-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L0FYOP3GWIFvf2A+KkklEzgbA672sSrRmZSHbrRoI2ja14cuHu3gsTf526VtNiW1 exBc4HFdIQGnxEFY0W/mcw== 0000914317-03-001020.txt : 20030331 0000914317-03-001020.hdr.sgml : 20030331 20030331123905 ACCESSION NUMBER: 0000914317-03-001020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RONSON CORP CENTRAL INDEX KEY: 0000084919 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 220743290 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01031 FILM NUMBER: 03628546 BUSINESS ADDRESS: STREET 1: CORPORATE PARK III CAMPUS DR STREET 2: PO BOX 6707 CITY: SOMERSET STATE: NJ ZIP: 08875-6707 BUSINESS PHONE: 7324698300 FORMER COMPANY: FORMER CONFORMED NAME: ART METAL WORKS INC DATE OF NAME CHANGE: 19680429 10-K 1 form10kronson50196.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------------- ----------------- Commission File No. 1-1031 RONSON CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW JERSEY 22-0743290 ----------------------- ------------------- (State of incorporation) (I.R.S. Employer Identification No.) CAMPUS DRIVE, P.O. BOX 6707, SOMERSET, N.J. 08875 ------------------------------------------- ------- (Address of principal executive office) (Zip Code) Registrant's telephone number: (732) 469-8300 -------------- Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock par value Nasdaq SmallCap Market $1.00 per share 12% Cumulative Convertible Over-the-Counter Bulletin Board Preferred Stock no par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [X] The aggregate market value of common equity held by non-affiliates of the registrant was approximately $2,470,000 as of June 30, 2002, the last business day of the registrant's most recently completed second fiscal quarter, computed by reference to the average bid and asked price of such common equity. As of March 19, 2003, there were 3,842,168 shares of the registrant's common stock outstanding, adjusted to reflect a 5% common stock dividend declared on March 18, 2003. FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Ronson Corporation and its consolidated subsidiaries (the "Company") to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenue, margins, costs or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statement concerning new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the success of new products; competition; prices of key materials, such as petroleum products; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions relating to pension costs; and other risks that are described herein and that are otherwise described from time to time in the Company's Securities and Exchange Commission reports. The Company assumes no obligation and does not intend to update these forward-looking statements. TABLE OF CONTENTS Part I ------ Item 1. Business. 2. Properties. 3. Legal Proceedings. 4. Submission of Matters to a Vote of Security Holders. Part II ------- Item 5. Market for the Company's Common Stock and Related Stockholder Matters. 6. Selected Financial Data. 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7A. Quantitative and Qualitative Disclosures about Market Risk. 8. Financial Statements and Supplementary Data. 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Part III -------- Item 10. Directors and Executive Officers of the Registrant. 11. Executive Compensation. 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 13. Certain Relationships and Related Transactions. 14. Controls and Procedures. Part IV ------- Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Signatures. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Financial Statements. 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, and the Company's preferred shares are listed on the NASD Over-the-Counter ("OTC") Bulletin Board. The Company's common shares are quoted under the symbol RONC and its preferred shares are quoted under the symbol RONCP. In December 1989 the Company adopted a plan to discontinue the operations of Ronson Metals Corporation, Newark, New Jersey, one of the Company's wholly owned subsidiaries. On January 8, 1997, Ronson Metals Corporation amended its Certificate of Incorporation to change its corporation name to Prometcor, Inc. ("Prometcor"). As part of the plan to sell the properties of the Prometcor discontinued operations, Prometcor complied with all applicable environmental laws and has also completed termination of its United States Nuclear Regulatory Commission ("NRC") license. In March 2002 Prometcor received a "No Further Action" ("NFA") letter from the New Jersey Department of Environmental Protection ("NJDEP") for all areas of concern (except groundwater) releasing the property. Closing on the sale of the property under an existing sale agreement was completed in May 2002. (See Environmental Matters below and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.) (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", a spot remover under the product tradename "Kleenol", and a surface protectant under the tradename "GlossTek". 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. A subsidiary of WalMart Stores, Inc. ("WalMart") is a significant distributor for the consumer products segment and, as such, supplies Ronson's products to numerous retailers. Management does not believe that this segment is substantially dependent on WalMart or its distributor subsidiary because of the presence of many other distributors which provide retailers with Ronson's consumer products. Sales to various units of WalMart in 2002 and 2001 accounted for 16% and 10%, respectively, of Consolidated Net Sales of the Company and 26% and 18%, respectively, of Net Sales of the segment, most of which were to WalMart's distributor subsidiary. 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 five lighter products - the "RONII" 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" blue point flame butane lighter, excellent for pipes and cigars; and the "Tech Torch", used for craft and hobby work, cooking specialties, and soldering. The lighter products are marketed in the United States and Canada. The RONII is a pocket lighter that meets the child resistant requirements issued by the Consumer Product Safety Commission. The RONII is manufactured for the Company in Spain and is sold through the Company's distribution channels. The RONII is priced competitively 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. In 1997 Ronson Consumer Products introduced the Ronson WINDII windproof lighter 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 distribution channels. In 1999 Ronson Consumer Products introduced the EURO LITE blue point flame butane lighter, in both the United States and Canada. The EURO LITE uses Ronson Multi-Fill butane fuel injectors. It is manufactured in China in accordance with the Company's engineering and quality specifications. The EURO LITE faces strong competition from other nationally distributed brands and unbranded imports. In 2002 the Company introduced a new 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 a new torch, 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. (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-Description of Properties, (3) Trenton, New Jersey). In its passenger and cargo services, Ronson Aviation operates a Citation II Jet airplane in charter operations. Ronson Aviation is an FAA approved repair station for major and minor airframe and engine service and an avionics repair station for service and installations. Ronson Aviation is an authorized Raytheon Aircraft and Parts Sales and Service Center and a Cessna Aircraft service station. At December 31, 2002, Ronson Aviation had orders to purchase two new aircraft from Raytheon Aircraft Corporation, both of which are for resale. The total sales value of these aircraft is approximately $1,675,000. The orders are subject to cancellation by Ronson Aviation. Ronson Aviation is subject to extensive competition in its air charter activities, but Ronson Aviation is the only provider of aviation services to the private, corporate and commercial flying public at Trenton-Mercer Airport in Trenton, New Jersey. ENVIRONMENTAL MATTERS - --------------------- In the conduct of certain of its manufacturing operations, the Company is required to comply with various environmental statutes and regulations concerning the generation, storage and disposal of hazardous materials. Additionally under New Jersey's "ISRA" law, operators of particular facilities classified as industrial establishments are required to ensure that their facility complies with environmental laws, including implementation of remedial action, if necessary, before selling or closing a facility. In December 1989 the Company adopted a plan to discontinue the operations in 1990 of one of its facilities, Prometcor, located in Newark, New Jersey, and to comply with all applicable laws. In October 1994 Prometcor entered into a Memorandum of Agreement with the NJDEP as to its environmental compliance activities at its Newark facility. As the result of sampling and the evaluation of the results by the Company's environmental consultants and the NJDEP in 1996 and 1997, areas of contamination in the groundwater below a section of the property were identified. The sampling and delineation have been undertaken and will continue in this area of the property. The Company's plan related to the groundwater issue has not yet been approved by the NJDEP. Long-term monitoring of groundwater may be required. The extent of the remaining costs associated with groundwater is not determinable until testing and remediation have been completed and accepted by the NJDEP. In October 2000 Ronson Aviation completed installation and initial testing of monitoring wells in the area where Ronson Aviation had removed and abandoned in place its former fuel tanks. Ronson Aviation's environmental advisors believe that the preliminary results of the testing indicate that no further testing should be required. The final extent of costs cannot be determined until the results of testing have been completed and accepted by the NJDEP. Therefore, the amount of additional costs, if any, cannot be fully determined at this time, but management believes that the effect will not be material. The Company believes that compliance with environmental laws and regulations will not have a material adverse effect upon the Company's future capital expenditures or competitive position. PATENTS AND TRADEMARKS ---------------------- The Company maintains numerous patents and trademarks for varying periods in the United States, Canada, Mexico and a limited number of other countries. While both industry segments may benefit from the Company's name as a registered trademark, the patents and trademarks which are held principally benefit the consumer products segment of the Company's business. SEASONALITY AND METHODS OF COMPETITION - -------------------------------------- No material portion of the Company's business is seasonal. The Company uses various methods of competition as appropriate in both of its industry segments, such as price, service and product performance. RESEARCH ACTIVITIES - ------------------- The Company's consumer products segment expensed approximately $348,000, $227,000 and $288,000 during the fiscal years ended December 31, 2002, 2001 and 2000, respectively, on research activities relating to the development of new products and the improvement of existing products, all of which were Company sponsored. NUMBER OF EMPLOYEES ------------------- As of December 31, 2002, the Company and its subsidiaries employed a total of 105 persons. CUSTOMER DEPENDENCE ------------------- See above under "Consumer Products". SALES AND REVENUES - ------------------ The following table sets forth the percentage of total sales contributed by each of the Company's classes of similar products which contributed to total sales during the last three fiscal years. Consumer Aviation Operations Products and Services -------- ------------ 2002 60% 40% 2001 55% 45% 2000 57% 43% (d) Financial Information About Geographic Areas. Refer to Note 12 of the Notes to Consolidated Financial Statements. 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, 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) 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. (3) 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. (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 3 (a) above. (4) 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 - 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. In an amended Statement on Schedule 13D filed with the Securities and Exchange Commission on March 26, 2003, Steel Partners II, L.P. and Warren G. Lichtenstein reported the filing with the Superior Court of New Jersey, Chancery Division, Essex County, of a shareholder derivative suit against the Company's directors. The suit 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 complaint requests the court to invalidate the Company's shareholders rights agreement and certain consulting agreements, to enjoin performance of certain agreements with the directors and to require Louis V. Aronson II to divest those shares acquired, and not to acquire additional shares, while the shareholders rights agreement has been or remains in place. The Company is reviewing the complaint, which has not yet been served upon it, and will vigorously defend these matters and take all such action as it deems appropriate. Gary & Margaret Minnich vs. Ronson Consumer Products Corporation and - --------------------------------------------------------------------------- WalMart Stores East, Inc. - ------------------------- In March 2002 Ronson Consumer Products Corporation was advised that it was the Defendant in a product liability lawsuit pending in the Circuit Court for Washington County, Maryland, in which Plaintiffs sought damages for an incident that allegedly occurred in February 1999. In February 2003 the lawsuit was dismissed with no liability for the Company. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. PART II ------- Item 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ---------------------------------------------------------------------- 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. 2002 - ------------------------------------------------------ Quarter 1st 2nd 3rd 4th - ------------------------------------------------------ High Bid $1.59 $1.34 $1.43 $1.04 Low Bid $1.19 $1.16 $ .94 $ .86 2001 - ------------------------------------------------------ Quarter 1st 2nd 3rd 4th - ------------------------------------------------------ High Bid $1.86 $1.70 $1.44 $1.59 Low Bid $1.25 $ .94 $ .81 $ .95 b) At March 19, 2003, there were 2,375 stockholders of record of the Company's common stock. c) No cash dividends were declared or paid on the Company's common stock in the two years ended December 31, 2002. On March 18, 2003, the Company's Board of Directors declared a 5% stock dividend on the Company's outstanding common stock. On March 14, 2002, the Company's Board of Directors had also previously declared a 5% stock dividend on the Company's outstanding common stock. Information regarding the number of shares and per share amounts has been retroactively adjusted to reflect the stock dividends. d) See Item 12 below for information as to securities authorized for issuance under equity compensation plans. Item 6 - SELECTED FINANCIAL DATA ------------------------ The information required by this item is filed with this report on page 44 and is incorporated herein by reference. Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS - --------------------- 2002 Compared to 2001 The Company's Net Earnings in 2002, after Earnings from Discontinued Operations of $170,000, were $212,000, as compared to $531,000 in 2001. The Company's Net Sales were $23,601,000 in 2002 compared to $28,705,000 in 2001. The Net Sales in 2001 included sales of $1,350,000 for two charter aircraft at Ronson Aviation. The Company's Earnings from Continuing Operations before Interest, Other Items, and Non-recurring Items were $599,000 in the year 2002, as compared to $1,733,000 in the year 2001. Approximately $260,000, or 23%, of the reduction in earnings in 2002 from 2001 was due to increases in the Company's cost of insurance coverage. The Company's Earnings from Continuing Operations before Income Taxes and Non-recurring Items were $112,000 in the year 2002 as compared to $1,088,000 in 2001. Ronson Consumer Products - ------------------------ (in thousands)
Year Ended December 31, 2002 2001 ---- ---- Net sales ................................... $14,232 $15,709 Earnings before interest, other items, intercompany charges, and taxes .... 1,201 1,952 Earnings before intercompany charges and taxes .......................... 1,019 1,755
Net Sales of consumer products at Ronson Consumer Products decreased by 9% in 2002 compared to 2001 primarily due to decreased sales of flame accessory products. Reclassifications have been made of certain of last year's amounts to conform with the current year's presentation required in accordance with EITF Issue No. 00-25. Effective January 1, 2002, certain selling expenses incurred by Ronson Consumer Products are classified as reductions in Net Sales, in lieu of as selling or advertising expenses. There is no effect on earnings, and the impact on Ronson Consumer Products' Net Sales is not material. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products increased to 58% in 2002 from 55% in 2001. The increase in the Cost of Sales percentage was due primarily to the lower sales and to increased manufacturing costs, the largest of which was insurance costs, partially offset by lower material costs. Selling, Shipping and Advertising Expenses at Ronson Consumer Products, as a percentage of Net Sales, increased to 23% in 2002 from 22% in 2001 because a 4% reduction in costs in 2002 was more than offset by the effect of the lower Net Sales in 2002. General and Administrative Expenses, as a percentage of Net Sales, was unchanged at 9% in 2002 and 2001 because a reduction in expenses, primarily personnel costs and professional fees, in 2002 was offset by the effect of the lower sales in 2002. Interest Expense at Ronson Consumer Products decreased by $56,000 to $116,000 in 2002 from 2001 primarily due to decreases in the prime rate of interest. Ronson Aviation - --------------- (in thousands)
Year Ended December 31, 2002 2001 ---- ---- Net sales ................................... $ 9,369 $ 12,996 Earnings before interest, other items, intercompany charges, and taxes .... 1,370 1,518 Earnings before intercompany charges and taxes .......................... 1,305 1,316 Non-recurring loss .......................... -- (232)
Net Sales at Ronson Aviation decreased by 28% in 2002 from 2001. The decrease is primarily because: 1) of lower sales of aircraft in 2002 by $1,664,000; 2) the sales in 2001 included $1,350,000 for two turbo prop C-99 charter aircraft; and 3) Net Sales in 2001 included charter sales of $821,000 utilizing the two C-99 aircraft which were sold in the fourth quarter of 2001. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, decreased to 71% in 2002 as compared to 77% in 2001. The decrease in the Cost of Sales percentage in 2002 was primarily due to the change in mix of products sold, partially offset by an increase in insurance costs of approximately $100,000. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, increased to 10% in 2002 from 8% in 2001 primarily because a 9% reduction in expenses, primarily personnel costs, was more than offset by the effect of the lower Net Sales. The non-recurring item in 2001 relates to the sale of Ronson Aviation's two turbo prop C-99 charter aircraft and the related reduction in personnel. Sales in the year 2001 included the proceeds of $1,350,000 from the sale of the two charter aircraft. The 2001 Non-recurring Loss of $232,000 consisted of a loss on the two C-99 aircraft sales of $140,000 and the related costs of $92,000. Interest Expense at Ronson Aviation decreased by $118,000 to $80,000 in 2002 from 2001 due to decreases in the prime rate of interest and to reduced debt, primarily as a result of the sale of the two C-99 charter aircraft in the fourth quarter of 2001. Other Items - ----------- The General and Administrative Expenses of Corporate and Others were higher in 2002 as compared to 2001 primarily due to higher pension expense as the result of increased amortization related to pension asset reductions in 2001 and to increased professional fees in 2002. Discontinued Operations - ----------------------- The Earnings from Discontinued Operations included Insurance Recovery Income and the Discontinuance Costs recorded by the Company related to the discontinuance of Prometcor, as follows (in thousands):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Insurance recovery income ....... $355 $175 $645 Discontinuance costs accrued .... 70 175 645 ---- ---- ---- 285 -- -- Deferred income tax benefits .... 115 -- -- ---- ---- ---- Earnings from discontinued operations $170 $ -- $ -- ==== ==== ====
In 1990 the Company discontinued the operations of its wholly owned subsidiary, Ronson Metals Corporation, subsequently renamed Prometcor, Inc. ("Prometcor"). Upon the cessation of operations in 1990, Prometcor began its compliance with the environmental requirements of all applicable laws and regulations in order to sell the property previously used in the discontinued operations. The discontinuance of operations also required the termination of a United States Nuclear Regulatory Commission ("NRC") license. In 2002 Prometcor completed the environmental clearance of its property in Newark, N.J. In May 2001 the NRC released the last remaining parcel for unrestricted use. A similar release of this parcel was received from the New Jersey Department of Environmental Protection ("NJDEP") in March 2002. The sale of this final parcel of the property was completed for about $295,000 in May 2002 with the Company retaining responsibility for the groundwater-related activities. The Company's plan to resolve groundwater issues has not yet been approved by the NJDEP. Further testing completed in 2000 resulted in increased estimates of the range of costs to be incurred. These costs will be incurred over an extended number of years. In calculating and accruing these costs, the Company has discounted the costs to the present value. The liability for these estimated costs and expenses as recorded in the financial statements was based, in accordance with normal accounting practices, on the lower limit of the range of costs as projected by the Company and its consultants. The estimated upper limit of the range of costs is approximately $600,000 above the lower limit. The full extent of the costs and time required for completion of the NJDEP environmental clearance is not determinable until the remediation and confirmatory testing of the properties have been completed and accepted by the NJDEP. In the second half of 1999, the Company filed a lawsuit against twelve of its former general liability insurance carriers seeking recovery of environmental investigation and remediation costs incurred and anticipated at various locations, primarily Prometcor. In 2000 and 2001 the Company reached settlement agreements with eleven of the twelve insurance carriers involved. On March 6, 2002, the Company reached a settlement with the last remaining insurance company in the above matter. These settlements totaled approximately $1,830,000. After related costs, the Company recognized insurance recovery income in 2002, 2001 and 2000 of $355,000, $175,000 and $645,000,respectively. 2001 Compared to 2000 The Company's Net Earnings in 2001, after non-recurring items, were $531,000, an increase of 22% from $434,000 in 2000. The Company's Net Sales increased by 3% to $28,705,000 in 2001 compared to $27,759,000 in 2000. The Net Sales in 2001 included sales of $1,350,000 for two charter aircraft at Ronson Aviation. The Company's Earnings from Continuing Operations before Interest, Other Items, and Non-recurring Items were $1,733,000 in the year 2001, an increase of $285,000, or 20%, over $1,448,000 in the year 2000. The Company's Earnings from Continuing Operations before Income Taxes and Non-recurring Items increased to $1,088,000 in the year 2001 from $568,000 in 2000, an increase of 92%. Ronson Consumer Products - ------------------------ (in thousands)
Year Ended December 31, 2001 2000 ---- ---- Net sales ................................... $15,709 $15,832 Earnings before interest, other items, intercompany charges, and taxes .... 1,952 1,967 Earnings before intercompany charges and taxes .......................... 1,755 1,696
Net Sales of consumer products at Ronson Consumer Products were nearly unchanged in 2001 compared to 2000. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products was unchanged at 54% in 2001 and in 2000. Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were slightly lower at 32% in 2001 from 33% in 2000. Interest Expense at Ronson Consumer Products decreased by $77,000 to $172,000 in 2001 from 2000 due to decreases in the prime rate of interest and to lower average debt levels. Ronson Aviation - --------------- (in thousands)
Year Ended December 31, 2001 2000 ---- ---- Net sales ................................... $ 12,996 $ 11,927 Earnings before interest, other items, intercompany charges, and taxes .... 1,518 928 Earnings before intercompany charges and taxes .......................... 1,316 587 Non-recurring income (loss) ................. (232) 110
Net Sales at Ronson Aviation increased by 9% in 2001 from 2000, primarily due to increased fuel sales and sales of $1,350,000 for two turbo prop C-99 charter aircraft, offset by decreases in sales of other aircraft and of C-99 charter services. The sale of the two C-99 aircraft reduced the Company's long-term debt by $704,000 and fixed assets by $1,490,000 and improved its working capital by about $720,000. The increased sales of aviation fuel in 2001 were due primarily to increased fuel volume sold. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, decreased to 77% in 2001 as compared to 81% in 2000. The decrease in the Cost of Sales percentage in 2001 was primarily due to the change in mix of products sold. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 8% in 2001 and 2000. The non-recurring item in 2001 relates to the sale of Ronson Aviation's two turbo prop C-99 charter aircraft and the related reduction in personnel. Sales in the year 2001 included the proceeds of $1,350,000 from the sale of the two charter aircraft. The 2001 Non-recurring Loss of $232,000 consisted of a loss on the two C-99 aircraft sales of $140,000 and the related costs of $92,000. The non-recurring income of $110,000 at Ronson Aviation in 2000 was due to settlement of an insurance claim related to a 1998 fuel spill. Interest Expense at Ronson Aviation decreased by $131,000 to $198,000 in 2001 due to decreases in the prime rate of interest and to reduced debt. Other Items - ----------- The General and Administrative Expenses of Corporate and Others were higher in 2001 as compared to 2000 primarily due to higher pension expense as the result of increased amortization related to pension asset reductions in 2000. Discontinued Operations - ----------------------- In 2001 Prometcor made substantial progress in the environmental clearance of its property in Newark, N.J. While making this progress to complete clearance of the property, Prometcor incurred greater than anticipated costs. Because of these increases in costs incurred and anticipated, Prometcor took additional accruals of $175,000 in 2001. Income Taxes - ------------ In accordance with Statement of Financial Accounting Standards ("SFAS") #109, "Accounting for Income Taxes", in 2002, 2001 and 2000, the Company recognized deferred income tax expenses of $20,000, $320,000 and $236,000, 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, 2002, 2001 and 2000, of $29,000, $322,000 and $375,000, respectively, were presented net of credits arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109. In 2002, 2001 and 2000, current income tax expenses (benefits) were as follows (in thousands):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Federal $ (5) $ 5 $ -- State 47 (11) 8 Foreign 8 11 -- ---- ---- ---- Total $ 50 $ 5 $ 8 ==== ==== ====
At December 31, 2002, the Company had net operating loss carryforwards for federal income tax purposes of approximately $4,350,000 and federal and state alternative minimum tax credit carryforwards of $89,000. (Refer to Note 3 of the Notes to Consolidated Financial Statements.) The Company's effective income tax rate related to Continuing Operations was 63% in 2002 compared to 38% in 2001 and 36% in 2000. The increase in the 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 $2,458,000 at December 31, 2002, compared to $2,872,000 at December 31, 2001. The reduction in Stockholders' Equity in 2002 was primarily due to a loss, net of related income tax benefits, in the Minimum Pension Liability Adjustment component of Accumulated Other Comprehensive Loss. This loss consisted of a loss on the pension plan assets, a loss due to a lower interest rate, and an actuarial loss related to plan benefit experience. This loss was partially offset by the Net Earnings in 2002. In 2002 the Company's working capital declined to a deficiency of $557,000 at December 31, 2002, from working capital of $233,000 at December 31, 2001. The decline in working capital was primarily due to three factors: an increase in required pension contributions in 2002 and 2003 by $933,000, Ronson Aviation's replacement of an engine on its Citation II charter aircraft of about $400,000, and a reduction in the non-current portion of long-term debt and leases of $457,000, partially offset by the Company's Net Earnings and depreciation in 2002. Of the above increase in required pension contributions, $483,000 was paid in 2002 and $450,000 is due to be paid in 2003. The increase in the required pension contributions and the increase in the net pension liability are primarily due to lower market value of the Plan's common stock investments as part of the general market decline in 2002. The Company's cash balances increased in 2001 to $689,000 from $81,000 in 2000, and the Company's short-term debt decreased to $858,000 in 2001 from $1,697,000 in 2000. These improvements were both primarily due to the Net Earnings in 2001, the sales by Ronson Aviation of the two charter aircraft and the proceeds from the insurance settlements related to the Prometcor groundwater costs. In 2002 Finished Goods Inventory and Short-term Debt increased due to Ronson Aviation's receiving delivery of an aircraft in 2002 for resale in 2003. In 2002 the Company's machinery and equipment increased by $863,000 primarily due to Ronson Aviation's replacement of an engine on its Citation II charter aircraft at a cost of about $400,000. In 2002 the Company's Other Assets increased by $300,000 primarily due to increased net deferred tax assets (refer to Note 3 to Consolidated Financial Statements). The Company's Other Assets of Discontinued Operations decreased by $260,000 primarily due to the sale of the final parcel of the Prometcor property. Substantially all of the Current Assets of Discontinued Operations and Other Assets of Discontinued Operations at December 31, 2002, were deferred income tax assets. The Increase in Cash from Changes in Inventories of $1,762,000 in 2001 was primarily due to the sale of the two C-99 charter aircraft by Ronson Aviation, for a total of $1,350,000. The aircraft had been transferred to inventory from fixed assets at the book value of $1,490,000. In 2000 the Increase in Cash from Changes in Inventories and the Payments of Short-Term Debt were primarily due to a decrease in aircraft inventory at Ronson Aviation of $1,854,000. The Ronson Aviation aircraft inventory had increased in the fourth quarter of 1999, and the increase was financed with short-term debt. Accounts payable were reduced in 2001 by $574,000 to $1,593,000 at December 31, 2001, primarily due to the timing of purchases and payments and to the usage of a portion of the proceeds from the sale of two Ronson Aviation charter aircraft discussed above. The payments of Long-Term Debt in 2001 were $1,139,000 as compared to $440,000 in 2000 primarily because $704,000 of the proceeds from the sale of the two Ronson Aviation charter aircraft was utilized to pay the loans financing the aircraft. 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 is 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, 2002, Ronson Consumer Products had unused borrowings available at December 31, 2002, of about $368,000 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 $239,000 under the Fleet line of credit at December 31, 2002. In the second quarter of 2002, the Company reached agreement with its principal lender, Fleet, extending: 1) Fleet's lines of credit with RCPC and Ronson Aviation; and 2) certain of Fleet's term loans to Ronson Aviation related to the Citation II jet. The lines of credit and term loans were extended by three years from their prior expiration dates to June 30, 2005. The revised terms of the agreements provide for reduced interest rates to prime plus 1% from prime plus 1-1/2%. For the lines of credit, these rate reductions are upon attainment of certain financial ratios which are measured quarterly. The revised agreements also eliminate and revise various financial covenants. Based on the financial ratio for the year ended December 31, 2002, the interest rate on RCPC's line of credit will increase to prime plus 1-1/2% in the first quarter of 2003. The Company has continued to meet its obligations as they have matured and management believes that the Company will continue to meet its obligations through internally generated funds from future net earnings and depreciation, current and future borrowing availability under 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):
Payments Due by Period ---------------------- Contractual Less than 2-3 4-5 After Obligations Total 1 year years years 5 years - ----------- ----- ------ ----- ----- ------- Long-term debt $2,501 $282 $2,219 $ -- $ -- Capital lease obligations 100 44 53 3 -- Operating leases 1,019 313 590 116 -- Other long-term obligations (1) 1,550 796 750 4 -- ----- ----- ----- ----- ----- Total contractual obligations $5,170 $1,435 $3,612 $ 123 $ -- ===== ===== ===== ===== ===== Pension obligations (2) $ 450 $1,509 $1,113 (2) ===== ===== =====
(1) Other long-term obligations include amounts due under employment agreements, consulting agreements 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. Any actuarial gains and losses cannot be estimated at this time. An estimate of the pension obligations beyond five years is not possible. Other commercial commitments include outstanding letters of credit of $22,000 for the importation of consumer products and of a $60,000 standby letter of credit related to Ronson Aviation aircraft on order from Raytheon Aircraft Corporation. 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 requires 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 The Company records revenue upon the shipment of its consumer products to customers and upon the delivery of the aviation products or services. Inventory Valuations Inventories are valued at lower of cost or market determined by the first-in, first-out (FIFO) 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. Self-Insurance Reserves The Company is self-insured for medical insurance up to certain maximum liability amounts. Medical insurance reserves are determined based upon historical expense experience, insurance company estimates and loss reporting trends. The amounts accrued for self-insurance are based upon management's best estimate and the amounts the Company will ultimately disburse could differ from such accrued amounts. 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, restructuring charges, 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 expense 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 asset 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. RECENT ACCOUNTING PRONOUNCEMENT In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS No. 148"). SFAS No. 148 amended SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for employee stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in annual and interim financial statements about the method of accounting for stock-based compensation and its effect on reported results. The disclosure provisions of SFAS No. 148 are included in the accompanying Notes to Consolidated Financial Statements. The Company applies the principles of APB Opinion No. 25 and related Interpretations in accounting for its stock-based compensation plans. (See Note 10 of the Notes to Consolidated Financial Statements.) 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 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, 2002, consisted of indebtedness in the amount of $980,000 with a variable rate of interest and $1,521,000 with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. Under its current policies, 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. Legal Proceedings A stockholder of the Company has reported that it has filed a derivative action in the Superior Court of New Jersey, Chancery Division, Essex County, against the Company's directors, among other matters alleging breach of fiduciary duty, an absence of disinterestedness and use of corporate control to advance their own interests. The Company is reviewing the complaint and will vigorously defend these matters and take all such action as it deems appropriate. The Company is not able to estimate at this time the extent, to which it will incur legal or other expense in connection with this proceeding. 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, added support, or promotional concessions. To support this trend, the Company has had to expand its use of customer and market-specific promotions and allowances, which has negatively impacted and will continue to impact, the Company's ability to maintain 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 sure 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 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 aircraft for sale. Loss of availability of aircraft and delays in deliveries of aircraft has 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 adverse effect on Ronson Aviation's future operating results, financial position and cash flows. Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------- Financial statements required by this item are included in Item 15. 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, 2002, 2001 and 2000. PART III -------- 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 seven (7) directors: Positions and Offices with Company Presently Held (other than that of Director); Period Business Experience Served Term as During Past Five Years as Director (with Company unless Name of Director Age Director Expires otherwise noted) - ---------------- --- -------- ------- -------------------------------- Louis V. Aronson II 80 1952- 2005 President & Chief Present Executive Officer; Chairman of Executive Committee; Member of Nominating Committee. Robert A. Aronson 53 1993- 2004 Managing Member of Present Independence Leather, L.L.C., Mountainside, NJ, the principal business of which is the import of leather products,1996 to present; son of the President & Chief Executive Officer of the Company. Erwin M. Ganz 73 1976- 2004 Member of Executive Present Committee and Nominating Committee; Consultant for the Company, 1994 to present; Executive Vice President -Industrial Operations, 1975 to 1993; Chief Financial Officer, 1987 to 1993. I. Leo Motiuk 57 1999 - 2005 Member of Audit Committee; Present Attorney; Former partner in Shanley Fisher, P.C., Attorneys at Law, Morristown, NJ. Gerard J. Quinnan 74 1996- 2003 Member of Audit Committee; Present Consultant for the Company, 1990 to present; Vice President-General Manager of Ronson Consumer Products Corporation, 1981 to 1990. Justin P. Walder 67 1972- 2004 Secretary; Assistant Corporation Present Counsel; Member of Executive Committee and Nominating Committee; Principal in Walder, Hayden & Brogan, P.A., Attorneys at Law, Roseland, NJ. Positions and Offices with Company Presently Held (other than that of Director); Period Business Experience Served Term as During Past Five Years as Director (with Company unless Name of Director Age Director Expires otherwise noted) - ---------------- --- -------- ------- -------------------------------- Saul H. Weisman 77 1978- 2003 Member of Executive Present Committee and Audit Committee; Retired President, Jarett Industries, Inc., Cedar Knolls, NJ, the principal business of which is the sale of hydraulic and pneumatic equipment to industry, 1955 to 1997. No director also serves as a director of another company registered under the Securities Exchange Act of 1934. (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, 2004: Positions and Offices Period Served with Company; Name Age as Officer Family Relationships ---- --- ---------- -------------------- Louis V. Aronson II 80 1953- President & Chief Executive Present Officer; Chairman of Executive Committee; Director. Daryl K. Holcomb 52 1996- Vice President & Chief Present Financial Officer, Controller & Treasurer; 1993-1996 Chief Financial Officer, Controller & Treasurer; 1988-1993 Controller & Treasurer; None. Justin P. Walder 67 1989- Secretary; Present 1972- Assistant Corporation Present Counsel; Director; None. Messrs. L.V. Aronson and Holcomb have been employed by the Company in executive and/or professional capacities for at least the five-year period immediately preceding the date hereof. Mr. Walder has been Assistant Corporation Counsel and a director of the Company and a principal in Walder, Hayden & Brogan, P.A., Attorneys at Law, for at least the five-year period immediately 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. Item 11 - EXECUTIVE COMPENSATION ---------------------- SUMMARY COMPENSATION TABLE The Summary Compensation Table presents compensation information for the years ended December 31, 2002, 2001, and 2000, for the Chief Executive Officer and the other executive officer of the Company whose salary and bonus exceeded $100,000. SUMMARY COMPENSATION TABLE -------------------------- Long-Term All Compensa- Other Annual Compensation tion Compen- Name and ------------------- ---------- Principal Salary Bonus Options/ sation Position Year ($) ($)(1) SARS(#)(2) ($)(3) -------- ---- --- ------ ---------- ------ Louis V. Aronson II 2002 $618,822 $ -- 21,000 $16,911 President & Chief 2001 606,119 59,755 24,806 14,305 Executive Officer 2000 566,466 47,990 -- 13,150 Daryl K. Holcomb 2002 157,500 -- 10,500 3,575 Vice President & 2001 155,500 21,234 11,025 3,400 Chief Financial 2000 148,500 17,293 -- 3,266 Officer, Controller and Treasurer 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 March 14, 2002, and March 18, 2003. (3) In 2002 All Other Compensation included matching credits by the Company under its Employees' Savings Plan (Mr. L.V. Aronson, $4,000; Mr. Holcomb, $3,575) and the cost of term life insurance included in split-dollar life insurance policies (Mr. L.V. Aronson, $12,911). OPTION GRANTS IN LAST FISCAL YEAR - ---------------------------------
Potential Realizable Value of Assumed Annual Rates of Stock Price Number of Percent of Appreciation for Securities Total Options Options Term Underlying Granted to Exercise -------------- Options Employees in Price Exp. Name Granted Fiscal Year ($/sh) Date 5% 10% - ---- ------- ----------- ------ ---- -- --- L.V. Aronson II 21,000 23% $ 1.19 9/12/07 $4,009 $11,611 D.K. Holcomb 10,500 11% 1.08 9/12/07 3,142 6,942
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, 2002. "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 - ------
Value of Number of In-the-Money Number of Unexercised Options Options at Shares at FY-End (5)(6) FY-End (4) Acquired ------------------- ------------------ on Value (1) Exercis- Unexercis- Exercis- Unexercis- Name Exercise Realized able (2) able (3) able able ---- -------- -------- -------- -------- -------- -------- L.V. Aronson II 24,806 $ -- 8,269 21,000 $ -- $ -- D.K. Holcomb 2,100 -- 13,886 10,500 -- --
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, 2002, are exercisable at any time and expire on December 7, 2004, and July 6, 2006. (3) The unexercisable options held by the named executive officers at December 31, 2002, are exercisable at any time after March 12, 2003, and expire on September 12, 2007. (4) 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, 2002, to the option prices. (5) The exercise prices of the options held at December 31, 2002, were as follows: Number Exercise Price ------ -------------- L.V. Aronson II 8,269 $ 2.4199 21,000 1.1913 D.K. Holcomb 4,961 2.1997 8,925 1.0920 10,500 1.0830 (6) The number of unexercised options held at December 31, 2002, has been adjusted for the 5% common stock dividends declared March 14, 2002, and March 18, 2003. LONG-TERM INCENTIVE PLANS None. COMPENSATION OF DIRECTORS Directors who are not officers of the Company receive an annual fee of $8,500 and, in addition, are compensated at the rate of $650 for each meeting of the Company's Board of Directors actually attended and $400 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 is 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, provides for a term expiring December 31, 2004. The employment contract provides for the payment of a base salary which is to be increased 7% as of January 1 of each year. It also provides 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. Under the employment contract, 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 contract also provides 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 contract. Mr. L.V. Aronson waived a 7% salary increase due January 1, 2003, under the terms of the 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. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of the Company, as a whole, provides overall guidance of the Company's executive compensation program. All members of the Board participate 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 participates 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, 2004, which is cancelable at any time by either party with 180 days notice and provides compensation at the annual rate of $87,500, plus participation in the Company's health and life insurance plans and the use of an automobile. In the year ended December 31, 2002, Mr. Ganz was compensated $87,500 for his services. Mr. Quinnan has a consulting agreement with the Company for the period ending December 31, 2003, which is cancelable at any time by either party with 60 days notice. The agreement provides that Mr. Quinnan perform consulting services for the Company and Ronson Consumer Products at a specified daily rate. In 2002 Mr. Quinnan was compensated $40,800 for his services and was provided the use of an automobile. During the year ended December 31, 2002, the Company and Ronson Consumer Products were provided printing services by Michael Graphics, Inc., a New Jersey corporation, amounting to $81,933. A greater than 10% shareholder of Michael Graphics, Inc. is the son-in-law of the Company's president. During the year ended December 31, 2002, the Company, Ronson Consumer Products, Ronson Aviation and Prometcor retained the firm of Walder, Hayden & Brogan, P.A., Attorneys at Law, to perform legal services. Justin P. Walder, a principal in that firm, is a director and officer of the Company. REPORT ON EXECUTIVE COMPENSATION As stated above, the Board, as a whole, provides 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 reviews and approves the salaries of all of the other executive officers. Prior to the beginning of the fiscal year, the Board reviews and approves 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 reviews and approves all awards under the Company's ISO Plans. 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 2002 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 2001 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 2002, 91,350 options (adjusted for the 5% common stock dividends declared on March 14, 2002, and March 18, 2003) were granted to key employees and directors of the Company. The above report is presented by the Board of Directors: Louis V. Aronson II Gerard J. Quinnan Robert A. Aronson Justin P. Walder Erwin M. Ganz Saul H. Weisman I. Leo Motiuk 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, 2002, 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 Value as of December 31, 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- Ronson Corporation $ 100.00 $ 121.95 $ 85.97 $ 48.78 $ 70.24 $ 42.72 NASDAQ Stock Market Index 100.00 140.99 261.48 157.42 124.89 86.34 Russell 2000 Index 100.00 97.45 118.17 114.60 117.45 93.39
This comparison assumes that $100 was invested in the Company's Common Stock on December 31, 1997, 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 - 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: Name and Address of Beneficial Title of Beneficially Percent of Owner Class Owned Class ------------------------------- ----- ----- ----- Louis V. Aronson II Common 1,064,360(1)(2) 27.5% (1)(2) Campus Drive P.O. Box 6707 Somerset, New Jersey 08875 Carl W. Dinger III Common 456,067 (3) 11.9% (3) 55 Loantaka Lane North Morristown, New Jersey 07960 Steel Partners II, L.P. Common 378,417 (4) 9.9% (4) 750 Lexington Avenue 27th Floor New York, New York 10022 Howard M. Lorber Common 296,947 (5) 7.7%(5) 70 East Sunrise Highway Valley Stream, New York 11581 (1) Includes 29,269 shares of common stock issuable to Mr L.V. Aronson upon exercise of stock options held by Mr. L.V. Aronson under the Ronson Corporation 1996 and 2001 Incentive Stock Option Plans. (2) The Ronson Corporation Retirement Plan ("Retirement Plan") is the beneficial owner of 188,858 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 1,253,218 shares, or 32.4% of the class. If the shares held by the Retirement Plan were included in Mr. Ganz's beneficial ownership, Mr. Ganz's beneficial ownership would be 230,253 shares, or 6.0% 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 dividends declared March 14, 2002, and March 18, 2003. (3) 456,067 shares of common stock owned directly, adjusted for the 5% common stock dividends declared March 14, 2002, and March 18, 2003. This information was provided to the Company by Mr. Dinger. 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 below.) (4) 378,417 shares of common stock and 1,213 shares of common stock issuable upon conversion of 1,100 shares of 12% cumulative convertible preferred stock owned by Steel Partners II, L.P. Steel Partners, L.L.C., the general partner of Steel Partners II, L.P., and Mr. Warren G. Lichtenstein, the sole executive officer and managing member of Steel Partners, L.L.C., are also beneficial owners of the shares. This information was obtained from a Schedule 13D/A filed with the SEC on June 25, 2002, by Steel Partners II, L.P., and Mr. Lichtenstein, adjusted for the 5% common stock dividends declared March 14, 2002, and March 18, 2003. (5) 296,947 shares of common stock owned directly by Mr. Lorber. This information was obtained from a Schedule 13D filed with the SEC on January 27, 2000, by Mr. Lorber, adjusted for the 5% common stock dividends declared March 14, 2002, and March 18, 2003. (b) Security ownership of management. The following table shows the number of shares of common stock beneficially owned by each director, each named executive officer, and by all directors and officers as a group as of March 19, 2003, and the percentage of the total shares of common stock outstanding on March 19, 2003, owned by each individual and by the group shown in the table. Individuals have sole voting and investment power over the stock shown unless otherwise indicated in the footnotes: Name of Individual or Amount and Nature of Percent of Identity of Group Beneficial Ownership(2) Class --------------------- ----------------------- ---------- Louis V. Aronson II 1,064,360 (3) 27.5% Robert A. Aronson 12,961 (1) Erwin M. Ganz 41,395 (3) 1.1% I. Leo Motiuk 8,006 (1) Gerard J. Quinnan 9,109 (1) Justin P. Walder 63,003 1.6% Saul H. Weisman 22,166 (1) Daryl K. Holcomb 52,141 1.4% All directors and officers as a group (nine (9) individuals including those named above) 1,274,464 32.4% (1) Shares owned beneficially are less than 1% of total shares outstanding. (2) Shares listed as owned beneficially include 92,610 shares subject to option under the Ronson Corporation 1996 and 2001 Incentive Stock Option Plans as follows: Number of Common Shares Under Option ----------------------- Louis V. Aronson II 29,269 Robert A. Aronson 5,250 Erwin M. Ganz 7,875 I. Leo Motiuk 5,250 Gerard J. Quinnan 5,250 Justin P. Walder 10,080 Saul H. Weisman 5,250 Daryl K. Holcomb 24,386 All directors and officers as a group (nine (9) individuals including those named above) 92,610 (3) Does not include 188,858 shares of issued common stock owned by the Retirement Plan. 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 1,253,218 shares, or 32.4% of the class. If the shares held by the Retirement Plan were included in Mr. Ganz's beneficial ownership, Mr. Ganz's beneficial ownership would be 230,253 shares, or 6.0% of the class. (c) Changes in control. The Company knows of no contractual arrangements which may operate at a subsequent date to result in a change in control of the Company. (d) Securities authorized for issuance under equity compensation plans. Equity Compensation Plan Information - -------------------------------------------------------------------------------- Number of Securities Remaining Available For Future Issuance Number of Securities under Equity to Be Issued upon Weighted-average Compensation Plans Exercise of Exercise Price of (excluding Securities Outstanding Options, Outstanding Options, Reflected in Column Plan category Warrants and Rights Warrants and Rights (a)) - -------------------------------------------------------------------------------- (a) (b) (c) - -------------------------------------------------------------------------------- Equity compensation plans approved by security holders 152,368 $ 1.30 63,275 Equity compensation plans not approved by security holders None N/A None Total 152,368 $ 1.30 63,275 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 of 18 months expiring on April 7, 2000. On March 6, 2000, the Company and Mr. Dinger entered into a new consulting agreement effective upon the expiration date of the original agreement. The new agreement provides that Mr. Dinger continue to perform consulting services for the Company for a period of 48 months at a fee of $7,000 per month. During the year ended December 31, 2002, Mr. Dinger was compensated $84,000 under the agreement. In October 1998 Mr. Dinger granted an option to the Company to purchase the 205,248 shares of the Company's common stock 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. On March 6, 2000, Mr. Dinger granted a new option to the Company, to purchase the 456,067 shares of the Company's common stock now held by Mr. Dinger. The option is for a period of 48 months. The exercise price of the option is $5.25 per share for the first two years, and the option price in the second two-year period is $7.50 per share. The cost of the option is $4,000 per month for the period of the option or until exercised. As part of the new option agreement, 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. In March 2000 Mr. Dinger purchased 250,819 shares of newly issued restricted common stock of the Company at a price of $2.26 per share. The Company expended $48,000 for the option during the year ended December 31, 2002. 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 - CONTROLS AND PROCEDURES ----------------------- (a) Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 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) There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ------- 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 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, 2002, filed with this report pursuant to Item 7, which is incorporated herein by reference. The Company is 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. (20) Other documents or statements to security holders. The Ronson Corporation Notice of Meeting of Stockholders held on September 12, 2002, and Proxy Statement was filed on August 13, 2002, 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 Prometcor, Inc. (formerly known as New Jersey Ronson Metals Corporation) Foreign - ------- Ronson Corporation of Canada Ltd. Canada The Company also holds 100% of the voting power of four 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). (99) Additional exhibits. (a) Certification of Louis V. Aronson II, the Principal Executive Officer of the Company, and Daryl K. Holcomb, the Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K filed. On March 28, 2003, the Company filed a report on Form 8-K with the Securities and Exchange Commission providing information in response to Item 5 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 31, 2003 By: /s/Louis V. Aronson II ------------------------------------ Louis V. Aronson II, President & Chief Executive Officer and Director Dated: March 31, 2003 By: /s/Daryl K. Holcomb ------------------------------------------- Daryl K. Holcomb, Vice President & Chief Financial Officer, Controller and Treasurer Dated: March 31, 2003 By: /s/Justin P. Walder -------------------------------- Justin P. Walder, Secretary and Director Dated: March 31, 2003 By: /s/Robert A. Aronson ---------------------------- Robert A. Aronson, Director Dated: March 31, 2003 By: /s/Erwin M. Ganz ----------------------- Erwin M. Ganz, Director Dated: March 31, 2003 By: /s/ I. Leo Motiuk ----------------------- I. Leo Motiuk, Director Dated: March 31, 2003 By: /s/Gerard J. Quinnan --------------------------- Gerard J. Quinnan, Director Dated: March 31, 2003 By: /s/Saul H. Weisman -------------------------- Saul H. Weisman, Director CERTIFICATION I, Louis V. Aronson II, certify that: 1. I have reviewed this annual report on Form 10-K of Ronson Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/Louis V. Aronson II -------------------------- Louis V. Aronson II President and C.E.O. CERTIFICATION I, Daryl K. Holcomb, certify that: 1. I have reviewed this annual report on Form 10-K of Ronson Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/Daryl K. Holcomb -------------------------- Daryl K. Holcomb Vice President and C.F.O. ANNUAL REPORT ON FORM 10-K ITEM 8 FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2002 RONSON CORPORATION SOMERSET, NEW JERSEY
RONSON CORPORATION FIVE-YEAR SELECTED FINANCIAL DATA - ---------------------------------------------------- Dollars in thousands (except per share data) 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Net sales 23,601 28,705 27,759 24,426 23,046 Earnings from continuing operations 42 531 434 292 660 Total assets 12,888 12,627 15,192 16,728 14,736 Long-term obligations 4,321 4,460 4,681 3,701 3,895 Per common share (1,2): Earnings from continuing operations: Basic 0.01 0.14 0.11 0.08 0.19 Diluted 0.01 0.14 0.11 0.08 0.19 (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, 2000 and 1999, 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 March 14, 2002, payable on April 15, 2002. Additionally, a 5% stock dividend on the Company's outstanding common stock was declared on March 18, 2003, payable on April 15, 2003. No other dividends on common stock were declared or paid during the five years ended December 31, 2002.
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, 2002 and 2001 Consolidated Statements of Earnings - Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ronson Corporation We have audited the accompanying consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ronson Corporation and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey February 27, 2003, except for Note 16, which is dated March 26, 2003 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------- Dollars in thousands
ASSETS ------ December 31, ------------ 2002 2001 ---- ---- CURRENT ASSETS: Cash and cash equivalents ..................................... $ 312 $ 689 Accounts receivable, less allowances for doubtful accounts of : 2002, $56 and 2001, $69 ............................... 1,754 1,723 Inventories: Finished goods ............................................. 1,874 1,422 Work in process ............................................ 103 55 Raw materials .............................................. 360 361 ------- ------- 2,337 1,838 Other current assets .......................................... 935 953 Current assets of discontinued operations ..................... 214 325 ------- ------- TOTAL CURRENT ASSETS ................................ 5,552 5,528 PROPERTY, PLANT AND EQUIPMENT: Land .......................................................... 19 19 Buildings and improvements .................................... 4,740 4,648 Machinery and equipment ....................................... 6,938 6,075 Construction in progress ...................................... 28 114 ------- ------- 11,725 10,856 Less accumulated depreciation and amortization ................ 7,435 6,763 ------- ------- 4,290 4,093 OTHER ASSETS .................................................. 1,848 1,548 OTHER ASSETS OF DISCONTINUED OPERATIONS ....................... 1,198 1,458 ------- ------- $12,888 $12,627 ======= =======
See notes to consolidated financial statements. RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - -------------------------- Dollars in thousands (except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ December 31, ------------ 2002 2001 ---- ---- CURRENT LIABILITIES: Short-term debt ................................................ $ 1,654 $ 858 Current portion of long-term debt .............................. 282 347 Current portion of lease obligations ........................... 35 30 Accounts payable ............................................... 1,629 1,593 Accrued expenses ............................................... 2,155 1,940 Current liabilities of discontinued operations ................. 354 527 --------- --------- TOTAL CURRENT LIABILITIES 6,109 5,295 LONG-TERM DEBT ................................................. 2,219 2,656 LONG-TERM LEASE OBLIGATIONS .................................... 54 74 PENSION OBLIGATIONS ............................................ 1,792 1,495 OTHER LONG-TERM LIABILITIES .................................... 64 29 LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS ............... 192 206 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value, authorized 5,000,000 shares: 12% cumulative convertible, $0.01 stated value; outstanding, 2002 and 2001, 34,875 (liquidation preference, $61 in aggregate) ........................................... -- --
Common stock, par value $1 2002 2001 ---- ---- Authorized shares ............ 11,848,106 11,848,106 Reserved shares .............. 187,243 128,312 Issued (including treasury) .. 3,911,959 3,879,540 3,912 3,880 Additional paid-in capital ..................................... 29,250 29,291 Accumulated deficit ............................................ (26,966) (27,101) Accumulated other comprehensive loss ........................... (2,141) (1,602) -------- -------- 4,055 4,468 Less cost of treasury shares: 2002, 69,790 and 2001, 69,811 .............................. 1,597 1,596 -------- -------- TOTAL STOCKHOLDERS' EQUITY 2,458 2,872 -------- -------- $ 12,888 $ 12,627 ======== =========
See notes to consolidated financial statements. RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS - ----------------------------------- Dollars in thousands (except per share data)
Year Ended December 31, ----------------------- 2002 2001 2000 ---- ---- ---- NET SALES $23,601 $28,705 $27,759 ------- ------- ------- Cost and expenses: Cost of sales .................................... 14,874 18,850 18,073 Selling, shipping and advertising ................ 3,304 3,430 3,666 General and administrative ....................... 4,153 4,198 3,779 Depreciation and amortization .................... 671 726 683 ------- ------- ------- 23,002 27,204 26,201 ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST AND OTHER ITEMS .................. 599 1,501 1,558 ------- ------- ------- Other expense: Interest expense ................................. 354 533 729 Other-net ........................................ 133 112 151 ------- ------- ------- 487 645 880 ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .............................. 112 856 678 Income tax provisions ................................ 70 325 244 ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS .................. 42 531 434 Earnings from discontinued operations (net of tax provision of $115) ............................... 170 -- -- ------- ------- ------- NET EARNINGS ......................................... $ 212 $ 531 $ 434 ======= ======= ======= NET EARNINGS PER COMMON SHARE: Basic: Earnings from continuing operations .............. $ 0.01 $ 0.14 $ 0.11 Earnings from discontinued operations ............ 0.04 -- -- ------- ------- ------- Net earnings ..................................... $ 0.05 $ 0.14 $ 0.11 ======= ======= ======= Diluted: Earnings from continuing operations .............. $ 0.01 $ 0.14 $ 0.11 Earnings from discontinued operations ............ 0.04 -- -- ------- ------- ------- Net earnings ..................................... $ 0.05 $ 0.14 $ 0.11 ======= ======= =======
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, 2002, 2001 and 2000 Dollars in thousands
12% Cumulative Additional Convertible Common Paid-in Accumulated Preferred Stock Stock Capital Deficit --------------- ----------- ----------- ----------- Balance at December 31, 1999 .......... $ -- $ 3,593 $ 29,038 $ (28,066) ----------- ----------- ----------- ----------- Net earnings - 2000 ................... 434 Translation adjustment, net of tax .... Pensions, net of tax .................. Other comprehensive loss .............. Comprehensive loss .................... Shares issued for: Sale of restricted stock ........... 251 318 Stock options exercised ............ 6 1 Other .............................. 28 37 Stock option purchased ................ (53) Treasury shares ....................... ----------- ----------- ----------- ----------- Balance at December 31, 2000 .......... -- 3,878 29,341 (27,632) ----------- ----------- ----------- ----------- Net earnings - 2001 ................... 531 Translation adjustment, net of tax .... Pensions, net of tax .................. Other comprehensive loss .............. Comprehensive income .................. Conversion ............................ -- 2 (2) Stock option purchased ................ (48) ----------- ----------- ----------- ----------- Balance at December 31, 2001 .......... -- 3,880 29,291 (27,101) ----------- ----------- ----------- ----------- Net earnings - 2002 ................... 212 Dividends ............................. (77) Translation adjustment, net of tax .... Pensions, net of tax .................. Other comprehensive loss .............. Comprehensive loss .................... Shares issued for: Stock options exercised ............ 32 7 Stock option purchased ................ (48) Treasury shares ....................... ----------- ----------- ----------- ----------- Balance at December 31, 2002 .......... $ -- $ 3,912 $ 29,250 $ (26,966) =========== =========== =========== =========== Accumulated Other Treasury Comprehensive Comprehensive Stock Income (Loss) Loss (at cost) Total --------------- ----------- ----------- ----------- Balance at December 31, 1999 .......... $ (519) $ (1,594) $ 2,452 ----------- ----------- ----------- Net earnings - 2000 ................... $ 434 434 ----------- Translation adjustment, net of tax .... (9) Pensions, net of tax .................. (565) ----------- Other comprehensive loss .............. (574) (574) (574) ----------- Comprehensive loss .................... $ (140) =========== Shares issued for: Sale of restricted stock ........... 569 Stock options exercised ............ 7 Other .............................. 65 Stock option purchased ................ (53) Treasury shares ....................... (2) (2) ----------- ---------- ----------- Balance at December 31, 2000 .......... (1,093) (1,596) 2,898 ----------- ---------- ----------- Net earnings - 2001 ................... $ 531 531 ----------- Translation adjustment, net of tax .... (12) Pensions, net of tax .................. (497) ----------- Other comprehensive loss .............. (509) (509) (509) ----------- Comprehensive income .................. $ 22 =========== Conversion ............................ -- Stock option purchased ................ (48) ----------- ---------- ----------- Balance at December 31, 2001 .......... (1,602) (1,596) 2,872 ----------- ---------- ----------- Net earnings - 2002 ................... $ 212 212 ----------- Dividends ............................. (77) Translation adjustment, net of tax .... -- Pensions, net of tax .................. (539) ----------- Other comprehensive loss .............. (539) (539) (539) ----------- Comprehensive loss $ (327) =========== Shares issued for: Stock options exercised ............ 39 Stock option purchased ................ (48) Treasury shares ....................... (1) (1) ----------- ---------- ----------- Balance at December 31, 2002 .......... $ (2,141) $ (1,597) $ 2,458 =========== ========== ===========
SHARE ACTIVITY ------------------------------------------ 12% Cumulative Convertible Common Treasury Preferred Stock Stock Stock --------------- ----------- ----------- Balance at December 31, 1999 .......... 35,918 3,593,253 68,772 Shares issued for: Sale of restricted stock ........... 250,819 Stock options exercised ............ 6,063 Other .............................. 28,255 Treasury shares ....................... 930 ----------- ----------- ----------- Balance at December 31, 2000 .......... 35,918 3,878,390 69,702 Conversion ............................ (1,043) 1,150 Treasury shares ....................... 109 ----------- ----------- ----------- Balance at December 31, 2001 .......... 34,875 3,879,540 69,811 Shares issued for: Stock options exercised ............ 32,419 Treasury shares ....................... (21) ----------- ----------- ----------- Balance at December 31, 2002 .......... 34,875 3,911,959 69,790 =========== =========== ===========
See notes to consolidated financial statements. RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- Dollars in thousands
Year Ended December 31, ----------------------- 2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities: Earnings from continuing operations ..................... $ 42 $ 531 $ 434 Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: Depreciation and amortization ....................... 671 726 683 Deferred income tax provisions ...................... 20 320 236 Increase (decrease) in cash from changes in: Accounts receivable .............................. (31) 379 (99) Inventories ...................................... (499) 1,762 1,918 Other current assets ............................. (17) (50) (40) Accounts payable ................................. 34 (574) (557) Accrued expenses ................................. (235) 239 25 Net change in pension-related accounts .............. (103) 80 (2) Other ............................................... 23 (39) 5 Discontinued operations ............................. 450 (173) (416) ------- ------- ------- Net cash provided by operating activities ........ 355 3,201 2,187 ------- ------- ------- Cash Flows from Investing Activities: Net cash used in investing activities, capital expenditures .......................... (908) (538) (396) ------- ------- ------- Cash Flows from Financing Activities: Proceeds from long-term debt ............................ 8 -- 337 Proceeds from short-term debt ........................... 1,764 -- 1,217 Proceeds from issuance of common stock .................. 38 -- 576 Payments of long-term debt .............................. (510) (1,139) (440) Payments of long-term lease obligations ................. (33) (29) (104) Payments of short-term debt ............................. (968) (839) (3,430) Payments of preferred dividends ......................... (75) -- -- Other ................................................... (48) (48) (53) ------- ------- ------- Net cash provided by (used in) financing activities .......................... 176 (2,055) (1,897) ------- ------- ------- Net increase (decrease) in cash and cash equivalents .... (377) 608 (106) Cash and cash equivalents at beginning of year .......... 689 81 187 ------- ------- ------- Cash and cash equivalents at end of year ................ $ 312 $ 689 $ 81 ======= ======= =======
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. 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. 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 and other related costs utilized by Ronson Aviation in its charter operations and held for more than one year are classified as property, plant and equipment. The term notes payable secured by these 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 book value of the Company's long-term debt is considered to approximate its fair value based on current market rates and conditions. Revenue Recognition - Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to customers. Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. Research and Development Costs - Costs of research and new product development are charged to operations as incurred and amounted to approximately $348,000, $227,000, and $288,000 for the years ended December 31, 2002, 2001, and 2000, respectively. Advertising Costs - Costs of advertising are expensed as incurred and amounted to approximately $161,000, $173,000 and $183,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Accrued Expenses - On December 31, 2002, Accrued Expenses included: accrued pension costs, $450,000; accrued vacation pay, $373,000; and accrued health insurance benefits, $320,000. No other item amounted to greater than 5% of total current liabilities. Other Current Assets - On December 31, 2002, Other Current Assets included prepaid insurance of $258,000. No other item amounted to greater than 5% of total current assets. 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, 2002 Per Share Earnings Shares Amount -------- ------ --------- (2) (2) Earnings from continuing operations .......................... $ 42 Less accrued dividends on preferred stock ..................... (7) ----- Continuing operations ............... 35 3,820 0.01 Earnings from discontinued operations .......................... 170 3,820 0.04 ----- -------- BASIC ............................... $ 205 3,820 0.05 ===== ===== ======== Effect of dilutive securities (1): Stock options ....................... -- Cumulative convertible preferred stock .................... $ -- -- ----- ----- Continuing operations ............... 35 3,820 $ 0.01 Earnings from discontinued operations .......................... 170 3,820 0.04 ----- -------- DILUTED ............................. $ 205 3,820 $ 0.05 ===== ===== ========
Year Ended December 31, 2001 Per Share Earnings Shares Amount -------- ------ --------- (2) (2) Earnings from continuing operations .......................... $ 531 Less accrued dividends on preferred stock ..................... (7) ----- Continuing operations ............... 524 3,810 0.14 Earnings from discontinued operations .......................... -- 3,810 -- ----- -------- BASIC ............................... $ 524 3,810 $ 0.14 ===== ===== ======== Effect of dilutive securities (1): Stock options ....................... -- Cumulative convertible preferred stock .................... $ -- -- ----- ----- Continuing operations ............... 524 3,810 $ 0.14 Earnings from discontinued operations .......................... -- 3,810 -- ----- -------- DILUTED ............................. $ 524 3,810 $ 0.14 ===== ===== ======== Year Ended December 31, 2000 Per Share Earnings Shares Amount -------- ------ --------- (2) (2) Earnings from continuing operations .......................... $ 434 Less accrued dividends on preferred stock ..................... (8) ----- Continuing operations ................. 426 3,748 $ 0.11 Earnings from discontinued operations ......................... -- 3,748 -- ----- -------- BASIC ............................... $ 426 3,748 $ 0.11 ===== ===== ======== Effect of dilutive securities (1): Stock options ....................... -- Cumulative convertible preferred stock .................... $ -- -- ----- ----- Continuing operations ................. 426 3,748 $ 0.11 Earnings from discontinued operations .......................... -- 3,748 -- ----- -------- DILUTED ............................. $ 426 3,748 $ 0.11 ===== ===== ========
(1) The assumed conversion of preferred shares to common shares and the stock options were anti-dilutive for all the years presented, and, therefore, were excluded from the calculation and reconciliation of Diluted Earnings per Common Share. (2) Information as to the number of shares and per share amounts has been retroactively adjusted to reflect the 5% stock dividends on common stock declared March 14, 2002, and March 18, 2003. Stock Options - The Company has elected to follow Accounting Principles Board Opinion #25 (APB #25), "Accounting for Stock Issued to Employees", and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards ("SFAS") #123, "Accounting for Stock-Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB #25, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. At December 31, 2002, the Company had outstanding 34,875 shares of preferred stock and 3,842,169 shares of common stock. Reclassification - Certain reclassifications of prior years' amounts have been made to conform with the current year's presentation. Recent Accounting Pronouncement - In December 2002 the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "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. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in annual and interim financial statements about the method of accounting for stock-based compensation and its effect on reported results. The disclosure provisions of SFAS No. 148 are included in the accompanying Notes to Consolidated Financial Statements. The Company applies the principles of APB Opinion No. 25 and related Interpretations in accounting for its stock-based compensation plans. See Note 10 to the Consolidated Financial Statements. Note 2. DISCONTINUED OPERATIONS: The Earnings from Discontinued Operations included the insurance recovery income and the discontinuance costs recorded by the Company related to the discontinuation of Prometcor as follows (in thousands):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Insurance recovery income accrued, net ................................. $355 $175 $645 Discontinuance costs accrued .......... 70 175 645 ---- ---- ---- 285 -- -- 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 discontinuation of operations also required the termination of a United States Nuclear Regulatory Commission ("NRC") license for the storage and use on site of a material used in a new product, the sales of which were minimal. The costs and expenses related to the termination of Prometcor's business operations in 1990, less the expected gain from the eventual 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 the beginning of 1990 and year end 2002. The liability for these estimated costs and expenses as recorded in the financial statements at December 31, 2002, was 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. 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"). In the second half of 1999, the Company filed a lawsuit against a number of its former general liability insurance carriers seeking recovery of environmental investigation and remediation costs incurred and anticipated at various locations, primarily Prometcor. In 2000, 2001, and 2002, the Company reached settlement agreements with the insurance carriers involved. These settlements have totaled approximately $1,830,000. Based on the settlements, in 2000, 2001, and 2002, Prometcor recognized net insurance recovery income totaling $1,175,000, or $1,830,000 less related costs of $655,000. 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 assets and liabilities of Prometcor are reflected in the Consolidated Balance Sheets under assets and liabilities of discontinued operations. At December 31, 2002, Current Assets of Discontinued Operations and Other Assets of Discontinued Operations consisted primarily of net deferred income tax assets of Prometcor. The Current Liabilities of Discontinued Operations at December 31, 2002, consisted principally of accrued costs related to the environmental compliance of Prometcor. Note 3. INCOME TAXES: At December 31, 2002, the Company had, for federal income tax purposes, net operating loss carryforwards of approximately $4,350,000, expiring as follows: $1,010,000 in 2005 to 2007; $1,950,000 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 $89,000. The income tax expenses (benefits) consisted of the following (in thousands):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Current: Federal ......................................... $ (5) $ 5 $ -- State ........................................... 47 (11) 8 Foreign ......................................... 8 11 -- ----- ----- ----- 50 5 8 ----- ----- ----- Deferred: Federal ......................................... 28 237 203 State ........................................... (8) 83 33 ----- ----- ----- 20 320 236 ----- ----- ----- 70 325 244 Allocated to discontinued operations .............. 115 -- -- ----- ----- ----- Income tax expenses-net ......................... $ 185 $ 325 $ 244 ===== ===== =====
Current income taxes in the years ended December 31, 2002, 2001 and 2000, of $29,000, $322,000 and $375,000, respectively, were presented net of credits 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, 2002 2001 2000 ---- ---- ---- Tax expense amount computed using statutory rate ................................... $ 38 $ 291 $ 231 State taxes, net of federal benefit ................ (26) (4) 5 Operations outside the US .......................... 8 4 -- Discontinued operations and other .................. 165 34 8 ----- ----- ----- Income tax expenses-net .......................... $ 185 $ 325 $ 244 ===== ===== =====
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, 2002 2001 ---- ---- 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 ............................ $ 108 $ 97 Compensated absences, principally due to accrual for financial reporting purposes ............................ 133 138 Compensation, principally due to accrual for financial reporting purposes ........................ 79 154 Accrual of projected environmental costs, principally related to Prometcor's compliance with NJDEP requirements ............................................ 213 267 Net operating loss carryforwards .......................... 1,960 1,958 Alternative minimum tax credit carryforwards .............. 89 75 Unrecognized net loss on pension plan ..................... 1,377 1,019 Other ..................................................... 122 121 ------ ------ Total gross deferred income tax assets .................. 4,081 3,829 Less valuation allowance ................................ 176 155 ------ ------ Net deferred income tax assets .......................... 3,905 3,674 ------ ------ Deferred income tax liabilities: Pension expense, due to contributions in excess of net accruals ............................................ 501 460 Other ..................................................... 56 89 ------ ------ Total gross deferred income tax liabilities ............. 557 549 ------ ------ Net deferred income taxes ............................... $3,348 $3,125 ====== ======
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. 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. Management has assessed the Company's recent operating earnings history and expected future earnings. Based on these past and future earnings and on tax planning strategies, although realization is not assured, management believes it is more likely than not that $3,905,000 of the deferred income tax assets will be realized. The ultimate realization of the deferred income tax assets will require aggregate taxable income of approximately $4,200,000 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 valuation allowance was increased from $155,000 at December 31, 2001, to $176,000 at December 31, 2002, and reduced from $227,000 at December 31, 2000, to $155,000 at December 31, 2001. The net deferred income tax assets were classified in the Consolidated Balance Sheets as follows (in thousands):
December 31, 2002 2001 ---- ---- Current: Other current assets ..................................... $ 470 $ 506 Current assets of discontinued operations ................ 213 226 ------ ------ Total current .......................................... 683 732 ------ ------ Long Term: Other assets ............................................. 1,467 1,198 Other assets of discontinued operations .................. 1,198 1,195 ------ ------ Total long term ........................................ 2,665 2,393 ------ ------ Total net deferred income tax assets ....................... $3,348 $3,125 ====== ======
Note 4. SHORT-TERM DEBT: Composition (in thousands):
December 31, 2002 2001 ---- ---- Revolving loans (a) .............................. $1,140 $ 858 Note payable, commercial finance company (b) .... 514 -- ------ ------ $1,654 $ 858 ====== ======
(a) In 1995 RCPC entered into an agreement with Fleet Capital Corporation ("Fleet") for a Revolving Loan. On June 30, 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 Revolving Loan of $1,140,000 at December 31, 2002, 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. The Revolving Loan bears interest at the rate of 1.0% above Fleet's prime rate (4.25% at December 31, 2002). The Revolving Loan interest rate is subject to an increase to 1.5% above Fleet's prime rate based on compliance with loan covenants. 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. In 2002 Ronson-Canada and CIBC extended Ronson-Canada's Revolving Loan to 2003. The extended agreement also amended certain other terms of the Revolving Loan agreement. 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 and inventory. The loan bears interest at the rate of 1.25% over the CIBC prime rate (4.5% at December 31, 2002). 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, 2002, 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, 2002, Ronson Consumer Products had unused borrowings available at December 31, 2002, of about $368,000 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 and a Term Loan (refer to Note 5 below regarding the Term Loan). On June 30, 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 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 1.0% above Fleet's prime rate (4.25% at December 31, 2002). 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, 2002, Ronson Aviation utilized no borrowings under the Revolving Loan. Based on no loan outstanding and the level of accounts receivable at December 31, 2002, Ronson Aviation had unused borrowings available at December 31, 2002, of about $239,000 under the Fleet line of credit described above. (b) At December 31, 2002, the note payable, commercial finance company, was a note payable by Ronson Aviation in the amount of $514,000 due to Raytheon Aircraft Credit Corp. ("Raytheon"). The note payable by Ronson Aviation is collateralized by a specific aircraft, and the note will be repaid from the proceeds from the sale of the aircraft. The Raytheon note is interest-free through January 7, 2003, and, thereafter, bears interest at a rate of 1.5% over the prime rate (4.25% at December 31, 2002). The note is secured by aircraft inventory of Ronson Aviation with a book value of $539,000 at December 31, 2002. At December 31, 2002, the weighted average interest rate for the total short-term debt was 5.25%. Note 5. LONG-TERM DEBT: Composition (in thousands):
December 31, 2002 2001 ---- ---- Mortgage loan payable, Fleet (a) .................. $1,514 $1,590 Notes payable, Fleet (b) .......................... 980 1,186 Term note payable, Fleet and other ................. 7 43 Promissory term note payable ....................... -- 184 ------ ------ 2,501 3,003 Less portion in current liabilities ................ 282 347 ------ ------ Balance of long-term debt .......................... $2,219 $2,656 ====== ======
(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. The Mortgage Loan balance was $1,514,000 at December 31, 2002. The Mortgage Loan agreement is secured by a first mortgage on the land, buildings and improvements of RCPC, and is payable in sixty monthly installments of $17,218, including interest, with a final installment on May 1, 2004, of approximately $1,402,000. The loan bears interest at a fixed rate of 8.39%. (b) The Notes Payable, Fleet, consisted of two term loans payable by Ronson Aviation to Fleet with balances at December 31, 2002, totaling approximately $980,000. 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. On June 30, 2002, Ronson Aviation and Fleet amended the term loans to extend the payment terms to June 30, 2005. 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. At December 31, 2002, fixed assets with a net book value of $3,262,000 and accounts receivable and inventories of $4,215,000 are pledged as collateral for the debt detailed in Notes 4 and 5. Net assets of consolidated subsidiaries, excluding intercompany accounts, amounted to approximately $3,150,000 at December 31, 2002, 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, 2002. Long-term debt matures as follows: 2003, $282,000; 2004, $1,629,000; and 2005, $590,000. Note 6. LEASE OBLIGATIONS: Lease expenses consisting principally of office and warehouse rentals, totaled $500,000, $498,000 and $469,000 for the years ended December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, 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: 2003 ........................... $ 357 $ 313 $ 44 2004 ........................... 347 309 38 2005 ........................... 296 281 15 2006 ........................... 115 112 3 2007 ........................... 4 4 -- ------ ------ ------ Total obligations .............. $1,119 $1,019 100 ====== ====== Less: Amount representing interest ................ 11 ------ Present value of capitalized lease obligations ........... $ 89 ======
Capitalized lease property included in the Consolidated Balance Sheets is presented below (in thousands):
December 31, 2002 2001 ---- ---- Machinery and equipment .................... $172 $166 Less accumulated amortization .............. 86 65 ---- ---- $ 86 $101 ==== ====
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 include widely-held common stocks, a guaranteed annuity contract, 188,858 shares of common stock of the Company and money market funds. The following table sets forth the plan's aggregate funded status and amounts recognized in the Company's Consolidated Balance Sheets (in thousands):
December 31, 2002 2001 ---- ---- Change in Benefit Obligation: Benefit obligation at beginning of year ..... $ 4,848 $ 4,680 Service cost ................................ 17 15 Interest cost ............................... 291 304 Actuarial loss .............................. 44 155 Increase in benefit obligation due to decreased discount rate ................... 168 159 Benefits paid ............................... (485) (465) ------- ------- Benefit obligation at end of year ........... 4,883 4,848 ------- ------- Change in Plan Assets: Fair value of plan assets at beginning of year ................................... 3,353 4,046 Actual return on plan assets ................ (710) (424) Employer contributions ...................... 483 196 Benefits paid ............................... (485) (465) ------- ------- Fair value of plan assets at end of year .... 2,641 3,353 ------- ------- Funded status ............................... (2,242) (1,495) Unrecognized actuarial loss ................. 3,447 2,549 Unrecognized prior service cost and transition obligation ..................... 46 93 ------- ------- Net amount recognized ......................... $ 1,251 $ 1,147 ======= ======= Amounts Recognized in the Consolidated Balance Sheets Consist of: Accrued benefit liability ................. $(2,242) $(1,495) Intangible asset .......................... 46 93 Accumulated other comprehensive loss, excluding the income tax effect ......... 3,447 2,549 ------- ------- Net amount recognized ......................... $ 1,251 $ 1,147 ======= =======
December 31, 2002 2001 ---- ---- Weighted-average assumptions: Discount rate ..................... 5.50% 6.00% Expected return on plan assets .... 5.50% 5.50%
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, 2002 2001 2000 ---- ---- ---- Components of net periodic benefit cost: Service cost .............................. $ 17 $ 15 $ 14 Interest cost ............................. 291 304 325 Expected return on plan assets ............ (185) (223) (294) Amortization of prior service cost and transition obligation .......... 46 47 54 Recognized actuarial loss ................. 210 134 30 ----- ----- ----- Net pension expense ....................... $ 379 $ 277 $ 129 ===== ===== =====
The accumulated benefit obligation exceeded the fair value of plan assets as of December 31, 2002, 2001 and 2000. 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 $68,000, $70,000 and $70,000 for this plan were recorded in 2002, 2001 and 2000, 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, 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 Gross Income Tax audit for the years ended December 31, 1997 through December 31, 2000. The total claimed by the State of New Jersey is $144,000, related to availability of net operating loss carryforwards from 1995. The Company has appealed the determination by the New Jersey Division of Taxation. Management believes that the Company will not be liable for the assessment. The Company has accrued the expected cost of defense in the matter. The Company is involved in 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, 2004. Base salaries in the years 2003 and 2004 are $616,120 and $659,248, respectively. 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: Each share of 12% Cumulative Convertible Preferred Stock has a stated value of $0.01 per share and a liquidation preference of $1.75 per share ($61,000 at December 31, 2002, in the aggregate) plus accrued dividends. The shares are non-voting and have a right to cumulative dividends at the annual rate of $0.21 per share. The holders of the preferred shares may, at any time, convert each preferred share into 1.1025 shares of common stock unless the preferred shares were previously redeemed. The Company has the option to redeem all or part of the preferred stock at $2.25 per share plus accrued dividends. There were no dividends in arrears at December 31, 2002. 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 137,813 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 110,250 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. Pro forma information regarding earnings per common share is required by SFAS #123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for options granted in 2002, 2001 and 2000 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Risk-free interest rate ................. 2.5% 4.0% 5.0% Dividend yield .......................... 0% 0% 0% Volatility factor - expected market price of Company's common stock .......................... 0.5 0.5 0.4 Weighted average expected life of options ............................ 5 years 5 years 5 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company's pro forma results of operations after adjustment for the estimated compensation expense under SFAS #123 were as follows (in thousands, except per share data):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Pro forma Results of Operations: Earnings from continuing operations ......... $ 15 $ 510 $ 433 Earnings from discontinued operations ....... 170 -- -- ------- ------- ------- Net earnings ................................ $ 185 $ 510 $ 433 ======= ======= ======= Pro forma Earnings per Common Share: Basic: Earnings from continuing operations ....... $ -- $ 0.15 $ 0.13 Earnings from discontinued operations ..... 0.04 -- -- ------- ------- ------- Net earnings .............................. $ 0.04 $ 0.15 $ 0.13 ======= ======= ======= Diluted: Earnings from continuing operations ....... $ -- $ 0.15 $ 0.13 Earnings from discontinued operations ..... 0.04 -- -- ------- ------- ------- Net earnings .............................. $ 0.04 $ 0.15 $ 0.13 ======= ======= =======
Pro forma Results of Operations in 2002, 2001 and 2000 have been adjusted to reflect pro forma increases in compensation expense of $27,000, $21,000 and $1,000, respectively, (net of taxes) due to issuance of stock options. A summary of the Company's stock option activity and related information for the three years ended December 31, 2002, is as follows:
Number of Weighted Average Options Exercise Price --------- ---------------- Outstanding at December 31, 1999 .... 120,668 $ 2.47 Granted ........................... 2,756 1.96 Exercised ...................... (6,064) 1.47 Expired/Cancelled .............. (2,481) 2.51 ------- Outstanding at December 31, 2000 .... 114,879 2.51 Granted ........................... 68,024 1.13 Expired ........................... (89,466) 2.58 ------- Outstanding at December 31, 2001 .... 93,437 1.44 Granted ........................... 91,350 1.11 Exercised ......................... (32,419) 1.17 ------- Outstanding at December 31, 2002 .... 152,368 1.30 ======= ======== Exercisable at December 31, 2002 .... 61,018 $ 1.58 ======= ======== 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 $0.50 ===== Exceeds the market price on the grant date $0.47 =====
Exercise prices for options outstanding as of December 31, 2002, ranged as follows: 105,956 options from $1.08 to $1.09 per share, 21,000 options at $1.19 per share, and 25,412 options from $2.20 to $2.42 per share. The weighted average contractual life of those options was 3.96 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, 2002 2001 2000 ---- ---- ---- Cash Payments for: Interest ............................. $291 $492 $705 Income taxes ......................... 12 27 8 Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred .... 18 -- 72 Issuance of 26,909 shares of common stock for services .......... -- -- 65
In 2001 charter aircraft with a book value of $1,490,000 were transferred from fixed assets to inventory. The aircraft were later sold. 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, a torch, a penetrant spray lubricant, a spot remover, and a surface protectant, 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 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):
2002 2001 2000 ---- ---- ---- Net sales: Consumer Products ....................... 14,232 15,709 15,832 Aviation Services ....................... 9,369 12,996 11,927 -------- -------- -------- Consolidated ......................... $ 23,601 $ 28,705 $ 27,759 ======== ======== ======== Earnings (loss) before interest, other items, and intercompany charges: Consumer Products ....................... 1,201 1,952 1,967 Aviation Services ....................... 1,370 1,518 928 -------- -------- -------- Total Reportable Segments ............... 2,571 3,470 2,895 Corporate and others .................... (1,972) (1,737) (1,447) Non-recurring income (charges) .......... -- (232) 110 -------- -------- -------- Consolidated ......................... $ 599 $ 1,501 $ 1,558 ======== ======== ======== Interest expense: Consumer Products ....................... 116 172 249 Aviation Services ....................... 80 198 329 -------- -------- -------- Total Reportable Segments ............... 196 370 578 Corporate and others .................... 158 163 151 -------- -------- -------- Consolidated ......................... $ 354 $ 533 $ 729 ======== ======== ======== Depreciation and amortization: Consumer Products ....................... 256 259 252 Aviation Services ....................... 405 428 396 -------- -------- -------- Total Reportable Segments ............... 661 687 648 Corporate and others .................... 10 39 35 -------- -------- -------- Consolidated ......................... $ 671 $ 726 $ 683 ======== ======== ======== Earnings (loss) from continuing operations before intercompany charges and taxes: Consumer Products ....................... 1,019 1,755 1,696 Aviation Services ....................... 1,305 1,316 587 -------- -------- -------- Total Reportable Segments ............... 2,324 3,071 2,283 Corporate and others .................... (2,212) (1,983) (1,715) Non-recurring income (charges) .......... -- (232) 110 -------- -------- -------- Consolidated ......................... $ 112 $ 856 $ 678 ======== ======== ======== Segment assets: Consumer Products ....................... 4,652 4,660 5,428 Aviation Services ....................... 5,133 4,793 5,803 -------- -------- -------- Total Reportable Segments ............... 9,785 9,453 11,231 Corporate and others .................... 1,691 1,391 1,048 Discontinued operations ................. 1,412 1,783 2,913 -------- -------- -------- Consolidated ......................... $ 12,888 $ 12,627 $ 15,192 ======== ======== ======== Segment expenditures for long-lived assets: Consumer Products ....................... 323 151 258 Aviation Services ....................... 600 384 201 -------- -------- -------- Total Reportable Segments ............... 923 535 459 Corporate and others .................... 3 3 10 -------- -------- -------- Consolidated ......................... $ 926 $ 538 $ 469 ======== ======== ========
Geographic Information regarding the Company's net sales and long-lived assets was as follows (in thousands):
Year Ended December 31, 2002 2001 2000 ---- ---- ---- Net Sales (1): United States .............. $21,809 $26,847 $26,016 Canada ..................... 1,538 1,645 1,633 Other foreign countries .... 254 213 110 ------- ------- ------- $23,601 $28,705 $27,759 ======= ======= ======= December 31, 2002 2001 ---- ---- Long-Lived Assets: United States ................... $4,274 $4,341 Canada .......................... 16 15 ------ ------ $4,290 $4,356 ====== ======
(1) Net sales are attributed to countries based on location of customer. 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, 2002 and 2000, net sales which amounted to approximately $3,675,000 and $2,832,000, respectively, of Consolidated Net Sales were made by Ronson Consumer Products to various units of one customer. As of December 31, 2002 and 2000, accounts receivable from that customer amounted to approximately 22% and 12%, 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, 2002 and 2000. For the year ended December 31, 2001, no customer accounted for more than 10% of Consolidated Net Sales or Consolidated Accounts Receivable. Note 13. COMPREHENSIVE INCOME: Comprehensive Income is the change in equity during a period from transactions and other events from nonowner sources. The Company is required to classify items of other comprehensive income in financial statements and to display the accumulated balance of other comprehensive income (loss) separately in the equity section of the Consolidated Balance Sheets. Changes in the components of Other Comprehensive Income (Loss) and in Accumulated Other Comprehensive Loss for 2002, 2001, and 2000 were as follows (in thousands):
Foreign Currency Minimum Pension Accumulated Other Translation Liability Comprehensive Adjustment (1) Adjustment(2) Loss -------------- ------------- ---- Balance at December 31, 1999 ..... $ (49) $ (470) $ (519) Change during 2000 .... (9) (565) (574) ------- ------- ------- Balance at December 31, 2000 ..... (58) (1,035) (1,093) Change during 2001 .... (12) (497) (509) ------- ------- ------- Balance at December 31, 2001 ..... (70) (1,532) (1,602) Change during 2002 .... -- (539) (539) ------- ------- ------- Balance at December 31, 2002 ..... $ (70) $(2,071) $(2,141) ======= ======== =======
(1) The foreign currency translation adjustment component of Accumulated Other Comprehensive Loss is presented above net of related tax benefits of $46,000, $47,000, $39,000 and $32,000 as of December 31, 2002, 2001, 2000 and 1999, respectively. For the years ended December 31, 2002, 2001 and 2000, the changes in the foreign currency translation component are presented above net of related tax provisions (benefits) of $1,000, $(8,000) and $(7,000), respectively. (2) The minimum pension liability component of Accumulated Other Comprehensive Loss is presented above net of related tax benefits of $1,377,000, $1,019,000, $688,000 and $312,000 as of December 31, 2002, 2001, 2000 and 1999, respectively. For the years ended December 31, 2002, 2001 and 2000, the changes in the minimum pension liability component are presented above net of related tax benefits of $358,000, $331,000 and $376,000, respectively. Note 14. CONCENTRATIONS: During 2002 and at year-end the Company and 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 Spain, 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, 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 of 18 months expiring on April 7, 2000. On March 6, 2000, the Company and Mr. Dinger entered into a new consulting agreement to be effective upon the expiration date of the original agreement. The new agreement provides that Mr. Dinger will continue to perform consulting services for the Company for a period of 48 months at a fee of $7,000 per month. During the years ended December 31, 2002, 2001 and 2000, Mr. Dinger was compensated $84,000, $84,000, and $76,500, respectively, under the agreements. In October 1998 Mr. Dinger granted an option to the Company to purchase the 205,248 shares of the Company's common stock 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. On March 6, 2000, Mr. Dinger granted a new option to the Company, to purchase the 456,067 shares of the Company's common stock now held by Mr. Dinger. The option is for a period of 48 months. The exercise price of the option is $5.25 per share for the first two years, and the option price in the second two-year period is $7.50 per share. The cost of the option is $4,000 per month for the period of the option or until exercised. As part of the new option agreement, 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. In March 2000 Mr. Dinger purchased 250,819 shares of newly issued restricted common stock of the Company at a price of $2.26 per share. The Company expended $48,000, $48,000, and $52,500 for the options during the years ended December 31, 2002, 2001 and 2000, respectively, which were charged to Additional Paid-in Capital. The Company incurred costs for consulting services under agreements with two directors of the Company of $128,000, $133,000, and $124,000 in the years ended December 31, 2002, 2001 and 2000, respectively. The Company incurred costs of $2,000, $26,000, and $41,000 in the years ended December 31, 2002, 2001 and 2000, respectively, for legal fees to a firm having a member who is also a director and an officer of the Company, with these fees primarily related to the Prometcor environmental matters. Note 16. SUBSEQUENT EVENTS: On March 18, 2003, the Company's Board of Directors declared a 5% stock dividend on the Company's outstanding common stock payable on April 15, 2003. A stockholder of the Company has reported that it has filed a derivative action against the Company's directors, among other matters alleging breach of fiduciary duty, an absence of disinterestedness and use of corporate control to advance their own interests. The Company is reviewing the complaint and will vigorously defend these matters and take all such action as it deems appropriate. At this time, the Company believes that its directors' and officers' liability insurance coverage is adequate to meet the direct costs of the litigation; however, the Company is not able to estimate at this time the extent to which it will incur legal or other expenses in connection with this proceeding. 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 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Ronson Corporation: Under date of February 27, 2003, we reported on the consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of earnings, and cash flows for each of the years in the three year period ended December 31, 2002 as contained in the annual report on Form 10-K for the year 2002. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein. DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey February 27, 2003, except for Note F, which is dated March 26, 2003 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION - -------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS (dollars in thousands)
ASSETS ------ December 31, ------------ 2002 2001 ---- ---- CURRENT ASSETS: Cash ....................................................................... $ 29 $ -- Other current assets ....................................................... 233 246 -------- -------- Total Current Assets .............................................. 262 246 Property, plant, and equipment ............................................. 252 249 Less accumulated depreciation and amortization ............................. 236 226 -------- -------- 16 23 Other assets ............................................................... 4,975 4,794 -------- -------- TOTAL ASSETS ............................................................... $ 5,253 $ 5,063 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of lease obligations ....................................... $ 5 $ 5 Accounts payable ........................................................... 171 85 Other current liabilities .................................................. 843 439 -------- -------- Total Current Liabilities ......................................... 1,019 529 Long-term lease obligations ................................................ 5 10 Pension obligation ......................................................... 1,771 1,652 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock ............................................................ -- -- Common stock ............................................................... 3,912 3,880 Additional paid-in capital ................................................. 29,250 29,291 Accumulated deficit ........................................................ (26,966) (27,101) Accumulated other comprehensive loss ....................................... (2,141) (1,602) -------- -------- 4,055 4,468 Less cost of treasury shares: 2002, 66,465 and 2001, 66,484 common shares ............................ 1,597 1,596 -------- -------- 2,458 2,872 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 5,253 $ 5,063 ======== ========
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) YEAR ENDED DECEMBER 31, 2002 2001 2000 ---- ---- ---- Management administration (from wholly owned subsidiaries eliminated in consolidation) ...................................................... $ 2,279 $ 2,370 $ 2,523 ------- ------- ------- Costs and expenses: General and administrative expenses .................................... 1,968 1,734 1,444 Interest expense (includes intercompany interest expense of $ 100, $ 113 and $ 100 in 2002, 2001 and 2000, respectively, eliminated in consolidation) ........................................ 157 162 150 Non-operating expense - net ............................................ 82 83 89 ------- ------- ------- 2,207 1,979 1,683 ------- ------- ------- EARNINGS BEFORE INCOME TAXES AND EQUITY IN NET EARNINGS (LOSS) OF SUBSIDIARIES ........................................................ 72 391 840 Income tax provisions (benefits) ........................................... (70) 106 286 Equity in net earnings (loss) of subsidiaries (includes earnings from discontinued operations of $ 170 in 2002) ..................................................... 70 246 (120) ------- ------- ------- NET EARNINGS ............................................................... $ 212 $ 531 $ 434 ======= ======= =======
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) YEAR ENDED DECEMBER 31, 2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities: Net earnings .................................. $ 212 $ 531 $ 434 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Equity in net (earnings) loss of subsidiaries ........................ (70) (246) 120 Depreciation and amortization ............. 10 19 21 Deferred income tax expenses (benefits) ... 85 (30) (4) Increase (decrease) in cash from changes in current assets and current liabilities . 10 (13) (199) Increase (decrease) in net advances to subsidiaries ........................... 75 (272) (989) Net change in pension-related accounts .... (126) 65 72 Other ..................................... (74) 1 37 ----- ----- ----- Net cash provided by (used in) operating activities .............. 122 55 (508) ----- ----- ----- Cash Flows from Investing Activities: Net cash used in investing activities, capital expenditures ................ (3) (3) (10) ----- ----- ----- Cash Flows from Financing Activities: Proceeds from issuance of common stock ........ 38 -- 576 Payments of long-term lease obligations ....... (5) (4) (5) Payments of preferred dividends ............... (75) -- -- Other ......................................... (48) (48) (53) ----- ----- ----- Net cash provided by (used in) financing activities ................ (90) (52) 518 ----- ----- ----- Net increase in cash .......................... 29 -- -- Cash at beginning of year ..................... -- -- -- ----- ----- ----- Cash at end of year ........................... $ 29 $ -- $ -- ===== ===== =====
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, 2002. 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. Outstanding shares of 12% Cumulative Convertible Preferred Stock were 34,875 at December 31, 2002 and 2001. The Company has authorized 11,848,106 shares of common stock with a par value of $1.00, of which 3,842,169 and 3,809,729 were outstanding at December 31, 2002 and 2001, respectively. (Refer to Note F below.) NOTE B: Other Assets. December 31, (in thousands) --------------- 2002 2001 ------ ------ Investment in subsidiaries $2,752 $2,787 Deferred income tax assets, net 1,112 868 Intangible pension assets -- 27 Net advances to subsidiaries 843 918 Other 268 194 ------ ------ $4,975 $4,794 ====== ====== Investment in subsidiaries was eliminated in consolidation. The Company has amortized the intangible pension assets in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") #87, "Employers' Accounting for Pensions". The net advances to subsidiaries of $843,000 and $918,000 at December 31, 2002 and 2001, 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 carryforward. 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 2002, 2001 and 2000, the Company and its subsidiaries recorded the expenses (benefits) of net deferred income tax assets of $20,000, $320,000 and $236,000, respectively, of which $(19,000), $(30,000) and $(4,000), 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. NOTE F: Subsequent Events. On March 18, 2003, the Company's Board of Directors declared a 5% stock dividend on the Company's outstanding common stock payable on April 15, 2003. A stockholder of the Company has reported that it has filed a derivative action against the Company's directors, among other matters alleging breach of fiduciary duty, an absence of disinterestedness and use of corporate control to advance their own interests. The Company is reviewing the complaint and will vigorously defend these matters and take all such action as it deems appropriate. At this time, the Company believes that its directors' and officers' liability insurance coverage is adequate to meet the direct costs of the litigation; however, the Company is not able to estimate at this time the extent to which it will incur legal or other expenses in connection with this proceeding. EX-23.A 3 ex23-a.txt EXHIBIT 23(a) Independent Auditors' Consent The Board of Directors Ronson Corporation: We consent to incorporation by reference in the Regisration Statements (No. 2-87783, No. 33-13696, No. 33-25240 and No. 33-21042) on Forms S-8, S-2, S-8 and S-2, respectively, of Ronson Corporation of our report, dated February 27, 2003, relating to the consolidated balance sheets, statements of earnings, changes in stockholders' equity and cash flows of Ronson Corporation and subsidiaries for the year ended December 31, 2002, which report appears in the December 31, 2002, annual report on Form 10-K of Ronson Corporation. DEMETRIUS & COMPANY Wayne, New Jersey March 31, 2003 EX-99.A 4 ex99-a.txt EXHIBIT 99(a) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Ronson Corporation (the "Company"), certifies that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2002, (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78 m or 78 o(d); and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 31, 2003 /s/ Louis V. Aronson II ------------------------------------------ Louis V. Aronson II President and Chief Executive Officer Dated: March 31, 2003 /s/Daryl K. Holcomb ------------------------------------------ Daryl K. Holcomb Vice President and Chief Financial Officer This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. -----END PRIVACY-ENHANCED MESSAGE-----