Attached files
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, 2009
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Commission File Number 1-1031
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RONSON CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-0743290
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Ronson Road, P.O. Box 3000, Woodbridge, NJ 07095
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(Address of principal executive offices)
(732) 636-2430
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(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 has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [_] 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, 2009, there were 5,083,539 shares of the registrant's common
stock outstanding.
RONSON CORPORATION
FORM 10-Q INDEX
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PART I - FINANCIAL INFORMATION: PAGE
----
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS:
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008 3
CONSOLIDATED STATEMENTS OF OPERATIONS:
QUARTER ENDED SEPTEMBER 30, 2009 AND 2008 4
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 5
CONSOLIDATED STATEMENTS OF CASH FLOWS:
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 22
ITEM 4T - CONTROLS AND PROCEDURES 22
PART II - OTHER INFORMATION:
ITEM 6 - EXHIBITS 23
SIGNATURES 24
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,
2009 2008 *
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 7 $ --
Other current assets 275 191
Current assets of discontinued operations 3,877 3,917
------------ ------------
TOTAL CURRENT ASSETS 4,159 4,108
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Property, plant and equipment, at cost:
Buildings and improvements 93 93
Machinery and equipment 137 200
------------ ------------
230 293
Less accumulated depreciation and amortization 210 233
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20 60
Other assets 1,782 1,864
Other assets of discontinued operations 9,372 8,805
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$ 15,333 $ 14,837
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term debt $ 300 $ 275
Current portion of long-term debt 3 11
Accounts payable 1,974 580
Accrued expenses 2,097 439
Current liabilities of discontinued operations 12,142 11,140
------------ ------------
TOTAL CURRENT LIABILITIES 16,516 12,445
------------ ------------
Long-term debt 13 14
Other long-term liabilities 1,724 1,970
Other long-term liabilities of discontinued
operations 494 502
STOCKHOLDERS' DEFICIENCY:
Common stock 5,173 5,173
Additional paid-in capital 30,007 29,998
Accumulated deficit (34,426) (30,893)
Accumulated other comprehensive loss (2,571) (2,775)
------------ ------------
(1,817) 1,503
Less cost of treasury shares 1,597 1,597
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (3,414) (94)
------------ ------------
$ 15,333 $ 14,837
============ ============
* Reclassified for comparability.
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,
----------------------------
2009 2008 *
------------ ------------
NET SALES $ -- $ --
------------ ------------
Cost and expenses:
General and administrative 294 334
Depreciation and amortization 15 14
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309 348
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LOSS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS (309) (348)
------------ ------------
Other expense:
Interest expense 13 16
Other-net 135 67
------------ ------------
148 83
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (457) (431)
Income tax benefits (74) (182)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (383) (249)
Loss from discontinued operations
(net of tax provision (benefit) of $620
and $(88)) (1,258) (238)
------------ ------------
NET LOSS $ (1,641) $ (487)
============ ============
LOSS PER COMMON SHARE:
Basic:
Loss from continuing operations $ (0.07) $ (0.05)
Loss from discontinued operations (0.25) (0.05)
------------ ------------
Net loss $ (0.32) $ (0.10)
============ ============
Diluted:
Loss from continuing operations $ (0.07) $ (0.05)
Loss from discontinued operations (0.25) (0.05)
------------ ------------
Net loss $ (0.32) $ (0.10)
============ ============
* Reclassified for comparability.
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,
----------------------------
2009 2008 *
------------ ------------
NET SALES $ -- $ --
------------ ------------
Cost and expenses:
General and administrative 926 1,135
Depreciation and amortization 45 40
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971 1,175
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INTEREST AND OTHER ITEMS (971) (1,175)
------------ ------------
Other expense:
Interest expense 44 58
Other-net 406 187
------------ ------------
450 245
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,421) (1,420)
Income tax benefits (480) (598)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (941) (822)
Loss from discontinued operations
(net of tax provision (benefit) of $(216)
and $20) (2,592) (164)
------------ ------------
NET LOSS $ (3,533) $ (986)
============ ============
LOSS PER COMMON SHARE:
Basic:
Loss from continuing operations $ (0.18) $ (0.16)
Loss from discontinued operations (0.51) (0.03)
------------ ------------
Net loss $ (0.69) $ (0.19)
============ ============
Diluted:
Loss from continuing operations $ (0.18) $ (0.16)
Loss from discontinued operations (0.51) (0.03)
------------ ------------
Net loss $ (0.69) $ (0.19)
============ ============
* Reclassified for comparability.
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,
---------------------------
2009 2008 *
------------ ------------
Cash Flows from Operating Activities:
Net loss $ (3,533) $ (986)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 501 561
Stock option expense 9 --
Deferred income tax expense (benefit) (650) (592)
Increase (decrease) in cash from changes in:
Current assets and current liabilities 2,561 (82)
Other non-current assets and other long-term
liabilities (208) (13)
Net change in pension-related accounts 284 94
Discontinued operations 488 580
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Net cash used in operating activities (548) (438)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (2) (23)
Proceeds from sale of property, plant & equipment 10 --
Discontinued operations (37) (82)
------------ ------------
Net cash used in investing activities (29) (105)
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Cash Flows from Financing Activities:
Proceeds from short-term debt 25 275
Proceeds from long-term debt -- 18
Payments of short-term debt -- (30)
Payments of long-term debt (3) (15)
Discontinued operations 562 298
------------ ------------
Net cash provided by financing activities 584 546
------------ ------------
Net increase in cash and cash equivalents 7 3
Cash and cash equivalents at beginning of period -- 22
------------ ------------
Cash and cash equivalents at end of period $ 7 $ 25
============ ============
* Reclassified for comparability.
See notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE QUARTER ENDED SEPTEMBER 30, 2009 (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, 2009 and 2008, 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.
Going Concern and Management's Response - The accompanying financial
statements have been prepared assuming that Ronson Corporation ("the Company")
will continue as a going concern. For the nine months ended September 30, 2009,
the Company had a Loss from Continuing Operations of $(941,000) and a Net Loss
of $(3,533,000) and had a Net Loss of $(1,652,000) for the year ended December
31, 2008. At September 30, 2009, the Company had both a deficiency in working
capital and a Stockholders' Deficit. In addition, the Company was in violation
of certain provisions of certain short-term and long-term debt covenants at
September 30, 2009 and December 31, 2008, (refer to Note 3).
The Company's losses and difficulty in generating sufficient cash flow to
meet its obligations and sustain its operations, as well as existing events of
default under its credit facilities and mortgage loans, raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
On November 21, 2008, as a result of events of default under the Credit
Agreement, extending to the failure of the Company to meet its minimum tangible
net worth requirement as of September 30, 2008 and its minimum net income and
minimum net cash flow requirements for the nine months ended September 30, 2008,
Wells Fargo, National Association ("Wells Fargo")advised the Company of an
increase in the interest rate on the amounts outstanding under its Credit
Agreement by 3%, retroactive to July 1, 2008, as allowed under the terms of the
Credit Agreement. Under cross-default provisions in the Company's mortgage loan
documentation with Capital One, N.A. ("Capital One"), the events of default
under the Credit Agreement with Wells Fargo were events of default under the
mortgage loan.
In December 2008, in response to the request from Wells Fargo, the
Company's Board of Directors (the "Board") began interviewing financial
consultants for the Company to assist in managing its operations and cash
requirements and on January 6, 2009, the Company engaged Getzler Henrich as its
financial consultant.
On February 20, 2009, the Company received from Wells Fargo an additional
notification of Wells Fargo's reservation of rights and remedies relating to the
previously identified events of default. The notification further indicated that
Wells Fargo was instituting certain restrictions and reducing loan availability.
On March 30, 2009, Wells Fargo entered into a forbearance agreement with
the Company under which Wells Fargo agreed not to assert existing events of
default under the Credit Agreement through April 24, 2009 unless earlier
terminated if the Company, among other things, were to breach the forbearance
agreement. Wells Fargo also agreed to an overadvance facility in the amount of
$500,000 to supplement the Company's credit line. The forbearance agreement was
subsequently amended on each of April 24, April 29, May 4, May 27, July 2, July
16, July 31 and November 5, to provide, in each case, extensions of the
forbearance period and, in some cases, for additional credit availability (the
original agreement together with all amendments, collectively, the "Forbearance
Agreement"). Under the amendment dated November 5, 2009, Wells Fargo increased
the maximum amount of the Company's overadvance facility to $2.0 million and
also agreed to extend the forbearance period to December 31, 2009.
Also, on March 30, 2009, the Company expanded the scope of the engagement
of Getzler Henrich and, in accordance with its obligations under the Forbearance
Agreement,
7
retained Joel Getzler of Getzler Henrich as the Company's Chief Restructuring
Officer ("CRO") responsible for operations, finance, accounting and related
administrative issues, subject to the authority of and reporting to the Board.
Pursuant to the engagement, Mr. Getzler has agreed to act as CRO during the
period that Wells Fargo continues to make revolving advances to the Company in
an amount sufficient to fund the Company's cash flow needs.
During the forbearance period, the Company will continue to be obligated
for interest at the default rate under the credit and term loan facilities with
Wells Fargo, except for interest on overadvances that accrue at the bank's prime
rate plus 8% per annum, in addition to a forbearance fee in the amount of
$500,000 which will be charged as an advance under the credit line upon the
earlier of the end of the forbearance period or repayment of all amounts owed to
Wells Fargo.
On May 15, 2009, the Company entered into an agreement to sell
substantially all of the assets of Ronson Aviation, Inc. ("Ronson Aviation"),
its wholly-owned subsidiary engaged as a fixed-base operator at Trenton-Mercer
Airport. The Company procured purchasers so as to maximize the value of Ronson
Aviation, permit it to satisfy outstanding indebtedness, including to Wells
Fargo, and provide working capital to the Company.
On October 8, 2009, the Company, Ronson Consumer Products Corporation
("RCPC"), and Ronson Corporation of Canada Ltd. ("Ronson-Canada"), (combined
"Ronson Consumer Products"), executed an agreement dated as of October 5, 2009
to sell substantially all of the assets of Ronson Consumer Products to Zippo
Manufacturing Company ("Zippo").
The purchase price for the assets of Ronson Aviation is $9.5 million in
cash, $0.5 million of which will be held in escrow for a period of 15 months
following the closing to secure potential indemnification claims against the
Company in accordance with the terms of the Aviation Sale Agreement. The
purchase price for the assets of Ronson Consumer Products is $11.1 million in
cash, subject to adjustment in accordance with the terms of the Consumer
Products Sale Agreement, a minimum of $1.1 million and a maximum of $1.35
million of which will be held in escrow to secure potential indemnification
claims against the Company for a period of 12 months (or longer to secure the
Company's environmental compliance obligations). The Company currently estimates
it will receive net cash proceeds (calculated as of September 30, 2009) at
closing from the Ronson Aviation Sale and the Ronson Consumer Products Sale (the
two transactions together the "Sale Transactions") of approximately $18.168
million in the aggregate (exclusive of amounts deposited in escrow at closing),
prior to the payment of $9.587 million in indebtedness secured by the assets
being sold in the Sale Transactions and the estimated transaction costs of
$510,000 in its Ronson Aviation Sale ($98,000 of which have already been paid)
and of $1.015 million in its Ronson Consumer Products Sale ($106,000 of which
have already been paid). Notwithstanding the foregoing, uncertainties as to the
actual dates of closing and the ultimate amount of our known, unknown and
contingent debts and liabilities and the aggregate transaction costs associated
with the Sale Transactions make it impossible to predict with certainty whether
any net amount may be recognized.
In 2008 and to date in 2009, the Company has taken steps to reduce its
costs and expenses. Certain salaries to officers and fees to directors were
reduced. The Company's officers accepted reductions in management incentive
compensation totaling $79,000 related to operating results in 2007 that had been
due to be paid in 2008 and $44,000 in management incentive compensation related
to operating results in 2008. In the first half of 2009, the Company reduced its
workforce by about 15 persons, or 17% of the Company's staff. The Company
reduced the health benefits provided to its employees, and deferred the payment
of the Company's contribution to its defined contribution pension plan. In
addition, certain employees have temporarily assumed payment of costs of Company
vehicles and costs of life and other insurance. All payments to directors of the
Company, including officers who are directors, have been deferred. The Company
continues to review its costs for additional reductions.
Pending consummation of the Sale Transactions, the Company will continue
to effect cost reductions and seek sources of financing, without which the
Company will not be
8
able to fund current operations beyond the forbearance period. The Company does
not have a commitment from Wells Fargo to extend the forbearance period beyond
its current duration. In the event of acceleration of its indebtedness to Wells
Fargo and its outstanding mortgage loans as a result of existing defaults, the
Company would not have sufficient cash resources to pay such amounts. There can
be no assurance that the Company will be able to obtain an extension of its
arrangements with Wells Fargo, arrange additional financing or complete its
divestiture plans within its anticipated time frame.
This quarterly report should be read in conjunction with 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,
------------------------------------------------------------------------------
2009 2008
------------------------------------- -------------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
---- ------ ------ ---- ------ ------
Loss from continuing
operations $ (383) 5,084 $ (.07) $ (249) 5,084 $ (.05)
Loss from
discontinued operations (1,258) 5,084 (.25) (238) 5,084 (.05)
---------- ---------- ---------- ----------
BASIC $ (1,641) 5,084 $ (.32) $ (487) 5,084 $ (.10)
========== ========== ========== ========== ========== ==========
Effect of dilutive
securities,
Stock options (1) -- --
---------- ----------
Loss from
continuing operations $ (383) 5,084 $ (.07) $ (249) 5,084 $ (.05)
Loss from
discontinued operations (1,258) 5,084 (.25) (238) 5,084 (.05)
---------- ---------- ---------- ----------
DILUTED $ (1,641) 5,084 $ (.32) $ (487) 5,084 $ (.10)
========== ========== ========== ========== ========== ==========
Nine Months Ended September 30,
------------------------------------------------------------------------------
2009 2008
------------------------------------- -------------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
---- ------ ------ ---- ------ ------
Loss from continuing
operations $ (941) 5,084 $ (.18) $ (822) 5,084 $ (.16)
Loss from
discontinued operations (2,592) 5,084 (.51) (164) 5,084 (.03)
---------- ---------- ---------- ----------
BASIC $ (3,533) 5,084 $ (.69) $ (986) 5,084 $ (.19)
========== ========== ========== ========== ========== ==========
Effect of dilutive
securities,
Stock options (1) -- --
---------- ----------
Loss from
continuing operations $ (941) 5,084 $ (.18) $ (822) 5,084 $ (.16)
Loss from
discontinued operations (2,592) 5,084 (.51) (164) 5,084 (.03)
---------- ---------- ---------- ----------
DILUTED $ (3,533) 5,084 $ (.69) $ (986) 5,084 $ (.19)
========== ========== ========== ========== ========== ==========
9
(1) Stock options were anti-dilutive for all the periods presented,
and, therefore, were excluded from the computation and
reconciliation of Diluted Loss per Common Share for those periods.
The number of potentially anti-dilutive securities was 26,000 in
the nine months ended September 30, 2009.
Note 3: SHORT-TERM DEBT
---------------
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. The credit facility consisted of (1) a revolving line of
credit of up to $4.0 million, now $3.5 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 $2,307,000 at September 30, 2009. This balance has been
classified as Current Liabilities of Discontinued Operations on the Company's
balance sheets in all periods presented. The revolving line of credit bore
interest at 1/2% over the Wells Fargo prime rate (3.25% at September 30, 2009),
or, at the Company's option, a portion may bear interest at LIBOR plus 3%.
The Company paid 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.
On November 21, 2008, Wells Fargo advised the Company and its
subsidiaries that Events of Default under the credit agreement dated May 30,
2008, had occurred. These events of default included the Company not meeting
financial covenants as follows: 1) the minimum Tangible Net Worth as of
September 30, 2008, 2) the minimum Net Income for the nine months ended
September 30, 2008, and 3) the minimum Net Cash Flow for the nine months ended
September 30, 2008, and the Company not meeting all of the requirements of the
Post-Closing Agreement dated May 30, 2008. As a result of the events of default,
Wells Fargo increased the interest rate charged on the loans outstanding under
the credit agreement by 3%. In addition, in November and December 2008, Wells
Fargo reduced the amounts available to be borrowed under the revolving line of
credit. In December 2008, Wells Fargo required that the Company engage a
consultant to review and monitor the Company's operation and Wells Fargo
increased its monitoring of the line of credit.
On March 30, 2009, the Company, its subsidiaries and Wells Fargo entered
into a forbearance agreement, subsequently amended, under which Wells Fargo has
agreed not to assert existing events of default under the Company's credit
facilities with Wells Fargo through December 31, 2009, or such earlier date
determined under the forbearance agreement. The forbearance period may terminate
earlier upon the occurrence of certain specified events. During the forbearance
period, Wells Fargo will make available to the Company an overadvance facility
in the amount of up to $2,000,000 to supplement the Company's credit line, the
maximum amount of which has been adjusted to $3.5 million. During the
forbearance period, the Company will continue to be obligated for interest at
the default rate under the credit and term loan facilities with Wells Fargo,
except for interest on overadvances that accrue at the bank's prime rate plus 8%
per annum, in addition to a forbearance fee in the amount of $500,000 which will
be charged as an advance under the credit line upon the earlier of the end of
the forbearance period or repayment of all amounts owed to Wells Fargo.
10
The revolving credit facility with Wells Fargo required the Company, for
the quarter ended September 30, 2009, to maintain Tangible Net Worth (Deficit)
(as defined in the facility) of not less than $(1,500,000), to achieve Net
Income (Loss) (as defined in the facility) for the period from January 1, 2009
to such date of not less than $(437,000) and to achieve Net Cash Flow (as
defined in the facility) for the period from January 1, 2009 to such date of
$(280,000). The Company's actual performance for the quarter resulted in:
o Tangible Net Worth (Deficit) of $(10,216,000) (consisting of Book
Net Worth (Deficit) of $(3,414,000) minus Intangible Assets of
$6,802,000, as defined in the facility);
o Net Income (Loss) for the nine-month period of $(3,533,000)
(consisting of net income from continuing operations, including
extraordinary losses but excluding extraordinary gains);
o Net Cash Flow for the nine-month period of $(3,040,000)
(consisting of Net Income, plus depreciation and amortization of
$501,000 and periodic pension expense of $460,000, minus
unfinanced capital expenditures of $39,000, pension plan payments
of $146,000 and current maturities of long-term debt of $283,000,
as defined in the facility).
Accordingly, the Company was not in compliance with its covenants to Wells Fargo
as of September 30, 2009, regarding Tangible Net Worth, Net Income and Net Cash
Flow.
In the third quarter of 2008 and first quarter of 2009, the Company's
President and CEO provided loans to the Company totaling $300,000, due on demand
with interest at the prime rate minus one-half percent (2.75% at September 30,
2009).
Note 4: LONG-TERM DEBT
--------------
In September 2006, RCPC entered into a mortgage loan agreement with
Capital One, for $2,200,000. The mortgage loan had a balance of $2,138,000 at
September 30, 2009, 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. 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
were 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 was 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 credit facility (refer to Note 3 above), an Equipment Term Loan in
the original amount of $837,500 with a balance of $634,000 as of September 30,
2009, and a Real Estate Term Loan in the original amount of $2,922,500 with a
balance of $2,695,000 as of September 30, 2009. The Equipment Term Loan is
payable in 60 equal monthly principal payments of about $14,000 plus interest.
The Real Estate Term Loan is payable in 60 equal monthly principal payments of
about $16,000 plus interest. The interest rate for the Equipment Term Loan,
originally the prime rate plus .75%, was increased in the fourth quarter 2008,
11
to the prime rate plus 3.75%, effective July 1, 2008. Similarly, the interest
rate for the Real Estate Term Loan, originally the prime rate plus 1%, was
increased to the prime rate plus 4%, effective July 1, 2008.
The Wells Fargo and Capital One long-term debt referred to above, has
been classified as Current Liabilities of Discontinued Operations ($5,467,000)
on the Company's balance sheets at September 30, 2009.
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 September 30, 2009, and December 31, 2008, 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 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.
12
Note 6: INDUSTRY SEGMENTS INFORMATION
-----------------------------
The Company had two reportable segments: consumer products and aviation
services. As discussed above, on May 15, 2009, the Company entered into an
agreement to sell substantially all of the assets of Ronson Aviation. Also, on
October 8, 2009, the Company entered into an agreement to sell substantially all
of the assets of its consumer products segment. Therefore, all operations of the
two reportable segments have been classified as discontinued operations in all
periods presented.
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, 2009 and 2008
-----------------------------------------
Accumulated
Foreign Currency Net Other
Translation Pension Prior Comprehensive
Adjustments Loss Service Cost Loss
------------ ------------ ------------ ------------
Balance at June 30, 2009 $ (5) $ 2,626 $ 24 $ 2,645
Current period income (20) -- -- (20)
Recognized as components of
net periodic benefit cost -- (105) (1) (106)
Income tax expense 8 42 2 52
------------ ------------ ------------ ------------
Balance at September 30, 2009 $ (17) $ 2,563 $ 25 $ 2,571
============ ============ ============ ============
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
============ ============ ============ ============
Nine Months Ended September 30, 2009 and 2008
---------------------------------------------
Accumulated
Foreign Currency Net Other
Translation Pension Prior Comprehensive
Adjustments Loss Service Cost Loss
------------ ------------ ------------ ------------
Balance at December 31, 2008 $ (4) $ 2,752 $ 27 $ 2,775
Current period income (22) -- -- (22)
Recognized as components of
net periodic benefit cost -- (314) (5) (319)
Income tax expense 9 125 3 137
------------ ------------ ------------ ------------
Balance at September 30, 2009 $ (17) $ 2,563 $ 25 $ 2,571
============ ============ ============ ============
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
============ ============ ============ ============
13
Note 8: STATEMENTS OF CASH FLOWS
------------------------
Instruments having an original 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,
-----------------------
2009 2008
---------- ----------
Cash Payments for:
Interest $ 524 $ 429
Income Taxes 5 (2)
Financing & Investing Activities
Not Affecting Cash: None
Note 9: RETIREMENT PLANS
----------------
The Company's Consolidating Statements of Operations included pension
expense consisting of the following components (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
2009 2008 2009 2008
--------------------------------------------
Service cost $ 6 $ 5 $ 18 $ 15
Interest cost 81 67 244 201
Expected return on
plan assets (39) (64) (118) (193)
Recognized actuarial
losses 104 60 313 180
Recognized prior
service cost 1 1 3 3
-------- -------- -------- --------
Net pension expense $ 153 $ 69 $ 460 $ 206
======== ======== ======== ========
Contributions to the pension plan during 2009 paid and expected to be
paid are as follows (in thousands):
Paid in the nine months ended September 30, 2009 $ 146
Expected to be paid in the balance of 2009 69
-------
Total expected to be paid in the year ending December 31, 2009 $ 215
=======
The Company's contributions to the pension plan in the nine months ended
September 30, 2008 were $110,000.
Note 10: DISCONTINUED OPERATIONS
-----------------------
On May 15, 2009, the Company entered into an asset purchase agreement
with Ronson Aviation and Hawthorne TTN Holding, LLC ("Hawthorne") for the sale
of substantially all of the assets of the Company's aviation business (other
than specified assets including cash and cash equivalents and accounts
receivable). The asset purchase agreement provides for a purchase price of $9.5
million in cash, $0.5 million of which would be held in escrow for a period of
15 months after closing to secure indemnification claims
14
against the Company. Consummation of the transaction is subject to, among other
things, the Company receiving shareholder approval to complete the transaction
as well as other customary closing conditions.
On October 8, 2009, the Company entered into an asset purchase agreement
with Zippo for the acquisition of substantially all of the assets of Ronson
Consumer Products. The consummation of the transaction is subject, among other
things, to the satisfactory completion by Zippo of its environmental due
diligence review of the consumer products division, approval by the Company's
shareholders, receipt of required third-party consents and various other
customary conditions.
As stated above, each of the Sale Transactions is subject to approval by
the Company's shareholders, as to which a preliminary proxy statement on
Schedule 14A has been filed with the SEC and we urge you to read the definitive
proxy statement and other relevant documents filed with the SEC when they become
available because they will contain important information about the proposed
Sale Transactions.
The carrying amount of the assets and liabilities of discontinued
operations at September 30, 2009 and December 31, 2008, were as follows (in
thousands):
September 30, December 31,
2009 2008
---- ----
Current assets of discontinued operations:
Cash $ 58 $ 84
Accounts receivable, net 1,305 1,288
Inventories 1,667 1,839
Other current assets 847 706
------------ ------------
Total $ 3,877 $ 3,917
============ ============
Other assets of discontinued operations:
Property, plant and equipment, net $ 5,452 $ 5,783
Other assets 3,920 3,022
------------ ------------
Total $ 9,372 $ 8,805
============ ============
Current liabilities of discontinued operations:
Short-term debt $ 2,307 $ 1,472
Current portion of long-term debt & leases 5,514 5,752
Accounts payable 2,628 2,322
Accrued expenses 1,693 1,594
------------ ------------
Total $ 12,142 $ 11,140
============ ============
Other long-term liabilities of discontinued operations:
Long-term debt and leases $ 110 $ 145
Other long-term liabilities 384 357
------------ ------------
Total $ 494 $ 502
============ ============
Net Sales of Discontinued Operations in the periods presented were as follows
(in thousands):
Periods ended September 30,
2009 2008
---- ----
Three months $ 4,482 $ 5,455
Nine months 14,090 18,766
The operations of Ronson Consumer Products and Ronson Aviation have been
classified as discontinued in all periods presented.
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
---------------------
Third Quarter 2009 compared to Third Quarter 2008 and Nine Months 2009
Compared to Nine Months 2008.
In March 2009, the Company announced its plan to divest Ronson Aviation,
Inc. ("Ronson Aviation"). On May 18, 2009, the Company announced that it had
entered into an agreement to sell substantially all of the assets of the
wholly-owned subsidiary, Ronson Aviation. On October 8, 2009, the Company
entered into an agreement to sell substantially all of the assets of Ronson
Consumer Products, including both Ronson Consumer Products Corporation ("RCPC")
and Ronson Corporation of Canada Ltd. ("Ronson-Canada"). Therefore, the
operations of Ronson Consumer Products and Ronson Aviation have been classified
as discontinued in the Consolidated Statements of Operations below. The results
of continuing operations include only the Company.
The Company's Loss from Continuing Operations was $(383,000) in the third
quarter of 2009 as compared to $(249,000) in the third quarter of 2008. The
Company's Loss from Continuing Operations in the nine months of 2009 was
$(941,000) as compared to $(822,000) in the nine months of 2008.
The Company had a Loss from Discontinued Operations in the third quarter
of 2009 of $(1,258,000) as compared to $(238,000) in the third quarter of 2008.
The Company had a Loss from Discontinued Operations of $(2,592,000) in the nine
months of 2009 as compared to $(164,000) in the nine months of 2008.
The Loss from Discontinued Operations in the third quarter of 2009
included expenses for increased professional fees of $532,000, (before income
taxes) consisting of legal fees, fees related to the Chief Restructuring
Officer, other increased fees charged by Wells Fargo, and investment banking
expenses. In the nine months of 2009, the Company's Loss from Discontinued
Operations included a forbearance fee to Wells Fargo of $500,000 (before income
taxes) and the increased professional fees of about $1,778,000 (before income
taxes).
Continuing Operations
Because the operations of Ronson Consumer Products and Ronson Aviation
are classified as discontinued, the Company's continuing operations are the
Company's corporate costs and expenses.
The Company's General and Administrative Expenses were reduced in the
third quarter of 2009 to $294,000 from $334,000 in the third quarter of 2008 and
were reduced to $926,000 in the nine months of 2009 from $1,135,000 in the nine
months of 2008. These reductions were primarily due to reductions in personnel
costs due to staff reductions and salary reductions in the first quarter of
2009.
The Other-net included increased pension expenses related to the
Company's frozen pension plan of $143,000 and $429,000 in the third quarter and
nine months of 2009, respectively, as compared to $68,000 and $205,000 in the
third quarter and nine months of 2008, respectively.
Discontinued Operations
As discussed above, the Company's discontinued operations include the
operations of Ronson Consumer Products and Ronson Aviation in all periods
presented.
The Company had a Loss from Discontinued Operations in the third quarter
of 2009 of $(1,258,000), including an income tax provision of $620,000, as
compared to a loss of $(238,000), net of income tax benefits of $88,000 in the
third quarter of 2008. The Loss
16
from Discontinued Operations in the third quarter of 2009 included increased
costs of about $532,000 in professional fees related to the Wells Fargo
forbearance agreement, fees of Getzler Henrich & Associates LLC ("Getzler
Henrich") related to the Company's retention of Mr. Joel Getzler of Getzler
Henrich as the Company's Chief Restructuring Officer ("CRO"), and investment
banking expenses related to the Company's divestiture of Ronson Consumer
Products.
Similarly, the Company had a Loss from Discontinued Operations in the
nine months of 2009 of $(2,592,000), net of income tax benefits of $216,000, as
compared to a loss of $(164,000), net of income tax expense of $20,000 in the
nine months of 2008. The Loss from Discontinued Operations in the nine months of
2009 included increased costs of about $2,278,000 in the following: professional
fees related to the Wells Fargo forbearance agreement, a forbearance fee earned
by Wells Fargo of $500,000, fees of Getzler Henrich, and investment banking
expenses related to the Company's divestiture of Ronson Consumer Products.
The Loss from Discontinued Operations in the quarter and nine months
ended September 30, 2009 and 2008 were composed of the following (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
-------- -------- -------- --------
Ronson Consumer Products
Net sales $ 2,967 $ 2,753 $ 8,216 $ 9,540
Gross profit 928 706 2,459 3,004
Loss from operations (307) (339) (1,397) (419)
Interest expense 122 78 317 267
Other - net 95 25 416 191
Loss before intercompany charges and
income taxes (524) (442) (2,130) (877)
Income tax benefits (expenses)
Loss from discontinued operations of (533) 133 63 274
Ronson Consumer Products (1,057) (309) (2,067) (627)
-------- -------- -------- --------
Ronson Aviation
Net sales $ 1,875 $ 2,702 $ 5,874 $ 9,226
Gross profit 396 409 1,418 1,726
Earnings (loss) from operations (21) 173 (211) 936
Interest expense 56 50 165 120
Other - net 36 7 302 83
Earnings (loss) before intercompany
charges and income taxes (113) 116 (678) 733
Income tax benefits (expenses)
(86) (45) 156 (292)
Earnings (loss) from discontinued
operations of Ronson Aviation (199) 71 (522) 465
-------- -------- -------- --------
Other (2) -- (3) (2)
-------- -------- -------- --------
Loss from discontinued operations $ (1,258) $ (238) $ (2,592) $ (164)
======== ======== ======== ========
17
Increased professional fees related to
financing included in earnings (loss)
from operations above
Ronson Consumer Products $ 269 $ -- $ 848 $ --
Ronson Aviation 263 -- 930 --
-------- -------- -------- --------
Total $ 532 $ -- $ 1,778 $ --
======== ======== ======== ========
Forbearance fee to Wells Fargo included
in other-net above
Ronson Consumer Products $ 22 $ -- $ 225 $ --
Ronson Aviation 28 -- 275 --
-------- -------- -------- --------
Total $ 50 $ -- $ 500 $ --
======== ======== ======== ========
At Ronson Consumer Products, the lower net sales and gross profit in the
nine months of 2009 as compared to the nine months of 2008 were primarily due to
the Company's reduced lending availability in the first quarter of 2009. An
improvement in the loss from operations in the third quarter and nine months of
2009 as compared to the same period in 2008 due to lower oil prices was offset
by the increased professional fees discussed above.
At Ronson Aviation, the net sales were lower in the third quarter and
nine months of 2009 as compared to the same period of 2008 primarily due to the
lower prices for aviation fuel and lower volume of fuel sold. The Earnings
(Loss) from Operations were lower in the third quarter of 2009 from the third
quarter of 2008 primarily due to the increased professional fees discussed above
and the lower volume of aviation fuel sold.
Income Taxes
The income tax expenses (benefits) in the periods presented were as
follows (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
2009 2008 2009 2008
--------------------------------------------
Continuing Operations $ (74) $ (182) $ (480) $ (598)
Discontinued Operations:
Ronson Consumer
Products 533 (133) (63) (274)
Ronson Aviation 86 45 (156) 292
Other 1 -- 3 2
-------- -------- -------- --------
620 (88) (216) 20
-------- -------- -------- --------
Total $ 546 $ (270) $ (696) $ (578)
======== ======== ======== ========
In the third quarter, the Company reviewed the deferred income tax asset
and determined that a portion would not be realized and, therefore, the
valuation allowance was increased, which increased the income tax expenses, by
approximately $922,000 as follows (in thousands):
Continuing Operations $ 118,000
Discontinued Operations:
Ronson Consumer Products 691,000
Ronson Aviation 113,000
---------
804,000
---------
$ 922,000
=========
18
The portion expected to be realized has been reduced to the amount of the
expected gain on the sale of the assets of Ronson Consumer Products and Ronson
Aviation.
FINANCIAL CONDITION
The Company's Stockholders' Deficiency increased to $3,414,000 at
September 30, 2009 from $94,000 at December 31, 2008. The increase in the
Stockholders' Deficiency was primarily due to the Net Loss in the nine months of
2009. The Company had a deficiency in working capital of $12,357,000 at
September 30, 2009, as compared to $8,337,000 at December 31, 2008. The decline
in working capital was primarily due to the Loss before Income Taxes of
$4,229,000 in the nine months of 2009.
On May 15, 2009, the Company entered into an asset purchase agreement
with Ronson Aviation and Hawthorne TTN Holding, LLC ("Hawthorne") for the sale
of substantially all of the assets of the Company's aviation business (other
than specified assets including cash and cash equivalents and accounts
receivable). The agreement provides for a purchase price of $9.5 million in
cash, $0.5 million of which would be held in escrow for a period of 15 months
after closing to secure indemnification claims against the Company. Consummation
of the transaction is subject to the approval of the transaction by the
Company's shareholders and the satisfaction of the other prior conditions.
Several conditions of the transaction, the financing contingency, the due
diligence contingency and the agreement of Mercer County, have been satisfied
since the beginning of the third quarter.
On August 12, 2009, the Company announced that it had entered into a
non-binding letter of intent with Zippo Manufacturing Company ("Zippo") for the
acquisition by Zippo of substantially all of the assets of Ronson Consumer
Products as well as intellectual property of the Company. On October 8, 2009,
the Company entered into an asset purchase agreement with Zippo for the sale.
Zippo will pay the Company $11.1 million in cash for the assets of Ronson
Consumer Products subject to adjustment in accordance with the terms of the
Consumer Products sale agreement, a minimum of $1.1 million and a maximum of
$1.35 million of which will be held in escrow to secure potential
indemnification claims against the Company for a period of 12 months (or longer
to secure the Company's environmental compliance obligations). At the closing,
Zippo will deliver $9.75 million, as adjusted, to Ronson Consumer Products and
the remaining $1.1 million and an additional $250,000 will be delivered, in
part, to First National Bank of Pennsylvania, as escrow agent, pursuant to an
escrow agreement to be entered into between the parties at the closing and, in
part, to the trustee under an environmental remediation agreement with the
NJDEP.
The consummation of the transaction is subject, among other things, to
satisfactory completion by Zippo of its environmental due diligence review of
Ronson Consumer Products, approval by the Company's shareholders, receipt of
required third-party consents and various other customary conditions.
As stated above, each of the Sale Transactions is subject to approval by
the Company's shareholders, as to which a preliminary proxy statement on
Schedule 14A has been filed with the SEC and we urge you to read the definitive
proxy statement and other relevant documents filed with the SEC when they become
available because they will contain important information about the proposed
Sale Transactions. The Company anticipates the closing date of the Sale
Transactions will be promptly after all conditions are satisfied which we
estimate to be in the first quarter of next year.
The Company currently intends to retain the net cash proceeds and use
them to repay outstanding indebtedness secured by the assets sold and pension
plan liabilities and accrued expenses (including amounts owed to officers and
directors and their affiliates and amounts due in legal, accounting and other
professional fees incurred in connection with each of the Sale Transactions)
subject to applicable law. Based on the Company's outstanding obligations and
estimated obligations through closing, the Company believes that the
consummation of both Sale Transactions will result in proceeds sufficient to
satisfy the Company's indebtedness secured by the assets sold but not all of the
Company's other obligations and, as a consequence, the Company may file a
proceeding under the bankruptcy laws, including one under Chapter 7 of Title 11
of the United
19
States Code, to effectuate a distribution of any net cash proceeds of the Sale
Transactions in accordance with the priority scheme set forth under such laws.
The Company does not anticipate distribution to the shareholders of the proceeds
of the Sale Transactions.
Previously, on July 22, 2009, the Company had announced that it had
executed a non-binding letter of intent to sell Ronson Consumer Products, as
well as the related intellectual property owned by the Company, to a European
manufacturer of pocket and utility lighters. Details and financial terms were
not announced pending negotiation of definitive documentation, which was
subject, among other things, to the satisfactory completion of the purchaser's
due diligence review of Ronson Consumer Products. In addition to definitive
documentation, the consummation of the transaction would have been subject to
final approval by the parties' boards of directors and approval by the Company's
shareholders, receipt of required third-party consents and various other
customary conditions. However, as previously disclosed, on August 6, 2009, the
Company was served with a lawsuit in the United States District Court for the
Western District of Pennsylvania by Zippo regarding the Company's execution of
the non-binding letter of intent with the European purchaser regarding its
proposed purchase of Ronson Consumer Products. Zippo claimed that the Company
breached alleged obligations to Zippo by accepting the bid of the European
purchaser in lieu of Zippo's bid, and sought to enjoin the Company from
negotiating the sale with any party other than Zippo. Following the filing of
Zippo's suit, the European purchaser with whom the Company had been in
discussions withdrew its proposal. Subsequently, August 12, 2009, after
discussions with the Company, Zippo dismissed its lawsuit without prejudice and
the parties entered into the non-binding letter of intent described above. The
Company and the European purchaser have executed mutual releases.
On November 21, 2008, as a result of events of default under the Credit
Agreement, extending to the failure of the Company to meet its minimum tangible
net worth requirement as of September 30, 2008 and its minimum net income and
minimum net cash flow requirements for the nine months ended September 30, 2008,
Wells Fargo advised the Company of an increase in the interest rate on the
amounts outstanding under the Credit Agreement by 3%, retroactive to July 1,
2008 as allowed under the terms of the Credit Agreement. Under cross-default
provisions in the Company's mortgage loan documentation with Capital One, the
events of default under the Credit Agreement with Wells Fargo were events of
default under the mortgage loan.
In December 2008, in response to suggestions from Wells Fargo, the Board
began interviewing financial consultants for the Company to assist in managing
its operations and cash requirements and on January 6, 2009, the Company engaged
Getzler Henrich as its financial consultant.
On February 20, 2009, the Company received from Wells Fargo an additional
notification of Wells Fargo's reservation of rights and remedies relating to the
previously identified events of default. The notification further indicated that
Wells Fargo was instituting certain restrictions and reducing loan availability.
On March 30, 2009, Wells Fargo entered into a forbearance agreement with
the Company under which Wells Fargo agreed not to assert existing events of
default under the Credit Agreement through April 24, 2009 unless earlier
terminated if the Company, among other things, were to breach the forbearance
agreement. Wells Fargo also agreed to an overadvance facility in the amount of
$500,000 to supplement the Company's credit line. The forbearance agreement was
subsequently amended on each of April 24, April 29, May 4, May 27, July 2, July
16, July 31 and November 5, to provide, in each case, extensions of the
forbearance period and, in some cases, for additional credit availability (the
original agreement together with all amendments, collectively, the "Forbearance
Agreement"). Under the amendment dated November 5, 2009, Wells Fargo increased
the maximum amount of the Company's overadvance facility to $2.0 million and
also agreed to extend the forbearance period to December 31, 2009 if certain
conditions relating to the Company's proposed sale of Ronson Aviation and the
proposed sale of Ronson Consumer Products are satisfied.
20
Also, on March 30, 2009, the Company expanded the scope of the engagement
of Getzler Henrich and, in accordance with its obligations under the Forbearance
Agreement, retained Joel Getzler of Getzler Henrich as the Company's CRO
responsible for operations, finance, accounting and related administrative
issues, subject to the authority of and reporting to the Board of Directors.
Pursuant to the engagement, Mr. Getzler has agreed to act as CRO during the
period that Wells Fargo continues to make revolving advances to the Company in
an amount sufficient to fund the Company's cash flow needs.
Under cross-default provisions in the Company's mortgage loan from
Capital One, the events of default under the Wells Fargo facility are an event
of default under the mortgage loan. Capital One has not accelerated any payments
under the mortgage loan. At September 30, 2009, the amounts of the outstanding
indebtedness to Wells Fargo and Capital One were $5,936,000 and $2,138,000,
respectively.
In 2008 and to date in 2009, the Company has taken steps to reduce its
costs and expenses. Certain salaries to officers were reduced. The Company's
officers accepted reductions in management incentive compensation totaling
$79,000 related to operating results in 2007 that had been due to be paid in
2008 and $44,000 in management incentive compensation related to operating
results in 2008. In the first quarter of 2009, the Company reduced its workforce
by about 15 persons, or 17% of the Company's staff. The Company reduced certain
of the health benefits provided to its employees, and the Company deferred
payment of the Company's contribution to its defined contribution pension plan.
In addition, certain employees have temporarily assumed payment of costs of
Company vehicles and costs of life and other insurance. All payments to
directors of the Company, including officers who are directors, have been
deferred. The Company continues to review its costs and expenses in order to
implement additional reductions.
Pending consummation of the above transactions, the Company will continue
to effect cost reductions and seek sources of financing, without which the
Company will not be able to fund current operations beyond the forbearance
period. The Company does not have a commitment from Wells Fargo to extend the
forbearance period beyond its current duration. In the event of acceleration of
its indebtedness to Wells Fargo and its outstanding mortgage loans, as a result
of existing defaults, the Company would not have sufficient cash resources to
pay such amounts. There can be no assurance that the Company will be able to
obtain an extension of its arrangements with Wells Fargo, arrange additional
financing or complete its divestiture plans within its anticipated time frame.
Based on the amount of the loans outstanding and the levels of accounts
receivable and inventory and the available overadvance facility at September 30,
2009, the Company's subsidiaries had unused borrowings available at September
30, 2009 of about $227,000 under the Wells Fargo line of credit.
The Company's Accounts Payable and the Accrued Expenses increased due
primarily to deferred costs of: professional and consulting fees, the Wells
Fargo forbearance fee, the Getzler Henrich signing bonus, and certain salaries
and benefits.
The Company's Other Assets decreased from December 31, 2008 to September
30, 2009 because increases due to deferral of costs incurred related to the sale
of Ronson Consumer Products and Ronson Aviation were offset by the increase in
the valuation allowance related to the deferred income tax assets.
The components of the Current Assets of Discontinued Operations, the
Other Assets of Discontinued Operations, the Current Liabilities of Discontinued
Operations, and the Other Long-term Liabilities of Discontinued Operations are
summarized in Note 10 of the Notes to the Consolidated Financial Statements.
The Other Assets of Discontinued Operations increased from December 31,
2008 to September 30, 2009 primarily due to the deferral of costs incurred
related to the sale of the assets of Ronson Consumer Products and Ronson
Aviation and to the increased deferred income tax assets due to operating losses
incurred.
21
The Company's cash flow from changes in current assets and current
liabilities increased in the nine months of 2009 as compared to the nine months
of 2008 due to the increased Accounts Payable and Accrued Expenses discussed
above. The increased Cash Flow from Operating Activities from Discontinued
Operations was primarily due to the increased Accounts Payable and Accrued
Expenses of Discontinued Operations. The Cash Flow from Financing Activities of
Discontinued Operations in the nine months of 2009 was due primarily to the
increase in the total loan from Wells Fargo as a result of the overadvance
facilities in 2009.
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 progress
of the Company's plans to divest its aviation division and its consumer products
division; the continued forbearance of lenders in asserting existing events of
default under the Company's credit arrangements; the Company's ability to
procure alternative sources of financing; 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, including
the Company's ability to continue as a going concern. 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 nine months of 2009. 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, 2008, incorporated herein by reference.
ITEM 4T - CONTROLS AND PROCEDURES
-----------------------
a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Restructuring Officer ("CRO") 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.
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,
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including any corrective actions with regard to significant deficiencies and
material weaknesses.
PART II - OTHER INFORMATION
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).
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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 20, 2009 /s/ Joel Getzler
---------------------------------
Joel Getzler
Chief Restructuring Officer
(Signing as Duly Authorized
Officer of the Registrant)
Date: November 20, 2009 /s/ Daryl K. Holcomb
---------------------------------
Daryl K. Holcomb, Vice President,
Chief Financial Officer and
Controller
(Signing as Chief Financial
Officer of the Registrant)
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