fleet agreement also contains restrictive covenants. At December 31, 2004, Ronson Aviation utilized no borrowings under the Revolving Loan.
Based on no loan outstanding and the level of accounts receivable at December 31, 2004, Ronson Aviation had unused borrowings available at December 31, 2004, of about $337,000 under the Fleet line of credit described above.
At December 31, 2004, Fleet provided RCPC and Ronson Aviation with a waiver through March 31, 2005, of their non-compliance with a financial ratio covenant in the lines of credit.
(b) At December 31, 2003, the note payable, commercial finance company, was a note payable by Ronson Aviation in the amount of $469,000 due to Raytheon Aircraft Credit Corp. ("Raytheon"). The note payable by Ronson Aviation was collateralized by a specific aircraft and was repaid in 2004 from the proceeds from the sale of the aircraft.
At December 31, 2004, the weighted average interest rate for the total short-term debt was 6.7%.
The Company had outstanding letters of credit totaling $210,000 which were issued by Fleet under the Company's lines of credit as follows: a $60,000 standby letter of credit related to Ronson Aviation aircraft on order from Raytheon, and a standby letter of credit of $150,000 related to the RCPC lease of additional warehouse space.
Note 5. LONG-TERM DEBT:
Composition (in thousands):
December 31, 2004 2003 ---- ----
Mortgage loan payable, Fleet (a) ............. $1,336 $1,431 Notes payable, Fleet (b) ..................... 590 785 Note payable, lessor (c) ..................... 421 -- Term notes payable ............................ 49 3 ------ ------ 2,396 2,219 Less portion in current liabilities ........... 731 293 ------ ------ Balance of long-term debt ..................... $1,665 $1,926 ====== ======
(a) In May 1999 the Company, RCPC and Fleet entered into an agreement, in the original amount of $1,760,000, which refinanced an existing Mortgage Loan agreement on the RCPC property in Woodbridge, New Jersey. On December 1, 2003, the Company, RCPC and Fleet amended the Mortgage Loan, extending the expiration to December 1, 2008. The Mortgage Loan balance was $1,336,000 at December 31, 2004. The Mortgage Loan agreement is secured by a first mortgage on the land, buildings and improvements of RCPC, and 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.
(b) The Notes Payable, Fleet, consisted of two term loans payable by Ronson Aviation to Fleet with balances at December 31, 2004, totaling approximately $590,000. The notes bear interest at the rate of 1% over the prime rate, are collateralized by a specific aircraft and are guaranteed by the Company. The notes are payable in monthly installments totaling $16,264 plus interest through June 2005 with final payments totaling about $492,000 on June 30, 2005.
(c) As part of the lease agreement for its new warehouse, effective March 1, 2004, RCPC entered into a term note payable to the lessor in the original amount of $440,000. The note, with a balance of $421,000 on December 31, 2004, bears interest at the rate of 8.25% and is payable in monthly installments of $3,787 including interest through February 2013, with a final payment of $150,000 on March 1, 2013. The note is secured by the leasehold improvements at the warehouse and a letter of credit in the amount of $150,000.
At December 31, 2004, fixed assets with a net book value of $3,586,000 and accounts receivable and inventories of $4,332,000 are pledged as collateral for the debt detailed in Notes 4 and 5.
Net assets of consolidated subsidiaries, excluding intercompany accounts, amounted to approximately $3,700,000 at December 31, 2004, substantially all of which was restricted as to transfer to the Company and its other subsidiaries due to various covenants of their debt agreements at December 31, 2004.
Long-term debt matures as follows: 2005, $731,000; 2006, $143,000; 2007, $131,000; 2008, $1,080,000; 2009, $34,000; and 2010-2013, $277,000.
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 December 31, 2004, the interest rate swap had a fair value of $(16,000) recorded in other Long-Term Liabilities 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.
Note 6. LEASE OBLIGATIONS:
Lease expenses consisting principally of office and warehouse rentals, totaled $602,000, $514,000 and $500,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
At December 31, 2004, the Company's future minimum lease payments under operating and capitalized leases with initial or remaining noncancellable lease terms in excess of one year are presented in the table below (in thousands):
Operating Capitalized Total Leases Leases ----- ------ ------ Year Ending December 31: 2005 ........................... $ 710 $ 451 $ 259 2006 ........................... 511 263 248 2007 ........................... 386 142 244 2008 ........................... 324 130 194 2009 ........................... 276 130 146 2010-2012 ..................... 548 428 120 ------- ------- -------
Total obligations .............. $ 2,755 $ 1,544 1,211 ======= =======
Less: Amount representing interest ................. 190 ------- Present value of capitalized lease obligations ............ $ 1,021 =======
Capitalized lease property included in the Consolidated Balance Sheets is presented below (in thousands):
December 31, 2004 2003 ---- ----
Machinery and equipment .............. $1,232 $ 172 Less accumulated amortization ........ 168 118 ------ ------ $1,064 $ 54 ====== ======
Ronson Aviation leases land under a leasehold consisting of six five-year terms automatically renewed, with the last five-year term expiring in November 2007. The lease may be extended for up to five additional five-year terms through November 2032, provided that during the five-year term ending November 2007, Ronson Aviation invests from $600,000 to over $1,500,000 in capital improvements.
Note 7. RETIREMENT PLANS:
The Company and its subsidiaries have trusteed retirement plans covering substantially all employees. The Company's funding policy is to make minimum annual contributions as required by applicable regulations. The Plan covering union members generally provides benefits of stated amounts for each year of service. The Company's salaried pension plan provides benefits using a formula which is based upon employee compensation. On June 30, 1985, the Company amended its salaried pension plan so that benefits for future service would no longer accrue. A defined contribution plan was established on July 1, 1985, in conjunction with the amendments to the salaried pension plan.
Plan assets primarily included common stocks (72%), cash and money market accounts (11%), a guaranteed annuity contract (7%), and 208,215 shares of common stock of the Company (10%). The stock of the Company held by the Plan was valued at $384,000 and $447,000 at December 31, 2004 and 2003, respectively.
The Company uses a measurement date of December 31 for its pension plans. The benefit obligations below are equal to the accumulated benefit obligations. The following table sets forth the plan's aggregate funded status and amounts recognized in the Company's Consolidated Balance Sheets (in thousands):
Year Ended December 31, 2004 2003 ---- ---- Change in Benefit Obligation: Benefit obligation at beginning of year .... $ 4,980 $ 4,883 Service cost ............................... 26 22 Interest cost .............................. 274 269 Benefit increase ........................... -- 57 Actuarial loss ............................. 69 174 Benefits paid .............................. (525) (425) ------- ------- Benefit obligation at end of year .......... 4,824 4,980 ------- -------
Change in Plan Assets: Fair value of plan assets at beginning of year .................................. 3,200 2,641 Actual return on plan assets ............... 469 491 Employer contributions ..................... 682 493 Benefits paid .............................. (525) (425) ------- ------- Fair value of plan assets at end of year ... 3,826 3,200 ------- -------
Funded status .............................. (998) (1,780) Unrecognized actuarial loss ................ 2,467 2,972 Unrecognized prior service cost ............ 69 83 ------- ------- Net amount recognized ........................ $ 1,538 $ 1,275 ======= =======
Amounts Recognized in the Consolidated Balance Sheets Consist of: Accrued benefit liability ................ $ (998) $(1,780) Intangible asset ......................... 69 83 Accumulated other comprehensive loss, excluding the income tax effect ........ 2,467 2,972 ------- ------- Net amount recognized ........................ $ 1,538 $ 1,275 ======= =======
The weighted-average assumptions used in the benefit obligations were as follows:
Year Ended December 31, 2004 2003 ---- ----
Discount rate................................. 5.5% 5.5%
If the additional minimum liability recorded exceeds the unrecognized prior service cost and the unrecognized net obligation at transition, that difference, an unrecognized net loss, is to be reported as a separate component of Stockholders' Equity. This unrecognized net loss is being amortized over future periods as a component of pension expense.
The Company's Consolidated Statements of Earnings included pension expense consisting of the following components (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ---- Components of net periodic benefit cost: Service cost ........................... $ 26 $ 22 $ 17 Interest cost .......................... 274 269 291 Expected return on plan assets ......... (160) (132) (185) Amortization of prior service cost ................................. 14 20 46 Recognized actuarial loss .............. 264 291 210 ----- ----- ----- Net pension expense .................... $ 418 $ 470 $ 379 ===== ===== =====
The weighted average assumptions used in computing the net period benefit cost were as follows:
Year Ended December 31, 2004 2003 2002 ---- ---- ----
Discount rate 5.5% 5.5% 6.0% Expected long-term rate of return on plan assets 5.0% 5.0% 5.5%
Contributions to the pension plan during 2005 are expected to be approximately $860,000.
Investment objectives for the Company's U.S. plan assets are to:
(1) optimize the long-term return on plan assets at an acceptable level of risk; (2) maintain diversification across asset classes; (3) maintain control of the risk level within each asset class; and (4) focus on a long-term return objective.
The Plan engages investment managers to manage the Plan's investments in equities, other than in the Company's stock. Investment guidelines are established with each investment manager. Unless exceptions have been approved, investment managers are prohibited from buying or selling commodities, futures or option contracts, as well as from short selling of securities. The Company does not expect to make further investments in the guaranteed annuity contract or in the stock of the Company. To determine the expected long-term rate of return assumption on plan assets, the Company uses a conservative estimate of future returns.
The Company contributes to its defined contribution plan at the rate of 1% of each covered employee's compensation. The Company also contributes an additional amount equal to 50% of a covered employee's contribution to a maximum of 1% of compensation. Expenses of about $71,000, $59,000 and $68,000 for this plan were recorded in 2004, 2003 and 2002, respectively.
Note 8. COMMITMENTS AND 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 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, an 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.
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 shareholders derivative action, and the Company incurred approximately $145,000 and $460,000 in net legal costs related to the matter in 2004 and 2003, respectively. These costs were net of the associated insurance reimbursement. 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 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.
The Company has an employment contract with an officer of the Company which expires on December 31, 2007. Base salaries in the years 2005, 2006, and 2007 are $616,119, $637,684 and $660,003, respectively, with the increases subject to the Company reporting operating earnings in the year prior to each increase. The contract also provides for additional compensation and benefits, including a death benefit equal to two years' salary. The Company has purchased term insurance to provide coverage for a substantial portion of the potential death benefit.
Note 9. 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. In accordance with the terms of the preferred stock, the redemption price was $2.25 per share. The redemption was completed in May 2004. 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 payable April 15, 2004. Fractional shares of common stock issuable upon conversion were paid for in cash at $2.71 per share, the closing market price of the Company's common stock on April 15, 2004.
Each share of 12% Cumulative Convertible Preferred Stock had a stated value of $0.01 per share and a liquidation preference of $1.75 per share plus accrued dividends. The shares were non-voting and had a right to cumulative dividends at the annual rate of $0.21 per share. The holders of the preferred shares could, at any time, convert each preferred share into 1.157625 shares of common stock after April 15, 2004 unless the preferred shares were previously redeemed. The Company had the option to redeem all or part of the preferred stock at $2.25 per share plus accrued dividends.
In 1998 the Company declared a dividend of one Preferred Stock Purchase Right ("Right") for each outstanding share of the Company's common stock. The Rights are not presently exercisable. Each Right entitles the holder, upon the occurrence of certain specified events, to purchase from the Company one one-thousandth of a share of Series A Preferred Stock at a purchase price of $20 per share. The Rights further provide that each Right will entitle the holder, upon the occurrence of certain other specified events, to purchase from the Company, common stock having a value of twice the exercise price of the Right and, upon the occurrence of certain other specified events, to purchase from another person into which the Company was merged or which acquired 50% or more of the Company's assets or earnings power, common stock of such other person having a value of twice the exercise price of the Right. The Rights may be generally redeemed by the Company at a price of $0.01 per Right. The Rights expire on October 27, 2008.
Note 10. STOCK OPTIONS:
The Company has two incentive stock option plans which provide for the grant of options to purchase shares of the Company's common stock. The options may be granted to officers, directors and other key employees of the Company and its subsidiaries at not less than 100% of the fair market value on the date on which options are granted. On November 27, 2001, the stockholders approved the adoption of the Company's 2001 Incentive Stock Option Plan which provides for the grant of options for up to 151,938 shares of common stock. In August 1996 the stockholders approved the adoption of the Company's 1996 Incentive Stock Option Plan which provides for the grant of options for up to 121,551 shares of common stock. Options granted under the plans are exercisable after six months from the date of the grant and within five years of the grant date, at which time such options expire. All options are vested on the date of the grant.
Prior to 2003, the Company measured stock compensation cost using the intrinsic value method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation cost was recognized for stock option awards granted in 2002. The following table illustrates the effect on net earnings and earnings per share if the fair value based method had been applied to the awards made in 2002 consistent with the provisions of SFAS No. 123 (in thousands, except per share data):
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model average assumptions:
Year Ended December 31, 2004 2003 2002 ---- ---- ----
Risk-free interest rate 3.15% 3.25% 2.5% Dividend yield 0% 0% 0% Volatility factor - expected market price of Company's common stock 0.47 0.8 0.5 Weighted average expected life of options 5 years 5 years 5 years
A summary of the Company's stock option activity and related information for the three years ended December 31, 2004, were as follows:
Number Weighted of Average Options Exercise Price ------- --------------
Outstanding at 12/31/01 103,017 $ 1.305 Granted 100,714 $ 1.010 Exercised (35,742) $ 1.057 --------
Outstanding at 12/31/02 167,989 $ 1.181 Granted -- Exercised (23,153) $ 1.076 Expired (1,458) $ 0.991 --------
Outstanding at 12/31/03 143,378 $ 1.195 Granted 11,576 $ 0.886 Exercised (47,744) $ (1.358) Expired (10,998) $ (1.996) --------
Outstanding at 12/31/04 96,212 $ 0.985 ======== ========
Exercisable at 12/31/04 96,212 $ 0.985 ======== ========
Weighted average fair value of options granted during the year for options on which the exercise price: Equals the market price on the grant date $ .44 ========
Exceeds the market price on the grant date N/A
Exercise prices for options outstanding as of December 31, 2004, ranged from $.98 to $.99 per share. The weighted average contractual life of those options was 2.17 years.
Note 11. 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):
Year Ended December 31, 2004 2003 2002 ---- ---- ---- Cash Payments for: Interest ......................... $ 324 $ 283 $ 291 Income taxes ..................... 225 54 12
Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred 1,055 -- 18 Leasehold improvements financed by lessor 440 -- -- Equipment financed by seller 62 -- --
Note 12. 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.
The consumer products segment produces packaged fuels, flints, refillable lighters and ignitors, torches, a penetrant spray lubricant, and a spot remover, which are distributed through distributors, food brokers, mass merchandisers, drug chains, convenience stores, and automotive and hardware representatives. Ronson Consumer Products is a principal supplier of packaged flints and lighter fuels in the United States and Canada.
The aviation services segment represents the fueling, chartering, servicing and sales of fixed wing aircraft and servicing of helicopters. Aircraft are sold through Company sales personnel. Ronson Aviation provides a wide range of general aviation services to the general public and to government agencies located in the vicinity of its facilities in Trenton, New Jersey.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from continuing operations before intercompany charges and income taxes.
Financial information by industry segment is summarized below (in thousands):
Geographic information regarding the Company's net sales and long-lived assets was as follows (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ---- Net Sales (1):
United States..................... $ 26,752 $ 24,826 $ 21,809 Canada............................ 1,488 1,534 1,538 Other foreign countries........... 243 380 254 -------- -------- -------- $ 28,483 $ 26,740 $ 23,601 ======== ======== ========
December 31, 2004 2003 ---- ---- Long-Lived Assets:
United States............................ $ 5,505 $ 4,029 Canada................................... 11 15 -------- -------- $ 5,516 $ 4,044 ======== ========
(1) Net sales are attributed to countries based on location of customer.
Information regarding the Company's net sales by product category was as follows (in thousands):
Year Ended December 31, 2004 2003 2002 ---- ---- ----
Packaged fuels, flints, lighters and torches $ 16,685 $ 16,691 $ 14,163 Other consumer products 83 82 69 Aircraft 2,098 598 1,057 Charter services 768 447 767 Aviation fuels and other aviation products and services 8,849 8,922 7,545 -------- -------- -------- $ 28,483 $ 26,740 $ 23,601 ======== ======== ========
In the financial information by industry segment above, Corporate and Others is primarily composed of general and administrative expenses of the parent company. Expense categories included salaries and benefits costs; professional fees; the pension expense of the former defined benefit plan, and shareholder relations expenses, among others.
The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers.
For the years ended December 31, 2004, 2003 and 2002, Net Sales which amounted to approximately $3,665,000, $4,276,000 and $3,675,000, respectively, of Consolidated Net Sales were made by Ronson Consumer Products to one customer. As of December 31, 2004 and 2003, accounts receivable from that customer amounted to approximately 13% and 21%, respectively, of Consolidated Accounts Receivable. No other customer accounted for more than 10% of Consolidated Net Sales or Consolidated Accounts Receivable for the years ended December 31, 2004 and 2003.
Note 13. ACCUMULATED OTHER COMPREHENSIVE LOSS:
Comprehensive income is included in the Statements of Consolidated Stockholders' Equity. The components of Accumulated Other Comprehensive Loss as shown on the Consolidated Balance Sheets were as follows:
Note 14. CONCENTRATIONS:
During 2004 and at December 31, 2004, a subsidiary had cash deposits in a bank in excess of FDIC insured limits. The Company periodically reviews the financial condition of the bank to minimize its exposure.
Ronson Consumer Products currently purchases lighter products and torches from manufacturers in Peoples Republic of China and Taiwan. Since there are a number of sources of similar lighter products, management believes that other suppliers could provide lighters on comparable terms. A change of suppliers, however, might cause a delay in delivery of the Company's lighter products and torches and, possibly, a short-term loss in sales which could have a short-term adverse effect on operating results.
Note 15. RELATED PARTY TRANSACTIONS:
In October 1998 the Company entered into a consulting agreement with Mr. Carl W. Dinger III, a greater than 5% shareholder of the Company. The agreement provided that Mr. Dinger perform certain consulting services for the Company for a period ending on April 7, 2000. The Company and Mr. Dinger entered into a second consulting agreement effective upon the expiration date of the original agreement. This agreement provided that Mr. Dinger continue to perform consulting services for the Company through April 7, 2004 at a fee of $7,000 per month. During 2004 the agreement was extended on a month-to-month basis through July 7, 2004. A new consulting agreement was effective on July 8, 2004, which provides that Mr. Dinger continue to perform consulting services at a fee of $7,000 per month for the Company for a period of thirty-six months through July 7, 2007. Mr. Dinger was compensated $84,000 during each of the years ended December 31, 2004, 2003 and 2002, under the agreements.
In October 1998 Mr. Dinger granted an option to the Company to purchase the 186,166 shares of the Company's common stock then held by Mr. Dinger. The option was for a period of 18 months expiring on April 7, 2000, and the exercise price of the option was $5.25 per share. In 2000 Mr. Dinger granted a new option to the Company, to purchase the shares of the Company's common stock held by Mr. Dinger. The option was for a period of 48 months, expiring April 7, 2004. The exercise price of the option was $5.25 per share for the first two years and $7.50 per share in the second two-year period. The cost of the option was $4,000 per month for the period of the option or until exercised. In March 2000 Mr. Dinger purchased 276,528 shares of newly issued restricted common stock of the Company at a price of $2.06 per share.
During 2004 the option agreement was extended on a month-to-month basis through July 7, 2004. A new option agreement was effective on July 8, 2004. The new option granted by Mr. Dinger is for a period of 36 months, expiring on July 7, 2007. The exercise price of the option is $6.50 per share for the 506,480 shares now held by Mr. Dinger. The cost of the option is $4,000 per month for the period of the option or until exercised. As part of each of the option agreements, Mr. Dinger has granted the Board of Directors of the Company an irrevocable proxy to vote the optioned shares during the term of the option. The Company expended $48,000 for the options during each of the years ended December 31, 2004, 2003 and 2002, which were charged to Additional Paid-in Capital. At December 31, 2004, the fair value of the option was approximately $35,000, using the Black-Scholes option pricing model. Key assumptions included: a risk-free interest rate of 3.15%, a dividend yield of 2%, volatility of 47%, and the option life of 2.5 years. The fair value of $35,000 compares to $112,000, the present value of the 30 remaining payments under the contract, discounted at the Company's incremental borrowing rate of 5.75%.
The Company incurred costs for consulting services under agreements with two directors of the Company of $112,000, $128,000, and $128,000, in the years ended December 31, 2004, 2003 and 2002, respectively. The Company incurred costs of $2,000 in the year ended December 31, 2002, (none in 2004 and 2003) for legal fees to a firm having a member who is also a director and an officer of the Company.
FORM 10-K -- ITEM 15 (a) (2) and (d)
RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES
LIST OF FINANCIAL STATEMENT SCHEDULES
Schedule I Condensed Financial Information of Company
Schedule II Valuation and Qualifying Accounts
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------
The Board of Directors Ronson Corporation:
Under date of March 8, 2005, we reported on the consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2004 as contained in the annual report on Form 10-K for the year 2004. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey March 8, 2005
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION - --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS (dollars in thousands)
ASSETS ------
The Notes to Consolidated Financial Statements of Ronson Corporation and Its Wholly Owned Subsidiaries are an integral part of these statements. See accompanying Notes to Condensed Financial Information of Registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF EARNINGS (dollars in thousands)
The Notes to Consolidated Financial Statements of Ronson Corporation and Its Wholly Owned Subsidiaries are an integral part of these statements. See accompanying Notes to Condensed Financial Information of Registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (dollars in thousands)
The Notes to Consolidated Financial Statements of Ronson Corporation and Its Wholly Owned Subsidiaries are an integral part of these statements. See accompanying Notes to Condensed Financial Information of Registrant.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION - --------------------------------------------------------------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A: Condensed Financial Statements.
The accompanying financial statements should be read in conjunction with the consolidated financial statements of the Registrant, Ronson Corporation (the "Company") and its subsidiaries included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
The Company's wholly owned subsidiaries in the condensed financial statements are accounted for by the equity method of accounting.
The Company has authorized 5,000,000 shares of preferred stock with no par value. All of the 34,875 outstanding shares of 12% Cumulative Convertible Preferred Stock that were outstanding at December 31, 2003 were converted to common shares or redeemed during 2004.
The Company has authorized 11,848,106 shares of common stock with a par value of $1.00, of which 4,322,317 and 4,256,917 were outstanding at December 31, 2004 and 2003, respectively, adjusted for a 5% stock dividend declared February 15, 2005.
NOTE B: Other Assets.
December 31, (in thousands) 2004 2003 ---- ----
Investment in subsidiaries $3,858 $3,509 Deferred income tax assets, net 672 934 Net advances to subsidiaries 436 1,001 Other 377 285 ------ ------ $5,343 $5,729 ====== ======
Investment in subsidiaries was eliminated in consolidation. The net advances to subsidiaries of $436,000 and $1,001,000 at December 31, 2004 and 2003, respectively, were eliminated in consolidation.
NOTE C: Unrecognized Net Loss on Pension Plans.
SFAS #87 requires that if the additional minimum liability recorded exceeds unrecognized prior service cost and the unrecognized net obligation at transition, that difference, an unrecognized net loss, is to be reported, net of tax, as a separate component of Stockholders' Equity. This unrecognized net loss is being amortized over future periods as a component of pension expense.
NOTE D: Income Taxes.
The Company and its domestic subsidiaries have elected to allocate consolidated federal income taxes on the separate return method. Under this method of allocation, income tax expenses (benefits) are allocated to the Company and each subsidiary based on its taxable income (loss) and net operating loss carryforwards.
In accordance with SFAS #109, "Accounting for Income Taxes" the Company is to record a deferred income tax asset for net operating loss and credit carryforwards when the ultimate realization is more likely than not. In 2004, 2003 and 2002, the Company and its subsidiaries recorded the expenses (benefits) of net deferred income tax assets of $154,000, $313,000, and $20,000, respectively, of which $102,000, $22,000 and $85,000, respectively, were allocated to the Company.
NOTE E: 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 Condensed Statements of Cash Flows.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
(1) Uncollectible accounts written off, net of recoveries.