10-K 1 form10k-74935_ronc.txt FORM 10-K 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, 2005 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 Capital Market $1.00 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X| 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| Indicate by the check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of common equity held by non-affiliates of the registrant was approximately $4,196,000 as of June 30, 2005; 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 23, 2006, there were 4,536,249 shares of the registrant's common stock outstanding, adjusted to reflect a 5% common stock dividend declared on February 23, 2006. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the 2005 Annual Meeting of Shareholders are incorporated by reference into Part I. 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. 2 TABLE OF CONTENTS Part I Page ------ ---- Item 1. Business. 4 1A. Risk Factors. 7 2. Properties. 11 3. Legal Proceedings. 12 4. Submission of Matters to a Vote of Security Holders. 13 Part II ------- Item 5. Market for the Company's Common Stock and Related Stockholder Matters. 14 6. Selected Financial Data. 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16 7A. Quantitative and Qualitative Disclosures about Market Risk. 24 8. Financial Statements and Supplementary Data. 25 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 25 9A. Controls and Procedures. 25 9B. Other Information. 26 Part III -------- Item 10. Directors and Executive Officers of the Registrant, Compliance with Section 16(a) of the Exchange Act. 26 11. Executive Compensation. 31 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 35 13. Certain Relationships and Related Transactions. 37 14. Principal Accountant Fees and Services. 38 Part IV ------- Item 15. Exhibits and Financial Statement Schedules. 38 Signatures. 41 Financial Statements. 42 3 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 Capital Market. The Company's common shares are quoted under the symbol RONC. (b) Financial Information about Segments. Refer to Note 11 of the Notes to Consolidated Financial Statements below. (c) Narrative Description of Business. (1) Consumer Products ----------------- The Company's consumer packaged products, which are manufactured in Woodbridge, New Jersey, and distributed in the United States by the Company's wholly owned subsidiary, Ronson Consumer Products Corporation ("RCPC"), include Ronsonol lighter fluid, Multi-Fill butane fuel injectors, flints, wicks for lighters, a multi-use penetrant spray lubricant product under the tradename "Multi-Lube", and a spot remover under the product tradename "Kleenol". In addition, the Company's consumer packaged products are marketed in Canada through Ronson Corporation of Canada Ltd. ("Ronson-Canada"), a wholly owned subsidiary of the Company. RCPC and Ronson-Canada together comprise Ronson Consumer Products. The Company also distributes its consumer products in Mexico. The consumer products segment has a greater than 10% customer, which is a distributor, supplying Ronson's products to numerous retailers. Management does not believe that this segment is substantially dependent on this distributor because of the presence of many other distributors which provide retailers with Ronson's consumer products. Sales to this distributor in 2005 and 2004 accounted for 14% and 13%, respectively, of Consolidated Net Sales of the Company and 24% and 22%, respectively, of Net Sales of the consumer products segment. The consumer products are distributed through distributors, food brokers, automotive and hardware representatives and mass merchandisers, drug chains and convenience stores in the United States and Canada. Ronson Consumer Products is a principal supplier of packaged flints and lighter fuels in the United States, Canada and Mexico. 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; however increased costs associated with the rising prices of oil used in certain Ronson consumer products are a factor. Ronson Consumer Products also distributes seven lighter and torch products - the "COMET" refillable butane lighter; the Ronson "WINDII" liquid fuel windproof lighter; the Ronson "AmeroFlame Ignitor", used for lighting fireplaces, barbecues, camping stoves and candles; the "AMERO LITE" blue point flame butane lighter, the "JetLite", a blue flame torch lighter, excellent in the wind as when sailing or 4 golfing; the "Tech Torch", used for craft and hobby work, cooking specialties, and soldering; and the "AERO TORCH", geared for soldering, plumbing and outdoor use and bigger projects requiring a larger flame. The lighter products are marketed in the United States and Canada. The lighter and torch products distributed by Ronson Consumer Products were each developed by the Company's research and development department. The products were sourced in Peoples Republic of China and Taiwan and are manufactured to the Company's engineering and quality specifications, with quality control inspection both at the manufacturer and at the Company's facilities in Woodbridge, NJ. Each of the Company's lighter and torch products is refillable using the Company's Ronsonol lighter fluid or Multi-Fill butane fuel injectors. The Company believes that several of the products are unique products in the marketplace. The Company's lighter and torch products however, face strong competition from several nationally distributed brands and unbranded imports. Each of the Company's lighter and torch products is currently manufactured by one or two manufacturers in Peoples Republic of China and Taiwan. Since there are a number of sources of similar lighter products, management believes that other suppliers could provide lighters on comparable terms. A change of suppliers, however, might cause a delay in delivery of the Company's lighter products and torches and, possibly, a short-term loss in sales which could have a short-term adverse effect on operating results. (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 aircraft fueling, cargo handling, avionics, new and used aircraft sales, aircraft repairs, aircraft 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, (4) Trenton, New Jersey). 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. Ronson Aviation expects to become a Cirrus Aircraft service station in the second quarter of 2006. At December 31, 2005, 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 $1,658,000. The orders are subject to cancellation by Ronson Aviation. Ronson Aviation has received an order to sell one of the aircraft in the first quarter of 2006. Ronson Aviation is subject to extensive competition in its 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. 5 In December 1989 the Company adopted a plan to discontinue the operations in 1990 of one of its facilities, Prometcor, Inc. ("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 New Jersey Department of Environmental Protection ("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 were undertaken and may resume in the future 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. The "Ronson" brand is of considerable value to the Company; however, its book value, as reported in the Company's Consolidated Balance Sheets, is nominal. 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, $313,000 and $339,000, during the fiscal years ended December 31, 2005, 2004 and 2003, 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, 2005, the Company and its subsidiaries employed a total of 90 persons. CUSTOMER DEPENDENCE ------------------- See above under "Consumer Products". 6 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 -------- ------------------- 2005 59% 41% 2004 59% 41% 2003 63% 37% (d) Financial Information About Geographic Areas. Refer to Note 11 of the Notes to Consolidated Financial Statements. Item 1A - 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; 7 * 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. Interest Rates The Company is exposed to changes in prevailing market interest rates affecting its interest costs and the return on its investments. All of the Company's Short-term Debt carries a variable rate of interest. The Company's outstanding Long-term Debt as of December 31, 2005, consisted of indebtedness with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. Foreign Currency Exchange Rates The Company is also exposed to changes in foreign currency exchange rates due to its investment in its Canadian subsidiary, Ronson-Canada and because approximately 6% of its Consolidated Net Sales were in Canada. Prices of Fuels The Company, due to the nature of its operations, is also exposed to changes in the prices of fuels, because of the fuels included in its consumer products and because of its aircraft fuel sales. The price of the fuels fluctuates more or less in conjunction with oil prices. Cost of fuels also impacts the cost of various other components used in the Company's products. Increases in the price of fuels, to the extent the Company is not able to increase the prices of its products to its customers, could have an adverse impact on the Company's results of operations. 8 Volatility in the Insurance Market The Company evaluates its insurance coverage annually. Trends in the insurance industry suggest that such coverage may be much more expensive, less protective or even unavailable which could have a material adverse effect on the Company's financial condition, results of operations and cash flows. In such a case, the Company may decide to self-insure more, thereby undertaking additional risks. Ronson Consumer Products: Component Supply Risk Ronson Consumer Products depends upon its vendors for the supply of the primary components for its flame accessory and chemical products. Certain of these components are subject to significant price volatility beyond the control or influence of the Company. Petroleum products have had significant price volatility in the past and may in the future. Rising oil prices can also impact the Company's cost of transporting its products. The Company has historically been successful in managing its component costs and product pricing to maintain historical gross margins. Additionally, the Company has generally found alternative sources of constituent chemicals for its products readily available. As component and raw material costs are the main contribution to cost of goods sold for all of the Company's products, any significant fluctuation in the costs of components could also have a material impact on the gross margins realized on the Company's products. Increases in the prices for the components could have a material adverse effect on the Company's business, operating results, financial position and cash flows. Reliance on Supply Chain Each of Ronson Consumer Products' lighter and torch products is manufactured by a single vendor. Since there are a number of sources of similar lighter products, the Company believes that other suppliers could provide lighters and torches on comparable terms. The loss of any of these suppliers or manufacturers could, however, temporarily disrupt or interrupt the production of the Company's products. Competition The market for the Company's products is highly competitive and is expected to continue to be competitive in the future. The Company's products compete both within their own product classes as well as within product distribution channels, competing with many other products for store placement and shelf space. The Company is aware of many competing products, some of which sell for lower prices; however, the Company relies on the awareness of its brands among consumers, the value offered by those brands as perceived by consumers, and competitive pricing as its primary competitive strategies. These considerations as well as increased competition generally could result in price reductions, reduced gross margins, and a loss of market share, any of which could have a material adverse effect on the Company's business, operating results, financial position and cash flows. In addition, many of the Company's competitors have significantly greater financial, technical, product development, marketing and other resources. There can be no assurance that the Company will be able to compete successfully against current and future competitors. Competitive pressures faced by the Company could have a material adverse effect on its business, operating results, financial position and cash flows. Business Risks With the trend toward consolidation in the retail marketplace, the Company's customer base is shifting toward fewer, but larger, customers who purchase 9 in larger volumes. The loss of, or reduction in, orders from any of the Company's most significant customers could have a material adverse effect on the Company's business and its financial results. Large customers also seek price reductions and promotional concessions. In this regard, the Company has expanded its customer promotions and allowances which has negatively impacted, and will likely continue to impact, the Company's maintenance of existing profit margins. In addition, the Company is subject to changes in customer purchasing patterns. These types of changes may result from changes in the manner in which customers purchase and manage inventory levels, or display and promote products within their stores. Other potential factors such as customer disputes regarding shipments, fees, merchandise condition or related matters may also impact operating results. The manufacture, packaging, storage, distribution and labeling of the Company's products and the Company's business operations all must comply with extensive federal and state laws and regulations. It is possible that the government will increase regulation of the transportation, storage or use of certain chemicals, to enhance homeland security or protect the environment and that such regulation could negatively impact raw material supply or costs. Some of the Company's consumer products are associated in part with tobacco. These products are also utilized for other purposes such as replacing the match. The Company's research and development department is continuing to develop products utilizing the Company's fuels with products not associated with tobacco. The potential decline in smoking, however, may have a negative impact on the Company. Protection of Intellectual Property The Company relies on trademark, trade secret, patent and copyright laws to protect its most important asset, the Ronson brand name, and its other intellectual property. The Company cannot be certain that the intellectual property rights will be successfully asserted in the future or that they will not be invalidated or circumvented. Ronson Aviation: Supply Risk Ronson Aviation depends upon its vendors for the supply of its principal products. Aircraft fuels are subject to significant price volatility. Ronson Aviation has historically been successful in the pricing of its fuel to maintain its gross margins. Increases in the price of the aircraft fuels could have an adverse effect on the demand for Ronson Aviation products and aviation services, and on its operating results, financial position and cash flows. Ronson Aviation relies on Raytheon Aircraft Corporation as its sole supplier of new piston engine(s) aircraft for sale. Loss of availability of such aircraft and delays in deliveries of aircraft have had from time to time, and may in the future temporarily have, an adverse effect on Ronson Aviation's Net Sales. Business Risk Ronson Aviation depends upon demand for general aviation services, including corporate air travel. Increased security requirements and concerns may have an effect, positive or adverse, on Ronson Aviation's future operating results, financial position and cash flows. 10 Item 2 - DESCRIPTION OF PROPERTIES ------------------------- The following list sets forth the location and certain other information concerning the Company's manufacturing and office facilities. The Company's facilities are in relatively modern buildings which were designed for their present purpose. The Company believes its manufacturing and other facilities to be suitable for the operations conducted. In the list below, "medium" facilities are those which have between 20,000 and 100,000 square feet; and "small" facilities are those which have less than 20,000 square feet. The facilities in Woodbridge and South Brunswick, New Jersey, and Canada comprise the consumer products segment. The Trenton, New Jersey, facilities are used by the aviation services segment. (1) Woodbridge, New Jersey Facilities included in (a) and (b) below are owned subject to first and second mortgages in favor of Bank of America, N.A. (a) One medium facility for manufacturing consumer products. This facility is owned and is constructed of brick, steel and cinder block. (b) One small facility for storage. This facility is owned and is constructed of metal, cinder block and cement. (2) South Brunswick, New Jersey One small facility for shipping and storage of finished goods. In March 2004 RCPC began to occupy this facility which is subject to a lease expiring in March 2013, with two additional three-year options. (3) Somerset, New Jersey One small facility for executive and consumer products offices. This facility is subject to a lease which expires in June 2009. The facility is constructed of metal, cinder block and cement. (4) Trenton, New Jersey (a) One medium facility for fixed wing operations and services and helicopter services, sales and office space leased to others. This building is owned and is constructed of steel and concrete. The land on which this building is located is leased under a leasehold with six five-year terms automatically renewed, with the last five-year term expiring in November 2007. The lease may be extended for five additional five-year terms through November 2032, provided that during the five-year term ending November 2007, Ronson Aviation invests $1,500,000 in capital improvements. In March 2004 Ronson Aviation announced plans for the expansion of its facilities, the cost of which is more than sufficient to extend the lease for five additional five-year terms. (b) One medium facility - "T" hangars. These structures are owned and are constructed of aluminum and concrete. The land upon which these structures are located is leased under a leasehold on the same terms as in 4 (a) above. (5) Mississauga, Ontario, Canada One small facility for sales and marketing, distribution center and storage. This facility is subject to a lease which expires in March 2006. This facility is constructed of brick and cinder block. 11 Item 3 - LEGAL PROCEEDINGS ----------------- The Company is involved in various product liability claims. The claimants have claimed unspecified damages. The ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by these matters. However, based on facts currently available, management believes that damages awarded, if any, would be well within existing insurance coverage. Steel Partners II, L.P., et al v. Louis V. Aronson II, Robert A. Aronson, ------------------------------------------------------------------------- Erwin M. Ganz, I. Leo Motiuk, Gerard J. Quinnan, Justin P. Walder, ------------------------------------------------------------------ Saul H. Weisman, Carl W. Dinger III and Ronson Corporation ---------------------------------------------------------- On March 25, 2003, a derivative lawsuit was filed against the directors of Ronson in the Superior Court of New Jersey, Chancery Division, Essex County by Steel Partners II, L.P. and Warren G. Lichtenstein. The lawsuit alleges, among other matters, breach of fiduciary duty and an absence of disinterestedness by the defendants, and use of corporate control to advance their own interests. The lawsuit seeks monetary damages on behalf of Ronson as well as equitable relief to invalidate the Company's shareholder rights agreement and certain consulting agreements, to enjoin performance of agreements with certain directors and to require the Company's President and C.E.O. to divest those shares acquired, and not to acquire additional shares while the shareholder rights agreement has been or remains in place. A special committee of two independent directors was created by the Board of Directors of the Company to investigate and evaluate the allegations made in the lawsuit. The committee concluded that none of the directors breached any fiduciary duty owed to the Company or its shareholders, that it is not in the best interests of the Company or its shareholders to continue legal action against the directors on any of the claims asserted in the derivative complaint and that the Company seek to dismiss the derivative action. The Company's directors have vigorously denied the claims and moved to have the complaint dismissed. That motion to dismiss was denied in February 2004. The Company's directors will continue to contest and to vigorously defend against the claims. On June 21, 2004, the Superior Court of New Jersey granted the motion of the Ronson directors, over the objection of Steel Partners II, L.P., to bifurcate the case. As a result, trial of all claims and defenses in the derivative suit, other than the defense based upon the report and findings of the Special Litigation Committee, will be held in abeyance pending trial of the Special Litigation Committee defense. The trial of the Special Litigation Committee defense was conducted in March 2005. In April 2005, the parties submitted post-trial memoranda, and await the Superior Court's determination of the Special Litigation Committee defense. On July 23, 2004, Ronson Corporation and certain of its directors filed a Counterclaim and Third-Party Complaint against Steel Partners II, L.P., Warren G. Lichtenstein and certain close associates -- namely, Jack Howard, Howard M. Lorber and Ronald Hayes. The Counterclaim and Third-Party Complaint is based upon the New Jersey Shareholders Protection Act, and seeks compensatory and punitive damages, costs of suit and interest, as well as entry of a judgment directing the public disclosure of all limited partners of Steel Partners II, L.P., and persons acting directly or indirectly in concert with them in connection with the acquisition or attempted acquisition of stock in, or control of, Ronson Corporation. All discovery and other proceedings in connection with the Counterclaim and Third-Party Complaint are being held in abeyance pending the Courts decision on the Special Litigation Committee defense. 12 Steel Partners II, L.P. v. Louis V. Aronson II, Robert A. Aronson, Barbara L. ----------------------------------------------------------------------------- Collins, Carl W. Dinger III, Paul H. Einhorn, Erwin M. Ganz, Daryl K. Holcomb, ------------------------------------------------------------------------------ I. Leo Motiuk, Gerard J. Quinnan, Justin P. Walder, and Saul H. Weisman ----------------------------------------------------------------------- On or about April 14, 2005, Steel Partners II, L.P. commenced an action, on its own behalf as a shareholder of the Company, in the United States District Court for the District of New Jersey, against the current directors (other than Dr. David) of the Company, as well as Daryl K. Holcomb, the Company's chief financial officer, and Carl W. Dinger, a shareholder of and consultant to the Company. The Complaint alleges, among other things, that defendants should be treated collectively as an "Acquiring Person" under the Company's Shareholder Rights Agreement, and that their acquisition and ownership of more than 12% of the outstanding stock of the Company has triggered the provisions of the Shareholder Rights Agreement with respect to the offering of rights to shareholders, including Steel Partners II (notwithstanding that in its derivative action in the Superior Court of New Jersey, Steel Partners has challenged the legality and enforceability of the Company's Shareholder Rights Agreement). The Complaint alleges further that the defendants have violated reporting requirements under Section 13(d) of the Securities Exchange Act and Rule 13-d promulgated by the Securities Exchange Commission by failing to disclose an alleged agreement to coordinate their purchases of the Company's stock for the purposes of placing voting control in the hands of Louis V. Aronson II and for other undisclosed purposes. The Company's directors and its chief financial officer intend to contest the allegations of this second complaint filed by Steel Partners and vigorously defend the action. The Company's directors and its chief financial officer filed a motion to dismiss Steel Partners federal court complaint in July 2005. We await determination of the motion. Juraj Kosco and Maria Kosco vs. Ronson Consumer Products Corporation, Ronson ---------------------------------------------------------------------------- Corporation, Industrial Waste Management, Inc., Cuno Incorporated, XYZ ---------------------------------------------------------------------- Corporations #1-10 (fictitious parties), John and/or Jane Does #1-10 (fictitious -------------------------------------------------------------------------------- individuals) ------------ The plaintiffs, a former employee and his spouse, claim damages for burns and other injuries allegedly received in an accident occurring during the employee's performance of his job. The lawsuit was filed in the Superior Court of New Jersey, Law Division, Middlesex County, on February 10, 2005, and damages totaling $10,000,000. The claimant has received, and is receiving, claims workers' compensation benefits related to the incident. Counsel has advised that it believes that the claim is barred by the exclusive remedy of the Workers' Compensation Act. Management believes that damages, if any, awarded in addition to the statutory workers' compensation benefits, will be well within the Company's insurance coverage. David Pelous and Mary Pelous, his wife vs. Behr Process Corporation, et al. --------------------------------------------------------------------------- On January 26, 2006, Ronson Corporation of Delaware, a former subsidiary of the Company, was notified it was named as one of at least forty-one defendants in the above matter. The plaintiffs claim damages from illness as a result of exposure to benzene and benzene-containing products. The Company has not received any information which management believes supports any claims by the plaintiffs against it. Management believes that damages, if any, will be well within the Company's insurance coverage. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- (a) At the Company's Annual Stockholders' Meeting (the "Meeting") on October 27, 2005, the matters set forth in the Company's 2005 Notice of Meeting and Proxy Statement, which is incorporated herein by reference, were submitted to the Company's stockholders. (b) The Election of Directors by 87.9% or more of the votes cast at the meeting is summarized as follows: 13 Dr. Edward E. David was elected as the new Class I director, with a term expiring at the 2006 Annual Meeting; Messrs. Louis V. Aronson II, Paul H. Einhorn, and I. Leo Motiuk were reelected for three-year terms as Class III directors, expiring at the 2008 Annual Meeting; and The terms of office of each of the following directors continued after the Meeting; Robert A. Aronson, Barbara L. Collins, Erwin M. Ganz, Gerard J. Quinnan, and Justin P. Walder. (c) The appointment of Demetrius & Company, L.L.C., independent auditors, to audit the consolidated financial statements of the Company for the year 2005 was ratified by 88.4% of the votes cast at the Meeting. The number of affirmative votes, negative votes and abstentions on each matter is set forth below: 1. ELECTION OF DIRECTORS FOR % WITHOLD % --- --- ------- --- Class I (term expires at 2006 Annual Meeting of Stockholders): Edward E. David, Jr. 3,599,163 87.9 495,069 12.1 Class III (term expires at 2008 Annual Meeting of Stockholders): Louis V. Aronson II 3,598,105 87.9 496,127 12.1 Paul H. Einhorn 3,599,077 87.9 495,155 12.1 I. Leo Motiuk 3,599,777 87.9 494,455 12.1 2. To ratify the appointment of DEMETRIUS & COMPANY, L.L.C., as independent auditors for the year 2005 FOR % AGAINST % ABSTAIN % --- --- ------- --- ------- --- 3,617,821 88.4 473,280 11.6 3,131 0.0 PART II ------- Item 5 - MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES ------------------------------------- (a) The principal market for trading in Ronson common stock is the Nasdaq Capital 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. 2005 ---------------------------------------------------- Quarter 1st 2nd 3rd 4th ---------------------------------------------------- High Bid $2.12 $2.25 $1.90 $1.81 Low Bid $1.72 $1.53 $1.48 $1.07 2004 ---------------------------------------------------- Quarter 1st 2nd 3rd 4th ---------------------------------------------------- High Bid $2.88 $2.84 $2.42 $1.96 Low Bid $1.81 $1.92 $1.22 $1.43 14 (b) At March 23, 2006, there were 2,232 stockholders of record of the Company's common stock. (c) Dividends - 1. Cash dividends declared and paid by the Company in the years ended December 31, 2005 and 2004 are as follows: 2005 2004 ---- ---- First Quarter $ .01 $ .00 Second Quarter .01 .01 Third Quarter .00 .01 Fourth Quarter .00 .01 2. Stock dividends - On February 23, 2006, the Company's Board of Directors declared a 5% stock dividend on the Company's outstanding common stock, in addition to a 5% common stock dividend declared during each of the last four fiscal years, on February 15, 2005, February 12, 2004, March 18, 2003, and March 12, 2002, respectively. Information regarding the number of shares and per share amounts has been retroactively adjusted for the stock dividends declared on the Company's common stock. (d) See Item 12 below for information as to securities authorized for issuance under equity compensation plans. (e) The following table contains information about purchases of equity securities by the Company and affiliated persons during the fourth quarter of 2005: Issuer Purchases of Equity Securities
------------------------------------------------------------------------------------------------------------------ Maximum Number (or Approximate Total Number Dollar Value) Of Shares of Shares that Purchased as May Yet Be Part of Publicly Purchased Total Number Average Price Announced Under the of Shares Paid per Plans or Plans or Period Purchased (1) Share Programs Programs ------------------------------------------------------------------------------------------------------------------ October 1 - October 31, 2005 -- $ -- -- -- November 1 - November 30, 2005 -- -- -- -- December 1 - December 31, 2005 778 1.37 -- -- ----- ----- ----- ----- Total 778 $1.37 -- -- ===== ===== ===== =====
(1) All transactions for the period were made by Directors of the issuer as open market purchases. Item 6 - SELECTED FINANCIAL DATA ----------------------- The information required by this item is filed with this report on page 43 and is incorporated herein by reference. 15 Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS --------------------- 2005 Compared to 2004 The fourth quarter 2005 was profitable, but not sufficient to offset the one-time nonrecurring loss of $591,000 on the sale in September 2005 of Ronson Aviation, Inc.'s ("Ronson Aviation's"), Trenton, N.J., charter business and Citation II Jet. Also, earnings in the fourth quarter of 2005 included a nonrecurring loss of $51,000 related to a New Jersey State income tax matter from prior years. The Company would have had Net Earnings for the year 2005 had it not incurred the nonrecurring losses in 2005 totaling $642,000, before income taxes. The Company's Net Sales were $26,563,000 in the year 2005 as compared to $28,483,000 in the year 2004, and were $6,861,000 in the fourth quarter of 2005 as compared to $8,079,000 in the fourth quarter of 2004. Net Sales, excluding aircraft sales, increased by $352,000 in the fourth quarter of 2005 as compared to the same period in 2004. No aircraft sales were included in 2005; however, in the fourth quarter and year 2004, Net Sales included sales of aircraft of $1,570,000 and $2,098,000, respectively. Ronson Consumer Products ------------------------ (in thousands) Year Ended December 31, 2005 2004 ---- ---- Net sales $15,664 $16,768 Earnings before interest, other items, intercompany charges, and taxes 1,347 1,807 Earnings before intercompany charges and taxes 1,126 1,691 Net Sales of consumer products at Ronson Consumer Products Corporation ("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products") were lower by 7% in 2005 as compared to 2004 primarily due to reduced sales of certain flame accessory products, composed of a 5% increase due to increased average net selling prices offset by a decline of about 12% due to reduced volume of products sold. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products decreased to 58% in 2005 from 59% in 2004. A reduction in the Cost of Sales percentage in 2005 due to the increase in average net selling prices (discussed above) was offset by increased material costs because of increases in the price of oil (used in fuels for butane refills and Ronsonol as well as other components) and the effect of the lower Net Sales. The amount of the Cost of Sales at Ronson Consumer Products decreased in 2005 by 7%. The decrease in the amount of Cost of Sales was composed of the following: Reduced volume of products sold 8% Decreased manufacturing costs 1% Increased unit costs of products sold (2)% --- Total reduction in amount of Cost of Sales 7% === The increase in unit costs of products sold was due primarily to increases in oil prices. Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, at Ronson Consumer Products increased to 23% in 2005 from 21% in 2004 primarily due to 16 lower Net Sales, to increased shipping costs due to higher oil prices, and to increased costs associated with the Company's new warehouse facility. General and Administrative Expenses, as a percentage of Net Sales were unchanged at 8% in 2005 and 2004 primarily because lower personnel costs were offset by the effect of the decreased Net Sales on the percentage. Interest Expense at Ronson Consumer Products increased to $195,000 in 2005 from $112,000 in 2004 primarily due to increased Short-term Debt and Long-term Capitalized Leases and to increased interest rates on Short-Term Debt. Ronson Aviation --------------- (in thousands) Year Ended December 31, 2005 2004 ---- ---- Net sales $10,899 $11,715 Earnings before interest, other items, intercompany charges, and taxes 1,435 1,253 Earnings before intercompany charges and taxes 1,381 1,158 Nonrecurring loss-sale of charter aircraft and business (591) -- Net Sales at Ronson Aviation decreased by 7% in 2005 from 2004 primarily because Ronson Aviation had no sales of aircraft in 2005; however, Net Sales in 2004 had included aircraft sales of $2,098,000. The reduction in aircraft sales was partially offset by increased sales of aircraft maintenance and aviation services and by increased sales of aircraft fuel due to higher aviation fuel prices. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, decreased to 76% in 2005 from 77% in 2004 primarily because a decrease due to the change in the mix of products sold was more than offset by the effect of the increased cost of aircraft fuel due to higher oil prices. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 8% in 2005 and 2004 primarily because an increase due to the decreased sales in 2005 was offset by the effect of reduced personnel costs. Interest Expense at Ronson Aviation decreased to $50,000 in 2005 from $100,000 in 2004 primarily because of higher average Short-Term Debt in 2004 related to aircraft inventory for sale and to reduced average Long-Term Debt in 2005 due to the sale of Ronson Aviation's charter aircraft and related charter business discussed below. The Nonrecurring Loss of $591,000 in 2005 was due to the sale of Ronson Aviation's charter aircraft, the Citation II, and the related charter business. In the second quarter of 2005, the Company reached an agreement for the sale of the charter aircraft and related business for $1.6 million in cash. The closing on the sale was completed on September 30, 2005. The Nonrecurring Loss consisted of: 1) $97,000 due to the excess of the book value of the aircraft over the proceeds; and 2) approximately $494,000 in costs preparing the aircraft for sale and costs related to the sale. The Company repaid two term loans associated with the aircraft totaling about $460,000. In the years ended December 31, 2005 and 2004, the Ronson Aviation charter business had revenues of $358,000 and $768,000, respectively, and operating losses of $100,000 and $61,000, respectively. 17 Other Items ----------- The General and Administrative Expenses of Corporate and Others increased to $1,799,000 in 2005 as compared to $1,702,000 in 2004 primarily due to increased professional fees, director's fees, and certain benefits costs in 2005. Other-Net included pension expenses related to the Company's frozen defined benefit plans of $308,000, $375,000, and $423,000 in the years ended December 31, 2005, 2004 and 2003, respectively. In the years ended December 31, 2004 and 2003, $291,000 and $341,000, respectively, of these pension expenses were reclassified from General and Administrative Expenses to conform with the current year's presentation. The net Other Charges of $95,000, $145,000, and $460,000 in 2005, 2004 and 2003, respectively, were the legal fees incurred as a result of the derivative action and a second lawsuit filed by the same stockholder. The net shareholder litigation expenses were included in General and Administrative Expenses in the Consolidated Statements of Operations. These litigation expenses were net of the associated insurance reimbursements. 2004 Compared to 2003 The Company's Net Sales were $28,483,000 in the year 2004 as compared to $26,740,000 in the year 2003, an increase of 7%. The Company's Net Earnings in the year 2004 were $193,000 as compared to $703,000 in the year 2003. The Company's Net Earnings from Operations in the year 2004 were $922,000 as compared to $1,461,000 in the year 2003. The Company's Earnings from Operations were after other charges of $145,000 and $460,000 (before income taxes) in 2004 and 2003, respectively, due to litigation costs related to a stockholder derivative action, net of the associated insurance reimbursements. Ronson Consumer Products ------------------------ (in thousands) Year Ended December 31, 2004 2003 ---- ---- Net sales $16,768 $16,773 Earnings before interest, other items, intercompany charges, and taxes 1,807 2,610 Earnings before intercompany charges and taxes 1,691 2,521 Net Sales of consumer products at Ronson Consumer Products was unchanged, composed of a 4% increase due to increased volume of products sold offset by a decline of about 4% due to reduced average net selling prices. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products increased to 59% in 2004 from 56% in 2003. The increase in the Cost of Sales percentage in 2004 was primarily due to the increased material costs because of the increases in the price of oil and to increased personnel costs. The amount of Cost of Sales increased in 2004 from 2003 by 5%, composed of about 3% due to increased product unit costs, 4% due to increased volume of products sold, and 3% due to increased manufacturing costs, partially offset by (5)% resulting from the effect of a change in the mix of products sold. Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, at Ronson Consumer Products increased to 21% in 2004 from 19% in 2003 primarily due to the increased costs associated with the Company's new warehouse facility and to increased shipping costs due to higher fuel prices, partially offset by a reduction in the portion of sales subject to commission. 18 Interest Expense at Ronson Consumer Products increased to $112,000 in 2004 from $85,000 in 2003 primarily due to increased Short-term and Long-term Debt. Ronson Aviation --------------- (in thousands) Year Ended December 31, 2004 2003 ---- ---- Net sales $11,715 $ 9,967 Earnings before interest, other items, intercompany charges, and taxes 1,253 1,454 Earnings before intercompany charges and taxes 1,158 1,374 Net Sales at Ronson Aviation increased by 18% in 2004 from 2003 primarily because of an increase in aircraft sales of $1,500,000. Increased aircraft fuel sales, primarily due to oil price increases, were offset by reduced sales of maintenance services. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased to 77% in 2004 from 71% in 2003 primarily due to the change in the mix of products sold and to the increased cost of aircraft fuel due to higher oil prices. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were reduced to 8% in 2004 from 11% in 2003 primarily due to the increased sales in 2004. Interest Expense at Ronson Aviation increased to $100,000 in 2004 from $67,000 in 2003 primarily due to increased average Short-term Debt in 2004 related to aircraft inventory for sale. Other Items ----------- The General and Administrative Expenses of Corporate and Others were lower at $1,702,000 in 2004 as compared to $1,802,000 in 2003 primarily due to reduced professional fees. In 2003 Other-Net included a gain of $63,000 from the sale of vacant land at Delaware Water Gap, PA. Income Taxes ------------ In accordance with Statement of Financial Accounting Standards ("SFAS") #109, "Accounting for Income Taxes", in 2005, 2004, and 2003, the Company recognized deferred income tax expenses (benefits) of ($235,000), $154,000, and $313,000, respectively, primarily due to the Earnings (Losses) before Taxes. Current income taxes in the years ended December 31, 2005, 2004, and 2003, were presented net of credits of $16,000, $110,000, and $420,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109. In 2005, 2004 and 2003, current income tax expenses (benefits) were as follows (in thousands): Year Ended December 31, 2005 2004 2003 ---- ---- ---- Federal $ -- $ (4) $ 20 State 38 152 110 Foreign 28 9 5 ----- ----- ----- Total $ 66 $ 157 $ 135 ===== ===== ===== 19 At December 31, 2005, the Company had net operating loss carryforwards for federal income tax purposes of approximately $3,657,000 and federal and state alternative minimum tax credit carryforwards of $104,000. (Refer to Note 2 of the Notes to Consolidated Financial Statements.) The Company's effective income tax rate was 34% in 2005, 62% in 2004, and 39% in 2003. The increase in the effective tax rate in 2004 was primarily due to the provision of $122,000 for state income tax related to an assessment by the State of New Jersey for prior years. FINANCIAL CONDITION ------------------- The Company's Stockholders' Equity was $3,304,000 at December 31, 2005, compared to $3,873,000 at December 31, 2004. The decrease in Stockholders' Equity in 2005 was primarily due to the Net Loss of $333,000 in 2005, and to a $137,000 increase, net of related income tax benefits, in the Minimum Pension Liability Adjustment component of Accumulated Other Comprehensive Loss. The Company had a deficiency in working capital of $760,000 at December 31, 2005, as compared to a deficiency of $1,060,000 at December 31, 2004. The increase in working capital of about $300,000 was primarily due to the proceeds of $1.6 million from the sale of the Citation II, partially offset by the Net Loss in 2005. The Bank of America lines of credit with RCPC and Ronson Aviation had been scheduled to expire on December 31, 2005. On January 11, 2006, Bank of America and the Company extended these lines of credit to January 31, 2007. The extension included a covenant providing for a minimum consolidated earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and for fees payable to the bank monthly beginning February 28, 2006, if the loans remain outstanding at the end of the month. Bank of America and the Company do not expect a further extension of the lines of credit. The Company is actively engaged in discussions with other financial institutions to replace Bank of America as the Company's primary lender in the next few months. The extension agreement also provided that the expiration date of the mortgage loan between Bank of America and RCPC, which had been due to expire on December 1, 2008, was changed to January 31, 2007 to coincide with the expiration date of the lines of credit. Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at December 31, 2005, Ronson Consumer Products and Ronson Aviation had total unused borrowings available at December 31, 2005 of about $679,000 under the Bank of America and Canadian Imperial Bank of Commerce lines of credit. The Company's Raw Material Inventories increased at December 31, 2005, from December 31, 2004, primarily due to increased inventories at Ronson Consumer Products related to new products. The Company's Other Current Assets were reduced at December 31, 2005 from December 31, 2004 due primarily to lower prepaid insurance. The Company's Accounts Payable increased in 2005 primarily due to the timing of purchases and payments. The Company's Accrued Expenses decreased in 2005 primarily due to lower accrued compensation and to the large contributions to the Company's defined benefit pension plan. Ronson Aviation's property is subject to a long-term lease with an existing expiration of November 2007. The lease may be extended by Ronson Aviation for an additional 25 years with an investment in capital improvements of $1,500,000. In March 2004 Ronson Aviation announced plans to proceed with an expansion of its facilities to be completed in the second half of 2006 which will meet the requirements of the lease extension. At December 31, 2005, Ronson Aviation had expended approximately $426,000 and had outstanding commitments to expend approximately $105,000 for architectural and engineering services on the project. 20 On February 23, 2006, the Company's Board of Directors declared a 5% stock dividend on the Company's common stock. The 5% stock dividend will be issued on April 15, 2006, to stockholders of record March 31, 2006. Information as to the number of shares and per share amounts has been retroactively adjusted to reflect this stock dividend. On May 31, 2004, the Company completed the redemption of the remaining outstanding preferred stock. A total of 20,322 preferred shares were redeemed at a cost of $46,263, and 14,553 preferred shares were converted into common shares. The Company has continued to meet its obligations as they have matured and management believes that the Company will continue to meet its obligations through internally generated funds from future net earnings and depreciation, established external financial arrangements, potential additional sources of financing and existing cash balances. The Company's capital commitments including long-term debt and leases are discussed more fully in Notes 4 and 5 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 $1,705 $ 155 $1,237 $ 73 $ 240 Capital lease obligations 1,387 326 594 414 53 Operating leases 1,580 333 619 336 292 Other long-term obligations (1) 1,365 709 656 -- -- ------ ------ ------ ------ ------ Total contractual obligations $6,037 $1,523 $3,106 $ 823 $ 585 ====== ====== ====== ====== ====== Pension obligations (2) $ 740 $ 615 $ 611 ====== ====== ======
(1) Other long-term obligations include amounts due under an employment agreement, a consulting agreement and a stock option agreement. (2) The payments of pension obligations assume necessary required contributions are made annually and that the plan incurs no actuarial or asset gains or losses. No estimate of contributions after five years can be made at this time because actuarial gains and losses cannot be estimated at this time. The Company will continue to incur interest expenses related to its outstanding short-term and long-term debt. In the years ended December 31, 2005, 2004, and 2003, the Company's interest expenses were $473,000, $367,000, and $308,000, respectively. The interest expense in 2005 included about $71,000 related to a prior years' New Jersey State income tax matter. Management expects its interest expenses (excluding interest related to capital lease obligations) in the years ending December 31, 2006 through 2010 to be approximately (in thousands): 2006 $ 231 2007-2008 284 2009-2010 266 After 2010 33 The estimated interest payments assume: 1) that the long-term debt and capitalized lease obligations are repaid according to the maturities; 2) the Company's revolving loans will continue through 2010 at the same terms and at the average balances of 2005; 3) interest rates remain at the December 31, 2005, levels; 21 4) no aircraft inventory loans will be required; and 5) interest expense related to capitalized lease obligations are included in the table of Contractual Obligations above. Other commercial commitments include outstanding letters of credit of a $60,000 standby letter of credit related to Ronson Aviation aircraft on order from Raytheon Aircraft Corporation, and a standby letter of credit of $150,000 related to the RCPC lease of additional warehouse space. The Company has no off-balance sheet financing arrangements other than the operating leases discussed above, no guarantees of the obligations of others, and no unconsolidated subsidiaries or special purpose entities. CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which require that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect the Company's consolidated financial statements. Allowance For Doubtful Accounts The preparation of financial statements requires our management to make estimates and assumptions relating to the collectibility of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Accounting For Sales Incentives The Company records sales incentives as a reduction of sales in our statements of operations. Sales incentives include rebates, consideration and allowances given to retailers for space in their stores (slotting fees), consideration and allowances given to obtain favorable display positions in the retailer's stores and other promotional activity. The Company records these promotional incentives in the period during which the related product is shipped to the customer, or when the expense is incurred. Estimated sales incentives are calculated and recorded at the time related sales are made and are based primarily on historical rates and consideration of recent promotional activities. We review our assumptions and adjust our allowances quarterly. Our financial statements could be materially impacted if the actual promotion costs fluctuate from the standard rate. The allowances are classified as a reduction of accounts receivable. Revenue Recognition Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to domestic customers and on the date title for the goods has been transferred on shipments to foreign customers, prior to which an arrangement exists, the price is fixed, and it has been determined that collectibility is reasonably assured. 22 Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. For aircraft, this occurs at the time the title for the aircraft has been transferred and the sales proceeds received. For aircraft fueling, repairs and other aircraft services, delivery occurs only after an arrangement exists, the price is fixed, and collectibility is reasonably assured. Inventory Valuations Inventories are valued at lower of cost or market determined by the average cost method. Management regularly reviews inventory for salability and establishes obsolescence reserves to absorb estimated lower market values. On an annual basis, the Company takes a physical inventory verifying the units on hand and comparing its perpetual records to physical counts. Impairment of Long-Lived Assets The Company periodically evaluates whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the estimated undiscounted future cash flows resulting from the use of the asset. In the event the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Other Loss Accruals The Company has a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims, product liability claims, and litigation costs. 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. Certain loss exposures, such as the Company's potential liability for environmental costs at the former property of Prometcor (now discontinued), can only be estimated as a range of potential costs. Because of uncertainties related to the ultimate outcome of these issues or the possibility of changes in the underlying facts and circumstances, additional charges related to these issues could be required in the future. Pension Plans The valuation of our pension plans requires the use of assumptions and estimates that are used to develop actuarial valuation of expenses, assets and liabilities. These assumptions include discount rates, investment returns, and mortality rates. The actuarial assumptions used in our pension reporting are reviewed annually by management and the Company's independent actuary and compared with external benchmarks to ensure that they accurately account for our future pension obligations. Changes in assumptions and future investment returns could potentially have a material impact on pension expenses and related funding requirements. Accounting for Income Taxes The Company assesses the need for a valuation allowance against deferred tax assets by considering future taxable income and ongoing prudent and feasible tax planning strategies. Should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the valuation allowance against the deferred tax assets would be charged to income in the period such determination was made. 23 New Accounting Pronouncement In November 2004 the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as current period charges, and that fixed production overheads should be allocated to inventory based on normal capacity of production facilities. SFAS No. 151 is effective for our fiscal year beginning January 1, 2006, and since the Company already complies with this statement, its adoption will not have a material impact on our financial position or results of operations. Item 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company is exposed to changes in prevailing market interest rates affecting the return on its investments, but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and very short-term (less than 90 days) maturities. The carrying amount of these investments approximates fair value. All of the Company's Short-term Debt ($1,500,000 at December 31, 2005) 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, 2005, consisted of indebtedness in the amount of $1,705,000 with a fixed rate of interest which is not subject to change based upon changes in prevailing market interest rates. Of the Long-term Debt with fixed interest rates, the $1,241,000 mortgage loan effectively carries a fixed rate of 7.45% due to an interest rate swap contract even though the loan has a variable rate. Because the interest rate swap contract is 100% effective, the contract will result in no future gains or losses being recognized. Based on the Company's average borrowings with variable interest rates during 2005 and assuming a one percentage point change in average interest rates, it is estimated that the Company's interest expense during 2005 would have increased or decreased by approximately $19,000. The Company is also exposed to changes in foreign currency exchange rates due to its investment in its Canadian subsidiary, Ronson-Canada and because approximately 6% of its Consolidated Net Sales were in Canada. As of December 31, 2005, the Company's net investment in Ronson-Canada was approximately $582,000. Because the Company's foreign currency exchange exposure is limited to one relatively stable currency and the relatively small size of its net investment in Ronson-Canada, the Company does not consider this foreign currency exchange exposure to be material to its financial condition and results of operations. The cumulative effect of translating balance sheet accounts from the Canadian dollars into the US dollars at the current exchange rate is included in Accumulated Other Comprehensive Loss in the Consolidated Balance Sheets. The Company, due to the nature of its operations, is also exposed to changes in the prices of fuels. In the years ended December 31, 2005 and 2004, the Company's cost of fuels included in its consumer products and its cost of aircraft fuel totaled approximately $4,956,000 and $4,397,000, respectively, or approximately 28% and 23% of Cost of Sales in the years ended December 31, 2005 and 2004, respectively. The price of the fuels fluctuates more or less in conjunction with oil prices. An increase or decrease of 1% in the average cost of the Company's fuels would have increased or decreased the Company's Cost of Sales by approximately $50,000 in 2005. Cost of fuels also impacts the cost of various other components used in the Company's products. Increases in the price of fuels, to the extent the Company is not able to increase the prices of its products to its customers, could have an adverse impact on the Company's results of operations. Under its current policies, except for an interest rate swap contract noted above, the Company does not use derivative financial instruments, derivative 24 commodity instruments or other financial instruments to manage its exposure to changes in interest rates, foreign currency exchange rates, commodity prices or equity prices. Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- Financial statements required by this item are included in Item 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth certain unaudited quarterly consolidated financial information for each of the two years in the period ending December 31, 2005: (Dollars in thousands, except per share amounts)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------- Year Ended December 31, 2005 ---------------------------- Net sales $ 6,437 $ 6,069 $ 7,196 $ 6,861 $ 26,563 Gross profit (a) $ 1,959 $ 1,905 $ 2,297 $ 2,343 $ 8,504 Net earnings (loss) $ (88) $ (325) $ 20 $ 60 $ (333) Diluted earnings (loss) per share $ (0.02) $ (0.08) $ 0.00 $ 0.01 $ (0.07)(e) Cash dividends paid per common share $ 0.01 $ 0.01 $ -- $ -- $ 0.02 Other expense included in net earnings (loss) (b),(c) $ -- $ 33 $ 24 $ -- $ 57 Nonrecurring losses included in net earnings (loss) (d) $ -- $ 253 $ 102 $ 31 $ 386 Year Ended December 31, 2004 ---------------------------- Net sales $ 7,049 $ 6,376 $ 6,979 $ 8,079 $ 28,483 Gross profit (a) $ 2,572 $ 2,100 $ 2,104 $ 2,174 $ 8,950 Net earnings (loss) $ 275 $ (74) $ 11 $ (19) $ 193 Diluted earnings (loss) per share $ 0.07 $ (0.02) $ 0.00 $ (0.00) $ 0.04(e) Cash dividends paid per common share $ -- $ 0.01 $ 0.01 $ 0.01 $ 0.03 Other expense included in net earnings (loss) (b),(c) $ 30 $ 30 $ 9 $ 18 $ 87
(a) Net Sales, less Cost of Sales, less a portion of Depreciation and Amortization. (b) Items are presented net of income tax effect. (c) The costs included in the 2005 and 2004 quarters were the legal fees incurred as a result of the derivative action and a second lawsuit filed by the same shareholder. (d) The Nonrecurring Losses in the second and third quarters of 2005 were attributed to the loss on the sales of the Ronson Aviation charter aircraft and business; and the loss in the fourth quarter of 2005 related to a prior year's state income tax matter. (e) Does not add due to rounding. 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, 2005, 2004 and 2003. Item 9A - CONTROLS AND PROCEDURES ----------------------- a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this annual report, the Company's disclosure controls and procedures were adequate, are designed to ensure that material information related to 25 the Company (including its consolidated subsidiaries) would be made known to the above officers, are effective and provide reasonable assurance that they will meet their objectives. The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls in the last fiscal quarter or subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 9B - OTHER INFORMATION ----------------- None. 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 nine (9) directors: 26
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 83 1952- 2008 President & Chief Present Executive Officer; Chairman of Executive Committee. Robert A. Aronson 56 1993- 2007 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. Barbara L. Collins 52 2004- 2006 Member of Compensation Present Committee, Nominating Committee and Audit Committee; President and CEO of The Whistling Elk, Chester, NJ, the principal business of which is home furnishing and interior decorating, 1990 to present; Vice President of Human Resources of Van Heusen Retail Division of Phillips-Van Heusen Corporation, the principal business of which is retail apparel, 1986 to 1990.
27
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) ---------------- --- -------- ------- ------------------------ Edward E. David, Jr. 80 September 2006 President, EED, Inc. the 2005-Present principal business of which is advising industry, government and universities on tech- nology, research and innovation management, 1977 to present; Affiliate of The Washington Advisory Group, 2004 to present, the principal business of which is providing strategic counsel and management advice; Principal and Vice President, Treasurer, The Washington Advisory Group, 1997 to 2004; President, Exxon Research and Engineering, the principal business of which is research, development, engineering and technical service for Exxon Corporation, 1977 to 1985; Executive Vice President R&D and Planning, Gould, Inc. the principal business of which was organizing and directing U.S. laboratories to support business strategies based on new products and technologies, 1973 to 1977; Science Advisor to the President of the United States, 1970-1973; Executive Director, Research, Bell Telephone Laboratories, 1950-1970; Life Member MIT Corporation, Member of Executive Committee, 1974 to Present. Paul H. Einhorn 90 2004- 2008 Chairman of Audit Committee; Present Member of Compensation Committee and Nominating Committee; Management Consultant - CPA, 1985 to present; Director, Vice Chairman of Board and Member of Executive Committee, Valley National Bank, Passaic, NJ, 1968 to 1985; President and CEO, Universal Manufacturing Corporation, the principal business of which was manufacturing of fluorescent lighting components, 1968 to 1990.
28
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) ---------------- --- -------- ------- ------------------------ Erwin M. Ganz 76 1976- 2007 Treasurer & Assistant Present Secretary, January 2006 to Present, Member of Executive Committee; Consultant for the Company, 1994 to 2005; Executive Vice President-Industrial Operations, 1975 to 1993; Chief Financial Officer, 1987 to 1993. I. Leo Motiuk 60 1999- 2008 Member of Audit Committee; Present Counsel, Windels Marx Lane & Mittendorf, LLP, Attorneys at Law, New Brunswick, NJ; Attorney, 2004 to present; Former partner in Shanley Fisher, P.C., Attorneys at Law, Morristown, NJ, 1990 to 1999. Gerard J. Quinnan 77 1996- 2006 Member of Compensation Present Committee, Executive Committee and Nominating Committee; Consultant for the Company, 1990 to present, Vice President- General Manager of Ronson Consumer Products Corporation, 1981 to 1990. Justin P. Walder 70 1972- 2007 Secretary; Assistant Present Corporation Counsel; Member of Executive Committee; Principal in Walder, Hayden & Brogan, P.A., Attorneys at Law, Roseland, NJ.
No director also serves as a director of another company registered under the Securities Exchange Act of 1934, except for Dr. David who serves as a director of DeCorp, Medjet, Inc., and Spacehab, Inc. Audit Committee The Audit Committee of the Board of Directors reports to the Board regarding the appointment of the Company's public accountants, the scope and results of its annual audits, compliance with accounting and financial policies and management's procedures and policies relative to the adequacy of internal accounting controls. 29 The Company's Board of Directors has adopted a written charter for the Audit Committee which can be found on the investor relations page of the Company's website www.ronsoncorp.com. The Audit Committee consists of three independent directors: Messrs. Einhorn (Chairman) and Motiuk, and Ms. Collins. Each member of the Audit Committee is an independent director, as independence is defined in the listing standards of the NASDAQ relating to audit committee members. Each member of the Audit Committee is "financially literate" as required by NASDAQ rules. The Board of Directors has determined that Mr. Einhorn, the Audit Committee Chairman, is an "audit committee financial expert" as defined by regulations adopted by the Securities and Exchange Commission and meets the qualifications of "financial sophistication" in accordance with NASDAQ rules. Stockholders should understand that these designations related to our Audit Committee members' experience and understanding with respect to certain accounting and auditing matters do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of the Audit Committee or of the Board. (b) Identification of executive officers. The following table sets forth certain information concerning the executive officers of the Company, each of whom is serving a one-year term of office, except Mr. Louis V. Aronson II, who is a party to an employment contract with the Company which expires on December 31, 2007:
Positions and Offices Period Served with Company; Name Age as Officer Family Relationships --------------------- --- ------------- ---------------------- Louis V. Aronson II.. 83 1953 - Present President & Chief Executive Officer; Chairman of the Executive Committee; Director. Erwin M. Ganz ....... 76 2006 - Present Treasurer & Assistant Secretary; Director; No family relationship Daryl K. Holcomb..... 55 2006 - Present Vice President, Chief Financial Officer & Controller 1996 - 2005 Vice President, Chief Financial Officer, Controller & Treasurer; 1993 - 1996 Chief Financial Officer, Controller & Treasurer; 1988 - 1993 Controller & Treasurer; No family relationship. Justin P. Walder..... 70 1989 - Present Secretary; 1972 - Present Assistant Corporation Counsel; Director; No family relationship.
Messrs. L.V. Aronson and Holcomb have been employed by the Company in an executive capacity for at least the five-year period immediately preceding the date hereof. Mr. Walder has been Secretary, Assistant Corporation Counsel and Director of the Company and a principal in Walder, Hayden & Brogan, P.A., Attorneys at Law, for 30 at least the five-year period preceding the date hereof. Mr. Ganz has been a consultant to the Company and others from 1994 to 2005. Mr. Ganz was Executive Vice President - Industrial Operations for the Company 1975 to 1993. (c) Section 16(a) Beneficial Ownership Reporting Compliance. Under Securities and Exchange Commission ("SEC") rules, the Company is required to review copies of beneficial ownership reports filed with the Company which are required under Section 16(a) of the Exchange Act by officers, directors and greater than 10% beneficial owners. Based solely on the Company's review of forms filed with the Company, the Company believes no information is required to be reported under this item. (d) Code of ethics. The Company has adopted a code of ethics entitled, Standards of Integrity, applicable to it and all its subsidiaries. The Standards of Integrity are an integral part of the Company's business conduct compliance program and embody the commitment of the Company and its subsidiaries to conduct operations in accordance with the highest legal and ethical standards. A copy of the Standards of Integrity may be obtained without charge upon written request to: Investor Relations, Ronson Corporation, P.O. Box 6707, Somerset, NJ 08875-6707. Item 11 - EXECUTIVE COMPENSATION ---------------------- SUMMARY COMPENSATION TABLE The Summary Compensation Table presents compensation information for the years ended December 31, 2005, 2004, and 2003, for the Chief Executive Officer and the other executive officer of the Company whose salary and bonus exceeded $100,000. SUMMARY COMPENSATION TABLE --------------------------
Long-Term Compensa- All Annual Compensation tion Other Name and ------------------- ---- Compen- Principal Salary Bonus Options/ sation Position Year ($)(1) ($)(2) SARS(#) ($)(3) -------- ---- ------ ------ ------- ------ Louis V. Aronson II 2005 $605,337 $ 34,160 -- $ 18,817 President & Chief 2004 616,120 54,484 -- 19,435 Executive Officer 2003 616,120 70,570 -- 19,005 Daryl K. Holcomb 2005 167,025 12,797 -- 3,741 Vice President, 2004 165,000 20,020 -- 3,809 Chief Financial 2003 157,813 25,454 -- 3,575 Officer & Controller
Footnotes --------- (1) Effective October 1, 2005, the base salaries of the named executive officers, the other officers of the Company and its subsidiaries, and other employees whose base salaries exceeded $100,000 were reduced by 7%. (2) 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. (3) In 2005 All Other Compensation included matching credits by the Company under its Employees' Savings Plan (Mr. L.V. Aronson, $4,200; Mr. Holcomb, $3,741) and the cost 31 of term life insurance included in split-dollar life insurance policies (Mr. L.V. Aronson, $14,617). OPTION GRANTS IN LAST FISCAL YEAR --------------------------------- None. AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES ------------------------------------------------------ The following table summarizes, for each of the named executive officers, options exercised during the year and the number of stock options unexercised at December 31, 2005. "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 (4)(5) FY-End (3) Acquired ----------------------- --------------------- on Value (1) Exercis- Unexercis- Exercis- Unexercis- Name Exercise Realized able (2) able able able ---- -------- -------- -------- ---------- -------- ---------- D.K. Holcomb -- -- 22,487 -- $8,330 --
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 officer at December 31, 2005 are exercisable at any time and expire on July 6, 2006, and September 12, 2007. (3) The value of the unexercised options was determined by comparing the average of the bid and ask prices of the Company's common stock at December 31, 2005 to the option prices. (4) The exercise prices of the options held at December 31, 2005 were as follows: Number Exercise Price ------ -------------- D.K. Holcomb 10,332 $0.9433 12,155 0.9355 (5) The number of shares acquired on exercise and of unexercised options held at December 31, 2005, has been adjusted for the 5% common stock dividend declared February 23, 2006. LONG-TERM INCENTIVE PLANS None. PENSION PLANS No named executive officer is a participant in the Company's defined benefit pension plan. COMPENSATION OF DIRECTORS Effective October 21, 2004, directors who are not officers of the Company receive an annual fee of $10,000 and, in addition, are compensated at the rate of $750 for each meeting of the Company's Board of Directors actually attended and $450 32 for each meeting of a Committee of the Company's Board of Directors actually attended. Independent directors, as defined under NASDAQ Listing Requirements, receive an additional annual fee of $1,000 as compensation for separate meetings of the independent directors. 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 On November 24, 2003, the Company and Mr. L.V. Aronson entered into a new employment agreement which became effective upon the December 31, 2004 expiration of the existing agreement. The new three-year agreement provides for a term expiring on December 31, 2007, and provides for the payment of a base salary which is to be increased 3.5% as of January 1 of each year beginning in 2005, subject to the Company reporting operating earnings in the year prior to each increase. Mr. L.V. Aronson waived the 3.5% increases due on January 1, 2005 and on January 1, 2006. Effective October 1, 2005, Mr. Aronson offered and accepted a 7% reduction in his base salary provided for by the terms of his employment contract. Both the existing and new contracts also provide that the Company shall reimburse Mr. L.V. Aronson for expenses, provide him with an automobile, and pay a death benefit equal to two years' salary. The Company has purchased term insurance, for which the Company is the sole beneficiary, to provide coverage for a substantial portion of the potential death benefit. Under both of the employment contracts, Mr. L.V. Aronson's full compensation will continue in the event of Mr. L.V. Aronson's disability for the duration of the agreement or one full year, whichever is later. The employment contracts also provide that if, following a Change in Control (as defined in the employment contract), Mr. L.V. Aronson's employment with the Company terminated under prescribed circumstances as set forth in the employment contract, the Company will pay Mr. L.V. Aronson a lump sum equal to the base salary (including the required increases in base salary) for the remaining term of the employment contracts. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None. REPORT ON EXECUTIVE COMPENSATION On October 21, 2004, the Board formed a separate Compensation Committee composed of Ms. Collins and Messrs. Einhorn and Quinnan. The Compensation Committee is responsible for making recommendations to the Board regarding the 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 Compensation Committee and the Board. The Compensation Committee and the Board also reviewed and approved the salaries of all of the other executive officers. Prior to the beginning of the fiscal year, the Compensation Committee and the Board reviewed and approved which employees participate in the Company's MIP and the criteria which will determine the cash awards under the plan to the participants after the close of the fiscal year. The Compensation Committee and the Board also reviewed and approved 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 33 the business functions for which they are responsible, their extended period of service to the Company and their dedication and diligence in carrying out their responsibilities for the Company and its subsidiaries. In 2004 and prior years, increases have been granted to Mr. L.V. Aronson in accordance with terms of the employment contract, except for the above mentioned salary reductions offered and accepted from time to time by him. In 2005 and prior years, the Compensation Committee and the Board, after review, have approved increases to the other executive officers. Effective October 1, 2005, the compensation of each of the Company's officers, employees earning greater than $100,000 annually, and several individuals providing consulting services to the Company was reduced by 7%. 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 Compensation Committee and 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 Compensation Committee and the Board and (2) pretax profits as a percent of net sales. The Compensation Committee and 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 Compensation Committee and 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 2005 no options were granted. The above report is presented by the Compensation Committee: Barbara L. Collins Paul H. Einhorn Gerard J. Quinnan 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, 2005, 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, 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- Ronson Corporation $100.00 $144.00 $ 83.20 $198.66 $176.45 $174.92 NASDAQ Stock Market Index 100.00 79.32 54.84 81.99 89.23 83.73 Russell 2000 Index 100.00 102.49 81.31 120.00 142.00 148.46
This comparison assumes that $100 was invested in the Company's common stock on December 31, 2000, in the NASDAQ Stock Market (U.S. Companies) Index and in the Russell 2000 Index, and that dividends are reinvested. 34 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 smaller 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 1,277,046 (1) 28.15% (1) Campus Drive P.O. Box 6707 Somerset, New Jersey 08875 Carl W. Dinger III Common 535,222 (2) 11.80% (2) P.O. Box 150 Green Village, New Jersey 07935 Steel Partners II, L.P. Common 438,128 (3) 9.66% (3) 590 Madison Avenue 32nd Floor New York, New York 10022
(1) The Ronson Corporation Retirement Plan ("Retirement Plan") is the beneficial owner of 218,624 common shares. The shares held by the Retirement Plan are voted by the Retirement Plan's trustees, Messrs. L.V. Aronson and Ganz. If the shares held by the Retirement Plan were included in Mr. L.V. Aronson's beneficial ownership, Mr. L.V. Aronson's beneficial ownership would be increased to 1,495,670 shares, or 32.97% of the class. The Retirement Plan's holdings were reported in 1988 on Schedule 13G, as amended September 22, 1997, adjusted for the 5% common stock dividend declared February 23, 2006. (2) 535,222 shares of common stock owned directly, adjusted for the 5% common stock dividend declared February 23, 2006. This information was from a Form 4 filed by Mr. Dinger on March 28, 2005. 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.) (3) 438,128 shares of common 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 filed with the SEC on January 26, 2004, by Steel Partners II, L.P., and Mr. Lichtenstein, adjusted for the 5% common stock dividends declared through February 23, 2006. (b) Security ownership of management. The following table shows the number of shares of common stock 35 beneficially owned by each director, each named executive officer, and by all directors and officers as a group as of March 23, 2006, and the percentage of the total shares of common stock outstanding on March 23, 2006, 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 1,277,046 (3) 28.15% Robert A. Aronson 16,105 (1) Barbara L. Collins 1,102 (1) Edward E. David 525 (1) Paul H. Einhorn 10,332 (1) Erwin M. Ganz 49,023 (3) 1.08% I. Leo Motiuk 10,370 (1) Gerard J. Quinnan 12,748 (1) Justin P. Walder 76,242 1.68% Daryl K. Holcomb 61,459 1.35% All directors and officers as a group (ten (10) individuals including those named above) 1,514,951 33.10% (1) Shares owned beneficially are less than 1% of total shares outstanding. (2) Shares listed as owned beneficially include 41,287 shares subject to option under the Ronson Corporation 1996 and 2001 Incentive Stock Option Plans as follows: Number of Common Shares Under Option ----------------------- Robert A. Aronson 2,771 Erwin M. Ganz 6,912 Justin P. Walder 9,117 Daryl K. Holcomb 22,487 All directors and officers as a group (ten (10) individuals including those named above) 41,287 (3) Does not include 218,624 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 1,495,670 shares, or 32.97% of the class; however, if the shares held by the Retirement Plan were not included in Mr. L.V. Aronson's beneficial ownership, but instead were included in Mr. Ganz's beneficial ownership, Mr. Ganz's beneficial ownership would be 267,647 shares, or 5.89% 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. 36 (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 88,662 $.939 74,170 Equity compensation plans not approved by security holders None N/A None Total 88,662 $.939 74,170
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- (a) Transactions with management and others. In October 1998 the Company entered into a consulting agreement with Mr. Carl W. Dinger III, a greater than 5% shareholder of the Company. The agreement provided that Mr. Dinger perform certain consulting services for the Company for a period ending on April 7, 2000. The Company and Mr. Dinger entered into a second consulting agreement effective upon the expiration date of the original agreement. This agreement provided that Mr. Dinger continue to perform consulting services for the Company through April 7, 2004 at a fee of $7,000 per month. During 2004 the agreement was extended on a month-to-month basis through July 7, 2004. A new consulting agreement was effective on July 8, 2004, which provides that Mr. Dinger continue to perform consulting services at a fee of $7,000 per month for the Company for a period of thirty-six months through July 7, 2007. On January 1, 2006, Mr. Dinger's consulting fee was reduced by 7% from $7,000 per month to $6,510.00 per month. Mr. Dinger was compensated $84,000 during each of the years ended December 31, 2005, 2004 and 2003 under the agreements. In October 1998 Mr. Dinger granted an option to the Company to purchase the 186,166 shares of the Company's common stock then held by Mr. Dinger. The option was for a period of 18 months expiring on April 7, 2000. In 2000 Mr. Dinger granted a new option to the Company, to purchase the shares of the Company's common stock held by Mr. Dinger. The option was for a period of 48 months, expiring April 7, 2004. The cost of the option was $4,000 per month for the period of the option or until exercised. In March 2000 Mr. Dinger purchased 290,359 shares of newly issued restricted common stock of the Company at a price of $1.96 per share with a cash payment of $569,000 to the Company. During 2004 the option agreement was extended on a month-to-month basis through July 7, 2004. A new option agreement was effective on July 8, 2004. The new option granted by Mr. Dinger is for a period of 36 months, expiring on July 7, 2007. The exercise price of the option is $5.90 per share for the 535,224 shares now held by Mr. Dinger. The cost of the option is $4,000 per 37 month for the period of the option or until exercised. As part of each of the option agreements, Mr. Dinger has granted the Board of Directors of the Company an irrevocable proxy to vote the optioned shares during the term of the option. The Company expended $48,000 for the options during each of the years ended December 31, 2005, 2004 and 2003, which were charged to Additional Paid-in Capital. During the year ended December 31, 2005, the Company and Ronson Consumer Products were provided printing services by Michael Graphics, Inc., a New Jersey corporation, amounting to $57,247. 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, 2005, the Company was provided consulting services amounting to $93,337 by Mr. Erwin M. Ganz, a director of the Company, under a consulting agreement. The agreement provided for compensation at the annual rate of $95,000 plus participation in the Company's health and life insurance plans and the use of an automobile. Effective October 1, 2005, the amount of compensation under the terms of the agreement was reduced by 7%. During the fourth quarter of 2005, Mr. Ganz agreed to return to the Company as Treasurer and Assistant Secretary, for which the Company paid an inducement to Mr. Ganz of $18,000, and at which time the consulting agreement ended. (b) Certain business relationships. None. (c) Indebtedness of management. None. (d) Transactions with promoters. Not applicable. Item 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES -------------------------------------- The fees billed for services provided to the Company by Demetrius & Company, L.L.C., for the years ended December 31, 2005 and 2004, were as follows: 2005 2004 ---- ---- Audit fees $83,150 $80,400 Audit-related fees -- -- Tax fees, principally related to tax return preparation 16,000 14,000 All other fees -- -- The Audit Committee of the Board of Directors pre-approves substantially all of the services of the Company's auditing firm. These pre-approved services are approved by the Audit Committee based upon "not to exceed" proposals in advance of the Company's Annual Meeting of Stockholders. PART IV ------- Item 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ------------------------------------------ (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: 38 (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. (4) 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 Bank of America, N.A. ("Bank of America") 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. On June 30, 2005, the Revolving loan was amended and further extended to September 30, 2005. On September 30, 2005, the Revolving Loan was amended and further extended to December 31, 2005. On January 11, 2006, the Revolving loan was amended and further extended to January 31, 2007. 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). The June 2005 amendment was attached to the Company's Form 8-K dated July 21, 2005, as Exhibit 10.a)-10.c). The September 2005 amendment was attached to the Company's Form 8-K dated October 6, 2005, as Exhibits 10.a)-10.d). The January 11, 2006, amendment was attached to the Company's Form 8-K dated January 11, 2006 as Exhibit 10.a). On December 1, 1995, the Company and RCPC entered into a mortgage loan agreement with Bank of America. The agreement and note were attached to the Company's 1995 Form 10-K as Exhibits 10(a) and 10(b). On May 13, 1999, the Company and RCPC refinanced the existing mortgage. The new mortgage loan was attached to the Company's June 30, 1999, Form 10-Q as Exhibits 10(b)-10(e). On December 3, 2003, the Company, RCPC and Bank of America extended the mortgage loan. On January 11, 2006, the mortgage loan agreement was amended so that its expiration date would coincide with the expiration date of the Revolving loan, January 31, 2007. The amendments to the mortgage loan were attached to the Company's Form 8-K filed January 6, 2004, as Exhibits 10(a)-10(d). The January 11, 2006, amendment was attached to the Company's Form 8-K dated January 11, 2006 as Exhibit 10.a). On August 28, 1997, Ronson Aviation entered into an agreement with Bank of America 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. On June 30, 2005, the Revolving loan was amended and further extended to September 30, 2005. On September 30, 2005, the Revolving Loan was amended and further extended to December 31, 2005. On January 11, 2006, the Revolving loans was amended and further extended to January 31, 2007. 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). The June 2005 amendment was attached to the Company's Form 8-K dated July 21, 2005, as Exhibit 10.d) - 10.f). The September 2005 amendment was attached to the Company's Form 8-K dated October 6, 2005, as Exhibits 10.e)-10.h). The January 11, 2006, amendment was attached to the Company's Form 8-K dated January 11, 2006 as Exhibit 10.a). 39 For further information on the Company's loan agreements, reference is made to Notes 3 and 4 of the Notes to Consolidated Financial Statements contained in the Company's financial statements for the year ended December 31, 2005, filed with this report pursuant to Item 8, which is incorporated herein by reference. On November 24, 2003, the Company and Mr. Louis V. Aronson II entered into a new three-year employment agreement which became effective upon the December 31, 2004 expiration of the prior agreement. The new agreement provides for a term expiring on December 31, 2007. The new agreement was attached to the Company's Form 8-K filed January 6, 2004, as Exhibit 10(e). (14) The Company's code of ethics entitled, Standards of Integrity, was attached to the Company's Form 8-K dated April 27, 2004 as Exhibit 99.d). (20) Other documents or statements to security holders. The Ronson Corporation Notice of Meeting of Stockholders held on October 27, 2005, and Proxy Statement was filed on September 30, 2005, and is incorporated herein by reference. (21) Subsidiaries of the Company. The Company is the owner of 100% of the voting power of the following subsidiaries, each of which is included in the consolidated financial statements of the Company: Wholly Owned Subsidiary State or Other Jurisdiction and Business Name of Incorporation or Organization ----------------- -------------------------------- Domestic -------- Ronson Consumer Products Corporation New Jersey Ronson Aviation, Inc. New Jersey Foreign ------- Ronson Corporation of Canada Ltd. Canada The Company also holds 100% of the voting power of two additional subsidiaries which are included in its consolidated financial statements and which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. (23) Consent of experts and counsel attached hereto as Exhibit 23(a). 31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934). (99) Additional exhibits. (a) None. 40 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. RONSON CORPORATION Dated: March 30, 2006 By: /s/ Louis V. Aronson II --------------------------------------- Louis V. Aronson II, President & Chief Executive Officer and Director Dated: March 30, 2006 By: /s/ Daryl K. Holcomb --------------------------------------- Daryl K. Holcomb, Vice President, Chief Financial Officer & Controller Dated: March 30, 2006 By: /s/ Erwin M. Ganz --------------------------------------- Erwin M. Ganz, Treasurer, Assistant Secretary and Director Dated: March 30, 2006 By: /s/ Justin P. Walder --------------------------------------- Justin P. Walder, Secretary and Director Dated: March 30, 2006 By: /s/ Robert A. Aronson --------------------------------------- Robert A. Aronson, Director Dated: March 30, 2006 By: /s/ Barbara L. Collins --------------------------------------- Barbara L. Collins, Director Dated: March 30, 2006 By: /s/ Edward E. David --------------------------------------- Edward E. David, Director Dated: March 30, 2006 By: /s/ Paul H. Einhorn --------------------------------------- Paul H. Einhorn, Director Dated: March 30, 2006 By: /s/ I. Leo Motiuk --------------------------------------- I. Leo Motiuk, Director Dated: March 30, 2006 By: /s/ Gerard J. Quinnan --------------------------------------- Gerard J. Quinnan, Director 41 ANNUAL REPORT ON FORM 10-K ITEM 8 FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 RONSON CORPORATION SOMERSET, NEW JERSEY 42 RONSON CORPORATION FIVE-YEAR SELECTED FINANCIAL DATA ---------------------------------------------------- Dollars in thousands (except per share data)
2005 2004 2003 2002 2001 ---- ---- ---- ---- ---- Net sales $ 26,563 $ 28,483 $ 26,740 $ 23,601 $ 28,705 Earnings (loss) from continuing operations $ (333) $ 193 $ 703 $ 42 $ 531 Total assets $ 12,654 $ 13,942 $ 12,603 $ 12,888 $ 12,627 Long-term obligations $ 2,717 $ 2,898 $ 3,317 $ 4,321 $ 4,460 Per common share (1,2): Earnings (loss) from continuing operations: Basic $ (0.07) $ 0.04 $ 0.16 $ 0.01 $ 0.12 Diluted $ (0.07) $ 0.04 $ 0.15 $ 0.01 $ 0.12 Cash dividends declared $ 0.02 $ 0.03 $ -- $ -- $ --
(1) Basic Net Earnings (Loss) per Common Share provides for quarterly cumulative preferred dividends with no conversion of preferred shares to common shares. Diluted Net Earnings (Loss) 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, 2005 and 2002, and, therefore, were excluded from the computation of Diluted Net Earnings (Loss) Per Common Share for those years. (2) A 5% stock dividend on the Company's outstanding common stock was declared on February 23, 2006, payable on April 15, 2006. Previously, 5% stock dividends on the Company's outstanding common stock were issued on April 15, 2005, 2004, 2003, and 2002. (3) Cash dividends of $0.01 per share were paid on March 15, 2005, and on June 17, 2005. Cash dividends of $0.01 per share were paid on June 18, September 18 and December 17, 2004. 43 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, 2005 and 2004 Consolidated Statements of Earnings - Years Ended December 31, 2005, 2004 and 2003 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2005, 2004 and 2003 Consolidated Statements of Cash Flows - Years Ended December 31, 2005, 2004 and 2003 Notes to Consolidated Financial Statements 44 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Board of Directors and Stockholders of Ronson Corporation We have audited the accompanying consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ronson Corporation and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey March 10, 2006 45 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands
ASSETS ------ December 31, ------------------------------ 2005 2004 ---- ---- CURRENT ASSETS: Cash and cash equivalents ..................................... $ 414 $ 599 Accounts receivable, less allowances for doubtful accounts of : 2005, $107 and 2004, $84 .............................. 1,832 1,876 Inventories: Finished goods ............................................. 1,625 1,625 Work in process ............................................ 22 88 Raw materials .............................................. 908 621 ----------- ----------- 2,555 2,334 Other current assets .......................................... 1,072 1,302 ----------- ----------- TOTAL CURRENT ASSETS 5,873 6,111 PROPERTY, PLANT AND EQUIPMENT: Land .......................................................... 6 6 Buildings and improvements .................................... 5,374 5,333 Machinery and equipment ....................................... 6,515 8,707 Construction in progress ...................................... 555 261 ----------- ----------- 12,450 14,307 Less accumulated depreciation and amortization ................ 8,335 8,791 ----------- ----------- 4,115 5,516 OTHER ASSETS .................................................. 2,666 2,315 ----------- ----------- $ 12,654 $ 13,942 =========== ===========
See notes to consolidated financial statements. 46 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands (except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ December 31, ------------------------------ 2005 2004 ---- ---- CURRENT LIABILITIES: Short-term debt ........................................................ $ 1,500 $ 1,439 Current portion of long-term debt ...................................... 155 731 Current portion of lease obligations ................................... 252 195 Accounts payable ....................................................... 2,134 1,786 Accrued expenses ....................................................... 2,592 3,020 ------------ ------------ TOTAL CURRENT LIABILITIES ..................................... 6,633 7,171 LONG-TERM DEBT ......................................................... 1,550 1,665 LONG-TERM LEASE OBLIGATIONS ............................................ 918 826 PENSION OBLIGATIONS .................................................... -- 138 OTHER LONG-TERM LIABILITIES ............................................ 249 269 COMMITMENTS AND CONTINGENCIES .......................................... -- -- STOCKHOLDERS' EQUITY: Preferred stock, no par value, authorized 5,000,000 shares Common stock, par value $1 2005 2004 ---- ---- Authorized shares .............. 11,848,106 11,848,106 Reserved shares ................ 88,662 101,023 Issued (including treasury) .... 4,617,010 4,617,010 4,617 4,617 Additional paid-in capital ............................................. 29,724 29,772 Accumulated deficit .................................................... (27,895) (27,478) Accumulated other comprehensive loss ................................... (1,545) (1,441) ------------ ------------ 4,901 5,470 Less cost of treasury shares: 2005, 80,761 and 2004, 80,754 ...................................... 1,597 1,597 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ................................... 3,304 3,873 ------------ ------------ $ 12,654 $ 13,942 ============ ============
See notes to consolidated financial statements. 47 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- Dollars in thousands (except per share data)
Year Ended December 31, ---------------------------------------------- 2005 2004 2003 ---- ---- ---- NET SALES ........................................................ $ 26,563 $ 28,483 $ 26,740 ----------- ----------- ----------- Cost and expenses: Cost of sales ................................................ 17,455 18,884 16,451 Selling, shipping and advertising ............................ 3,583 3,526 3,164 General and administrative ................................... 3,899 4,088 4,665 Depreciation and amortization ................................ 738 772 658 ----------- ----------- ----------- 25,675 27,270 24,938 ----------- ----------- ----------- EARNINGS BEFORE INTEREST AND OTHER ITEMS ......................... 888 1,213 1,802 ----------- ----------- ----------- Other expense: Interest expense ............................................. 473 367 308 Nonrecurring loss - sale of charter aircraft & business ...... 591 -- -- Other-net .................................................... 326 342 343 ----------- ----------- ----------- 1,390 709 651 ----------- ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES .............................. (502) 504 1,151 Income tax provisions (benefits) ................................. (169) 311 448 ----------- ----------- ----------- NET EARNINGS (LOSS) .............................................. $ (333) $ 193 $ 703 =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE: Basic ............................................................ $ (0.07) $ 0.04 $ 0.16 Diluted .......................................................... $ (0.07) $ 0.04 $ 0.15
See notes to consolidated financial statements. 48 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- For the Years Ended December 31, 2005, 2004 and 2003 Dollars in thousands
12% Cumulative Accumulated Compre- Convertible Additional Other Treasury hensive Preferred Common Paid-in Accumulated omprehensive Stock Income Stock Stock Capital Deficit Loss (at cost) Total (Loss) ----------- --------- ---------- ----------- ------------ --------- ------- --------- Balance at December 31, 2002 $ -- $ 4,525 $ 29,894 $(28,223) $ (2,141) $(1,597) $2,458 --------- --------- --------- --------- --------- -------- ------- Net earnings - 2003 703 703 $ 703 ------- Dividends (7) (7) Translation adjustment, net of tax 58 Pensions, net of tax 287 ------- Other comprehensive income 345 345 345 ------- Comprehensive income $ 1,048 ======= Shares issued for: Stock options exercised 24 24 Stock option purchased (48) (48) --------- --------- --------- --------- --------- -------- ------- Balance at December 31, 2003 -- 4,549 29,846 (27,527) (1,796) (1,597) 3,475 --------- --------- --------- --------- --------- -------- ------- Net earnings - 2004 193 193 $ 193 ------- Dividends (125) (125) Translation adjustment, net of tax 63 Other comprehensive loss on swap (10) Pensions, net of tax 302 ------- Other comprehensive income 355 355 355 ------- Comprehensive income $ 548 ======= Fair value of stock options granted, net of tax 3 3 Shares issued for: Stock options exercised 50 16 66 Preferred shares converted 18 (18) -- Preferred shares redeemed (27) (19) (46) Stock option purchased (48) (48) --------- --------- --------- --------- --------- -------- ------- Balance at December 31, 2004 -- 4,617 29,772 (27,478) (1,441) (1,597) 3,873 --------- --------- --------- --------- --------- -------- ------- Net loss - 2005 (333) (333) $ (333) ------- Dividends (84) (84) Translation adjustment, net of tax 10 Other comprehensive gain on swap 23 Pensions, net of tax (137) ------- Other comprehensive loss (104) (104) (104) ------- Comprehensive loss $ (437) ======= Stock option purchased (48) (48) --------- --------- --------- --------- --------- -------- ------- Balance at December 31, 2005 $ -- $ 4,617 $ 29,724 $ (27,895) $ (1,545) $ (1,597) $ 3,304 ========= ========= ========= ========= ========= ========= =======
SHARE ACTIVITY ----------------------------------------- 12% Cumulative Convertible Preferred Common Treasury Stock Stock Stock --------- --------- --------- Balance at December 31, 2002 34,875 4,524,012 80,737 Shares issued for: Stock options exercised 24,311 --------- --------- --------- Balance at December 31, 2003 34,875 4,548,323 80,737 Shares issued for: Stock options exercised 50,131 Preferred shares converted (14,553) 18,556 17 Preferred shares redeemed (20,322) --------- --------- --------- Balance at December 31, 2004 -- 4,617,010 80,754 Treasury shares 7 --------- --------- --------- Balance at December 31, 2005 -- 4,617,010 80,761 ========= ========= =========
See notes to consolidated financial statements. 49 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Dollars in thousands
Year Ended December 31, ---------------------------------------------- 2005 2004 2003 ---- ---- ---- Cash Flows from Operating Activities: Net earnings (loss) ................................................. $ (333) $ 193 $ 703 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................................... 738 772 658 Deferred income tax provisions (benefit) ........................ (235) 154 313 Loss (gain) on disposal of assets ............................... 97 -- (63) Increase (decrease) in cash from changes in: Accounts receivable .......................................... 49 293 (404) Inventories .................................................. (221) (431) 434 Other current assets ......................................... 291 (148) 36 Accounts payable ............................................. 343 183 (37) Accrued expenses ............................................. (279) (193) 331 Other non-current assets and other long-term liabilities ................................................ (108) (23) (105) Net change in pension-related accounts .......................... (507) (264) (24) Effect of exchange rate changes ................................. 10 63 54 Discontinued operations ......................................... -- (5) (42) ----------- ----------- ----------- Net cash provided by (used in) operating activities ......... (155) 594 1,854 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital expenditures ................................................ (597) (687) (422) Proceeds from sale of property, plant & equipment ................... 1,600 -- 76 ----------- ----------- ----------- Net cash provided ( used in) investing activities ............ 1,003 (687) (346) ----------- ----------- ----------- Cash Flows from Financing Activities: Proceeds from short-term debt ....................................... 750 3,219 495 Proceeds from issuance of common stock .............................. -- 65 24 Payments of long-term debt .......................................... (738) (324) (282) Payments of long-term lease obligations ............................. (224) (86) (37) Payments of short-term debt ......................................... (689) (2,627) (1,302) Payments of dividends ............................................... (84) (125) (7) Redemption of preferred stock ....................................... -- (46) -- Cost of stock option agreement ...................................... (48) (48) (48) ----------- ----------- ----------- Net cash provided by (used in) financing activities .......... (1,033) 28 (1,157) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ................ (185) (65) 351 Cash and cash equivalents at beginning of year ...................... 599 664 313 ----------- ----------- ----------- Cash and cash equivalents at end of year ............................ $ 414 $ 599 $ 664 =========== =========== ===========
See notes to consolidated financial statements. 50 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"); and Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, 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, 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 reductions of accounts receivable and net sales. Self-insurance - The Company does not self-insure any significant insurable risks. The Company accounts for potential losses due to the deductible on its product liability insurance coverage for consumer products claims with an accrual of potential losses based on open claims and prior years' loss experience. Inventories - Inventories, other than aircraft, are valued at the lower of average cost or market. Aircraft inventory is carried at the lower of cost, specific identification, or market. Property and Depreciation - Property, plant and equipment are carried at cost and are depreciated over their estimated useful lives using the straight-line method. Capitalized leases are amortized over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over their estimated useful lives or the remaining lease terms, whichever is shorter. Foreign Currency Translation - All balance sheet accounts of the Company's foreign subsidiary, Ronson-Canada, are translated at the current exchange rate as of the end of the year. All income statement accounts are translated at average currency exchange rates. Stockholders' Equity accounts are translated at historical exchange rates. The resulting translation adjustment is recorded as part of Accumulated Other Comprehensive Loss in Stockholders' Equity. Transaction gains and losses are not significant in the periods presented. Fair Value of Financial Instruments - The Company's financial instruments include cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities and short-term and long-term debt. The book values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and short-term debt are representative of their fair values due to the short-term maturity of these instruments. The Company's 51 mortgage loan and term loans with Bank of America, N.A. ("Bank of America") are at variable interest rates and, therefore, their book values are considered representative of their fair values. The book value of the Company's other long-term debt is considered to approximate its fair value based on current market rates and conditions (refer to Note 4). Derivative Financial Instruments - The Company utilizes a derivative instrument, an interest rate swap, to modify the Company's exposure to interest rate risk. The Company accounts for this derivative instrument under the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. For derivatives that are designated as a hedge and used to hedge an existing asset or liability, both the derivative and hedged item are recognized at fair value with any changes recognized immediately in the Statements of Consolidated Operations. By policy, the Company has not historically entered into derivative financial instruments for trading purposes or for speculation. The Company has entered into an interest rate swap agreement (see Note 4). The interest rate swap agreement effectively modifies the Company's exposure to interest risk by converting a portion of the Company's floating-rate long-term debt to a fixed rate. Based on criteria defined in SFAS 133, the interest rate swap is considered a cash flow hedge and is 100% effective. The interest rate swap is marked to market in the balance sheet. The mark-to-market value of the cash flow hedge is recorded in Other Non-current Assets or Other Long-term Liabilities and the offsetting gains or losses in Accumulated Other Comprehensive Loss. If the contract is terminated prior to maturity, the amount paid or received in settlement is established by agreement at the time of termination, and usually represents the net present value, at current rates of interest, of the remaining obligations to exchange payments under the terms of the contract. Any gains or losses upon the early termination of the interest rate swap contracts would be deferred and recognized over the remaining life of the contract. Impairment Of Long-Lived Assets - The Company periodically evaluates whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the estimated undiscounted future cash flows resulting from the use of the asset. In the event the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Declaration of 5% Common Stock Dividend - The Company's Board of Directors on February 23, 2006, declared a 5% stock dividend on the Company's outstanding common stock. The 5% stock dividend is payable on April 15, 2006, to stockholders of record March 31, 2006. The 5% stock dividend will increase the outstanding common shares of the Company by about 215,000 to about 4,536,000 shares. Revenue Recognition - Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to domestic customers and on the date title for the goods has been transferred on shipments to foreign customers, prior to which an arrangement exists, the price is fixed, and it has been determined that collectibility is reasonably assured. Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. For aircraft, this occurs at the time the title for the aircraft has been transferred and the sales proceeds received. For aircraft fueling, repairs and other aircraft services, delivery occurs only after an arrangement exists, the price is fixed, and collectibility is reasonably assured. 52 Research and Development Costs - Costs of research and new product development are charged to operations as incurred and amounted to approximately $348,000, $313,000, and $339,000, for the years ended December 31, 2005, 2004 and 2003, respectively. Shipping and Handling Costs - The Company records shipping and handling costs within Selling, Shipping, and Advertising Expenses. Such costs amounted to about $1,659,000, $1,595,000, and $1,176,000 for the years ended December 31, 2005, 2004, and 2003, respectively. Advertising Expenses - Costs of advertising are expensed as incurred and amounted to approximately $159,000, $164,000, and $131,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Accrued Expenses - On December 31, 2005, Accrued Expenses included: accrued vacation pay and other compensation of $573,000, and accrued pension costs of $711,000. No other item amounted to greater than 5% of total current liabilities. At December 31, 2005 and 2004, Accrued Expenses included accrued expenses of discontinued operations of $318,000. Other Current Assets - On December 31, 2005, Other Current Assets included deferred income tax assets of $694,000. No other item amounted to greater than 5% of total current assets. Stock Options - In 2003 the Company adopted SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123". SFAS No. 148 amended SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for employee stock-based compensation. The Company has elected to apply the prospective method as permitted by SFAS No. 148. Accordingly all options granted on and after January 1, 2003 are charged against income at their fair value. Those issued prior to adoption are accounted for on the intrinsic method in accordance with Accounting Principles Board Opinion (APB) No. 25. See Note 9 to the Consolidated Financial Statements. Per Common Share Data - The calculation and reconciliation of Basic and Diluted Earnings (Loss) per Common Share were as follows (in thousands except per share data):
Year Ended December 31, 2005 Per Share Loss Shares Amount --------- --------- --------- (2) (2) BASIC ........................................ $ (333) 4,537 $ (0.07) Effect of dilutive securities, stock options (1) -- -- --------- --------- DILUTED ...................................... $ (333) 4,537 $ (0.07) ========= ========= =========
53
Year Ended December 31, 2004 Per Share Earnings Shares Amount --------- --------- --------- (2) (2) Net earnings ....................................................... $ 193 Less accrued dividends on preferred stock ................................................. (2) --------- BASIC ........................................................... $ 191 4,498 $ 0.04 ========= ========= ========= Effect of dilutive securities (1): Stock options .................................................... 71 Cumulative convertible preferred stock ................................................ $ 2 18 --------- --------- DILUTED .......................................................... $ 193 4,587 $ 0.04 ========= ========= =========
Year Ended December 31, 2003 Per Share Earnings Shares Amount --------- --------- --------- (2) (2) Net earnings ....................................................... $ 703 Less accrued dividends on preferred stock .................................................. (7) --------- BASIC ............................................................ $ 696 4,453 $ 0.16 ========= ========= ========= Effect of dilutive securities (1): Stock options .................................................... 41 Cumulative convertible preferred stock ................................................ $ 7 44 --------- --------- DILUTED .......................................................... $ 703 4,538 $ 0.15 ========= ========= =========
(1) The stock options were anti-dilutive for the year ended December 31, 2005 and, therefore, were excluded from the calculation and reconciliation of Diluted Earnings (Loss) per Common Share for that year. (2) Information as to the number of shares and per share amounts has been retroactively adjusted to reflect the 5% stock dividend on common stock declared February 23, 2006. At December 31, 2005, the Company had outstanding approximately 4,536,000 shares of common stock, after the 5% stock dividend declared on February 23, 2006. Reclassification - Certain reclassifications of prior years' amounts have been made to conform with the current year's presentation. Note 2. INCOME TAXES: At December 31, 2005, the Company had, for federal income tax purposes, net operating loss carryforwards of approximately $3,657,000, expiring as follows: $1,478,000 in 2010 to 2012; $1,379,000 in 2018 to 2020; and $800,000 in 2021 to 2025. The Company also had available federal and state alternative minimum tax credit carryforwards of approximately $104,000. The income tax expenses (benefits) consisted of the following (in thousands): 54
Year Ended December 31, 2005 2004 2003 ---- ---- ---- Current: Federal .......................................... $ -- $ (4) $ 20 State ............................................ 38 152 110 Foreign .......................................... 28 9 5 ------ ------ ------ 66 157 135 ------ ------ ------ Deferred: Federal .......................................... (212) 144 343 State ............................................ (23) 10 (30) ------ ------ ------ (235) 154 313 ------ ------ ------ Income tax expenses (benefits) net ............ $ (169) $ 311 $ 448 ====== ====== ======
Current income taxes in the years ended December 31, 2005, 2004, and 2003, were presented net of credits of $16,000, $110,000, and $420,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109. The reconciliation of estimated income taxes attributed to continuing operations at the United States statutory tax rate to reported income tax expenses was as follows (in thousands):
Year Ended December 31, 2005 2004 2003 ---- ---- ---- Tax expense amount computed using statutory rate ..................................... $ (170) $ 171 $ 392 State taxes, net of federal benefit .................. 10 110 53 Operations outside the US ............................ (3) (10) (28) Discontinued operations and other .................... (6) 40 31 ------ ------ ------ Income tax expenses (benefit) net .................. $ (169) $ 311 $ 448 ====== ====== ======
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, 2005 2004 ---- ---- 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 ...................................... $ 122 $ 97 Compensation and compensated absences, principally due to accrual for financial reporting purposes ..................... 199 265 Accrual of projected environmental costs, principally related to Prometcor's compliance with NJDEP requirements ........................................................ 201 201 Net operating loss carryforwards ..................................... 1,704 1,392 Alternative minimum tax credit carryforwards ......................... 104 96 Unrecognized net loss on pension plan ................................ 1,077 986 Other ................................................................ 382 256 ------ ------ Total gross deferred income tax assets .............................. 3,789 3,293 Less valuation allowance ............................................ 119 126 ------ ------ Net deferred income tax assets ...................................... 3,670 3,167 ------ ------ Deferred income tax liabilities: Pension expense, due to contributions in excess of net accruals ...................................................... 865 650 Other ................................................................ 85 32 ------ ------ Total gross deferred income tax liabilities ....................... 950 682 ------ ------ Net deferred income taxes ......................................... $2,720 $2,485 ====== ======
A valuation allowance has been established based on the likelihood that a 55 portion of the deferred income tax assets will not be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The ultimate realization of the deferred income tax assets will require aggregate taxable income of approximately $3,800,000 in the years prior to the expiration of the net operating loss carryforwards in 2025. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced. A portion of the deferred income tax asset is the result of a tax planning strategy for state income tax purposes of merging certain of the Company's subsidiaries resulting in realization of net operating loss carryforwards. The net deferred income tax assets were classified in the Consolidated Balance Sheets as follows (in thousands): December 31, 2005 2004 ---- ---- Current: Other current assets ........................ $ 495 $ 435 Current assets of discontinued operations ... 199 199 ------ ------ Total current ............................ 694 634 ------ ------ Long Term: Other assets ................................ 1,127 895 Other assets of discontinued operations ..... 899 956 ------ ------ Total long term .......................... 2,026 1,851 ------ ------ Total net deferred income tax assets ........ $2,720 $2,485 ====== ====== Note 3. SHORT-TERM DEBT: Composition (in thousands): December 31, 2005 2004 ---- ---- Revolving loans ............................. $1,500 $1,429 Other ....................................... -- 10 ------ ------ $1,500 $1,439 ====== ====== In 1995 RCPC entered into an agreement with Bank of America for a Revolving Loan. In 1997 Ronson Aviation entered into an agreement with Bank of America for a Revolving Loan. On January 11, 2006, RCPC, Ronson Aviation and Bank of America extended the Revolving Loans to January 31, 2007. The terms of the agreement provide for a covenant requiring minimum earnings before interest, taxes, depreciation and amortization (EBITDA), and for fees payable to the bank monthly beginning on February 28, 2006, if the loans remain outstanding at the end of each month. The extension agreement also amended certain other terms of the Revolving Loan agreements. The RCPC Revolving Loan of $1,500,000 at December 31, 2005, 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 0.5% above Bank of America's prime rate (7.25% at December 31, 2005). 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 Bank of America agreement also has restrictive covenants which, among other things, limit the transfer of assets between the Company and its subsidiaries. In 1995 Ronson-Canada entered into an agreement with Canadian Imperial Bank of Commerce ("CIBC") for a line of credit of C$250,000. The Revolving Loan is secured by the accounts receivable and inventory of Ronson-Canada, and the amounts available 56 under the line are based on the level of accounts receivable. The loan bears interest at the rate of 1.25% over the CIBC prime rate (5.0% at December 31, 2005). 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, 2005, 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, 2005, Ronson Consumer Products had unused borrowings available at December 31, 2005, of about $385,000 under the Bank of America and CIBC lines of credit described above. (Refer to Note 4 below for information regarding the book value of assets pledged as collateral for the debt above.) Ronson Aviation's 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 bears interest at the rate of 1.0% above Bank of America's prime rate (7.25% at December 31, 2005). 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 Bank of America agreement also contains restrictive covenants. At December 31, 2005, Ronson Aviation utilized no borrowings under the Revolving Loan. Based on no loan outstanding and the level of accounts receivable at December 31, 2005, Ronson Aviation had unused borrowings available at December 31, 2005, of about $294,000 under the Bank of America line of credit described above. At December 31, 2005, the weighted average interest rate for the total short-term debt was 7.75%. The Company had outstanding letters of credit totaling $210,000 which were issued by Bank of America as follows: a $60,000 standby letter of credit for Ronson Aviation under its line of credit related to aircraft on order from Raytheon, and a standby letter of credit of $150,000 related to the RCPC lease of additional warehouse space, secured by a certificate of deposit in the amount of $153,000. Note 4. LONG-TERM DEBT: Composition (in thousands):
December 31, 2005 2004 ---- ---- Mortgage loan payable, Bank of America (a) .......................... $ 1,241 $ 1,336 Notes payable, Bank of America (b) .................................. -- 590 Note payable, lessor (c) ............................................ 396 421 Term notes payable .................................................. 68 49 ------- ------- 1,705 2,396 Less portion in current liabilities ................................. 155 731 ------- ------- Balance of long-term debt ........................................... $ 1,550 $ 1,665 ======= =======
(a) In May 1999 the Company, RCPC and Bank of America entered into an agreement, in the original amount of $1,760,000, which refinanced an existing Mortgage Loan agreement on the RCPC property in Woodbridge, New Jersey. On January 11, 2006, the Company, RCPC and Bank of America amended the Mortgage Loan, changing the expiration to January 31, 2007 from its previously scheduled expiration date of December 1, 2008. The Mortgage Loan balance was $1,241,000 at December 31, 2005. The Mortgage Loan agreement is secured by a first mortgage on the land, buildings and improvements of RCPC, and is payable in monthly installments of $7,951, plus interest, with a final installment on January 31, 2007, of approximately $1,137,000. The loan bears interest at the rate of 0.5% above Bank of America's prime rate. (b) The Notes Payable, Bank of America, consisted of two term loans payable by 57 Ronson Aviation to Bank of America, collateralized by a specific aircraft and guaranteed by the Company. The notes were repaid from the proceeds of the sale in September 2005 of Ronson Aviation's charter aircraft and business. (c) As part of the lease agreement for its new warehouse, effective March 1, 2004, RCPC entered into a term note payable to the lessor in the original amount of $440,000. The note, with a balance of $396,000 on December 31, 2005, bears interest at the rate of 8.25% and is payable in monthly installments of $3,787 including interest through February 2013, with a final payment of $150,000 on March 1, 2013. The note is secured by the leasehold improvements at the warehouse and a letter of credit in the amount of $150,000. At December 31, 2005, fixed assets with a net book value of $1,794,000, accounts receivable and inventories of $4,417,000, and a certificate of deposit of $153,000 are pledged as collateral for the debt detailed in Notes 4 and 5. Net assets of consolidated subsidiaries, excluding intercompany accounts, amounted to approximately $2,450,000 at December 31, 2005, substantially all of which was restricted as to transfer to the Company and its subsidiaries due to various covenants of their debt agreements at December 31, 2005. Long-term debt matures as follows: 2006, $155,000; 2007, $1,194,000; 2008, $43,000; 2009, $36,000; 2010, $37,000, and 2011-2013, $240,000. In December 2003 the Company entered into an interest rate swap agreement in order to manage interest rate exposure. Effectively, the Company converted its Mortgage Loan payable of variable-rate debt to fixed-rate debt with an effective interest rate of 7.45%. The interest rate swap is considered a cash flow hedge and is 100% effective. As a result, the mark-to-market value of both the fair value hedging instrument and the underlying debt obligation are recorded as equal, and offsetting gains or losses in other expense. At December 31, 2005, the interest rate swap had a fair value of $21,000 recorded in other non-current assets with the corresponding adjustment to Accumulated Other Comprehensive Loss. The fair value of the interest rate swap agreement, obtained from the financial institution, is based on current rates of interest and is computed as the net present value of the remaining exchange obligations under the terms of the contract. Note 5. LEASE OBLIGATIONS: Lease expenses consisting principally of office and warehouse rentals, totaled $601,000, $602,000, and $514,000 for the years ended December 31, 2005, 2004 and 2003, respectively. At December 31, 2005, 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): 58 Operating Capitalized Total Leases Leases ----- --------- ------------ Year Ending December 31: 2006 .............................. $ 659 $ 333 $ 326 2007 .............................. 640 318 322 2008 .............................. 573 301 272 2009 .............................. 426 206 220 2010 .............................. 324 130 194 2011-2012 ........................ 345 292 53 ------ ------ ------ Total obligations ................. $2,967 $1,580 1,387 ====== ====== Less: Amount representing interest .................... 217 ------ Present value of capitalized lease obligations ............... $1,170 ====== Capitalized lease property included in the Consolidated Balance Sheets is presented below (in thousands): December 31, 2005 2004 ---- ---- Machinery and equipment .................... $1,513 $1,232 Less accumulated amortization .............. 185 168 ------ ------ $1,328 $1,064 ====== ====== 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 6. RETIREMENT PLANS: The Company and its subsidiaries have trusteed retirement plans covering substantially all employees. The Company's funding policy is to make minimum annual contributions as required by applicable regulations. The Plan covering union members generally provides benefits of stated amounts for each year of service. The Company's salaried pension plan provides benefits using a formula which is based upon employee compensation. On June 30, 1985, the Company amended its salaried pension plan so that benefits for future service would no longer accrue. A defined contribution plan was established on July 1, 1985, in conjunction with the amendments to the salaried pension plan. Plan assets primarily included common stocks (71%), cash and money market accounts (18%), a guaranteed annuity contract (4%), and 218,624 shares of common stock of the Company (7%). The stock of the Company held by the Plan was valued at $286,000 and $384,000 at December 31, 2005 and 2004, respectively. The Company uses a measurement date of December 31 for its pension plans. The benefit obligations below are equal to the accumulated benefit obligations. The following table sets forth the plan's aggregate funded status and amounts recognized in the Company's Consolidated Balance Sheets (in thousands): 59 Year Ended December 31, 2005 2004 ---- ---- Change in Benefit Obligation: Benefit obligation at beginning of year ... $ 4,824 $ 4,980 Service cost .............................. 31 26 Interest cost ............................. 266 274 Actuarial loss ............................ 242 69 Benefits paid ............................. (599) (525) ------- ------- Benefit obligation at end of year ......... 4,764 4,824 ------- ------- Change in Plan Assets: Fair value of plan assets at beginning of year ................................. 3,826 3,200 Actual return on plan assets .............. (21) 469 Employer contributions .................... 847 682 Benefits paid ............................. (599) (525) ------- ------- Fair value of plan assets at end of year .. 4,053 3,826 ------- ------- Funded status ............................. (711) (998) Unrecognized actuarial loss ............... 2,695 2,467 Unrecognized prior service cost ........... 62 69 ------- ------- Net amount recognized ........................ $ 2,046 $ 1,538 ======= ======= Amounts Recognized in the Consolidated Balance Sheets Consist of: Accrued benefit liability ............... $ (711) $ (998) Intangible asset ........................ 62 69 Accumulated other comprehensive loss, excluding the income tax effect ....... 2,695 2,467 ------- ------- Net amount recognized ..................... $ 2,046 $ 1,538 ======= ======= The weighted-average assumptions used in the benefit obligations were as follows: Year Ended December 31, 2005 2004 ---- ---- Discount rate................................. 5.5% 5.5% If the additional minimum liability recorded exceeds the unrecognized prior service cost and the unrecognized net obligation at transition, that difference, an unrecognized net loss, is to be reported as a separate component of Stockholders' Equity. This unrecognized net loss is being amortized over future periods as a component of pension expense. The Company's Consolidated Statements of Operations included pension expense consisting of the following components (in thousands): Year Ended December 31, 2005 2004 2003 ---- ---- ---- Components of net periodic benefit cost: Service cost ............................... $ 31 $ 26 $ 22 Interest cost .............................. 266 274 269 Expected return on plan assets ............. (191) (160) (132) Amortization of prior service cost ......... 6 14 20 Recognized actuarial loss .................. 226 264 291 ----- ----- ----- Net pension expense ........................ $ 338 $ 418 $ 470 ===== ===== ===== 60 The weighted average assumptions used in computing the net period benefit cost were as follows: Year Ended December 31, 2005 2004 2003 ---- ---- ---- Discount rate .............................. 5.5% 5.5% 5.5% Expected long-term rate of return on plan assets ........................... 5.0% 5.0% 5.0% Contributions to the pension plan during 2006 are expected to be approximately $740,000. Investment objectives for the Company's U.S. plan assets are to: (1) optimize the long-term return on plan assets at an acceptable level of risk; (2) maintain diversification across asset classes; (3) maintain control of the risk level within each asset class; and (4) focus on a long-term return objective. The Plan engages investment managers to manage the Plan's investments in equities, other than in the Company's stock. Investment guidelines are established with each investment manager. Unless exceptions have been approved, investment managers are prohibited from buying or selling commodities, futures or option contracts, as well as from short selling of securities. The Company does not expect to make further investments in the guaranteed annuity contract or in the stock of the Company. To determine the expected long-term rate of return assumption on plan assets, the Company uses a conservative estimate of future returns. The Company contributes to its defined contribution plan at the rate of 1% of each covered employee's compensation. The Company also contributes an additional amount equal to 50% of a covered employee's contribution to a maximum of 1% of compensation. Expenses of about $62,000, $71,000 and $59,000 for this plan were recorded in 2005, 2004 and 2003, respectively. Note 7. COMMITMENTS AND CONTINGENCIES: In December 1989 the Company adopted a plan to discontinue the operations of its wholly owned subsidiary, Ronson Metals Corporation, subsequently renamed Prometcor, Inc. ("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 full extent of the costs and time required for completion is not determinable until the remediation, if any is required, and confirmatory testing related to the remaining groundwater matter have been completed and accepted by the New Jersey Department of Environmental Protection ("NJDEP"). The liability for these estimated costs and expenses as recorded in the financial statements at December 31, 2005, was approximately $500,000 based on the lower limit of the range of costs as projected by the Company and its consultants. The estimated upper limit of the range of costs is discounted at approximately $600,000 above the lower limit. 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 61 this time, an estimate of additional loss, or range of loss, if any, that is reasonably possible, cannot be made. Thus, the effect on the Company's financial position or results of future operations cannot yet be determined, but management believes that the effect will not be material. The Company is involved in a shareholder's derivative action and a second lawsuit filed by the same shareholder. The Company incurred approximately $95,000, $145,000, and $460,000 in net legal costs related to the matters in 2005, 2004, and 2003, respectively. These costs were net of the associated insurance reimbursements. The Company believes that its directors' and officers' liability insurance coverage is adequate to meet the future direct costs of the litigation; however, the Company is not able to estimate at this time the extent to which it will incur additional legal or other expenses, which may be substantial, in connection with these proceedings. The Company is involved in various lawsuits and claims. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available including the insurance coverage that the Company has in place, management believes that the outcome of these lawsuits and claims will not have a material adverse effect on the Company's financial position. The Company has an employment contract with an officer of the Company which expires on December 31, 2007. Base salaries in the years 2006 and 2007 are $572,991 and $593,045, respectively, with the increases subject to the Company reporting operating earnings in the year prior to each increase. The base salary in 2006 reflects a 7% reduction offered and accepted by Mr. Louis V. Aronson effective October 1, 2005, and the increase due to Mr. Louis V. Aronson under the terms of the contract on January 1, 2006 was waived by him. The contract also provides for additional compensation and benefits, including a death benefit equal to two years' salary. The Company has purchased term insurance for which the Company is the sole beneficiary to provide coverage for a substantial portion of the potential death benefit. Note 8. PREFERRED STOCK: 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 9. 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 159,535 62 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 127,628 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. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model average assumptions: Year Ended December 31, 2005 2004 2003 ---- ---- ---- Risk-free interest rate 4.31% 3.15% 3.25% Dividend yield 0% 0% 0% Volatility factor - expected market price of Company's common stock 0.46 0.47 0.8 Weighted average expected life of options 5 years 5 years 5 years A summary of the Company's stock option activity and related information for the three years ended December 31, 2005, were as follows: Number Weighted of Average Options Exercise Price ----------------------------- Outstanding at 12/31/02 176,388 $ 1.125 Granted -- Exercised (24,311) $ 1.025 Expired (1,530) $ 0.944 ------- Outstanding at 12/31/03 150,547 $ 1.138 Granted 12,155 $ 0.844 Exercised (50,131) $ 1.293 Expired (11,548) $ 1.901 ------- Outstanding at 12/31/04 101,023 $ 0.938 Granted -- Exercised -- Expired (12,361) $ 0.938 ------- Outstanding at 12/31/05 88,662 $ 0.939 ======= ======== Exercisable at 12/31/05 88,662 $ 0.939 ======= ======== 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 N/A Exceeds the market price on the grant date N/A Exercise prices for options outstanding as of December 31, 2005, ranged from $.93 to $.94 per share. The weighted average contractual life of those options was 1.79 years. 63 Note 10. 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, 2005 2004 2003 ---- ---- ---- Cash Payments for: Interest ............................ $ 397 $ 324 $ 283 Income taxes ........................ 30 225 54 Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred 373 1,055 -- Leasehold improvements financed by lessor -- 440 -- Equipment financed by seller 47 62 -- Note 11. INDUSTRY SEGMENTS INFORMATION: The Company has two reportable segments: consumer products and aviation services. The Company's reportable segments are strategic business units that offer different products and services. The consumer products segment produces packaged fuels, flints, refillable lighters and ignitors, torches, a penetrant spray lubricant, and a spot remover, which are distributed through distributors, food brokers, mass merchandisers, drug chains, convenience stores, and automotive and hardware representatives. Ronson Consumer Products is a principal supplier of packaged flints and lighter fuels in the United States and Canada. The aviation services segment represents the fueling, servicing and sales of fixed wing aircraft, servicing of helicopters and rental of hangar and office space. The aircraft product and services 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 before intercompany charges and income taxes. 64 Financial information by industry segment is summarized below (in thousands):
2005 2004 2003 ---- ---- ---- Net sales: Consumer Products ........................... $ 15,664 $ 16,768 $ 16,773 Aviation Services ........................... 10,899 11,715 9,967 ----------- ----------- ----------- Consolidated ............................. $ 26,563 $ 28,483 $ 26,740 =========== =========== =========== Earnings (loss) before interest, other items, and intercompany charges: Consumer Products ........................... $ 1,347 $ 1,807 $ 2,610 Aviation Services ........................... 1,435 1,253 1,454 ----------- ----------- ----------- Total Reportable Segments ................... 2,782 3,060 4,064 Corporate and others ........................ (1,799) (1,702) (1,802) Other charges ............................... (95) (145) (460) ----------- ----------- ----------- Consolidated ............................. $ 888 $ 1,213 $ 1,802 =========== =========== =========== Interest expense: Consumer Products ........................... $ 195 $ 112 $ 85 Aviation Services ........................... 50 100 67 ----------- ----------- ----------- Total Reportable Segments ................... 245 212 152 Corporate and others ........................ 228 155 156 ----------- ----------- ----------- Consolidated ............................. $ 473 $ 367 $ 308 =========== =========== =========== Depreciation and amortization: Consumer Products ........................... $ 379 $ 289 $ 252 Aviation Services ........................... 324 449 398 ----------- ----------- ----------- Total Reportable Segments ................... 703 738 650 Corporate and others ........................ 35 34 8 ----------- ----------- ----------- Consolidated ............................. $ 738 $ 772 $ 658 =========== =========== =========== Earnings (loss) before intercompany charges and taxes: Consumer Products ........................... $ 1,126 $ 1,691 $ 2,521 Aviation Services ........................... 1,381 1,158 1,374 ----------- ----------- ----------- Total Reportable Segments ................... 2,507 2,849 3,895 Corporate and others ........................ (2,272) (2,200) (2,284) Other charges ............................... (95) (145) (460) Nonrecurring losses ......................... (642) -- -- ----------- ----------- ----------- Consolidated ............................. $ (502) $ 504 $ 1,151 =========== =========== =========== Segment assets: Consumer Products ........................... $ 7,224 $ 6,586 $ 4,569 Aviation Services ........................... 2,745 4,689 5,281 ----------- ----------- ----------- Total Reportable Segments ................... 9,969 11,275 9,850 Corporate and others ........................ 1,594 1,511 1,551 Discontinued operations ..................... 1,092 1,156 1,202 ----------- ----------- ----------- Consolidated ............................. $ 12,655 $ 13,942 $ 12,603 =========== =========== =========== Segment expenditures for long-lived assets: Consumer Products ........................... $ 625 $ 1,883 $ 152 Aviation Services ........................... 379 298 267 ----------- ----------- ----------- Total Reportable Segments ................... 1,004 2,181 419 Corporate and others ........................ 13 62 3 ----------- ----------- ----------- Consolidated ............................. $ 1,017 $ 2,243 $ 422 =========== =========== ===========
65 Geographic information regarding the Company's net sales and long-lived assets was as follows (in thousands): Year Ended December 31, 2005 2004 2003 ---- ---- ---- Net Sales (1): United States .................. $ 24,580 $ 26,752 $ 24,826 Canada ......................... 1,635 1,488 1,534 Other foreign countries ........ 348 243 380 -------- -------- -------- $ 26,563 $ 28,483 $ 26,740 ======== ======== ======== December 31, 2005 2004 ---- ---- Long-Lived Assets: United States ............................ $ 4,093 $ 5,505 Canada ................................... 22 11 -------- -------- $ 4,115 $ 5,516 ======== ======== (1) Net sales are attributed to countries based on location of customer. Information regarding the Company's net sales by product category was as follows (in thousands): Year Ended December 31, 2005 2004 2003 ---- ---- ---- Packaged fuels, flints, lighters and torches $ 15,574 $ 16,685 $ 16,691 Other consumer products 90 83 82 Aircraft -- 2,098 598 Charter services (2) 358 768 447 Aviation fuels and other aviation products and services 10,541 8,849 8,922 -------- -------- -------- $ 26,563 $ 28,483 $ 26,740 ======== ======== ======== (2) The charter business of Ronson Aviation was sold in September 2005. In the financial information by industry segment above, Corporate and Others is primarily composed of general and administrative expenses of the parent company. Expense categories included salaries and benefits costs; professional fees; the pension expense of the former defined benefit plans (included only in Earnings (Loss) before Intercompany Charges and Taxes) and shareholder relations expenses, among others. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. For the years ended December 31, 2005, 2004 and 2003, Net Sales which amounted to approximately $3,697,000, $3,665,000, and $4,276,000, respectively, of Consolidated Net Sales were made by Ronson Consumer Products to one customer. As of December 31, 2005 and 2004, accounts receivable from that customer amounted to approximately 15% and 13%, respectively, of Consolidated Accounts Receivable. No other customer accounted for more than 10% of Consolidated Net Sales, for the years ended December 31, 2005, 2004 and 2003, or more than 10% of Consolidated Accounts Receivable at December 31, 2005 and 2004. Note 12. ACCUMULATED OTHER COMPREHENSIVE LOSS: Comprehensive loss (income) is included in the Statements of Consolidated Stockholders' Equity. The components of Accumulated Other Comprehensive Loss as shown on the Consolidated Balance Sheets were as follows: 66
Foreign Cash Accumulated Currency Minimum Flow Other Translation Pension Hedging Comprehensive Adjustments Liability Adjustment Loss ----------- --------- --------- ------------- Balance at December 31, 2002 $ 70 $ 2,071 $ -- $ 2,141 Current period change (96) (477) -- (573) Income tax expense 38 190 -- 228 ------- ------- ------- ------- Balance at December 31, 2003 12 1,784 -- 1,796 Current period change (105) (504) 16 (593) Income tax expense (benefit) 42 202 (6) 238 ------- ------- ------- ------- Balance at December 31, 2004 (51) 1,482 10 1,441 Current period change (17) 228 (37) 174 Income tax expense (benefit) 7 (91) 14 (70) ------- ------- ------- ------- Balance at December 31, 2005 $ (61) $ 1,619 $ (13) $ 1,545 ======= ======= ======= =======
Note 13. CONCENTRATIONS: During 2005 and at December 31, 2005, the Company and two of its subsidiaries had cash deposits in a bank in excess of FDIC insured limits. The Company periodically reviews the financial condition of the bank to minimize its exposure. Ronson Consumer Products currently purchases lighter products and torches from manufacturers in Peoples Republic of China and Taiwan. Since there are a number of sources of similar lighter products, management believes that other suppliers could provide lighters on comparable terms. A change of suppliers, however, might cause a delay in delivery of the Company's lighter products and torches and, possibly, a short-term loss in sales which could have a short-term adverse effect on operating results. Note 14. RELATED PARTY TRANSACTIONS: In October 1998 the Company entered into a consulting agreement with Mr. Carl W. Dinger III, a greater than 5% shareholder of the Company. The agreement provided that Mr. Dinger perform certain consulting services for the Company for a period ending on April 7, 2000. The Company and Mr. Dinger entered into a second consulting agreement effective upon the expiration date of the original agreement. This agreement provided that Mr. Dinger continue to perform consulting services for the Company through April 7, 2004 at a fee of $7,000 per month. During 2004 the agreement was extended on a month-to-month basis through July 7, 2004. A new consulting agreement was effective on July 8, 2004, which provides that Mr. Dinger continue to perform consulting services at a fee of $7,000 per month for the Company for a period of thirty-six months through July 7, 2007. On January 1, 2006, Mr. Dinger's consulting fee was reduced by 7% from $7,000 per month to $6,510 per month. Mr. Dinger was compensated $84,000 during each of the years ended December 31, 2005, 2004 and 2003, under the agreements. In October 1998 Mr. Dinger granted an option to the Company to purchase the 186,166 shares of the Company's common stock then held by Mr. Dinger. The option was for a period of 18 months expiring on April 7, 2000. In 2000 Mr. Dinger granted a new option to the Company, to purchase the shares of the Company's common stock held by Mr. Dinger. The option was for a period of 48 months, expiring April 7, 2004. The cost of the option was $4,000 per month for the period of the option or until exercised. In March 2000 Mr. Dinger purchased 290,359 shares of newly issued restricted common stock of the Company at a price of $1.96 per share. During 2004 the option agreement was extended on a month-to-month basis through July 7, 2004. A new option agreement was effective on July 8, 2004. The new option granted by Mr. Dinger is for a period of 36 months, expiring on July 67 7, 2007. The exercise price of the option is $5.90 per share for the 535,222 shares now held by Mr. Dinger. The cost of the option is $4,000 per month for the period of the option or until exercised. As part of each of the option agreements, Mr. Dinger has granted the Board of Directors of the Company an irrevocable proxy to vote the optioned shares during the term of the option. The Company expended $48,000 for the options during each of the years ended December 31, 2005, 2004 and 2003, which were charged to Additional Paid-in Capital. At December 31, 2004, the fair value of the option was approximately $2,000, using the Black-Scholes option pricing model. Key assumptions included: a risk-free interest rate of 4.35%, a dividend yield of 0%, volatility of 46%, and the option life of 1.5 years. The fair value of $2,000 compares to $46,000, the present value of the 18 remaining payments under the contract, discounted at the Company's incremental borrowing rate of 7.75%. The Company incurred costs for consulting services under agreements with two directors of the Company of $112,000, $128,000, and $128,000, in the years ended December 31, 2005, 2004 and 2003, respectively. The Company incurred costs for printing services from Michael Graphics, Inc., of $57,247, $82,488 and $54,464 in the years ended December 31, 2005, 2004, and 2003. A greater than 10% shareholder of Michael Graphics, Inc., is the son-in-law of the Company's president. 68 FORM 10-K -- ITEM 15 (a) (2) and (d) RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES LIST OF FINANCIAL STATEMENT SCHEDULES Schedule I Condensed Financial Information of Company Schedule II Valuation and Qualifying Accounts 69 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- The Board of Directors Ronson Corporation: Under date of March 10, 2006, we reported on the consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2005 as contained in the annual report on Form 10-K for the year 2005. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey March 10, 2006 70 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION -------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS (dollars in thousands)
ASSETS ------ December 31, ------------------------------- 2005 2004 ---- ---- CURRENT ASSETS: Cash ........................................................ $ -- $ 35 Other current assets ........................................ 304 360 ----------- ----------- Total Current Assets ............................... 304 395 Property, plant, and equipment .............................. 227 216 Less accumulated depreciation and amortization .............. 178 161 ----------- ----------- 49 55 Other assets ................................................ 5,382 5,343 ----------- ----------- TOTAL ASSETS ................................................ $ 5,735 $ 5,793 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt ........................... $ 21 $ 21 Accounts payable ............................................ 144 289 Other current liabilities ................................... 1,161 1,388 ----------- ----------- Total Current Liabilities .......................... 1,326 1,698 Long-term debt .............................................. 7 28 Other long term liabilities ................................. 1,098 -- Pension obligation .......................................... -- 194 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock ................................................ 4,617 4,617 Additional paid-in capital .................................. 29,724 29,772 Accumulated deficit ......................................... (27,895) (27,478) Accumulated other comprehensive loss ........................ (1,545) (1,441) ----------- ----------- 4,901 5,470 Less cost of treasury shares: 2005, 80,761 and 2004, 80,754 common shares ............. 1,597 1,597 ----------- ----------- 3,304 3,873 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 5,735 $ 5,793 =========== ===========
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. 71 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS (dollars in thousands)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 2005 2004 2003 ---- ---- ---- Management administration (from wholly owned subsidiaries eliminated in consolidation) ......................................... $ 1,586 $ 2,449 $ 2,909 ----------- ----------- ----------- Costs and expenses: General and administrative expenses ....................... 1,893 1,847 2,261 Interest expense (includes intercompany interest expense of $100 in 2005, 2004 and 2003, eliminated in consolidation) ........................... 228 155 155 Non-operating expense - net ............................... 296 343 389 ----------- ----------- ----------- 2,417 2,345 2,805 ----------- ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET EARNINGS OF SUBSIDIARIES ........................................... (831) 104 104 Income tax provisions (benefits) .............................. (367) 144 48 Equity in net earnings of subsidiaries ........................ 131 233 647 ----------- ----------- ----------- NET EARNINGS (L0SS) ........................................... $ (333) $ 193 $ 703 =========== =========== ===========
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. 72 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RONSON CORPORATION -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS (dollars in thousands)
YEAR ENDED DECEMBER 31, ----------------------------------------------- 2005 2004 2003 ---- ---- ---- Cash Flows from Operating Activities: Net earnings (loss) ............................................. $ (333) $ 193 $ 703 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Equity in net earnings (loss) of subsidiaries ............... (131) (233) (647) Depreciation and amortization ............................... 35 34 8 Deferred income tax expenses ................................ (214) 102 22 Increase (decrease) in cash from changes in current assets and current liabilities ................... (77) (43) 170 Decrease (increase) in net advances to (from) subsidiaries ............................................. 1,352 565 (158) Net change in pension-related accounts ...................... (538) (307) (71) Other ....................................................... 37 (104) (17) ----------- ----------- ----------- Net cash provided by operating activities ................................ 131 207 10 ----------- ----------- ----------- Cash Flows from Investing Activities: Net cash used in investing activities, capital expenditures .................................. (13) -- (3) ----------- ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of common stock .......................... -- 65 24 Payments of long-term lease obligations ......................... -- (5) (5) Payments of long-term debt ...................................... (21) (13) -- Payments of dividends ........................................... (84) (125) (7) Redemption of preferred stock ................................... -- (46) -- Cost of stock option agreement .................................. (48) (48) (48) ----------- ----------- ----------- Net cash used in financing activities .................................. (153) (172) (36) ----------- ----------- ----------- Net increase (decrease) in cash ................................. (35) 35 (29) Cash at beginning of year ....................................... 35 -- 29 ----------- ----------- ----------- Cash at end of year ............................................. $ -- $ 35 $ -- =========== =========== ===========
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. 73 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, 2005. The Company's wholly owned subsidiaries in the condensed financial statements are accounted for by the equity method of accounting. The Company has authorized 5,000,000 shares of preferred stock with no par value. All of the 34,875 outstanding shares of 12% Cumulative Convertible Preferred Stock that were outstanding at December 31, 2003 were converted to common shares or redeemed during 2004. The Company has authorized 11,848,106 shares of common stock with a par value of $1.00, of which 4,536,249 and 4,536,256 were outstanding at December 31, 2005 and 2004, respectively, adjusted for a 5% stock dividend declared February 23, 2006. NOTE B: Other Assets and Other Liabilities. December 31, (in thousands) 2005 2004 ---- ---- Other Assets Investment in subsidiaries $ 4,165 $ 3,858 Deferred income tax assets, net 832 672 Net advances to subsidiaries -- 436 Other 385 377 --------- --------- $ 5,382 $ 5,343 ========= ========= Other Liabilities Net advances from subsidiaries $ 1,098 $ -- ========= ========= Investment in subsidiaries was eliminated in consolidation. The net advances to (from) subsidiaries of $(1,098,000) and $436,000 at December 31, 2005 and 2004, 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. 74 NOTE D: Income Taxes. The Company and its domestic subsidiaries have elected to allocate consolidated federal income taxes on the separate return method. Under this method of allocation, income tax expenses (benefits) are allocated to the Company and each subsidiary based on its taxable income (loss) and net operating loss carryforwards. In accordance with SFAS #109, "Accounting for Income Taxes" the Company is to record a deferred income tax asset for net operating loss and credit carryforwards when the ultimate realization is more likely than not. In 2005, 2004 and 2003, the Company and its subsidiaries recorded the expenses (benefits) of net deferred income tax assets of $(235,000), $154,000, and $313,000, respectively, of which $(214,000), $102,000 and $22,000, 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. 75 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Additions ----------------------------- Balance at Charged to Charged to Balance beginning of costs and other at end Description period expenses accounts Deductions (1) of period -------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts Year ended 12/31/05 $ 84 $ 48 $ -- $ 25 $ 107 Year ended 12/31/04 $ 76 $ 54 $ -- $ 46 $ 84 Year ended 12/31/03 $ 56 $ 75 $ -- $ 55 $ 76
(1) Uncollectible accounts written off, net of recoveries. 76