10-Q 1 form10q-94874_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 September 30, 2008 ------------------ 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [x] Smaller reporting company [ ] (Do not check if a smaller reporting company) 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 September 30, 2008, there were 5,083,539 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: SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 3 CONSOLIDATED STATEMENTS OF OPERATIONS: QUARTER ENDED SEPTEMBER 30, 2008 AND 2007 4 NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 5 CONSOLIDATED STATEMENTS OF CASH FLOWS: NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 ITEM 4T - CONTROLS AND PROCEDURES 20 PART II - OTHER INFORMATION: ITEM 1A - RISK FACTORS 21 ITEM 6 - EXHIBITS 21 SIGNATURES 22 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (in thousands of dollars) September 30, December 31, 2008 2007 ------------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 74 $ 78 Accounts receivable, net 1,197 1,743 Inventories: Finished goods 1,771 2,106 Work in process 64 45 Raw materials 745 925 -------- --------- 2,580 3,076 Other current assets 1,060 1,291 -------- --------- TOTAL CURRENT ASSETS 4,911 6,188 -------- --------- Property, plant and equipment, at cost: Land 6 6 Buildings and improvements 8,816 8,812 Machinery and equipment 6,950 6,875 Construction in progress 126 125 -------- --------- 15,898 15,818 Less accumulated depreciation and amortization 9,949 9,500 -------- --------- 5,949 6,318 Other assets 3,646 2,895 -------- --------- $ 14,506 $ 15,401 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt $ 1,845 $ 3,126 Current portion of long-term debt and leases 467 665 Accounts payable 2,633 3,086 Accrued expenses 1,642 1,747 -------- --------- TOTAL CURRENT LIABILITIES 6,587 8,624 -------- --------- Long-term debt and leases 5,579 3,554 Other long-term liabilities 243 236 STOCKHOLDERS' EQUITY: Common stock 5,173 5,173 Additional paid-in capital 29,997 29,997 Accumulated deficit (30,227) (29,241) Accumulated other comprehensive loss (1,249) (1,345) -------- --------- 3,694 4,584 Less cost of treasury shares 1,597 1,597 -------- --------- TOTAL STOCKHOLDERS' EQUITY 2,097 2,987 -------- --------- $ 14,506 $ 15,401 ======== ========= 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 September 30, ---------------------- 2008 2007 ------- ------- NET SALES $ 5,455 $ 6,606 ------- ------- Cost and expenses: Cost of sales 4,215 4,696 Selling, shipping and advertising 769 922 General and administrative 823 897 Depreciation and amortization 162 139 Other charges -- 61 ------- ------- 5,969 6,715 ------- ------- LOSS FROM OPERATIONS (514) (109) ------- ------- Other expense: Interest expense 144 119 Other-net 99 89 ------- ------- 243 208 ------- ------- LOSS BEFORE INCOME TAXES (757) (317) Income tax benefits (270) (119) ------- ------- NET LOSS $ (487) $ (198) ======= ======= LOSS PER COMMON SHARE: Basic $ (0.10) $ (0.04) ======= ======= Diluted $ (0.10) $ (0.04) ======= ======= 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) Nine Months Ended September 30, ---------------------- 2008 2007 -------- -------- NET SALES $ 18,766 $ 19,246 -------- -------- Cost and expenses: Cost of sales 13,661 13,331 Selling, shipping and advertising 2,544 2,720 General and administrative 2,733 2,856 Depreciation and amortization 486 427 Other charges -- 18 -------- -------- 19,424 19,352 -------- -------- LOSS FROM OPERATIONS (658) (106) -------- -------- Other expense: Interest expense 445 373 Nonrecurring loss on extinguishment of debt 145 -- Other-net 316 258 -------- -------- 906 631 -------- -------- LOSS BEFORE INCOME TAXES (1,564) (737) Income tax benefits (578) (202) -------- -------- NET LOSS $ (986) $ (535) ======== ======== LOSS PER COMMON SHARE: Basic $ (0.19) $ (0.11) ======== ======== Diluted $ (0.19) $ (0.11) ======== ======== See notes to consolidated financial statements. 5 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (in thousands of dollars) (unaudited) Nine Months Ended September 30, ----------------- 2008 2007 -------- ------ Cash Flows from Operating Activities: Net loss $ (986) $ (535) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 561 547 Stock option expense -- 12 Deferred income tax benefits (592) (265) Write-off previously deferred loan costs 106 -- Increase (decrease) in cash from changes in: Current assets and current liabilities 714 907 Other non-current assets and other long-term liabilities (319) (111) Net change in pension-related accounts 95 (21) -------- ------ Net cash provided by (used in) operating activities (421) 534 -------- ------ Cash Flows from Investing Activities: Capital expenditures (106) (904) -------- ------ Net cash used in investing activities (106) (904) -------- ------ Cash Flows from Financing Activities: Proceeds from short-term debt 1,845 637 Payments of short-term debt (3,126) (496) Proceeds from long-term debt 3,779 394 Payments of long-term debt (1,290) (239) Payments of long-term lease obligations (662) (206) Stock options exercised -- 24 Cost of stock option agreement -- (24) -------- ------ Net cash provided by financing activities 546 90 -------- ------ Effect of exchange rate changes on cash and cash equivalents (23) 49 -------- ------ Net decrease in cash and cash equivalents (4) (231) Cash and cash equivalents at beginning of period 78 294 -------- ------ Cash and cash equivalents at end of period $ 74 $ 63 ======== ====== See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ FOR THE QUARTER ENDED SEPTEMBER 30, 2008 (UNAUDITED) ---------------------------------------------------- Note 1: ACCOUNTING POLICIES ------------------- Basis of Financial Statement Presentation - The information as of and for the three and nine month periods ended September 30, 2008 and 2007, 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 Loss per Common Share were as follows (in thousands except per share data):
Quarter Ended September 30, --------------------------------------------------- 2008 2007 ------------------------ ------------------------ Per Per Share Shares Share Loss Shares Amount Loss (2) Amount ------ ------ ------ ------ ------ ------ BASIC $ (487) 5,084 $ (.10) $ (198) 5,072 $ (.04) ====== ====== ====== ====== ====== ====== Effect of dilutive securities, Stock options (1) -- -- ------ ------ DILUTED $ (487) 5,084 $ (.10) $ (198) 5,072 $ (.04) ====== ====== ====== ====== ====== ======
Nine Months Ended September 30, --------------------------------------------------- 2008 2007 ------------------------ ------------------------ Per Per Share Shares Share Loss Shares Amount Loss (2) Amount ------ ------ ------ ------ ------ ------ BASIC $ (986) 5,084 $ (.19) $ (535) 5,061 $ (.11) ====== ====== ====== ====== ====== ====== Effect of dilutive securities, Stock options (1) -- -- ------ ------ DILUTED $ (986) 5,084 $ (.19) $ (535) 5,061 $ (.11) ====== ====== ====== ====== ====== ======
(1) Stock options were anti-dilutive for all periods presented, and, therefore, were excluded from the computation and reconciliation of Diluted Loss per Common Share for all periods presented. The number of potentially anti-dilutive securities were 6,000 and 8,000 in the third quarter and nine months of 2008, and 8,000 and 15,000 in the third quarter and nine months of 2007, respectively. 7 (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, 2008. Note 3: SHORT-TERM DEBT --------------- On May 30, 2008, the Company and Ronson Consumer Products Corporation ("RCPC"), Ronson Aviation, Inc. ("Ronson Aviation"), and Ronson Corporation of Canada Ltd. ("Ronson-Canada") (collectively, the "Borrowers") entered into a secured revolving credit facility with Wells Fargo Bank, National Association ("Wells Fargo"). The credit facility consists of (1) a revolving line of credit of up to $4.0 million, (2) a Real Estate Term Loan of $2,922,500 and (3) an Equipment Term Loan of $837,500. Availability under the credit facility is determined based on the value of the Borrowers' receivables and inventory, and other factors, as set forth in the credit and security agreement. The Company is a guarantor of the obligations under the credit facility. Amounts advanced under the credit facility are secured by substantially all of the assets of the Company and its subsidiaries, other than (1) the real property owned by RCPC in Woodbridge, New Jersey and (2) 34% of the Company's interest in Ronson-Canada. The term of the credit facility is 60 months. The revolving line of credit had a balance of $1,570,000 at September 30, 2008. The revolving line of credit bears interest at 1/2% over the Wells Fargo prime rate (5% at September 30, 2008), or, at the Company's option, a portion may bear interest at LIBOR plus 3%. The Company is paying fees to Wells Fargo that are customary for facilities of this type. The credit facility contains minimum tangible net worth, minimum net income, minimum net cash flow and other financing covenants, certain restrictions on capital expenditures, as well as affirmative and negative covenants and events of default customary for facilities of this type. The Company applied $2,940,000 of the proceeds of the credit facility to pay off its prior credit facility with CIT Group/Commercial Services, Inc; $399,000 to EPIC Aviation, LLC; $502,000 to Bank of the West; and $577,000 to Banc of America Leasing. As a result of the repayment of the Short-term Debt and Long-term Debt with the new Wells Fargo financing on May 30, 2008, the Company recorded a Nonrecurring Loss on Extinguishment of Debt of $145,000 in the second quarter and first half of 2008. The Nonrecurring Loss on Extinguishment of Debt was composed of the following: Unamortized balance of deferred financing costs $ 106,000 Early termination fee paid to CIT Group/Commercial Services, Inc. 31,000 Difference between book value of Long-term Leases with Banc of America Leasing and payoff amount 3,000 Legal fees and other 5,000 ---------- Total $ 145,000 ========== 8 The Borrowers requested that Wells Fargo provide them with a waiver of covenant violations as of September 30, 2008, because the Company did not meet minimum net income for the nine months ended September 30, 2008, a minimum net cash flow for the nine months ended September 30, 2008, and minimum tangible net worth as of September 30, 2008 and because certain agreements with third parties required under the credit facility had not yet been obtained. In July and August 2008, the Company's President, Mr. Louis V. Aronson II, provided the Company with a subordinated demand loan of $275,000 which bears interest at the rate of 1/2% below the prime rate. Note 4: LONG-TERM DEBT -------------- On September 27, 2006, RCPC entered into a mortgage loan agreement with Capital One, N.A. ("Capital One"), formerly known as North Fork Bank for $2,200,000. The mortgage loan had a balance of $2,134,000 at September 30, 2008 and is secured by a first mortgage on the property of RCPC at 3 and 6 Ronson Road, Woodbridge, New Jersey and the guarantees of the Company and Ronson Aviation. In connection with a waiver of a covenant violation at December 31, 2007 provided to the Company by Capital One, effective April 1, 2008, the interest rate on the mortgage loan was increased to 8.00%, monthly installments have been increased to $17,081, the final installment on November 1, 2016 was increased to $1,746,000, and the debt service coverage ratio was modified. On August 12, 2008, Capital One provided the Company with a modification of the mortgage loan because the Company did not meet a minimum Earnings before Income Taxes covenant for the six months ended June 30, 2008. In connection with the modification, the interest rate on the mortgage loan was increased to 9.00% effective 9/1/08, 9.50% effective 1/1/09, 10.00% effective 4/1/09, 10.50% effective 7/1/09, and 11.00% effective 10/1/09. The final due date of the mortgage was changed to January 1, 2010, from the prior due date of November 1, 2016. The mortgage modification also eliminated the prepayment penalty on the agreement until April 1, 2009, when it is partially reinstated. Based on current interest rates, under the terms of the original mortgage loan prior to the modification, the prepayment penalty would have been as much as $700,000. On May 30, 2008, the Company obtained two term loans from Wells Fargo as part of the new credit facility (refer to Note 3 above), an Equipment Term Loan in the original amount of $837,500 with a balance of $796,000 as of September 30, 2008, and a Real Estate Term Loan in the original amount of $2,922,500 with a balance of $2,874,000 as of September 30, 2008. The Equipment Term Loan is payable in 60 equal monthly principal payments of about $14,000 plus interest at the rate of the prime rate plus .75%. The Real Estate Term Loan is payable in 60 equal monthly principal payments of about $16,000 plus interest at the prime rate plus 1%, or, at the Company's option, a portion may be LIBOR plus 3.5%. 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 9 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 September 30, 2008, and December 31, 2007, 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 was discounted at approximately $600,000 above the lower limit. The long-term portion of the environmental liability related to Prometcor was discounted at the rate of 6% per annum. The aggregate undiscounted amount was approximately $273,000 as compared to the discounted amount of $181,000. The current portion, which would be expended in the year a plan is approved by the NJDEP, is $317,000. The undiscounted amount of the long-term portion is expected to be expended at the rate of about $24,000 in the first year following the approval by the NJDEP of a plan; about $11,000/year for an additional eighteen years; and about $10,000/year for an additional ten years. In 1999 Ronson Aviation completed the installation of a new fueling facility and ceased use of most of its former underground storage tanks. The primary underground fuel storage tanks formerly used by Ronson Aviation were removed in 1999 as required by the NJDEP. Related contaminated soil was removed and remediated. In 2000 initial groundwater tests were completed. Ronson Aviation's environmental consultants have advised the Company that preliminary results of that testing indicate that no further actions should be required. The extent of groundwater contamination cannot be determined until final testing has been completed and accepted by the NJDEP. The Company intends to vigorously pursue its rights under the leasehold and under the statutory and regulatory requirements. Since the amount of additional costs, if any, and their ultimate allocation cannot be fully determined at this time, an estimate of additional loss, or range of loss, if any, that is reasonably possible, cannot be made. Thus, the effect on the Company's financial position or results of future operations cannot yet be determined, but management believes that the effect will not be material. The Company is involved in various other lawsuits and claims. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available including the insurance coverage that the Company has in place, management believes that the outcome of these lawsuits and claims will not have a material adverse effect on the Company's financial position. 10 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 Nine Months Ended September 30, September 30, ------------------- ------------------- 2008 2007 2008 2007 -------- -------- -------- -------- Net sales: Consumer Products $ 2,753 $ 3,413 $ 9,540 $ 10,064 Aviation Services 2,702 3,193 9,226 9,182 -------- -------- -------- -------- Consolidated $ 5,455 $ 6,606 $ 18,766 $ 19,246 ======== ======== ======== ======== Earnings (loss) from operations: Consumer Products $ (339) $ (17) $ (419) $ 95 Aviation Services 173 359 936 1,197 -------- -------- -------- -------- Total reportable segments (166) 342 517 1,292 Corporate and others (348) (390) (1,175) (1,380) Other charges -- (61) -- (18) -------- -------- -------- -------- Consolidated $ (514) $ (109) $ (658) $ (106) ======== ======== ======== ======== Earnings (loss) before intercompany charges and income taxes: Consumer Products $ (442) $ (147) $ (784) $ (303) Aviation Services 116 348 785 1,169 -------- -------- -------- -------- Total reportable segments (326) 201 1 866 Corporate and others (431) (457) (1,420) (1,585) Nonrecurring loss on extinguishment of debt -- -- (145) -- Other charges -- (61) -- (18) -------- -------- -------- -------- Consolidated $ (757) $ (317) $ (1,564) $ (737) ======== ======== ======== ========
11 Note 7: COMPREHENSIVE INCOME -------------------- Comprehensive (income) loss 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) loss 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):
Quarter Ended September 30, 2008 and 2007 ----------------------------------------- Foreign Accumulated Currency Net Prior Other Translation Pension Service Comprehensive Adjustments Loss Cost Loss --------------- -------- ------------- ------------- Balance at June 30, 2008 $ (35) $ 1,284 $ 28 $ 1,277 Current period loss 14 -- -- 14 Recognized as components of net periodic benefit cost -- (59) (1) (60) Income tax expense (benefit) (5) 23 -- 18 ----- ------- ---- ------- Balance at September 30, 2008 $ (26) $ 1,248 $ 27 $ 1,249 ===== ======= ==== ======= Balance at June 30, 2007 $ (29) $ 1,201 $ 37 $ 1,209 Current period (gain) (22) -- -- (22) Recognized as components of net periodic benefit cost -- (54) (9) (63) Income tax expense 9 22 3 34 ----- ------- ---- ------- Balance at September 30, 2007 $ (42) $ 1,169 $ 31 $ 1,158 ===== ======= ==== =======
Nine Months Ended September 30, 2008 and 2007 --------------------------------------------- Foreign Accumulated Currency Net Prior Other Translation Pension Service Comprehensive Adjustments Loss Cost Loss --------------- -------- ------------- ------------- Balance at December 31, 2007 $ (41) $ 1,354 $ 32 $ 1,345 Current period loss 23 -- -- 23 Recognized as components of net periodic benefit cost -- (178) (5) (183) Income tax expense (benefit) (8) 72 -- 64 ----- ------- ---- ------- Balance at September 30, 2008 $ (26) $ 1,248 $ 27 $ 1,249 ===== ======= ==== ======= Balance at December 31, 2006 $ (13) $ 1,263 $ 39 $ 1,289 Current period (gain) (49) -- -- (49) Recognized as components of net periodic benefit cost -- (158) (13) (171) Income tax expense 20 64 5 89 ----- ------- ---- ------- Balance at September 30, 2007 $ (42) $ 1,169 $ 31 $ 1,158 ===== ======= ==== =======
12 Note 8: STATEMENTS OF CASH FLOWS ------------------------ Certificates of deposit that have a maturity of less than 90 days are considered cash equivalents for purposes of the accompanying Consolidated Statements of Cash Flows. Supplemental disclosures of cash flow information are as follows (in thousands): Nine Months Ended September 30, --------------------------- 2008 2007 ------------ ------------ Cash Payments (Receipts) for: Interest $ 429 $ 451 Income Taxes (2) 86 Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred -- 14 Note 9: RETIREMENT PLANS ---------------- The Company's Consolidated Statements of Operations included pension expense consisting of the following components (in thousands): Quarter Nine Months Ended Ended September 30, September 30, -------------------- -------------------- 2008 2007 2008 2007 -------- --------- -------- ---------- Service Cost $ 5 $ 6 $ 15 $ 18 Interest Cost 67 64 201 193 Expected return on plan assets (64) (69) (193) (205) Recognized actuarial losses 59 54 179 160 Recognized prior service cost 2 2 4 4 ---- ---- ----- ----- Net pension expense $ 69 $ 57 $ 206 $ 170 ==== ==== ===== ===== Contributions to the pension plan during 2008 are expected to be as follows (in thousands): Paid in the nine months ended September 30, 2008 $ 110 Expected to be paid in the balance of 2008 45 ----- Total expected to be paid in the year ending December 31, 2008 $ 155 ===== The Company's contributions to the pension plan in the nine months ended September 30, 2007, were $190,000. 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS --------------------- Third Quarter 2008 compared to Third Quarter 2007 and Nine Months 2008 Compared to Nine Months 2007. The Company's Net Sales declined to $5,455,000 in the third quarter of 2008 from $6,606,000 in the third quarter of 2007. The Net Sales decreased to $18,766,000 in the nine months of 2008 from $19,246,000 in the nine months of 2007. The Company had a Loss from Operations in the third quarter of 2008 of $514,000, as compared to a Loss from Operations of $109,000 in the third quarter of 2007. The Company's Loss from Operations was $658,000 in the nine months of 2008 compared to $106,000 in the nine months of 2007. The Company completed new and replacement financing on May 30, 2008, with Wells Fargo Bank, National Association ("Wells Fargo"). The new financing provided the Company with additional cash availability of about $1,300,000. It also improved the Company's working capital by about $2,000,000. As a result of the new financing, the Company recognized a nonrecurring pretax charge in the nine months of 2008 of about $145,000. The nonrecurring charge consisted of: 1) deferred costs related to the prior loan agreements that had not yet been fully amortized, and 2) the early termination fees related to the CIT financing agreement. Ronson Consumer Products ------------------------ (in thousands) Quarter Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2008 2007 2008 2007 -------- -------- -------- -------- Net sales $ 2,753 $ 3,413 $ 9,540 $ 10,064 Earnings (loss) from operations (339) (17) (419) 95 Nonrecurring charge -- -- (93) -- Loss before income taxes and intercompany charges (442) (147) (877) (303) 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 19% in the third quarter of 2008 as compared to the third quarter of 2007, and by 5% in the nine months of 2008 compared to the nine months of 2007. The decreases in Net Sales in the third quarter of 2008 and in the nine months of 2008 were due primarily to decreased sales of the Company's flame accessory products. The decrease in Net Sales of 19% in the third quarter of 2008 from the third quarter of 2007 consisted of about 23% due to decreased volume of products sold, partially offset by an increase of 4% due to higher average net selling prices. The decrease of 5% in the nine months of 2008 as compared to the nine months of 2007 consisted of 8% due to lower volume of products sold partially offset by 3% due to higher average net selling prices. At Ronson Consumer Products, Cost of Sales, as a percentage of Net Sales increased to 72% in the third quarter of 2008 from 64% in the third quarter of 2007 and to 66% in the nine months of 2008 from 63% in the nine months of 2007. The increases in the Cost of Sales percentage in the third quarter of 2008 were primarily due to substantially increased material costs due to the substantially 14 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 9% in the third quarter of 2008 from the third quarter of 2007 and was virtually unchanged in the nine months of 2008 as compared to the nine months of 2007. These changes in the amount of Cost of Sales were composed of the following:
Quarter Ended Nine Months Ended September 30, September 30, ------------- ----------------- 2008 2008 ---- ---- Decreased volume of products sold (10)% (4)% Decreased manufacturing costs (1)% (1)% Increase in unit costs of products sold 2% 5% --- --- Total change in amount of Cost of Sales (decrease) (9)% --% === ===
The increase in unit costs of product sold is due primarily to increased prices of oil as discussed above, partially offset by reduced inbound freight costs in the third quarter and nine months of 2008. Ronson Consumer Products Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, increased to 28% in the third quarter of 2008 from 26% in the third quarter of 2007 and were unchanged at 26% in the nine months of 2008 from the nine months of 2007. The increase in the Selling, Shipping, and Advertising percentages in the third quarter of 2008 were primarily due to the decreased Net Sales in the third quarter of 2008. General and Administrative Expenses, as a percentage of Net Sales, were higher at 9% in the nine months of 2008 from 7% in the nine months of 2007 primarily due to: 1) reductions in bad debt expenses in 2007, attributed to the collection of previously reserved delinquent accounts in 2007; 2) increased professional fees in 2008 due, in part, to compliance with Sarbanes-Oxley; and 3) lower Net Sales in the nine months of 2008. The Nonrecurring Charge of $93,000 in the nine months of 2008 was the loss on the extinguishment of debt in the second quarter of 2008, described in greater detail below. Ronson Aviation --------------- (in thousands) Quarter Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2008 2007 2008 2007 ------- ------- ------- ------- Net sales $ 2,702 $ 3,193 $ 9,226 $ 9,182 Earnings from operations 173 359 936 1,197 Nonrecurring charge -- -- (52) -- Earnings before income taxes and intercompany charges 116 348 733 1,169 Net Sales at Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New Jersey, decreased by 15% in the third quarter of 2008 from the third quarter of 2007 and increased slightly in the nine months of 2008 from the nine months of 2007. The decrease in the third quarter of 2008 was primarily due to the sale of an aircraft in the third quarter of 2007 (none in the third quarter of 2008) substantially offset by increased sales of aircraft fuel. The increase in sales in the nine months of 2008 was primarily due to increased sales of aircraft fuel in 2008, 15 because of higher oil prices in 2008, substantially offset by lower sales of aircraft (none were sold in 2008). Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased to 83% in the third quarter of 2008 from 79% in the third quarter of 2007, and to 80% in the nine months of 2008 from 77% in the nine months of 2007. The increase in the Cost of Sales percentage in 2008 was primarily due to the increased cost of aircraft fuel sold caused by higher oil prices. The increase in the dollar amount of cost of sales of aircraft fuel due to higher oil prices was approximately equal to the amount of higher sales of aircraft fuel due to price increases. 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 nine months of 2008 and in the nine months of 2007. Ronson Aviation's Interest Expense increased to $50,000 in the third quarter of 2008 from $2,000 in the third quarter of 2007, and to $120,000 in the nine months of 2008 from $9,000 in the nine months of 2007. The increases in 2008 were primarily because Ronson Aviation's interest cost in 2007 was capitalized as part of the cost of the construction of the new hangar and because of higher long-term debt from the new Wells Fargo financing. The Nonrecurring Charge of $52,000 in the nine months of 2008 was the loss on the extinguishment of debt in the second quarter of 2008, described in greater detail below. Other Items ----------- The Other Charges in the third quarter and nine months of 2007 of $61,000 and $18,000, respectively, were the legal fees incurred, net of related insurance proceeds related to stockholder litigation (none in 2008 because the litigation was settled in December 2007). The General and Administrative Expenses of Corporate and Others decreased to $348,000 in the third quarter of 2008 from $390,000 in the third quarter of 2007 and $1,175,000 in the nine months of 2008 from $1,380,000 in the nine months of 2007 primarily due to decreased professional fees and personnel costs. The Nonrecurring Loss on Extinguishment of Debt of $145,000 in the third quarter and nine months of 2008 ($93,000 at Ronson Consumer Products and $52,000 at Ronson Aviation) was the result of repayment of Short-term Debt and Long-term Debt with the new Wells Fargo financing on May 30, 2008. The Nonrecurring Loss on Extinguishment of Debt was composed of the following: Unamortized balance of deferred financing costs $106,000 Early termination fee paid to CIT Group/Commercial Services, Inc. 31,000 Difference between book value of Long-term Leases with Banc of America Leasing and payoff amount 3,000 Legal fees and other 5,000 -------- Total $145,000 ======== Income Taxes ------------ The Company's Income Tax Benefits as a percentage of Loss before Income Taxes were higher at 37% in the nine months of 2008 from 27% in the nine months of 2007. 16 The Company's Income Tax Benefits in the nine months of 2007 were reduced by $67,000 due to an increase in the valuation allowance related to deferred tax assets. In the nine months 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 nine months of 2007, the Company increased the valuation reserve related to deferred income tax assets by $67,000, resulting in decreased Income Tax Benefits. FINANCIAL CONDITION The Company's Stockholders' Equity decreased to $2,097,000 at September 30, 2008 from $2,987,000 at December 31, 2007. The decrease of $890,000 in Stockholders' Equity was primarily due to the Net Loss in the nine months of 2008. The Company had a deficiency in working capital of $1,676,000 at September 30, 2008, as compared to $2,436,000 at December 31, 2007. The substantial improvement of $760,000 in working capital was primarily due to about $2,000,000 in additional working capital provided by the new Wells Fargo financing, partially offset by the Loss before Income Taxes in the nine months of 2008. On May 30, 2008, the Company and RCPC, Ronson Aviation, and Ronson-Canada (collectively, the "Borrowers") entered into a secured, revolving credit facility with Wells Fargo Bank, National Association ("Wells Fargo"). The credit facility consists of (1) a revolving line of credit of up to $4.0 million, (2) a Real Estate Term Loan of $2,922,500 and (3) an Equipment Term Loan of $837,500. Availability under the credit facility is determined based on the value of the Borrowers' receivables and inventory, and other factors, as set forth in the credit and security agreement. The Company is a guarantor of the obligations under the credit facility. Amounts advanced under the credit facility are secured by substantially all of the assets of the Company and its subsidiaries, other than (1) the real property owned by Ronson Consumer Products Corporation in Woodbridge, New Jersey and (2) 34% of the Company's interest in Ronson-Canada. The term of the credit facility is 60 months. The revolving line of credit had a balance of $1,570,000 at September 30, 2008. The revolving line of credit bears interest at 1/2% over the Wells Fargo prime rate, or, at the Company's option, a portion may bear interest at LIBOR plus 3%. The Company obtained two term loans from Wells Fargo as part of the new credit facility: an Equipment Term Loan in the original amount of $837,500 and a Real Estate Term Loan in the original amount of $2,922,500. The Equipment Term Loan is payable in 60 equal monthly principal payments of about $14,000 plus interest at the prime rate plus .75%. The Real Estate Term Loan is payable in 60 equal monthly principal payments of about $16,000 plus interest at the prime rate plus 1%, or, at the Company's option, a portion may be LIBOR plus 3.5%. Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at September 30, 2008, the Company's subsidiaries had unused borrowings available at September 30, 2008 of about $312,000 under the Wells Fargo line of credit described above. The Company has requested that Wells Fargo provide a waiver of covenant violations as of September 30, 2008, because the Company did not meet minimum net income for the nine months ended September 30, 2008, minimum net cash flow for the nine months ended September 30, 2008, and minimum tangible net worth as of 17 September 30, 2008, and because certain agreements with third parties required under the credit facility had not yet been obtained. If the Company were not in compliance with the above covenants or does not obtain a waiver of compliance, an event of default would occur under the Wells Fargo Credit and Security Agreement. The event of default would, in turn, be an event of default under the Capital One mortgage loan. If the Company did not comply with the above covenants or not obtain waivers of compliance, the Company's lenders may accelerate payment of the term loans and mortgage loan, and Wells Fargo may amend the terms of the loans and may cease making advances under the revolving loan. On August 12, 2008, Capital One provided the Company with a modification of the mortgage loan because the Company did not meet a minimum Earnings before Income Taxes covenant for the six months ended June 30, 2008. In connection with the modification, the interest rate on the mortgage loan was increased to 9.00% effective 9/1/08, 9.50% effective 1/1/09, 10.00% effective 4/1/09, 10.50% effective 7/1/09, and 11.00% effective 10/1/09. The final due date of the mortgage was changed to January 1, 2010, from the prior due date of November 1, 2016. The mortgage modification also eliminated the prepayment penalty on the agreement until April 1, 2009, when it is partially reinstated. Based on current interest rates, under the terms of the original mortgage loan prior to the modification, the prepayment penalty would have been as much as $700,000. Related to the above, the Company is in discussions with other lenders regarding additional future long-term financing to replace the Capital One mortgage loan. During July and August, the Company's President, Mr. Louis V. Aronson II, provided the Company with a subordinated demand loan of $275,000 which bears interest at the rate of 1/2% below the prime rate. The Company's Accounts Receivable was reduced to $1,197,000 at September 30, 2008 from $1,743,000 primarily due to the lower sales in the third quarter of 2008. The Company's Accounts Payable was reduced to $2,633,000 at September 30, 2008, from $3,086,000 at December 31, 2007, because a portion of the proceeds from the new Wells Fargo financing was used for this purpose. The Company's Other Assets increased to $3,646,000 at September 30, 2008 from $2,895,000 at December 31, 2007, primarily due to the Deferred Income Tax Benefits of $592,000 in the nine months and to costs incurred and deferred related to completing the Wells Fargo Credit and Security Agreement. The Decrease in Cash from Changes in Other Non-current Assets and Other Long-term liabilities of $319,000 for the nine months ended September 30, 2008, was due to the deferral of financing costs incurred related to the new Wells Fargo financing. The Company's Capital Expenditures decreased to $106,000 in the nine months of 2008 from $904,000 in the nine months of 2007 primarily because Ronson Aviation completed the construction of the new hangar in the fourth quarter of 2007. On February 1, 2008, 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 15, 2008, to stockholders of record March 28, 2008. Information as to the number 18 of shares and per share amounts has been retroactively adjusted to reflect this stock dividend. The Company has continued to meet its obligations as they have matured and management believes that the Company will continue to meet its obligations through internally generated funds from future net earnings and depreciation, established external financial arrangements, potential additional sources of financing and existing cash balances. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report contain forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenue, margins, costs or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statement concerning new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the success of new products; competition; prices of key materials, such as petroleum products; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions relating to pension costs; and other risks that are described herein and that are otherwise described from time to time in the Company's Securities and Exchange Commission reports. The Company assumes no obligation and does not intend to update these forward-looking statements. 19 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 nine months of 2008. 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, 2007, incorporated herein by reference. ITEM 4T - 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 quarterly report. Based on such evaluation, such officers 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 (including its consolidated subsidiaries) would be made known to the above officers, are effective and provide reasonable assurance that they will meet their objectives. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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. Management, including the CEO and CFO, has conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of September 30, 2008, based on the criteria for effective internal control described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on its assessment, management concluded that the Company's internal control over financial reporting was effective as of September 30, 2008. This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial 20 reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report. This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 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 third fiscal quarter or subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1A - RISK FACTORS ------------ There were no material changes in the nine months ended September 30, 2008, in the risk factors as previously disclosed in the Company's Form 10-K for the year ended December 31, 2007. 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). 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RONSON CORPORATION Date: November 14, 2008 /s/ Louis V. Aronson II ----------------------------------- Louis V. Aronson II, President & Chief Executive Officer (Signing as Duly Authorized Officer of the Registrant) Date: November 14, 2008 /s/ Daryl K. Holcomb ----------------------------------- Daryl K. Holcomb, Vice President, Chief Financial Officer and Controller (Signing as Chief Financial Officer of the Registrant) 22