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[GRAPHIC OF SEVEN RIFLES]
RUGER
1995
ANNUAL
REPORT
[STURM, RUGER LOGO]
STURM, RUGER & COMPANY, INC.
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ABOUT OUR COVER:
Some of the hundreds of model variations of Ruger(R) long guns are
proudly depicted.
At the top, the new Ruger Model 96 lever action rifle, our first of this
type, combines up-to-date design and engineering in a rifle with styling
reminiscent of the horseman's "saddle gun" of a century ago. It will be made in
.22 LR, .22 WMR, and .44 Magnum - a natural for hunting in heavy timber.
Next is a Ruger No. 1 rifle with deluxe checkered stock and beavertail
forend, available calibers .222-.458. A classic since its introduction in 1968,
and never more popular than today.
Beneath the No. 1 appears a Ruger Red Label over-and-under shotgun in 28
gauge. This was introduced in 1995 and is a delight to carry, since it was
engineered on a smaller frame specifically scaled down for the diminutive 28
gauge shell. The 28 gauge complements its larger brethren in 20 and 12 gauges,
some of which are now also available in Woodside models and with three grades
of strikingly handsome engraving.
The following rifle is a Ruger Mini Thirty, this one shown in
stainless-steel. It has been touted as "the world's most perfect deer rifle,"
especially designed for those situations where a few quick shots are necessary.
It is a slightly larger version of the popular Ruger Mini-14 rifle, first
introduced in 1975, in caliber .223 Remington, itself designed for small game
and predator hunting.
The world's most successful .22 carbine is next - the Ruger 10/22. First
introduced in 1964, it is now also available in Deluxe Sporter and brand new
target models, which are factory fitted with special Ruger hammer-forged
stainless-steel barrels and target triggers for the superb rapid-fire accuracy
demanded in today's action shooting competitive events, such as the National
Shooting Sports Foundation's (NSSF) "Sportsman's Team Challenge".
Another smallbore winner is next in line - the Ruger 77/22 Target rifle.
With its bold laminated warp-proof target stock and heavy target-weight barrel,
it was our first purpose-built smallbore target rifle when introduced last
year. It is available in .22 LR, .22 WMR, and the classic .22 Hornet.
Finally, a Ruger M77 MKll rounds off our display, this one a special
"All-Weather" model with all stainless-steel construction and a precision
injection-molded synthetic stock to make it impervious to the worst climatic
conditions that are often found where the game and the hunts are toughest. M77
MKll rifles are also available in conventional blued steel and wood stocked
models in all popular calibers. Our top-of-the-line luxury Express and Magnum
models feature stocks of fancy cut-checkered Circassian walnut and barrels with
integral quarter ribs and express-type sights. No finer production rifles can
be found.
To the right of our rifle array shows what the operator sees on his video
monitor when peering into one of our electric-induction titanium melting
furnaces during a "heat". This symbolizes the pioneering metallurgical
processes at the heart of all Ruger firearms that have made it possible for the
Company to manufacture high-quality firearms that represent genuine value to
our customers and return consistent dividends to our stockholders.
COMPANY PRODUCTS:
Sturm, Ruger & Company, Inc. is engaged principally in the design, manufacture,
and sale of pistols, revolvers, rifles, and shotguns for a variety of sporting
purposes. The Company also produces and markets various models of police
revolvers, pistols, rifles, and selected firearms for law enforcement agencies
and military establishments.
The Company's line of products consists of .22 caliber target pistols;
single-action revolvers in various calibers from .22 to .44 Magnum; .22 caliber
sporting carbines and target rifles, single-shot and bolt-action rifles in a
wide variety of modern hunting calibers from .22 to .458 Magnum; hunting
rifles in .223 and 7.62 x 39mm calibers; lever action rifles in .22 and .44
calibers; various models of double-action revolvers in calibers .22, .38
Special, .357 Magnum, and .44 Magnum; 9mm, .40, and .45 caliber pistols;
police and military automatic rifles; and over-and-under shotguns in 12,
20, and 28 gauges.
These firearms have been originated and engineered by the Company's own
personnel, under the supervision of the present management, and are sold under
the U.S. registered trademark "Ruger".
The Company is also engaged in precision investment casting manufacturing
using titanium, ferrous, and aluminum metals for a variety of outside customers
of its Ruger Investment Casting, Pine Tree Castings, and Uni-Cast divisions.
Foremost among these in 1995 was the "Great Big Bertha" series of titanium golf
club heads produced for Callaway Golf Company, Inc.
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STURM, RUGER
& COMPANY, INC.
1995 Annual Report
CONTENTS
<TABLE>
<S> <C>
To Our Stockholders ....................................................... 2
Selected Financial Data ................................................... 5
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ............................................... 6
New Ruger Products for 1996 ............................................... 9
Ruger Titanium ............................................................ 10
Consolidated Balance Sheets ............................................... 12
Consolidated Statements
of Income ............................................................... 14
Consolidated Statements of
Stockholders' Equity .................................................... 14
Consolidated Statements of
Cash Flows .............................................................. 15
Notes to Consolidated Financial
Statements .............................................................. 16
Report of Independent Auditors ............................................ 22
Stockholder Information ................................................... 23
Directors and Officers .................................................... 24
Plant Locations ........................................................... 25
</TABLE>
1 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
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TO OUR
STOCKHOLDERS
[PHOTO of William B. Ruger, Chairman and Chief Executive Officer and
William B. Ruger, Jr. Vice Chairman and Senior Executive Officer]
We are denied the satisfaction on this occasion of being able to report another
record-breaking year in 1995. Quite early in the year we perceived a marked
fall-off in sales of our P-Series pistols which are manufactured in our
Prescott, Arizona plant. We were in good company because this adverse trend
affected all our competitors and was undoubtedly a reaction to exceptionally
heavy sales that were experienced during 1993 and 1994. Inasmuch as this line of
products is one of our most profitable, it had a great effect on the overall
performance of the Company. Sales and earnings were adversely impacted to a
significant extent. Specifically, sales for the entire Company were $192.5
million, net income after taxes was $26.2 million, and earnings per share were
$1.95. In contrast, comparable figures for 1994 were sales of $196.4 million and
net income after taxes of $34 million, equivalent to $2.53 per share. All our
other product lines performed well during 1995.
We look at 1995 as a transition year and feel that much was accomplished which
will ensure that the Company remains the firearms industry leader and paves the
way for growth in our investment casting operations and in the development of
advanced products of metallurgical science. At the beginning of 1995, we were
working actively to complete several major objectives, namely:
- - development of our management organization
- - enlargement of our plant capacity
- - completion of a range of five or six important new products in the firearm
category
- - development of our capacity to manufacture golf club heads
- - implementation of a strengthened marketing effort for firearms.
All these objectives have been essentially achieved and we look toward 1996 as a
year when we should realize the fruits of our long preparations which we worked
on so ardently all through 1995.
With respect to the firearm segment, a 65,000 square foot addition to the
Newport, New Hampshire facility was completed, significantly increasing capacity
at this plant. Incremental production increases were realized in the fourth
quarter of the year. In 1996, the full impact of this added capacity will become
evident. The demand for the products manufactured at this facility continues to
be strong, and this
2 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
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addition will enhance the Company's ability to meet this demand.
In 1995, significant progress was made to bolster the Company's earnings from
the casting segment. Initially, this was a result of the Company's agreement
with Callaway Golf Company, Inc. ("Callaway") to produce their revolutionary
"Great Big Bertha" golf club heads in titanium. Callaway's requirements for
these heads vastly exceeded the capacity of our Prescott foundry. Accordingly,
all through 1995 the facilities of our titanium foundry in Prescott have been
augmented and improved, and substantial investments have been made, with a
result that our Prescott foundry is probably one of the most advanced and
well-equipped foundries in the world for the production of this class of
castings.
Furthermore, an agreement between the Company and Callaway set up a joint
venture, Antelope Hills, LLC, owned on a 50-50 basis, for the purpose of
building an additional foundry facility with the same capacity as the one
currently operating. In October 1995, site preparation for the joint venture
began. Plans call for construction of a 118,000 square foot building on a ten
acre site contiguous to the present facility. It is planned that production from
this new facility will begin sometime in the third quarter of 1996.
Also in 1995, the Company entered into a licensing agreement with Lanxide
Corporation whereby it obtained exclusive rights to Lanxide's patented
technology to manufacture components for firearms and bicycles, and for the
manufacture of golf club heads. Lanxide technology relates to the emerging area
of inorganic composites such as ceramic-reinforced aluminum alloys. Parts made
from this material have many advantages such as superior wear resistance,
corrosion resistance, and dimensional stability, among others.
During the year, new firearms product development continued unabated. As a
result, the Company introduced the Ruger P95 pistol, Ruger Model 96 lever action
rifle, and the Ruger 10/22T Target rifle at the 1996 SHOT Show in Dallas, Texas.
The shortened and streamlined P95 features a rigid one-piece Isoplast
polyurethane grip frame reinforced with glass fiber. Up-to-the-minute technology
has made possible this amazing new grip frame. This strong, lightweight P-Series
pistol is now in production and we are gratified by test results which prove its
performance by all standards, and rate this firearm as the leader in its field.
In addition, the new Ruger Model 96 lever action rifle started into production
at the end of 1995 with excited and enthusiastic responses from experts and
users. This new rifle will be made in .22 Long Rifle, .22 Magnum Rimfire, and
.44 Magnum calibers and will be, to a large segment of the market, a rifle of
choice for many sporting activities. The Ruger 10/22T autoloading target rifle,
with a precision hammer-forged barrel, laminated warp-proof stock, and the
reliable 10/22 action, was also introduced. All these products have shown signs
of increasing our sales to a significant degree.
On the legal front, we are pleased to report that at year's end only
twenty-two product liability cases were pending. New cases have decreased
steadily since the early 1980's, and most have involved our "old model"
single-action revolvers, which were discontinued in 1973. Only about six such
cases remain. The jury in our only trial in 1995 unanimously found, after a very
brief deliberation, that the Ruger "old model" single-action revolver was not
defective in design, nor had the Company been in any way negligent in conducting
its ongoing free safety retrofit for these collectible revolvers. This is
completely in accord with the vast majority of juries who have considered this
question and similarly found the revolver to be safe to use when handled
properly.
Also, in recognition of common sense, four of the so-called "absolute
liability" cases filed against the Company, which involved claims of liability
for intentional criminal misuse of nondefective products, were dismissed in
1995. Even though these dismissals were in keeping with unanimous legal
precedents holding that no such cause of action can exist, these cases always
get much publicity when filed, but curiously little notice when they are
dismissed.
3 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
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TO OUR STOCKHOLDERS (continued)
We hope our stockholders will take note of this and realize that such false
"product liability" claims against manufacturers of nondefective products are a
total affront, whether they involve a criminal igniting gasoline on a train or
intentionally driving a car into a crowd. They are to be opposed regardless of
the product involved, or every American manufacturer of any product which could
conceivably be intentionally misused by a criminal would face ruinous liability
without defense, standing any notion of personal responsibility on its head.
During 1995, we were fortunate to have added several people to the Company's
top management, which accomplished one of the goals established at the beginning
of the year. Among these individuals is Gerald W. Bersett, who was elected
President and Chief Operating Officer of the Company. He brings with him 30
years of experience with Olin Corporation, most recently as President of its
Winchester Ammunition Division. John K. Thorne was appointed as the General
Manager of Ruger Investment Casting and Antelope Hills foundry. He brings
extensive experience in the titanium casting field and holds a Ph.D. in
Metallurgical Engineering from the University of Michigan. John T. Burke,
formerly of Lanxide Corporation, was appointed as General Manager of the
Company's Uni-Cast division and will direct the Company's efforts to capitalize
on the recently acquired Lanxide technology previously cited.
In conclusion, while the 1995 operating results were less than desired, we
feel that during the course of the year we have placed the Company in a strong
position to take advantage of future opportunities, not only in the firearms
field but also in the high technology segment of the investment casting market.
The entire Company seems stimulated by and enthusiastic about these programs,
and all through the year we have been gratified and charmed by the enthusiasm
and support of the efforts given by the almost two thousand men and women who
constitute Sturm, Ruger.
/s/ William B. Ruger
William B. Ruger
Chairman and
Chief Executive Officer
/s/ William B. Ruger, Jr.
William B. Ruger, Jr.
Vice Chairman and
Senior Executive Officer
February 26, 1996
4 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
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SELECTED FINANCIAL DATA
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net firearm sales......................... $ 155,622 $ 180,079 $ 176,203 $ 138,967 $ 124,791
Net casting sales......................... 36,847 16,358 17,996 17,108 11,990
- -------------------------------------------------------------------------------------------------------------------
Total net sales........................... $ 192,469 $ 196,437 $ 194,199 $ 156,075 $ 136,781
- -------------------------------------------------------------------------------------------------------------------
Cost of products sold..................... $ 134,930 $ 125,439 $ 123,336 $ 105,826 $ 97,018
Gross profit.............................. 57,539 70,998 70,863 50,249 39,763
Income before income taxes and cumulative
effect of accounting change............. 43,846 56,992 55,997 37,142 24,262
Income taxes.............................. 17,670 22,943 22,768 14,991 9,690
Net income................................ 26,176 34,049 32,789 22,151 14,572
Net income per share...................... 1.95 2.53 2.44 1.65 1.08
Cash dividends per share.................. 1.40 1.20 1.05 1.25 .60
</TABLE>
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital........................... $ 91,942 $ 93,852 $ 81,504 $ 65,358 $ 60,911
Total assets.............................. 178,552 169,492 150,085 124,185 115,961
Total stockholders' equity................ 133,735 126,295 108,389 89,725 84,389
Book value per share...................... 9.94 9.39 8.06 6.67 6.27
Return on stockholders' equity............ 20.1% 29.0% 33.1% 25.4% 17.9%
Current ratio............................. 4.6 to 1 4.8 to 1 4.3 to 1 4.5 to 1 4.8 to 1
Common shares outstanding................. 13,455,400 13,452,400 13,452,400 13,452,400 13,452,400
Number of stockholders of record.......... 1,678 1,478 1,400 1,164 1,134
Number of employees....................... 1,937 1,905 1,719 1,549 1,410
</TABLE>
Selected Financial Data should be read in conjunction with the Consolidated
Financial Statements and accompanying notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
[Bar Graph of [Bar Graph of [Bar Graph of [Bar Graph of
Net Sales in Net Income in Stockholders Net Income
Millions of Dollars Millions of Dollars Equity in Percent in Dollars
for 1991-1995] for 1991-1995] for 1991-1995] for 1991-1995]
5 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company's sales are comprised of the sales of firearms and investment
castings. The Company is the only U.S. firearms manufacturer which offers
products in all four industry categories--pistols, revolvers, rifles, and
shotguns. Investment castings are manufactured using titanium, ferrous, and
aluminum metals.
RESULTS OF OPERATIONS
Year ended December 31, 1995, as compared to year ended December 31, 1994:
Consolidated net sales of $192.5 million were reached by the Company in 1995, a
decrease of $4.0 million or 2.0% from 1994 consolidated net sales of $196.4
million.
Firearm segment net sales decreased in 1995 by $24.5 million or 13.6% to
$155.6 million from $180.1 million in 1994. The decrease in firearm unit
shipments of 12.8% was primarily attributable to weak consumer demand throughout
most of the year for pistols, which are manufactured in the Company's Prescott,
Arizona facility. In the fourth quarter of 1995, the Company offered a special
sales promotion on most pistol models. This program, which reduced the average
selling price of these pistols by 10% to 30%, had the impact of producing
significantly greater sales quantities than those anticipated if the program had
not been offered. At the present time, the Company anticipates that weak
consumer demand for pistol products will continue at least through the first
part of 1996. In an effort to stimulate sales of pistols, the Company commenced
a sales promotion program in February 1996, that provides discounts of up to 10%
on certain pistol models based on customer purchases. The impact of this program
on sales or operating results of the Company cannot be estimated at the present
time.
Sales of firearms in the other industry product categories -- revolvers,
rifles, and shotguns -- remained strong in 1995 with consumer demand for these
products being substantially in excess of the production capacity of the
Company's Newport, New Hampshire facility through most of the year. In the third
quarter of 1995, the outfitting of machinery and equipment in the 65,000 square
foot addition to the Newport facility was completed which enabled the facility
to realize significant firearm production increases in the fourth quarter.
Casting segment net sales increased by 125.3% to $36.8 million in 1995 from
$16.4 million in 1994. This increase was achieved by Ruger Investment Casting
commencing the shipment of "Great Big Bertha" titanium golf club heads to
Callaway Golf Company, Inc. ("Callaway") in the first quarter of 1995. The
Company invested considerable resources in late 1994 and throughout 1995 to
significantly increase its capacity to produce titanium investment castings.
Higher production quantities of "Great Big Bertha" titanium golf club heads were
achieved beginning in the latter part of the third quarter and increased
steadily through the fourth quarter of 1995.
Consolidated cost of products sold for 1995 was $134.9 million compared to
$125.4 million for 1994, an increase of $9.5 million or 7.6%. This increase was
primarily attributable to a number of factors which affected both the firearm
and casting segments, consisting of an unfavorable firearm product sales mix,
costs incurred by Ruger Investment Casting to expand capacity for the production
of an increasing number of titanium golf club heads, inefficiencies from
decreased firearm unit production at the Company's Prescott, Arizona facility,
and increases in casting segment sales which had higher manufacturing costs as a
percentage of sales dollars.
During the third quarter of 1995, the Company implemented certain steps that
reallocated production capacity from the Prescott firearms facility.
Specifically, the Company transferred skilled production employees and
manufacturing floor space to Ruger Investment Casting. Also, significant process
changes in the manufacturing of titanium golf club heads were made in the fourth
quarter of 1995 which had a positive impact on both production and operating
margins. Additional efforts in these areas continue.
In June 1995, the Company entered into a joint venture agreement with
Callaway to collaborate in the construction of a new investment casting foundry,
Antelope Hills, LLC, for the production of titanium golf club heads. Under the
terms of this agreement, Callaway has committed to purchase a quantity of
titanium golf club heads with sales totalling a minimum of approximately $150
million in the years 1996 through 1998. Antelope Hills foundry is expected to be
operational and commence production in the third quarter of 1996.
As a result of the foregoing and the impact of the special sales promotion
offered on most firearm pistol models in the fourth quarter of 1995, gross
profit as a percentage of net sales decreased to 29.9% in 1995 from 36.1% in
1994.
Selling, general and administrative expenses increased nominally by 1.5% to
$17.0 million in 1995 from $16.7 million in 1994. This increase was primarily
due to the addition of a new executive officer to the Company.
Other income-net increased in 1995 compared to 1994 primarily as a result of
interest rates on Treasury Bills which while declining during 1995, generally
were higher than those prevailing during most of 1994. This more than offset the
decrease in average fund balances available for investment in 1995.
The effective tax rate remained unchanged in 1995 from 1994 at 40.3%.
6 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 9
As a result of the foregoing factors, consolidated net income for 1995
decreased to $26.2 million from $34.0 million for 1994 or by $7.9 million and
23.1%.
Year ended December 31, 1994, as compared to year ended December 31, 1993:
All share and per-share amounts have been adjusted to reflect the two-for-one
stock split on May 14, 1993.
Record consolidated net sales of $196.4 million were achieved by the Company
in 1994, an increase of $2.2 million or 1.2% from 1993 net sales of $194.2
million.
This increase was the result of a $3.9 million or 2.2% increase in firearm
segment sales which offset a $1.6 million or 9.1% decrease in casting segment
sales. The firearm segment increase was due to continued strong customer demand
for virtually all of the Company's firearm products which increased unit sales
by 1.6%. The limiting factors in this increase were lack of production capacity
to meet customer demand and the fact that the Company began 1994 with the lowest
finished goods inventory since the 1980's. The nominal increase in unit sales
was accomplished as a result of a 7.6% increase in unit production.
Casting segment sales decreased as a result of the Company being more
selective in accepting work for outside customers and a continued increase in
demand by the Company's firearm segment for castings to accommodate increased
production schedules.
Gross profit as a percent of net sales decreased to 36.1% in 1994 from 36.5%
in 1993, while remaining relatively constant in dollars, $71.0 million versus
$70.9 million, respectively. The percent change is caused primarily by higher
costs in 1994 due to the effect of higher LIFO inventory quantities.
Selling, general and administrative expenses increased nominally by 1.7% to
$16.7 million in 1994, versus $16.4 million in 1993. This increase was primarily
from increased marketing costs.
Other income-net increased from $1.6 million in 1993 to $2.7 million in 1994
as a result of the Company having higher cash balances available for investment
as well as interest rates in 1994 being significantly higher than in 1993.
The effective tax rate declined from 40.7% in 1993 to 40.3% in 1994 due to
lower state taxes.
As a result of the foregoing factors, consolidated net income for 1994
increased only marginally from $32.8 million in 1993 to $34.0 million, or by
$1.3 million and 3.8%.
FINANCIAL CONDITION
At December 31, 1995, the Company had cash, cash equivalents, and short-term
investments of $47.1 million, working capital of $91.9 million, and a current
ratio of 4.6 to 1.
Cash provided by operating activities was $16.9 million, $35.4 million, and
$49.5 million for the years ended Dec-ember 31, 1995, 1994, and 1993,
respectively.
The 1995 decrease from 1994 is the result of a decline in net income of $7.9
million as well as an increase in inventory of $15.2 million in 1995. This is in
contrast with an increase of $1.3 million in net income in 1994 offset by an
increase of $5.8 million in inventories in 1994. Future inventory levels will be
determined by a number of conditions, including market demand for the Company's
products, production capabilities, and the Company's ability to obtain raw
materials at favorable prices.
The Company follows an industry-wide practice of offering a "dating plan" to
its firearm 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 are
required to be paid for within 90 days. Dating plan receivable balances were
$7.9 million at December 31, 1995, as compared to $6.1 million at December 31,
1994. The Company has reserved the right to discontinue the dating plan at any
time. Throughout 1995, 1994, and 1993, the Company has been able to finance this
dating plan from internally generated funds provided by operating activities and
has not found it necessary to discontinue the dating plan at any time during the
period due to insufficient cash flow.
The Company's production of "Great Big Bertha" titanium golf club heads
requires a certain titanium metal alloy. Presently the Company buys all of its
titanium metal alloys under a short-term (approximately one year) purchasing
arrangement from one supplier. Although there are a limited number of companies
that produce titanium metal alloys, management believes that other suppliers
could provide the Company with the required titanium metal alloys. However, the
purchase price of the metals to the Company may be significantly higher which
could have a negative financial impact on the Company's operations. The Company
believes that it has adequate quantities of titanium metal alloys in inventory
to provide enough time to locate another supplier without interruption of
manufacturing operations.
Capital expenditures and acquisitions for the past three years averaged
$11.8 million per year. These have all been financed through funds provided from
operations. The Company has budgeted for 1996, $10.4 million in capital
expenditures and an additional $5.1 million as its share of capital to complete
construction and outfit with machinery the Antelope Hills foundry. The Company
intends to continue to finance all of these activities through funds provided
from operations. This reduction from 1995 capital expenditures of $15.7 million
is the result of the Company having completed both a 65,000 square foot addition
to the Newport Firearm division and a 17,000 square foot addition to the Ruger
Investment Casting division during 1995.
In 1995, dividends paid totaled $18.8 million. This amount reflects regular
quarterly dividends of $.35 per share paid on March 15, 1995, June 15, 1995,
September
7 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
15, 1995, and December 15, 1995. On January 11, 1996, the Company increased its
regular quarterly dividend from $.35 per share to $.40 per share commencing with
the March 15, 1996 payment. 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 1996.
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
approximately 26 states already had 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
agencies. 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) began immediately. 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 assurances that the
regulation of firearms will not become more restrictive in the future or 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 its special and corporate 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.
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 effect on
its business.
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carryback against taxes previously
paid.
Inflation's effect on the Company's operations is most immediately felt in
the 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. However, in 1993 a LIFO inventory liquidation
reduced the costs of products sold below current costs. 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. In 1995, the
rate of inflationary cost increases was slightly lower than in 1994, and in 1994
was slightly higher than in 1993.
RECENT DEVELOPMENTS
As of January 31, 1996, unfilled firearms orders were less than unfilled orders
as of January 31, 1995. The majority of the decrease is the result of the
significant reduction in orders for the Company's pistols, both rimfire and
centerfire, which are manufactured in Prescott, Arizona. The impact of the
Company's recently introduced firearm models on unfilled orders is not readily
determinable at this time. It is anticipated that demand for these new models
will be strong.
8 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 11
NEW RUGER PRODUCTS FOR 1996
THE RUGER MODEL 96 LEVER ACTION RIFLE
[GRAPHIC OF RIFLE]
Ruger's first lever action rifle will be offered in three calibers -- .22 Long
Rifle, .22 Magnum Rimfire, and .44 Magnum. It features the classic appeal of the
lever action with an all-new Ruger mechanism using Ruger's patented rotary
magazine for unparalleled reliability.
THE RUGER MODEL 10/22T TARGET RIFLE
[GRAPHIC OF RIFLE]
Advanced Ruger manufacturing technology has created a superbly accurate .22
caliber target rifle for today's popular "action shooting" events. It combines
the speed and reliability of Ruger's famous 10/22 rifle with the accuracy of a
heavyweight hammer-forged target barrel, and features a warp-proof laminated
stock, to create a sure winner.
THE RUGER MODEL MK-4B PISTOL
[GRAPHIC OF PISTOL]
The newest version of the original Ruger .22 caliber pistol features a shorter,
heavyweight barrel with target sights and attractive laminated thumb-rest
grips. It is a natural for the trail, target range, or tackle box.
THE RUGER P95 PISTOL
[GRAPHIC OF PISTOL]
A new (patent pending) mechanism allows the use of an Isoplast polymer grip
frame in a compact, lightweight, high-powered pistol without sacrificing the
durability, reliability, and price advantages that have made the Ruger P-Series
pistols so popular during the last ten years.
9 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 12
RUGER TITANIUM
Titanium is a metal element that was first isolated almost 200 years ago, but
only in the past 40 years has it been used in industrial applications. Titanium
ores are abundantly found throughout the world. However, the metal is relatively
expensive due to the necessity of using specialized chemical and metallurgical
technologies to extract the metal from its ore. Casting the metal requires
utilizing advanced equipment and foundry practices. With high strength, low
density, and excellent corrosion resistance, titanium alloys have been widely
used in aircraft engine and airframe applications. Other more recent uses
include medical prosthetic devices, marine hardware, chemical process equipment,
and recreational products.
Titanium alloys, developed for aerospace applications, have quickly become
the material of choice for high performance, top-of-the-line golf metal woods.
The combination of high strength and low density permits club head size to be
increased without changing overall swing weight. Improved perimeter-weighted
design flexibility is possible to create a much larger "sweet spot" on the club
head face, because titanium is 40% less dense than stainless-steel. The low
elastic modulus of titanium creates a hitting surface with more rebound than
stainless-steel, translating into longer drives. Golf club heads made of Ruger
Titanium" alloy are used by Callaway Golf Company, Inc. for its "Great Big
Bertha" metal woods, the best selling and highest performance design of the more
than two dozen manufacturers now marketing titanium clubs.
Sturm, Ruger & Company, Inc. manufactures titanium alloy golf club heads at
its Ruger Invest-ment Casting division in Prescott, Arizona. A new $14 million,
118,000 sq. ft. manufacturing plant is being constructed immediately adjacent to
the present facility to double total titanium golf club head manufacturing
capacity. This new facility, Antelope Hills, LLC, is a 50/50 joint venture of
the Company and Callaway. Production is scheduled to begin in the third quarter
of 1996. The combined manufacturing complex will comprise one of the largest
titanium foundry operations in the United States.
[PHOTO]
Pictured above (as the background) is the inside of a titanium furnace during a
heat as seen from the control monitor.
10 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 13
[PHOTO]
Pictured above (as the background) is the inside of a titanium furnace during a
heat as seen from the control monitor.
11 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
December 31, 1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,633 $ 7,719
Short-term investments 43,477 58,650
Trade receivables, less allowances for doubtful accounts
($981 and $900) and discounts ($871 and $650) 19,864 17,889
Inventories:
Finished products 6,039 1,672
Materials and products in process 36,253 25,432
- -----------------------------------------------------------------------------------------
42,292 27,104
Deferred income taxes 7,231 6,077
Prepaid expenses and other assets 1,044 1,123
- -----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 117,541 118,562
PROPERTY, PLANT, AND EQUIPMENT
Land and improvements 3,423 3,304
Buildings and improvements 20,087 16,846
Machinery and equipment 67,913 56,865
Dies and tools 19,449 18,143
- -----------------------------------------------------------------------------------------
110,872 95,158
Allowances for depreciation (66,742) (59,866)
- -----------------------------------------------------------------------------------------
44,130 35,292
DEFERRED INCOME TAXES 4,338 4,532
INVESTMENT IN JOINT VENTURE (NOTE 3) 1,645 --
OTHER ASSETS 10,898 11,106
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 178,552 $ 169,492
=========================================================================================
</TABLE>
See accompanying notes.
12 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 15
<TABLE>
<CAPTION>
December 31, 1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 3,346 $ 4,825
Accrued expenses 647 1,254
Product safety modifications 1,439 1,548
Product liability 3,000 3,000
Employee compensation 7,888 7,024
Workers' compensation 6,262 6,318
Income taxes 3,017 741
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 25,599 24,710
PRODUCT LIABILITY ACCRUAL 19,218 18,487
CONTINGENT LIABILITIES (NOTE 6) -- --
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 shares -- 13,455,400 and 13,452,400 13,455 13,452
Additional paid-in capital 2,380 2,283
Retained earnings 117,900 110,560
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 133,735 126,295
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,552 $169,492
=================================================================================================
</TABLE>
13 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 16
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Year ended December 31, ............................ 1995 1994 1993
<S> <C> <C> <C>
Net sales .......................................... $ 192,469 $ 196,437 $ 194,199
Cost of products sold .............................. 134,930 125,439 123,336
- -----------------------------------------------------------------------------------------------------
Gross profit ....................................... 57,539 70,998 70,863
Expenses:
Selling ................................... 12,345 12,399 12,109
General and administrative ................ 4,612 4,304 4,322
- -----------------------------------------------------------------------------------------------------
16,957 16,703 16,431
- -----------------------------------------------------------------------------------------------------
40,582 54,295 54,432
Other income-net, principally interest ............. 3,264 2,697 1,565
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ............... 43,846 56,992 55,997
Income taxes ....................................... 17,670 22,943 22,768
- -----------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 26,176 34,049 33,229
Cumulative effect of accounting change ............. -- -- (440)
- -----------------------------------------------------------------------------------------------------
NET INCOME ......................................... $ 26,176 $ 34,049 $ 32,789
INCOME PER SHARE:
Income before cumulative effect of accounting change $ 1.95 $ 2.53 $ 2.47
Cumulative effect of accounting change ............. -- -- (.03)
- -----------------------------------------------------------------------------------------------------
NET INCOME ......................................... $ 1.95 $ 2.53 $ 2.44
CASH DIVIDENDS PER SHARE ........................... $ 1.40 $ 1.20 $ 1.05
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1992 ....................... $ 13,452 $ 2,283 $ 73,990
Net income ................................ 32,789
Cash dividends ............................ (14,125)
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1993 ....................... 13,452 2,283 92,654
Net income ................................ 34,049
Cash dividends ............................ (16,143)
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1994 ....................... 13,452 2,283 110,560
Net income ................................ 26,176
Issuance of 3,000 shares of Common Stock .. 3 97 --
Cash dividends ............................ (18,836)
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 ....................... $ 13,455 $ 2,380 $ 117,900
=====================================================================================================
</TABLE>
See accompanying notes.
14 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................... $ 26,176 $ 34,049 $ 32,789
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation ............................................. 6,876 5,281 4,352
Issuance of restricted stock ............................. 100 -- --
Net provision for product safety modifications ........... (109) (157) (92)
Provision for product liability claims, net of payments of
$3,269, $2,564, and $2,958 ............................. 731 1,436 1,042
Deferred income taxes .................................... (960) (1,036) (732)
Decrease (increase) in trade receivables ................. (1,975) 1,374 (1,935)
Decrease (increase) in inventories ....................... (15,188) (5,757) 8,145
Increase (decrease) in trade accounts payable ............ (1,479) 1,900 442
Net decrease in prepaid expenses,
other assets, and other liabilities .................... 488 1,688 2,298
Net increase (decrease) in current
income taxes payable ................................... 2,276 (3,414) 3,240
- ------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities .................... 16,936 35,364 49,549
INVESTING ACTIVITIES
Property, plant, and equipment additions ..................... (15,714) (12,434) (7,291)
Purchases of short-term investments .......................... (158,953) (168,621) (199,475)
Proceeds from sales or maturities of
short-term investments ..................................... 174,126 161,883 176,724
Investment in joint venture .................................. (1,645) -- --
- ------------------------------------------------------------------------------------------------------------------
Cash used by investing activities ........................ (2,186) (19,172) (30,042)
FINANCING ACTIVITIES
Dividends paid ............................................... (18,836) (16,143) (14,125)
- ------------------------------------------------------------------------------------------------------------------
Cash used by financing activities ........................ (18,836) (16,143) (14,125)
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............... (4,086) 49 5,382
Cash and cash equivalents at beginning of year ................. 7,719 7,670 2,288
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 3,633 $ 7,719 $ 7,670
==================================================================================================================
</TABLE>
See accompanying notes.
15 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sturm, Ruger & Company, Inc. ("Company") is principally engaged in the design,
manufacture, and sale of firearms and investment castings. The Company's design
and manufacturing operations are located in the United States. Substantially all
sales are domestic. The Company's firearms are sold through a select number of
distributors to the sporting and law enforcement markets. Investment castings
are sold either directly to or through manufacturer representatives to companies
in a wide variety of industries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. A joint venture, of which the Company owns 50%,
is accounted for using the equity method (See Note 3). All significant
intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers interest-bearing deposits with financial institutions with
remaining maturities of three months or less at the time of acquisition to be
cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments are recorded at cost plus accrued interest, which
approximates market, and are principally United States Treasury Bills, all
maturing within one year. The income from short-term investments is included in
other income--net. The Company intends to hold these investments until maturity.
INVENTORIES
Inventories are stated at the lower of cost, principally determined by the
last-in, first-out (LIFO) method, or market. If inventories had been valued
using the first-in, first-out method, inventory values would have been higher by
approximately $33.1 million and $32.3 million at December 31, 1995 and 1994,
respectively. During 1993, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the current cost of purchases, the
effect of which increased net income by approximately $779,000 or $.06 per
share.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost. Depreciation is
computed by the straight-line and declining balance methods.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," as of January 1, 1993. SFAS No. 109 changed the
method of accounting for income taxes from the deferred to the liability method.
Under the liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
cumulative effect at January 1, 1993, of this change in accounting for income
taxes reduced net income by $440,000 ($.03 per share) and resulted in a
corresponding reduction in deferred income tax assets. Prior year consolidated
financial statements were not restated to apply the provisions of SFAS No. 109.
PRODUCT LIABILITY
The Company provides for product liability claims. The provision for product
liability claims is charged to cost of products sold.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses for the
years ended December 31, 1995, 1994, and 1993 were $2.1 million, $2.1 million,
and $2.4 million, respectively.
16 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted-average number of common
shares outstanding during the year which was 13,453,468 in 1995 and 13,452,400
in 1994 and 1993. Common Stock equivalents represent shares awarded, but not
issued, pursuant to the Company's Stock Bonus Plan (See Note 5). Common Stock
equivalents in 1995, 1994, and 1993 were immaterial.
The Company effected a two-for-one stock split, in the form of a 100% stock
dividend, distributed on May 14, 1993 to stockholders of record on May 7, 1993.
All share and per-share amounts have been adjusted to reflect this split.
OTHER
In 1995, the Financial Accounting Standards Board issued SFAS No.121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The Company plans to adopt this Statement in the first quarter of 1996 and
is currently studying its impact which is not expected to have a material effect
on the Company's financial position.
2. INCOME TAXES
Federal and state income taxes (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal ....... $ 15,292 $ (775) $ 19,485 $ (841) $ 18,783 $ (914)
State ......... 3,338 (185) 4,494 (195) 5,157 (258)
- -------------------------------------------------------------------------------------------------------------------
$ 18,630 $ (960) $ 23,979 $ (1,036) $ 23,940 $ (1,172)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product liability ............................ $ 8,887 $ 8,460
Employee compensation ........................ 2,047 1,884
Product safety modifications ................. 575 619
Allowances for doubtful accounts and discounts 741 620
Inventory .................................... 1,113 985
Other ........................................ 2,186 1,520
- -----------------------------------------------------------------------------------
Total deferred tax assets ............................. 15,549 14,088
- -----------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid insurance ............................ 372 499
Depreciation ................................. 2,065 1,319
Pension plans ................................ 1,543 1,661
- -----------------------------------------------------------------------------------
Total deferred tax liabilities ........................ 3,980 3,479
- -----------------------------------------------------------------------------------
Net deferred tax assets ............................... $11,569 $10,609
===================================================================================
</TABLE>
17 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The effective income tax rate varied from the statutory Federal income tax rate
as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate ............ 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit 4.7 5.0 6.0
Other items .................................. .6 .3 (.3)
- -----------------------------------------------------------------------------------------
Effective income tax rate .................... 40.3% 40.3% 40.7%
=========================================================================================
</TABLE>
The Company made income tax payments of approximately $16.4 million, $27.4
million, and $20.7 million during 1995, 1994, and 1993, respectively.
3. JOINT VENTURE
The Company entered into a joint venture agreement with Callaway Golf Company,
Inc. ("Callaway") to plan, develop, build, and operate a foundry for the
production of golf club heads investment cast in titanium. The joint venture
named Antelope Hills, LLC, is owned 50% by the Company and 50% by Callaway. The
Company has been designated as the manager of the facility and is responsible
for all daily activity and recordkeeping. Construction of the Antelope Hills
foundry is currently underway and is expected to be completed in the third
quarter of 1996.
4. PENSION PLANS
The Company and its subsidiaries sponsor two defined benefit pension plans which
cover substantially all hourly (Hourly Plan) and salaried (Salaried Plan)
employees. Benefits under the Salaried Plan are based on an employee's number of
years of service, basic compensation during the last five years of employment,
and Social Security "Covered Compensation". Benefits under the Hourly Plan are
based on the number of years of an employee's service. The Company's funding
policy is to contribute annually to fund each plan's normal cost and provide for
amortization of any unfunded prior service cost over a period of approximately
twenty years.
The Company also sponsors a defined contribution pension plan (Profit
Sharing Plan) which covers substantially all of its salaried employees and a
non-qualified defined contribution pension plan (Supplemental Executive Profit
Sharing Plan) which covers certain of its salaried employees. Contributions to
these plans are determined annually by the Company's Board of Directors and, in
the case of the Profit Sharing Plan, contributions cannot exceed the maximum
amount deductible for Federal income tax purposes.
A summary of the components of net periodic pension cost for the defined
benefit pension plans and amounts charged to pension expense for the defined
contribution plans were as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost--benefits earned during the period .. $ 817 $ 832 $ 615
Interest cost on projected benefit obligation .... 1,472 1,278 1,205
Actual return on plan assets ..................... (3,249) 550 (2,446)
Net amortization and deferral .................... 1,687 (2,478) 816
- ------------------------------------------------------------------------------------------------
Net periodic pension cost of defined benefit plans 727 182 190
Profit Sharing Plan ................................ 706 684 687
Supplemental Executive Profit
Sharing Plan ....................................... 285 211 165
- ------------------------------------------------------------------------------------------------
Net periodic pension cost .......................... $ 1,718 $ 1,077 $ 1,042
- ------------------------------------------------------------------------------------------------
</TABLE>
18 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheets for the Company's defined benefit pension plans (in
thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $21,200 in 1995 and
$15,161 in 1994 .................................................. $(21,918) $(15,722)
- ---------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation for
services rendered to date ........................................ $(23,611) $(16,727)
Plans' assets (unallocated insurance contracts) at contract value... 21,784 18,552
- ---------------------------------------------------------------------------------------------------
Plans' assets in excess of projected benefit obligation ............ (1,827) 1,825
Prior service cost not yet recognized in net periodic pension cost.. 1,536 1,679
Unrecognized net gain from past experience, different from
that assumed, and effects of changes in assumptions .............. 3,640 (35)
Unrecognized net asset from date of adoption of
SFAS No. 87 (January 1, 1987) .................................... (818) (938)
- ---------------------------------------------------------------------------------------------------
Prepaid pension cost ............................................... $ 2,531 $ 2,531
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Hourly Plan Salaried Plan
- ------------------------------------------------------------------------------------------------------------
December 31, December 31,
1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of significant actuarial assumptions used:
Discount rate 7% 8% 7% 7% 8% 7%
Rate of increase in compensation levels N/A N/A N/A 5% 5% 5%
Expected long-term rate of return on assets 9% 9% 9% 9% 9% 9%
</TABLE>
In 1995, the Company changed certain actuarial assumptions used in the
pension accounting calculation for its defined benefit pension plans. The
discount rate was reduced to 7% per annum and a more current mortality table was
adopted. These changes increased the projected benefit obligation by
approximately $5 million at December 31, 1995.
5. STOCK BONUS PLAN
The Company's Stock Bonus Plan, as amended, covers its key employees excluding
members of the Ruger family. Pursuant to the Plan, awards are made of Common
Stock and a cash bonus approximating the estimated income tax on the awards. At
December 31, 1995, 251,000 shares of Common Stock are reserved for future
awards.
6. CONTINGENT LIABILITIES
The Company is a defendant in approximately 22 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. The number of lawsuits and claims that were tried, dismissed, settled or
otherwise resolved, and average settlement payments (excluding legal fees) were
as follows: 1995--18 and $46,000, 1994--24 and $55,000. 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.
19 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. INDUSTRY SEGMENT DATA AND CONCENTRATIONS OF CREDIT RISK
The Company's business segments are engaged in manufacturing firearms and
investment castings. Corporate assets consisting principally of cash and cash
equivalents, short-term investments, and deferred taxes have been segregated
along with related income; however, general corporate expenses are allocated to
the segments in relation to the size of their operations.
The Company's manufacturing operations are located in the United States of
America and export sales are not significant. Intersegment sales are accounted
for at cost.
The firearm segment's principal markets are sporting and law enforcement.
Distribution is mainly through a select number of distributors primarily located
throughout the United States. Sales of firearms to two distributors accounted
for approximately 12% and 9% of 1995, 15% and 8% of 1994, and 16% and 9% of 1993
consolidated net sales, respectively.
The casting segment's principal markets are sporting goods, commercial, and
military. Sales are made directly to customers and through manufacturers'
representatives. In 1995, sales of castings to one customer accounted for
approximately 12% of consolidated net sales.
<TABLE>
<CAPTION>
Year ended December 31, (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Firearm ................................. $ 155,622 $ 180,079 $ 176,203
Casting
Unaffiliated .......................... 36,847 16,358 17,996
Intersegment .......................... 30,956 33,468 23,809
- ---------------------------------------------------------------------------------
67,803 49,826 41,805
Eliminations ............................ (30,956) (33,468) (23,809)
- ---------------------------------------------------------------------------------
$ 192,469 $ 196,437 $ 194,199
=================================================================================
Income Before Income Taxes
Firearm ................................. $ 34,778 $ 51,275 $ 50,730
Casting ................................. 6,051 3,204 3,859
Corporate (principally interest income).. 3,017 2,513 1,408
- ---------------------------------------------------------------------------------
$ 43,846 $ 56,992 $ 55,997
=================================================================================
Identifiable Assets
Firearm ................................. $ 80,006 $ 68,734 $ 62,653
Casting ................................. 34,730 18,655 13,175
Corporate ............................... 63,816 82,103 74,257
- ---------------------------------------------------------------------------------
$ 178,552 $ 169,492 $ 150,085
=================================================================================
Depreciation
Firearm ................................. $ 4,523 $ 3,782 $ 3,259
Casting ................................. 2,353 1,499 1,093
- ---------------------------------------------------------------------------------
$ 6,876 $ 5,281 $ 4,352
=================================================================================
Capital Expenditures
Firearm ................................. $ 7,245 $ 8,009 $ 5,211
Casting ................................. 8,469 4,425 2,080
- ---------------------------------------------------------------------------------
$ 15,714 $ 12,434 $ 7,291
=================================================================================
</TABLE>
20 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company performs periodic credit evaluations of its distributors' and
other customers' financial condition and generally does not require collateral.
The Company has a concentration of trade receivables from five firearm
distributors aggregating $8.1 million (ranging from $.8 million to $2.5 million)
and $7.8 million (ranging from $1.0 million to $3.2 million) as of December 31,
1995 and 1994, respectively. These distributors sell to numerous retailers and
dealers in different regions of the country. The Company has a trade receivable
with one casting segment customer of $5.1 million as of December 31, 1995.
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 1995 (in thousands, except per-share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- --------------------------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES ............... $50,303 $45,196 $42,086 $54,884
GROSS PROFIT ............ 17,627 14,106 7,500 18,306
NET INCOME .............. 8,559 6,480 2,101 9,036
NET INCOME PER SHARE .... .64 .48 .15 .67
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
- --------------------------------------------------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............... $51,053 $48,554 $44,942 $51,888
Gross profit ............ 19,987 18,023 14,894 18,094
Net income .............. 9,854 8,533 6,892 8,770
Net income per share .... .73 .64 .51 .65
</TABLE>
The sum of the quarters' net income per share may not equal the full year
per-share amounts due to rounding differences resulting from changes in the
number of common shares outstanding.
The Company made certain adjustments in the fourth quarters of 1995 and
1994 resulting from changes in estimates that were material to the operating
results of each quarter. These adjustments related primarily to inventory and
increased net income in the fourth quarters of 1995 and 1994 by approximately
$1.5 million or $.11 per share and $1.1 million or $.08 per share, respectively.
21 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
[ERNST & YOUNG LLP LOGO] - 1111 Summer Street - Phone: 203 326 8200
Stamford, Connecticut 06905 Fax: 203 358 9644
Stockholders and Board of Directors
Sturm, Ruger & Company, Inc.
We have audited the accompanying consolidated balance sheets of Sturm,
Ruger & Company, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sturm, Ruger &
Company, Inc. and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in the notes to the financial statements, in 1993 the Company
changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
February 23, 1996
22 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 25
STOCKHOLDER INFORMATION
COMMON STOCK DATA
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "RGR". At January 31, 1996 the Company had 1,681 stockholders of record.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Common Stock as reported on the New York Stock Exchange and
dividends paid on Common Stock.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1995:
FIRST QUARTER ............................. $34.50 $28.00 $.35
SECOND QUARTER ............................ 32.63 27.00 .35
THIRD QUARTER ............................. 35.63 30.75 .35
FOURTH QUARTER ............................ 31.25 25.88 .35
1994:
First Quarter ............................. $30.38 $23.88 $.30
Second Quarter ............................ 33.25 27.88 .30
Third Quarter ............................. 29.88 25.00 .30
Fourth Quarter ............................ 28.50 25.38 .30
</TABLE>
ITEMS OF INTEREST TO STOCKHOLDERS
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, April 25, 1996 at
Marriott's Camelback Inn, Scottsdale, Arizona, at 10:30 a.m.
PRINCIPAL BANKS
Fleet Bank, Southport, Connecticut
Lake Sunapee Savings Bank, Newport, New Hampshire
Bank One, Arizona, NA, Prescott, Arizona
INDEPENDENT AUDITORS
Ernst & Young LLP, Stamford, Connecticut
TRANSFER AGENT
Harris Trust & Savings Bank, Chicago, Illinois
FORM 10-K REPORT AVAILABLE
A copy of the Sturm, Ruger & Company, Inc. Annual Report on Form 10-K as filed
with the Securities and Exchange Commission for 1995 can be obtained free of
charge by writing to:
Corporate Secretary
Sturm, Ruger & Company, Inc.
Lacey Place
Southport, Connecticut 06490
23 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 26
DIRECTORS AND OFFICERS
[PHOTO]
[CAPTION]
Sturm, Ruger Board of Directors, October 1995 Meeting.
Back Row (L to R)
Anderson, Cunniff, Hornor, Terhune, Kingsley
Front Row (L to R)
Service, Ruger, Jr., Ruger, Kelley
DIRECTORS
**William B. Ruger
Chairman and
Chief Executive Officer
William B. Ruger, Jr.
Vice Chairman and
Senior Executive Officer
*Nils Anderson, Jr.
**Retired President
Debevoise-Anderson Co., Inc.
*Richard T. Cunniff
**President, Ruane, Cunniff & Co., Inc.
*Townsend Hornor
Corporate Director
Paul X. Kelley
Vice Chairman
Cassidy and Associates, Inc.
John M. Kingsley, Jr.
Executive Vice President
James E. Service
Consultant
PGGR/Russell, Inc.
Stanley B. Terhune
Consultant
*Audit Committee Member
**Compensation Committee Member
OFFICERS
William B. Ruger
Chairman and
Chief Executive Officer
William B. Ruger, Jr.
Vice Chairman and
Senior Executive Officer
Gerald W. Bersett
President and
Chief Operating Officer
John M. Kingsley, Jr.
Executive Vice President
Stephen L. Sanetti
Vice President
General Counsel
Leslie M. Gasper
Secretary
[Photo] [Photo] [Photo]
BERSETT SANETTI GASPER
24 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 27
PLANT LOCATIONS
[PHOTO]
Southport, Connecticut,
Corporate Headquarters
[PHOTO]
Newport, New Hampshire,
Firearms Division
[PHOTO]
Newport, New Hampshire,
Pine Tree Castings Division
[PHOTO]
Prescott, Arizona,
Firearms & Ruger
Investment Casting Divisions
[PHOTO]
Manchester, New Hampshire,
Uni-Cast Division
Sturm, Ruger & Company, Inc. manufactures sporting and law enforcement firearms
in Newport, NH and Prescott, AZ. Southport, CT is the site of the Company's
Corporate Headquarters. Newport is also the site of Pine Tree Castings, a major
producer of highquality ferrous (both chrome-moly and stainless-steel)
investment castings. In addition, the Company operates a state-of-the art
investment casting foundry in Prescott, Ruger Investment Castings, which
produces titanium, ferrous, and aluminum commercial investment castings as well
as components for the Company's firearms production. This facility also is the
site of a contiuing research effort endeavoring to produce technologically
superior small arms and other component parts. The Company also operates an
aluminum foundry, Uni-Cast, in Manchester, NY, which produces a wide variety of
complex parts.
25 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO]
<PAGE> 28
[STURM, RUGER & COMPANY, INC. LOGO]
Lacey Place, Southport, Connecticut 06490
