<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4776
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STURM, RUGER & COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-0633559
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lacey Place, Southport, Connecticut 06490
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(Address of principal executive offices) (Zip code)
(203) 259-7843
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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
--- ---
The number of shares outstanding of the issuer's common stock as of May 1,
1995: Common Stock, $1 par value - 13,452,400.
Page 1 of 14
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INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1995 and
December 31, 1994 3
Condensed consolidated statements of income--Three months
ended March 31, 1995 and 1994 4
Condensed consolidated statements of cash flows--Three
months ended March 31, 1995 and 1994 5
Notes to condensed consolidated financial statements--March
31, 1995 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
-----------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,686 $ 7,719
Short-term investments 61,807 58,650
Trade receivables, less allowances for
doubtful accounts ($900) and
discounts ($453 and $650) 17,237 17,889
Inventories:
Finished products 2,631 1,672
Materials and products in process 31,099 25,432
-------- --------
33,730 27,104
Deferred income taxes 6,700 6,077
Prepaid expenses and other assets 721 1,123
-------- --------
TOTAL CURRENT ASSETS 124,881 118,562
PROPERTY, PLANT AND EQUIPMENT 100,063 95,158
Less allowances for depreciation 61,592 59,866
-------- --------
38,471 35,292
DEFERRED INCOME TAXES 4,525 4,532
OTHER ASSETS 11,041 11,106
-------- --------
$178,918 $169,492
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 3,094 $ 4,825
Accrued expenses 1,231 1,254
Product safety modifications 1,514 1,548
Product liability 3,000 3,000
Employee compensation 8,145 7,024
Workers' compensation 6,702 6,318
Income taxes 6,955 741
-------- --------
TOTAL CURRENT LIABILITIES 30,641 24,710
PRODUCT LIABILITY ACCRUAL 18,132 18,487
CONTINGENT LIABILITIES--Note 5 - -
STOCKHOLDERS' EQUITY
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued
Common Stock, par value $1: Authorized shares -
20,000,000; issued and outstanding 13,452,400 13,452 13,452
Additional paid-in capital 2,283 2,283
Retained earnings 114,410 110,560
-------- --------
130,145 126,295
-------- --------
$178,918 $169,492
-------- --------
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
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<PAGE> 4
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
---------------------------
<S> <C> <C>
Net sales $50,303 $51,053
Cost of products sold 32,676 31,066
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17,627 19,987
Expenses:
Selling 3,009 2,845
General and administrative 1,089 1,091
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4,098 3,936
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13,529 16,051
Other income-net, principally interest 808 567
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INCOME BEFORE INCOME TAXES 14,337 16,618
Income taxes 5,778 6,764
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NET INCOME $ 8,559 $ 9,854
------- -------
Net income per share $ 0.64 $ 0.73
------- -------
Cash dividends per share $ 0.35 $ 0.30
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
---------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 9,738 $ 14,788
INVESTING ACTIVITIES
Property, plant and equipment additions (4,905) (1,394)
Purchases of short-term investments (44,281) (54,697)
Proceeds from sales or maturities of
short-term investments 41,124 39,658
-------- --------
Cash used by investing activities (8,062) (16,433)
FINANCING ACTIVITIES
Dividends paid (4,709) (4,036)
-------- --------
Cash used by financing activities (4,709) (4,036)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,033) (5,681)
Cash and cash equivalents at beginning of period 7,719 7,670
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,686 $ 1,989
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the results
of the interim periods. Operating results for the three months ended March 31,
1995 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1995. For further information refer to the consolidated
financial statements and footnotes thereto included in the Sturm, Ruger &
Company, Inc. Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE 2--INVENTORIES
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation. At March 31, 1995, inventory
quantities used in the LIFO calculation were greater than quantities on hand at
the end of 1994.
NOTE 3--INCOME TAXES
The Company's effective tax rate differs from the statutory tax rate
principally as a result of state income taxes. Total income tax payments during
the three months ended March 31, 1995 and 1994 were $.2 million and $5.0
million, respectively.
NOTE 4--NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of
common shares and common stock equivalents outstanding during the period. Common
stock equivalents represent shares awarded pursuant to the Company's Stock Bonus
Plan. Common stock equivalents outstanding in 1995 and 1994 were immaterial.
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<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 5--CONTINGENT LIABILITIES
The Company is a defendant in approximately 23 lawsuits involving product
liability claims and is aware of other product liability claims which allege
defective product design. These lawsuits and claims are based principally on the
theory of "strict liability" but also may be based on negligence, breach of
warranty and other legal theories. In many of the lawsuits, punitive damages, as
well as compensatory damages, are demanded. Aggregate claimed amounts presently
exceed product liability accruals and, if applicable, insurance coverage.
Management believes that, in every case, the allegations of defective product
design are unfounded, and that the accident and any results therefrom were due
to negligence or misuse of the firearm by the claimant or a third party and that
there should be no recovery against the Company.
The Company's management monitors the status of known claims and the
product liability accrual, which includes amounts for asserted and unasserted
claims. While it is difficult to forecast the outcome of these claims, in the
opinion of management, after consultation with special and corporate counsel,
the outcome of these claims will not have a material adverse effect on the
results of operations or financial condition of the Company.
The Company has reported all lawsuits instituted against it through
December 31, 1994 and the results of those lawsuits, where terminated, to the
S.E.C. on its Form 10-K and Form 10-Q reports, to which reference is hereby
made.
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<PAGE> 8
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales decreased for the three months ended March 31, 1995
compared to the three months ended March 31, 1994 by $.8 million or 1.5% to
$50.3 million from $51.1 million, respectively. Net sales of the Firearm segment
decreased by 7.6% to $43.5 million in 1995 from $47.1 million in 1994 with
selective price increases implemented effective December 1, 1994 partially
offsetting a decline of 13.6% in firearm units shipped primarily from slower
sales of pistols which are manufactured in the Company's Prescott, Arizona
facility. Sales of firearms in the other industry product categories of
revolvers, rifles and shotguns, which are manufactured in the Company's Newport,
New Hampshire facility, remained strong with consumer demand for these products
exceeding supplies presently available. The impact of the completion of the
65,000 square foot addition to the Newport Firearm Division, which will increase
production capacity of firearm units through rearrangement of production lines
and reallocation of floor space, will not significantly contribute to units
available for sale until the third quarter of 1995.
Offsetting the decrease in Firearm segment sales was strong Casting segment
sales which increased by 70% to $6.8 million in the first quarter of 1995 from
$4.0 million in 1994. This increase was achieved primarily by Ruger Investment
Casting commencing the shipment of titanium "Great Big Bertha" golf club heads
to Callaway Golf in the first quarter of 1995.
Consolidated cost of products sold for the three months ended March 31,
1995 increased by $1.6 million or 5.2% to $32.7 million from $31.1 million in
the corresponding three month period in 1994. This increase is principally from
an unfavorable firearm product sales mix and an increase in casting sales as a
percentage of consolidated net sales which have a lower gross profit percentage
than firearm sales.
As a result of the foregoing, gross profit as a percent of net sales,
decreased to 35.0% in the three months ended March 31, 1995 from 39.1% in the
same period 1994.
Selling, general and administrative expenses increased for the three months
ended March 31, 1995 to $4.1 million or 8.1% of net sales from $3.9 million or
7.7% of net sales for the same period in 1994. This increase is primarily from
increased costs in marketing and selling the Company's products.
Other income-net increased in the first quarter of 1995 compared to the
respective 1994 period primarily as a result of higher interest rates earned on
funds invested.
Net income decreased $1.3 million or 13.1% to $8.6 million for the three
months ended March 31, 1995 from $9.9 million in the comparable 1994 period due
to the aforementioned factors.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Financial Condition
At March 31, 1995, the Company had cash, cash equivalents and short-term
investments of $66.5 million, working capital of $94.2 million and a current
ratio of 4.1 to 1.
Cash provided by operating activities was $9.7 million and $14.8 million
for the three months ended March 31, 1995 and 1994, respectively. This change in
cash flows is principally a result of an increase in inventory of $6.6 million
in 1995 compared to a increase of $1.5 million in 1994.
The Company follows an industry-wide practice of offering a "dating plan"
to its customers on selected products, which allows the purchasing distributor
to buy the products commencing in December, the start of the Company's dating
plan year, and pay for them on extended terms. Discounts are offered for early
payment. The dating plan provides a revolving payment plan under which payments
for all shipments made during the period December through March have to be made
by April 30. Shipments made in subsequent months have to be paid for within 90
days. Dating plan receivable balances were $5.7 million at March 31, 1995. The
Company has reserved the right to discontinue the dating plan at any time and
has been able to finance this dating plan from internally generated funds
provided by operating activities.
Capital expenditures during the three months ended March 31, 1995 totaled
$4.9 million and for the past two years averaged approximately $2.9 million per
quarter. These expenditures have been financed through funds provided from
operations. For 1995, the Company has budgeted to spend approximately $18
million on capital expenditures to upgrade, modernize and complete the expansion
of the Newport Firearm Division, significantly increase the capacity and expand
the Ruger Investment Casting Division and for normal company-wide improvements
to increase efficiency. The Company intends to continue to finance all of these
activities with funds provided from operations.
For the three months ended March 31, 1995, dividends paid totaled $4.7
million. This amount reflects the regular quarterly dividend of $.35 per share
paid on March 15, 1995. On April 25, 1995 the Company declared a regular
quarterly dividend of $.35 per share payable on June 15, 1995. Future dividends
depend on many factors, including internal estimates of future performance and
the Company's need for funds.
Historically, the Company has not required external financing. Based on its
cash flow and unencumbered assets, the Company believes it has the ability to
raise substantial amounts of short-term or long-term debt. The Company does not
anticipate any need for external financing through 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
The purchase of firearms is subject to federal, state and local
governmental regulations. The basic federal laws are the National Firearms Act
and the Federal Firearms Act. These laws generally prohibit the private
ownership of fully automatic weapons and place certain restrictions on the
interstate sale of firearms unless certain licenses are obtained. The Company
does not manufacture fully automatic weapons, other than for the law enforcement
market, and holds all necessary licenses under these federal laws. From time to
time, congressional committees review proposed bills relating to the regulation
of firearms. These proposed bills generally seek either to restrict or ban the
sale and, in some cases, the ownership of various types of firearms, or to
impose a mandatory waiting period prior to their purchase. Several states
currently have laws in effect similar to the aforementioned legislation.
The "Brady Law", mandating a nationwide 5-day waiting period prior to the
purchase of a handgun, was signed into law in November, 1993 and became
effective February 28, 1994. The Company believes that, because its customers
are sportsmen, hunters, gun collectors and law enforcement agencies and since 26
states had previously enacted some form of a waiting period prior to purchase,
the "Brady Law" has not had a significant effect on the Company's sales of
firearms. The Crime Bill took effect on September 13, 1994, but none of the
Company's products were banned as so-called "assault weapons." To the contrary,
all the Company's currently-manufactured long guns have been exempted by name as
"legitimate sporting firearms." A separate provision of the Crime Bill
prohibited production or sale of detachable magazines of over 10-round capacity
manufactured after September 13, 1994, other than to law enforcement. Only two
such magazines (9mm and .40 caliber) were commercially sold by the Company, and
production of substitute 10-round magazines in these calibers (approved by the
BATF) has begun. No significant delays in shipments resulted from these magazine
changes. Nevertheless, the Company remains strongly opposed to laws which would
unduly restrict the rights of law-abiding citizens to acquire firearms for
legitimate purposes. The Company believes that the private ownership of firearms
is guaranteed by the Second Amendment to the United States Constitution and that
the widespread private ownership of firearms in the United States will continue.
However, there can be no assurance that the regulation of firearms will not
become more restrictive in the future and that any such restriction would not
have a material adverse effect on the business of the Company.
The Company has expended significant amounts of financial resources and
management time in connection with product liability litigation. While it is
difficult to forecast the outcome of litigation or the timing of costs,
management believes, after consultation with counsel, that this litigation will
not have a material adverse effect on the financial condition of the Company.
The Company is not aware of any adverse trends in its litigation as a whole.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
In the normal course of its manufacturing operations, the Company is
subject to occasional governmental proceedings and orders pertaining to waste
disposal, air emissions and water discharges into the environment. The Company
believes that it is generally in compliance with applicable environmental
regulations and the outcome of such proceedings and orders will not have a
material adverse effect on its business.
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carry-back against taxes previously
paid.
Inflation's effect on the Company's operations is most immediately felt in
cost of products sold because the Company values inventory on the LIFO basis.
Generally under this method, the cost of products sold reported in the financial
statements approximates current costs, and thus, reduces distortion in reported
income which would result from the slower recognition of increased costs when
other methods are used. The use of historical cost depreciation has a beneficial
effect on cost of products sold. The Company has been affected by inflation in
line with the general economy. Thus far in 1995, the rate of inflationary cost
was comparable with the same 1994 period.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Note 5--Contingent Liabilities" presented in Part I is incorporated herein by
reference.
Four lawsuits were instituted against the Company during the three months
ended March 31, 1995, which involved significant demands for compensatory and/or
punitive damages:
Gregory Whitman vs. Sturm, Ruger & Company, Inc. et. al., in the
Commonwealth of Massachusetts Trial Court, Superior Court Department. The
complaint alleges that on or about March 2, 1994, the plaintiff suffered
injuries to his left index finger while target practicing when his .22 caliber
revolver allegedly failed to perform properly. Amount demanded is in excess of
$25,000.
John and Lee Ann Forni vs. Sturm, Ruger & Company, Inc., Colin
Ferguson, The Metropolitan Transportation Authority, The Long
Island Railroad, Olin Corporation and Ram-Line, Inc., in the
Supreme Court of the State of New York, Nassau County. The complaint alleges
that on or about December 7, 1993, Colin Ferguson criminally assaulted
plaintiffs while riding the train of two of the defendants, using products
manufactured by the Company and other defendants. Compensatory and punitive
damages in excess of $61,000,000 are demanded.
Robert X. Shaw vs. Sturm, Ruger & Company, Inc. and Rusk Gun Shop, in the
Circuit Court of the State of Wisconsin, Dane County. the complaint alleges that
on or about November 20, 1993, the plaintiff suffered injuries to his right leg
when his .357 revolver allegedly discharged in his holster while he was walking.
Compensatory and punitive damages to be determined by the Court are sought.
Freddie Hamilton, Administratrix of the Goods, Chattels and Credits of
Njuzi Ray, Deceased; Freddie Hamilton, Individually; Katina
Johnstone, Administratrix of the Goods, Chattel and Credits of David
Johnstone; Katina Johnstone, Individually vs. Accu-tek, et.
al., in the United States District Court, Eastern District of New York. The
complaint alleges that the two plaintiff's decedents were intentionally injured
by criminals utilizing products allegedly manufactured by some of or all 47
defendants, including the Company, acting severally and in concert of action.
Two million dollars in compensatory and $5 million in punitive damages are
demanded against each defendant.
During the three months ending March 31, 1995 the following previously
reported lawsuits were settled:
<TABLE>
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
Merriweather Missouri
Cromwell Kentucky
</TABLE>
These lawsuits were settled for amounts within the insurance limits and/or
self-insured retention of the Company.
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PART II. OTHER INFORMATION--CONTINUED
The previously reported cases of Lovett (Michigan) and
Thomas (Michigan) were both dismissed by the Court for failure to state
a cause of action against the Company. The plaintiffs intend to appeal these
dismissals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) The Company did not file any reports on Form 8-K during the three
months ended March 31, 1995.
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<PAGE> 14
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
------------------------------
Date May 11, 1995 S/ JOHN M. KINGSLEY, JR.
-------------- ------------------------------
John M. Kingsley, Jr.
Principal Financial and
Accounting Officer,
Executive Vice President
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<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description Page No.
- ---------- ----------- -------
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,686
<SECURITIES> 61,807
<RECEIVABLES> 18,590
<ALLOWANCES> 1,353
<INVENTORY> 33,730
<CURRENT-ASSETS> 124,881
<PP&E> 100,063
<DEPRECIATION> 61,592
<TOTAL-ASSETS> 178,918
<CURRENT-LIABILITIES> 30,641
<BONDS> 0
<COMMON> 13,452
0
0
<OTHER-SE> 116,693
<TOTAL-LIABILITY-AND-EQUITY> 178,918
<SALES> 50,303
<TOTAL-REVENUES> 50,303
<CGS> 32,676
<TOTAL-COSTS> 32,676
<OTHER-EXPENSES> 4,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,337
<INCOME-TAX> 5,778
<INCOME-CONTINUING> 8,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,559
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
