10-Q 1 form10q-85825_ronc.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2007 ------------- Commission File Number 1-1031 ------ RONSON CORPORATION ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-0743290 ----------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Corporate Park III-Campus Drive, P.O. Box 6707, Somerset, NJ 08875 ------------------------------------------------------------------ (Address of principal executive offices) (732) 469-8300 ------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- As of June 30, 2007, there were 4,518,000 shares of the registrant's common stock outstanding. RONSON CORPORATION FORM 10-Q INDEX --------------- PAGE ---- PART I - FINANCIAL INFORMATION: ITEM 1 - FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS: JUNE 30, 2007 AND DECEMBER 31, 2006 3 CONSOLIDATED STATEMENTS OF OPERATIONS: QUARTER ENDED JUNE 30, 2007 AND 2006 4 SIX MONTHS ENDED JUNE 30, 2007 AND 2006 5 CONSOLIDATED STATEMENTS OF CASH FLOWS: SIX MONTHS ENDED JUNE 30, 2007 AND 2006 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 ITEM 4 - CONTROLS AND PROCEDURES 17 PART II - OTHER INFORMATION: ITEM 1 - LEGAL PROCEEDINGS 17 ITEM 1A - RISK FACTORS 20 ITEM 6 - EXHIBITS 20 SIGNATURES 20 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (in thousands of dollars)
June 30, December 31, 2007 2006 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 189 $ 294 Accounts receivable, net 1,667 1,876 Inventories: Finished goods 1,959 1,820 Work in process 74 15 Raw materials 596 960 ------------ ------------ 2,629 2,795 Other current assets 1,392 1,231 ------------ ------------ TOTAL CURRENT ASSETS 5,877 6,196 ------------ ------------ Property, plant and equipment, at cost: Land 6 6 Buildings and improvements 5,513 5,479 Machinery and equipment 6,791 6,718 Construction in progress 2,869 2,454 ------------ ------------ 15,179 14,657 Less accumulated depreciation and amortization 9,184 8,885 ------------ ------------ 5,995 5,772 Other assets 2,961 2,752 ------------ ------------ $ 14,833 $ 14,720 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt $ 2,346 $ 2,143 Current portion of long-term debt and leases 669 561 Accounts payable 2,700 2,360 Accrued expenses 1,998 2,010 ------------ ------------ TOTAL CURRENT LIABILITIES 7,713 7,074 ------------ ------------ Long-term debt and leases 3,515 3,769 Other long-term liabilities 246 251 STOCKHOLDERS' EQUITY: Common stock 4,900 4,900 Additional paid-in capital 29,868 29,878 Accumulated deficit (28,603) (28,266) Accumulated other comprehensive loss (1,209) (1,289) ------------ ------------ 4,956 5,223 Less cost of treasury shares 1,597 1,597 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 3,359 3,626 ------------ ------------ $ 14,833 $ 14,720 ============ ============
See notes to consolidated financial statements. 3 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------- (in thousands of dollars, except per share data) (Unaudited) Quarter Ended June 30, ------------------ 2007 2006 ------- ------- NET SALES $ 6,543 $ 7,841 ------- ------- Cost and expenses: Cost of sales 4,587 5,341 Selling, shipping and advertising 873 985 General and administrative 1,033 1,036 Depreciation and amortization 142 151 Other (earnings) charges (8) 40 ------- ------- 6,627 7,553 ------- ------- EARNINGS (LOSS) FROM OPERATIONS (84) 288 ------- ------- Other expense: Interest expense 123 103 Other-net 79 152 ------- ------- 202 255 ------- ------- EARNINGS (LOSS) BEFORE INCOME TAXES (286) 33 Income tax provision (benefit) (41) 8 ------- ------- NET EARNINGS (LOSS) $ (245) $ 25 ======= ======= EARNINGS (LOSS) PER COMMON SHARE: Basic $ (0.05) $ 0.01 ======= ======= Diluted $ (0.05) $ 0.01 ======= ======= See notes to consolidated financial statements. 4 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------- (in thousands of dollars, except per share data) (Unaudited) Six Months Ended June 30, -------------------- 2007 2006 -------- -------- NET SALES $ 12,640 $ 15,183 -------- -------- Cost and expenses: Cost of sales 8,635 10,329 Selling, shipping and advertising 1,798 1,903 General and administrative 1,959 1,999 Depreciation and amortization 288 304 Other (earnings) charges (43) 70 -------- -------- 12,637 14,605 -------- -------- EARNINGS FROM OPERATIONS 3 578 -------- -------- Other expense: Interest expense 254 204 Other-net 169 210 -------- -------- 423 414 -------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES (420) 164 Income tax provision (benefit) (83) 61 -------- -------- NET EARNINGS (LOSS) $ (337) $ 103 ======== ======== EARNINGS (LOSS) PER COMMON SHARE: Basic $ (0.07) $ 0.02 ======== ======== Diluted $ (0.07) $ 0.02 ======== ======== See notes to consolidated financial statements. 5 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (in thousands of dollars) (Unaudited) Six Months Ended June 30, ------------------- 2007 2006 ----- ----- Cash Flows from Operating Activities: Net earnings (loss) $ (337) $ 103 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 367 304 Stock option expense 12 -- Deferred income tax benefits (142) (39) Exchange gain -- (36) Increase (decrease) in cash from changes in: Current assets and current liabilities 542 1,036 Other non-current assets and other long-term liabilities (75) 136 Net change in pension-related accounts (35) (317) ------- ------- Net cash provided by operating activities 332 1,187 ------- ------- Cash Flows from Investing Activities: Capital expenditures (483) (701) Proceeds from disposal of property, plant & equipment -- 11 ------- ------- Net cash used in investing activities (483) (690) ------- ------- Cash Flows from Financing Activities: Proceeds from short-term debt 600 368 Payments of short-term debt (397) (300) Proceeds from long-term debt 131 -- Payments of long-term debt (154) (226) Payments of long-term lease obligations (137) (124) Stock options exercised -- 28 Cost of stock option agreement (24) (24) ------- ------- Net cash provided by (used in) financing activities 19 (278) ------- ------- Net increase (decrease) in cash and cash equivalents (132) 219 Effect of exchange rates on cash 27 31 Cash and cash equivalents at beginning of period 294 414 ------- ------- Cash and cash equivalents at end of period $ 189 $ 664 ======= ======= See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ FOR THE QUARTER ENDED JUNE 30, 2007 (UNAUDITED) ----------------------------------------------- Note 1: ACCOUNTING POLICIES ------------------- Basis of Financial Statement Presentation - The information as of and for the three and six month periods ended June 30, 2007 and 2006, is unaudited. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such interim periods have been included. This quarterly report should be read in conjunction with Ronson Corporation's ("the Company's") Annual Report on Form 10-K. New Authoritative Accounting Pronouncements - The Company does not anticipate the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flows. Note 2: PER COMMON SHARE DATA --------------------- The calculation and reconciliation of Basic and Diluted Earnings (Loss) per Common Share were as follows (in thousands except per share data):
Quarter Ended June 30, -------------------------------------------------------------- 2007 2006 --------------------------- ------------------------------- Per Per Share Share Loss Shares Amount Earnings Shares (2) Amount ------- ------ ------- -------- ---------- ------- BASIC $(245) 4,815 $(.05) $25 4,781 $.01 ===== ===== ===== === ===== ==== Effect of dilutive securities, stock options (1) -- 53 ----- ----- DILUTED $(245) 4,815 $(.05) $25 4,834 $.01 ===== ===== ===== === ===== ====
Six Months Ended June 30, -------------------------------------------------------------- 2007 2006 --------------------------- ------------------------------- Per Per Share Share Loss Shares Amount Earnings Shares (2) Amount ------- ------ ------ -------- ---------- ------ BASIC $(337) 4,815 $(.07) $103 4,772 $.02 ===== ===== ===== ==== ===== ==== Effect of dilutive securities, stock options (1) -- 53 ----- ----- DILUTED $(337) 4,815 $(.07) $103 4,825 $.02 ===== ===== ===== ==== ===== ====
7 (1) Stock options were anti-dilutive for the quarter and six months ended June 30, 2007, and, therefore, were excluded from the computation and reconciliation of Diluted Earnings (Loss) per Common Share for those periods. The numbers of potentially anti-dilutive securities were 15,000 and 16,000 in the second quarter and first half of 2007, respectively. (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 1, 2007. Note 3: SHORT-TERM DEBT --------------- On July 31, 2006, the Company, Ronson Consumer Products Corporation ("RCPC"), Ronson Corporation of Canada Ltd.("Ronson-Canada"), and Ronson Aviation, Inc. ("Ronson Aviation") entered into a financing agreement (the "Financing Agreement") with CIT Group/Commercial Services, Inc. ("CIT"). The financing facility totals $3,945,000 and is composed of a revolving line of credit of $3,000,000 and two term loans in the amounts of $195,000 and $750,000, respectively, both to be repaid evenly over five years. The revolving line of credit carries an interest rate of prime plus one half (8.75% in the U.S. and 6.50% in Canada at June 30, 2007) and the two term loans carry interest at the rate of prime plus 3% (currently 11.25%). The amount available to be borrowed under the revolving line of credit is determined by reference to a "borrowing base", which is calculated based on the levels of accounts receivable and inventories of the Company's subsidiaries. At June 30, 2007, CIT provided the Company with a waiver of a covenant violation due to failure by the Company to meet a fixed charge coverage ratio for the twelve months ended June 30, 2007. Note 4: LONG-TERM DEBT -------------- On September 27, 2006, RCPC entered into a mortgage loan agreement with North Fork Bank ("North Fork") for $2,200,000. The mortgage loan had a balance of $2,177,000 at June 30, 2007 and is secured by a first mortgage on the property of RCPC at 3 and 6 Ronson Road, Woodbridge, NJ and the guarantees of the Company and Ronson Aviation. The loan bears interest at the rate of 6.81% and is payable in monthly installments of $15,422, including interest, with a final installment of approximately $1,697,000, plus interest, on November 1, 2016. The Equipment and Trademark term loan balances with CIT, referred to in Note 3 above, were $163,000 and $621,000, respectively, at June 30, 2007. Effective May 31, 2007, Ronson Aviation entered into a subordinated loan agreement dated May 30, 2007, with EPIC Aviation, LLC ("EPIC"), Ronson Aviation's aircraft fuel supplier, for up to $500,000 in order to complete the construction of a new 19,000 square ft. aircraft storage hangar. The loan is secured by the aircraft hangar and guaranteed by the Company. The loan bears interest at the rate of 6.0% per annum, and is payable through application of a $.0725 per gallon surcharge on all fuel purchased by Ronson Aviation from EPIC with a final payment due no later than June 5, 2013, and is subordinated to the Company's facilities with CIT. At June 30, 2007, the balance due under this loan agreement was $124,000. 8 In March 2004 a lease agreement became effective for a warehouse facility utilized by RCPC for finished goods storage and product shipments. In connection with the lease, the landlord provided improvements totaling $440,000. The landlord provided RCPC with a long-term loan for the improvements, bearing interest at 8.25%, payable at $4,800 per month, including interest, with the final payment due at the end of the initial nine-year term. At June 30, 2007, the total balance payable on this lease agreement was $204,000. Note 5: 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 the time required for the 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 June 30, 2007 and December 31, 2006 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 New Jersey Department of Environmental Protection ("NJDEP"). Related contaminated soil was removed and remediated. In 2000 initial groundwater tests were completed. Ronson Aviation's environmental consultants have advised the Company that the preliminary results of that testing indicated that no further actions should be required. The extent of groundwater contamination cannot be determined until final testing has been completed and accepted by the NJDEP. The Company intends to vigorously pursue its rights under the leasehold and under the statutory and regulatory requirements. Since the amount of additional costs, if any, and their ultimate allocation cannot be fully determined at this time, the effect on the Company's financial position or results of future operations cannot yet be determined, but management believes that the effect will not be material. The Company is involved in a shareholder derivative lawsuit filed in 2003 and a second lawsuit against the Company's directors and chief financial officer filed in April 2005, both filed by the same shareholder. The Company believes that its directors' and officers' liability insurance coverage is adequate to meet the future direct costs of the litigation, however, the Company is not able to estimate, at this time, the extent to which it will incur additional legal or other expenses, which may be substantial, in connection with these proceedings. The Company is involved in various other lawsuits and claims. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be 9 materially affected by certain contingencies. However, based on facts currently available including the insurance coverage that the Company has in place, management believes that the outcome of these lawsuits and claims will not have a material adverse effect on the Company's financial position. Note 6: INDUSTRY SEGMENTS INFORMATION ----------------------------- The Company has two reportable segments: consumer products and aviation services. The Company's reportable segments are strategic business units that offer different products and services. Financial information by industry segment is summarized below (in thousands): Quarter Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Net sales: Consumer Products $ 3,093 $ 5,073 $ 6,651 $ 9,249 Aviation Services 3,450 2,768 5,989 5,934 -------- -------- -------- -------- Consolidated $ 6,543 $ 7,841 $ 12,640 $ 15,183 ======== ======== ======== ======== Earnings (loss) from operations: Consumer Products $ (25) $ 349 $ 112 $ 732 Aviation Services 448 418 838 774 -------- -------- -------- -------- Total reportable segments 423 767 950 1,506 Corporate and others (515) (439) (990) (858) Other (charges) earnings 8 (40) 43 (70) -------- -------- -------- -------- Consolidated $ (84) $ 288 $ 3 $ 578 ======== ======== ======== ======== Earnings (loss) before intercompany charges and income taxes: Consumer Products $ (151) $ 228 $ (156) $ 568 Aviation Services 439 395 821 752 -------- -------- -------- -------- Total reportable segments 288 623 665 1,320 Corporate and others (582) (550) (1,128) (1,086) Other (charges) earnings 8 (40) 43 (70) -------- -------- -------- -------- Consolidated $ (286) $ 33 $ (420) $ 164 ======== ======== ======== ======== Note 7: COMPREHENSIVE INCOME -------------------- Comprehensive Income is the change in equity during a period from transactions and other events from non-owner sources. The Company is required to classify items of other comprehensive income in financial statements and to display the accumulated balance of other comprehensive (income) loss separately in the equity section of the Consolidated Balance Sheets. Changes in the components of Other Comprehensive (Income) Loss and in Accumulated Other Comprehensive Loss were as follows (in thousands): 10
Quarter Ended June 30, 2007 and 2006 ------------------------------------ Accumulated Foreign Unrecog- Cash Other Currency nized Prior Flow Compre- Translation Pension Service Hedging hensive Adjustments Loss Cost Adjustments Loss ----------- -------- ------- ----------- ----------- Balance at March 31, 2007 $(15) $1,232 $39 $ -- $1,256 Current period change (23) (52) (4) -- (79) Income tax expense 9 21 2 -- 32 ---- ------ --- ----- ------ Balance at June 30, 2007 $(29) $1,201 $37 $ -- $1,209 ==== ====== === ===== ====== Balance at March 31, 2006 $(43) $1,581 $-- $ (19) $1,519 Current period change (21) (64) -- (5) (90) Income tax expense 8 25 -- 2 35 ---- ------ --- ----- ------ Balance at June 30, 2006 $(56) $1,542 $-- $ (22) $1,464 ==== ====== === ===== ======
Six Months Ended June 30, 2007 and 2006 --------------------------------------- Accumulated Foreign Unrecog- Cash Other Currency nized Prior Flow Compre- Translation Pension Service Hedging hensive Adjustments Loss Cost Adjustments Loss ----------- -------- ------- ----------- ----------- Balance at December 31, 2006 $(13) $1,263 $39 $ -- $1,289 Current period change (27) (104) (4) -- (135) Income tax expense 11 42 2 -- 55 ---- ------- --- ---- ------- Balance at June 30, 2007 $(29) $1,201 $37 $ -- $1,209 ==== ======= === ==== ======= Balance at December 31, 2005 $(61) $1,619 $-- $(13) $1,545 Current period change 9 (128) -- (15) (134) Income tax expense (4) 51 -- 6 53 ---- ------- --- ---- ------- Balance at June 30, 2006 $(56) $1,542 $-- $(22) $1,464 ==== ======= === ==== =======
Note 8: STATEMENT 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): Six Months Ended June 30, ---------------- 2007 2006 ---- ---- Cash Payments for: Interest $303 $192 Income Taxes 85 87 Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred 14 33 Equipment purchases financed by seller -- 60 11 Note 9: RETIREMENT PLANS ---------------- The Company's Consolidated Statements of Operations included pension expense consisting of the following components (in thousands):
Quarter Ended Six Months Ended June 30, June 30, ---------------- ----------------- 2007 2006 2007 2006 ----- ----- ----- ----- Service cost $ 6 $ 6 $ 12 $ 12 Interest cost 64 66 129 132 Expected return on plan assets (68) (51) (136) (102) Recognized actuarial losses 53 64 106 128 Recognized prior service cost 1 1 2 3 ----- ----- ----- ----- Net pension expense $ 56 $ 86 $ 113 $ 173 ===== ===== ===== =====
Contributions to the pension plan during 2007 are expected as follows (in thousands): Paid in the six months ended June 30, 2007 $148 Expected to be paid in the balance of 2007 91 ---- Total expected to be paid in the year ending December 31, 2007 $239 ====
Note 10: FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS ---------------------------------------------- Mr. Carl W. Dinger III had granted an option to the Company to purchase the 561,983 shares now held by Mr. Dinger at an exercise price of $5.62 per share. The cost of the option was $4,000 per month for the period of the option or until exercised. On June 30, 2007, the option expired. 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS --------------------- Second Quarter 2007 compared to Second Quarter 2006 and First Half 2007 compared to First Half 2006. The Company's Net Sales declined to $6,543,000 in the second quarter of 2007 from $7,841,000 in the second quarter of 2006. The Net Sales decreased to $12,640,000 in the first half of 2007 from $15,183,000 in the first half of 2006. The Net Sales in the second quarter and first half of 2006 included a sale totaling $957,000 to a customer in China. The Company had Earnings from Operations of $3,000 in the first half of 2007 as compared to $578,000 in the first half of 2006. The Company had an operating loss of $(84,000) in the second quarter of 2007 as compared to operating earnings in the second quarter of 2006 of $288,000. The Company's Income Tax benefits in the second quarter and first half of 2007 were after an additional $67,000 charge to net earnings due to the adjustment of the valuation allowance for deferred tax assets related to a tax planning strategy. The Company had Net Losses in the second quarter and first half of 2007 of $(245,000) and $(337,000), respectively, as compared to Net Earnings of $25,000 and $103,000 in the same periods of 2006.
Ronson Consumer Products ------------------------ Quarter Ended Six Months Ended (in thousands) June 30, June 30, ------------------ ------------------ 2007 2006 2007 2006 ------ ------ ------ ------ Net sales $3,093 $5,073 $6,651 $9,249 Earnings (loss) from operations (25) 349 112 732 Earnings before income taxes and intercompany charges (151) 228 (156) 568
Net Sales of consumer products at Ronson Consumer Products Corporation ("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products") decreased by 39% in the second quarter of 2007 compared to the second quarter of 2006 and by 28% in the first half of 2007 compared to the first half of 2006. The decreases in Net Sales in the second quarter of 2007 and in the first half of 2007 were due primarily to the Company's second quarter 2006 sale to the customer in China and to decreased sales of the flame accessories products. The second quarter 2006 sale to a customer in China increased the Net Sales in the 2006 periods as compared to the 2007 periods. In addition, we now believe a significant portion of the sizable April 2006 sale to China was shipped back into the USA despite the prohibition and understanding with the Chinese customer that this would not happen. The shipment back to the USA from China has reduced the Company's sales of its flame accessories products, disrupted our USA market and will not recur. The decrease of 39% in the second quarter of 2007 consisted of a decrease of about 46% due to lower volume of products sold partially offset by an increase of about 7% due to higher average net selling prices. The decrease of 28% in the first half consisted of a decrease of about 33% due to lower volume of products sold partially offset by an increase of about 5% due to higher average net selling 13 prices. The lower average net selling prices in the second quarter and first half of 2006 were due primarily to reduced selling prices on the 2006 sale to the customer in China. At Ronson Consumer Products, Cost of Sales, as a percentage of Net Sales, decreased to 62% in the second quarter of 2007 from 65% in the second quarter of 2006 and decreased to 62% in the first half of 2007 from 63% in the first half of 2006. The decrease in the Cost of Sales percentage in the second quarter and first half of 2007 were primarily due to a 2006 higher Cost of Sales percentage on the second quarter 2006 sale to the customer in China and to reduced manufacturing costs, partially offset by increased material costs due to higher prices of oil used in fuels for butane refills and Ronsonol as well as other purchased components. The amount of the Cost of Sales at Ronson Consumer Products decreased by 42% in the second quarter of 2007 from the second quarter 2006 and decreased in the first half of 2007 from the first half of 2006 by 29%. These decreases in the amount of Cost of Sales were composed of the following:
Quarter Ended Six Months Ended June 30, 2007 June 30, 2007 ------------- ---------------- Decreased volume of products sold 41% 28% Decreased manufacturing costs 2% 1% Increase in unit costs of products sold (1)% -- -- -- Total decrease (%) in amount of Cost of Sales 42% 29% == ==
The increase in unit costs of product sold is due primarily to increased prices of oil as discussed above. Ronson Consumer Products Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, increased to 27% in the second quarter of 2007 from 19% in the second quarter of 2006 and increased to 26% in the first half of 2007 from 21% in the first half of 2006. These increases in the Selling, Shipping, and Advertising percentages in 2007 were primarily due to lower Net Sales in 2007. General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 7% in the first half of 2007 from the first half of 2006 primarily because the increase in the percentage due to decreased Net Sales was offset by reduced personnel costs and by reduced bad debt expense because of the collection of previously reserved delinquent accounts in 2007. Interest Expenses at Ronson Consumer Products increased to $207,000 in the first half of 2007 from $118,000 in the first half of 2006 due to the higher levels of debt as a result of the CIT and North Fork financing. Ronson Aviation --------------- Quarter Ended Six Months Ended (in thousands) June 30, June 30, ------------------- ------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Net sales $3,450 $2,768 $5,989 $5,934 Earnings from operations 448 418 838 774 Earnings before income taxes and intercompany charges 439 395 821 752 14 Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New Jersey, increased by 25% in the second quarter of 2007 from the second quarter of 2006 and by 1% in the first half of 2007 from the first half of 2006. The increase in the second quarter of 2007 was primarily due to the sale of an aircraft (none in the second quarter of 2006). The increase in sales in the first half of 2007 was primarily due to increased sales of aircraft services. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased to 78% in the second quarter of 2007 from 73% in the second quarter of 2006. The higher Cost of Sales percentage in the second quarter of 2007 was primarily due to changes in the mix of products and services sold because of the aircraft sale in the second quarter of 2007. The Cost of Sales percentage was lower in the first half of 2007 at 75% as compared to 77% in the first half of 2006. The decrease was primarily due to a change in the mix of products and services sold. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 9% in the first half of 2007 and in the first half of 2006. Other Items ----------- The Other Earnings in the second quarter and first half of 2007 of $8,000 and $43,000, respectively, were the insurance proceeds in excess of the legal fees incurred related to stockholder litigation. The Other (Charges) in the second quarter and first half of 2006 of $40,000 and $70,000, respectively, were the legal fees incurred, net of related insurance proceeds, related to litigation by one stockholder (Refer to Item 1 of Part II of this Form 10-Q). The General and Administrative Expenses of Corporate and Others increased to $990,000 in the first half of 2007 from $858,000 in the first half of 2006 primarily due to increased professional fees and increased stockholder related expenses. Other-net decreased in the second quarter and first half of 2007 from the second quarter and first half of 2006 primarily due to reduced expenses of frozen pension plans and because the amortization in 2007 of deferred loan costs related to the CIT and North Fork financing in 2007 was lower than the fees paid to Bank of America in 2006. Income Taxes ------------ The Company's Income Tax Benefits in the second quarter and first half of 2007 of $41,000 and $83,000, respectively, were reduced by $67,000 due to an increase in the valuation allowance related to deferred tax assets. In the second quarter of 2007, the Company reviewed the likelihood that, using a tax planning strategy, it would be able to utilize net operating loss carryforwards of Prometcor, Inc. for purposes of State of New Jersey income taxes. The determination was made that a portion was not likely to be utilized. Therefore, in the second quarter of 2007, the Company increased the valuation reserve related to deferred income tax assets by $67,000, resulting in decreased Income Tax Benefits. 15 FINANCIAL CONDITION The Company's Stockholders' Equity decreased to $3,359,000 at June 30, 2007, from $3,626,000 at December 31, 2006. The decrease of $267,000 in Stockholders' Equity was primarily due to the Net Loss in the first half of 2007. The Company had a deficiency in working capital of $1,836,000 at June 30, 2007, as compared to $878,000 at December 31, 2006. The decline in working capital was primarily due to the Capital Expenditures of $497,000 mostly at Ronson Aviation for the construction of the new hangar in the first half of 2007, to payments of Long-Term Debt and Long-Term Leases in the first half of 2007 and to the Net Loss in the first half of 2007. At June 30, 2007, CIT provided the Company with a waiver of a covenant violation because the Company did not meet a fixed charge coverage ratio for the twelve months ended June 30, 2007. The waiver included a change in the terms of the revolving loan limiting the maximum amount that may be borrowed on raw material inventory at RCPC. If the Company were to be unable to comply with the above covenant or be unable to obtain a waiver of compliance, an event of default would occur under the CIT Financing Agreement. The event of default would, in turn, be an event of default under the North Fork mortgage loan. If the Company did not comply with the above covenant and not obtain a waiver of compliance, the Company's lenders may accelerate payment of the term loans and mortgage loan, and CIT may cease making advances under the revolving loan. Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at June 30, 2007, the Company's subsidiaries had unused borrowings available at June 30, 2007 of about $308,000 under the CIT line of credit. The Company's Capital Expenditures increased to $497,000 in the first half of 2007 primarily at Ronson Aviation for the construction of its new 19,200 sq. ft. hangar. As of June 30, 2007, Ronson Aviation had expended approximately $2,750,000 on the improvements. Ronson Aviation expects that, as of June 30, 2007, the additional cost to complete the hangar is approximately $460,000. On February 1, 2007, the Company's Board of Directors declared a 5% stock dividend on the Company's common stock. The 5% stock dividend was issued on April 16, 2007, to stockholders of record March 30, 2007. Information as to the number of shares and per share amounts has been retroactively adjusted to reflect this stock dividend. The Company has continued to meet its obligations as they have matured and management believes that the Company will continue to meet its obligations and will complete the construction of the Ronson Aviation hangar through internally generated funds from future net earnings and depreciation, established external financial arrangements, potential additional sources of financing and existing cash balances. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report contain forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of the Company to differ 16 materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenue, margins, costs or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statement concerning new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the success of new products; competition; prices of key materials, such as petroleum products; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions relating to pension costs; and other risks that are described herein and that are otherwise described from time to time in the Company's Securities and Exchange Commission reports. The Company assumes no obligation and does not intend to update these forward-looking statements. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- There has been no significant change in the Company's exposure to market risk during the first six months of 2007. For discussion of the Company's exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosure about Market Risk, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, incorporated herein by reference. ITEM 4 - CONTROLS AND PROCEDURES ----------------------- (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer, after the evaluation of the effectiveness of the Company's "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report, have concluded that, as of the end of the period covered by this quarterly report, the Company's disclosure controls and procedures were adequate, are designed to ensure that material information related to the Company and its consolidated subsidiaries would be made known to the above officers, are effective and provide reasonable assurance that they will meet their objectives. (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 during the most recently completed quarter, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS ----------------- The Company is involved in various product liability claims. The claimants have claimed unspecified damages. The ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by these matters. However, based on facts currently available, 17 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 (ESX-C-101-03). ----------------------------------------------------------------- On March 25, 2003, a derivative lawsuit was filed against the directors of the Company 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 the Company as well as equitable relief to invalidate the Company's preferred shares rights agreement and certain consulting agreements, to enjoin performance of agreements with certain directors and to require the Company's President and Chief Executive Officer to divest those shares acquired, and not to acquire additional shares while the preferred shares rights agreement has been or remains in place. A special litigation 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 interest 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. On June 19, 2006, the court granted the motion of the Company's directors, ruling that the special litigation committee was independent, that by virtue of the special litigation committee defense all claims to the extent based upon the preferred shares rights agreement were dismissed, and that the application to dismiss the remaining claims was denied. On July 21, 2006, the court denied plaintiffs' motion to file an amended and supplemental complaint. 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, the Company's preferred shares rights plan, tortious interference with prospective business advantage and negligently caused economic loss, 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, the Company, and divestiture by defendants of shares of Common Stock acquired subsequent to the initial filing on Schedule 13D by Steel Partners II, L.P. A motion to dismiss by Steel Partners, Warren Lichtenstein and Jack Howard dated November 21, 2006 has been granted by the court as to the allegations of prima facie tort and denied as to all other counts, and motions to dismiss by Howard Lorber dated October 6, 2006 and by Ronald Hayes, dated November 8, 2006, respectively, have been granted as to the allegations of unfair competition and prima facie tort and in all other respects denied. With the exception of expert discovery, discovery has now been completed, with a trial date set for September, 2007. If the matter is not resolved, the Company's directors will continue to contest and vigorously defend against the 18 claims asserted by plaintiffs. However, there have been intensified settlement discussions, and it is anticipated that the directors will shortly be considering whether to approve or disapprove a proposed resolution of the matter. Any proposed resolution will be subject to Court review on notice to shareholders. 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 ------------------------------------------------------------------------------- (DMC-MF). -------- On or about April 14, 2005, Steel Partners II, L.P. commenced an action, on its own behalf as a shareholder of the Company, in the United States District Court for the District of New Jersey, against the current directors of the Company (other than Edward E. David, Jr.), 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 action alleges, among other things, that defendants should be treated collectively as an "Acquiring Person" under the Company's preferred shares 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 preferred shares rights agreement with respect to the offering of rights to shareholders, including plaintiff (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 preferred shares rights agreement). The action alleges further that the defendants as a group have become an "interested shareholder" under the New Jersey Shareholder Protection Act, and that the defendants have violated reporting requirements under Section 13(d) of the Securities Exchange Act of 1934 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. On April 13, 2006, the court denied the motion to dismiss filed by the Company's directors and its chief financial officer in July 2005. The motion filed by the Company's directors and chief financial officer seeking certification of the order by the court, so that a petition seeking permission to appeal to the U.S. Court of Appeals for the Third Circuit may be filed, was denied on December 22, 2006. The Company's directors and its chief financial officer contest the allegations of the Complaint filed by plaintiff and will continue to vigorously defend the action, if it goes forward, through pretrial discovery which is in its early stages. However, it is anticipated that if the first legal proceeding, described above, is resolved, this action will be dismissed by the plaintiff against all defendants. Juraj Kosco and Maria Kosco vs. Ronson Consumer Products Corporation, --------------------------------------------------------------------- Ronson Corporation, Industrial Waste Management, Inc., Cuno Incorporated, XYZ ----------------------------------------------------------------------------- Corporations #1-10 (fictitious parties), John and/or Jane Does #1-10 (fictitious -------------------------------------------------------------------------------- individuals). ------------ The plaintiffs, a former employee and his spouse, claim damages for burns and other injuries allegedly received in an accident occurring during the employee's performance of his job. The lawsuit was filed in the Superior Court of New Jersey, Law Division, Middlesex County, on February 10, 2005, and claims damages totaling $10,000,000. The claimant has received, and is receiving, workers' compensation benefits related to the incident. Counsel has advised that it 19 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. ITEM 1A - RISK FACTORS ------------ There were no material changes in the six months ended June 30, 2007, in the risk factors as previously disclosed in the Company's Form 10-K for the year ended December 31, 2006. ITEM 6 - EXHIBITS -------- a. Exhibits. 31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RONSON CORPORATION Dated: August 14, 2007 /s/ Louis V. Aronson II ----------------------------------- Louis V. Aronson II President & Chief Executive Officer (Signing as Duly Authorized Officer of the Registrant) Dated: August 14, 2007 /s/ Daryl K. Holcomb ----------------------------------- Daryl K. Holcomb Vice President, Chief Financial Officer and Controller (Signing as Chief Financial Officer of the Registrant) 20