<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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number 0-4776
STURM, RUGER & COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0633559
- ------------------------------ ------------------------------
(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
July 31, 1996: Common Stock, $1 par value - 13,455,400.
Index to Exhibits at page 17
Page 1 of 20
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INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1996 and
December 31, 1995 3
Condensed consolidated statements of income--Three months
ended June 30, 1996 and 1995; Six months ended June 30,
1996 and 1995 4
Condensed consolidated statements of cash flows--Six months
ended June 30, 1996 and 1995 5
Notes to condensed consolidated financial statements--June
30, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security-Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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</TABLE>
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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>
June 30, December 31,
1996 1995
---------------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,821 $ 3,633
Short-term investments 50,443 43,477
Trade receivables, less allowances
for doubtful accounts ($935 and $981)
and discounts ($354 and $871) 24,585 19,864
Inventories:
Finished products 6,771 6,039
Materials and products in process 35,026 36,253
-------- --------
41,797 42,292
Deferred income taxes 7,972 7,231
Prepaid expenses and other assets 369 1,044
-------- --------
TOTAL CURRENT ASSETS 128,987 117,541
PROPERTY, PLANT AND EQUIPMENT 114,753 110,872
Less accumulated depreciation 70,642 66,742
-------- --------
44,111 44,130
DEFERRED INCOME TAXES 4,660 4,338
INVESTMENT IN JOINT VENTURE 4,999 1,645
OTHER ASSETS 10,855 10,898
-------- --------
$193,612 $178,552
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 5,515 $ 3,993
Product safety modifications 1,380 1,439
Product liability 3,000 3,000
Employee compensation 8,831 7,888
Workers' compensation 6,946 6,262
Income taxes 2,184 3,017
-------- --------
TOTAL CURRENT LIABILITIES 27,856 25,599
PRODUCT LIABILITY ACCRUAL 20,023 19,218
CONTINGENT LIABILITIES--Note 6 - -
STOCKHOLDERS' EQUITY--Note 5
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued
Common Stock, par value $1: Authorized shares -
40,000,000; issued and outstanding 26,910,800 26,911 26,911
Additional paid-in capital 2,380 2,380
Retained earnings 116,442 104,444
-------- --------
145,733 133,735
-------- --------
$193,612 $178,552
======== ========
</TABLE>
Note: The balance sheet at December 31, 1995 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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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------------------- ---------------------
<S> <C> <C> <C> <C>
Firearms Sales $40,107 $37,979 $ 87,667 $81,484
Castings Sales 25,819 7,217 43,816 14,015
------- ------- -------- -------
Net sales 65,926 45,196 131,483 95,499
Cost of products sold 42,243 31,090 85,332 63,766
------- ------- -------- -------
23,683 14,106 46,151 31,733
Expenses:
Selling 3,622 2,915 6,788 5,924
General and administrative 1,350 1,104 2,904 2,193
------- ------- -------- -------
4,972 4,019 9,692 8,117
------- ------- -------- -------
18,711 10,087 36,459 23,616
Other income-net, principally interest 703 767 1,478 1,575
------- ------- -------- -------
INCOME BEFORE INCOME TAXES 19,414 10,854 37,937 25,191
Income taxes 7,766 4,374 15,175 10,152
------- ------- -------- -------
NET INCOME $11,648 $ 6,480 $ 22,762 $15,039
======= ======= ======== =======
Net income per share $0.43 $0.24 $0.85 $0.56
======= ======= ======== =======
Cash dividends per share $0.20 $0.18 $0.40 $0.35
======= ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $25,153 $ 4,591
INVESTING ACTIVITIES
Property, plant and equipment additions (3,881) (9,232)
Purchases of short-term investments (95,560) (83,357)
Proceeds from sales or maturities of
short-term investments 88,594 94,580
Investment in joint venture (3,354) -
------- --------
Cash provided (used) by investing activities (14,201) 1,991
------- --------
FINANCING ACTIVITIES
Dividends paid (10,764) (9,417)
------- --------
Cash used by financing activities (10,764) (9,417)
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 188 (2,835)
Cash and cash equivalents at beginning of period 3,633 7,719
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,821 $ 4,884
======= ========
</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)
June 30, 1996
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 six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1996. 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, 1995.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Organization: Sturm, Ruger & Company, Inc. ("the 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, Antelope Hills, LLC, of which the Company owns 50%, is accounted for
using the equity method. All significant intercompany accounts and
transactions have been eliminated.
NOTE 3--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 June 30, 1996,
inventory quantities used in the LIFO calculation approximated quantities on
hand at the end of 1995.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 4--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 six months ended June 30, 1996 and 1995 were $17.1 million and $10.6
million, respectively.
NOTE 5--NET INCOME PER COMMON SHARE AND SUBSEQUENT EVENTS
Net income per common share is based upon the weighted average number
of common shares outstanding during the period.
The Company's stockholders approved an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
voting common stock, par value $1.00 per share, from 20,000,000 to 40,000,000
shares at a special meeting of stockholders on July 23, 1996. On July 24,
1996, the Board of Directors declared a two-for-one stock split in the form of
a 100% stock dividend which will be distributed on September 16, 1996 to
stockholders of record on August 15, 1996. All share and per-share amounts
have been adjusted to reflect this split.
The stock split results in a retroactively applied transfer of $13.5
million (par value of $1.00 per share) from retained earnings to Common Stock,
which had the effect of decreasing retained earnings and increasing Common
Stock by $13.5 million at December 31, 1995.
NOTE 6--CONTINGENT LIABILITIES
The Company is a defendant in approximately 18 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
March 31, 1996 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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ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Record consolidated net sales of $65.9 million and $131.5 million were
achieved by the Company for the three and six months ended June 30, 1996. This
represents an increase of 45.9% and 37.7% from the respective 1995 consolidated
net sales amounts of $45.2 million and $95.5 million.
Firearms segment net sales increased by 5.6% and 7.6%, respectively,
to $40.1 million and $87.7 million in the second quarter and six months ended
June 30, 1996 compared to $38.0 million and $81.5 million in the corresponding
1995 periods. Increases in firearms unit shipments of 2.5% and 7.8%,
respectively, were primarily attributable to consumer demand for firearm models
in the industry product categories of rifles, revolvers, and shotguns, which
are manufactured in the Company's Newport, New Hampshire facility. Certain new
firearm models, including the Model 96 lever action rifle and 10/22 Target
rifle, which were introduced and shipped in limited quantities in the first
quarter of 1996, generated higher sales in the second quarter. Sales of the
Company's pistol models, which have been subject to decreased consumer demand
since the second quarter of 1995, increased in the second quarter of 1996 from
the second quarter of 1995 principally as a result of sales of the Company's
new P-95 pistol models, and a sales promotion program that provides discounts
of up to 10% on certain pistol models based on quantities purchased. Pistol
sales for the six months ended June 30, 1996, however, are less than in the
corresponding 1995 period. The Company anticipates consumer demand for pistols
will remain relatively stable at least through the third quarter of 1996.
Also, during the latter part of the second quarter of 1996 demand for certain
models manufactured in Newport declined. The Company anticipates that while
demand for certain rifle, revolver, and shotgun models for the remainder of
1996 will remain at or above current levels, there may be decreases in demand
for other rifle, revolver, and shotgun models which may adversely impact
overall firearms segment sales. The Company is presently modifying its
production schedules at both of its firearms manufacturing plants to meet
production requirements for models that are presently exhibiting stronger
consumer demand.
Castings segment net sales increased by 257.8% and 212.6% to $25.8
million and $43.8 million, respectively, in the three and six months ended June
30, 1996 from $7.2 million and $14.0 million in the comparable 1995 periods.
These increases were primarily achieved by Ruger Investment Casting ("RIC")
producing and shipping higher quantities of "Great Big Bertha" titanium golf
club heads to Callaway Golf, Inc. ("Callaway Golf"). Productivity
improvements throughout 1996 were primarily achieved from process changes. The
Company anticipates that third quarter 1996 sales of "Great Big Bertha"
titanium golf club heads will be adversely impacted by changes in production
mix and the completion of 1996 model requirements for Callaway Golf. At the
present time, the Company is negotiating with Callaway Golf regarding
requirements, including order quantities, selling prices, and specifications,
for 1997 models of "Great Big Bertha" titanium golf club heads. Shipments of
the 1997 models are planned to commence from RIC in October 1996. The outcome
of these negotiations could have a material impact on the Company's operating
results commencing in the fourth quarter of 1996.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Consolidated cost of products sold for the second quarter and first
six months of 1996 were $42.2 million and $85.3 million compared to $31.1
million and $63.8 million in the corresponding 1995 periods, respectively,
representing increases of 35.9% and 33.8%, respectively. These increases were
primarily attributable to increases in sales by both the investment castings
and firearms segments.
Gross profit as a percentage of net sales increased in the three and
six months ended June 30, 1996 to 35.9% and 35.1%, respectively, from 31.2% and
33.2% in the comparable 1995 periods. Efficiencies realized from increased
production and sales of investment cast titanium golf club heads were the
primary reasons for these increases.
Selling, general and administrative expenses increased by 23.7% to
$5.0 million and 19.4% to $9.7 million, respectively, in the second quarter and
six months ended June 30, 1996 from $4.0 million and $8.1 million in the
corresponding 1995 periods. These increases were the result of increased media
advertising and the addition of executive management to the Company in the
second half of 1995 and the first quarter of 1996.
Other income-net decreased in the three and six months ended June 30,
1996 primarily as a result of lower average funds available for investment and
lower rates of return.
The effective income tax rate decreased in the 1996 periods to 40.0%
from 40.3% in the respective 1995 periods due to lower state income taxes.
As a result of the foregoing factors, consolidated net income for the
three and six months ended June 30, 1996 increased to $11.6 million and $22.8
million, respectively, from $6.5 million and $15.0 million for the three and
six months ended June 30 or by $5.2 million and 79.8% and $7.7 million and
51.4%.
Financial Condition
At June 30, 1996, the Company had cash, cash equivalents and
short-term investments of $54.3 million, working capital of $101.1 million and
a current ratio of 4.6 to 1.
Cash provided by operating activities was $25.2 million and $4.6
million for the six months ended June 30, 1996 and 1995, respectively. This
change in cash flows is principally a result of an increase in net income and
timing of replenishment of inventory quantities, receipt of accounts receivable
balances, and payment of accounts payable balances.
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
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
days. Dating plan receivable balances were $7.1 million at June 30, 1996 as
compared to $5.8 million at June 30, 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.
The Company's production of "Great Big Bertha" titanium golf club
heads for Callaway Golf requires certain titanium metal alloys. Presently the
Company buys a majority of its titanium metal alloys under a short-term
(approximately nine months) 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 charged by these
alternative suppliers would be higher than the price the Company currently pays
which could have an adverse effect on the Company's operations. The Company
believes that it has adequate quantities of titanium metal alloys in inventory
to provide time to locate another supplier without interruption of
manufacturing operations.
Capital expenditures during the six months ended June 30, 1996 totaled
$3.9 million and for the past two years averaged approximately $3.8 million per
quarter. For 1996, the Company has budgeted to spend approximately $12.1
million on capital expenditures to upgrade and modernize the Newport Firearm
and Uni-Cast divisions, increase the capacity of RIC and for normal
Company-wide improvements to increase efficiencies. The Company finances, and
intends to continue to finance, all of these activities with funds provided by
operations.
Additional expenditures of $3.4 million were made by the Company
during the six months ended June 30, 1996 and have totaled $5.0 million to date
toward the construction and outfitting of the Antelope Hills, LLC foundry.
Antelope Hills, LLC is a joint venture between Callaway Golf and the Company to
collaborate in the construction and operation of an investment casting foundry
to produce titanium golf club heads. As part of the joint venture agreement,
Callaway Golf has committed to purchase a quantity of titanium golf club heads
with sales prices totaling a minimum of approximately $150 million in the years
1996 through 1998 from the combined Company and joint venture facilities.
Financing of the approximately $18.0 million investment in the joint venture is
anticipated to be made 50% by the Company using funds provided by operations
and 50% from Callaway Golf. Antelope Hills, LLC foundry is scheduled to be
operational and able to commence production in the fourth quarter of 1996. Due
to the Company's presently unresolved negotiations with Callaway Golf regarding
its future production requirements for "Great Big Bertha" titanium golf club
heads and production efficiencies achieved by the Company at its RIC facility,
the extent to which the capacity of the joint venture facility will be utilized
for the production of golf club heads is uncertain.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
The Company's stockholders approved an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
voting common stock, par value $1.00 per share, from 20,000,000 to 40,000,000
shares at a special meeting of stockholders on July 23, 1996. On July 24,
1996, the Board of Directors declared a two-for-one stock split in the form of
a 100% stock dividend which will be distributed on September 16, 1996 to
stockholders of record on August 15, 1996. All share and per-share amounts
have been adjusted to reflect this split.
The stock split resulted in a retroactively applied transfer of $13.5
million (par value of $1.00 per share) from retained earnings to Common Stock,
which had the effect of decreasing retained earnings and increasing Common
Stock by $13.5 million at December 31, 1995.
For the six months ended June 30, 1996, dividends paid totaled $10.8
million. This amount reflects the regular quarterly dividend of $.20 per share
paid on March 15, 1996 and June 15, 1996. On July 24, 1996 the Company
declared a regular quarterly dividend of $.20 per share payable on September
16, 1996. 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", mandates a nationwide 5-day waiting period prior to
the purchase of a handgun. 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
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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 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.
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 1996, the rate of
inflationary cost was slightly higher than the same 1995 period.
Forward-Looking Statements and Projections
The Company may from time to time make forward-looking statements and
projections concerning future expectations. The statements contained herein
regarding future anticipated demand for the Company's products and the results
of the pending litigation against the Company are forward looking statements
within the meaning of the Securities Exchange Act of 1934. Such statements are
based on current expectations and are subject to certain qualifications, risks,
and uncertainties such as material variations in the actual sales rates of
firearms and "Great Big Bertha" titanium golf club heads, the failure to
realize expected productivity improvements and new product acceptance, and
adverse
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<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
legislation or litigation results, any one or more which could cause actual
results to differ materially from those projected. Readers are cautioned not
to place undue reliance on these forward-looking statements which speak only as
of the date hereof and the Company undertakes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
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<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Note 6--Contingent Liabilities" presented in Part I is incorporated herein by
reference.
There was one new case instituted against the Company during the three
months ended June 30, 1996, which involved significant demands for compensatory
and/or punitive damages:
David Pierson vs. Sturm, Ruger & Company, Inc. and Kmart Corporation,
in Circuit Court for the County of Oscoda, State of Michigan. The complaint
alleges that on or about November 29, 1994, the plaintiff suffered injuries to
his abdomen when his .22 caliber rifle discharged when he allegedly fell while
holding it. $1,000,000 in damages are demanded.
During the three months ending June 30, 1996, the following previously
reported cases were settled:
Name Jurisdiction
Harris Texas
Tran California
These cases were settled for amounts within the insurance limits
and/or self-insured retention of the Company.
On May 2, 1996 in the Hamilton case (New York), Judge Weinstein
dismissed the plaintiff's "absolute liability," product liability, civil
conspiracy, fraud, "ultra-hazardous activity," enterprise liability, and
concert of action claims, and refused to certify the case as a "class action"
lawsuit. However, he stated it was "premature" to dismiss a claim of
negligence directed at 47 firearms manufacturers, including the Company, based
upon a heretofore unknown legal theory of a "possible oversupply of the
legitimate firearms market leading to a thriving black market." Plaintiff has
amended her complaint to add additional plaintiffs (the number of plaintiffs
now totals 20, but at least 12 of these plaintiffs' claims appear barred by the
statute of limitations) and distributor and trade association defendants. The
previously reported cases of Cargill and Sunada have been refiled as part of
the Hamilton case. The court has given all defendants leave to refile their
motion for summary judgement after discovery has closed. The defendants have
also filed other dispositive legal motions. While management believes and
assumes that it will ultimately prevail in this case given the virtually
unanimous legal precedents in its favor, there can be no certainty in
predicting the outcome of this litigation or its ultimate effect upon the
Company's financial results.
- 14 -
<PAGE> 15
PART II. OTHER INFORMATION--CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of the Stockholders of the Company was held on
April 25, 1996. The table below sets forth the results of the votes
taken at the 1996 Annual Meeting:
<TABLE>
<CAPTION>
1. Election of Votes Votes
Directors Votes For Against Withheld
----------- ----------- --------- ----------
<S> <C> <C> <C>
William B. Ruger 10,863,498 - 26,800
William B. Ruger, Jr. 10,861,927 - 28,371
John M. Kingsley, Jr. 10,863,924 - 26,374
Nils Anderson, Jr. 10,843,504 - 46,794
Richard T. Cunniff 10,859,889 - 30,409
Townsend Hornor 10,862,229 - 28,069
Stanley B. Terhune 10,861,169 - 29,129
Paul X. Kelley 10,861,949 - 28,349
James E. Service 10,862,079 - 28,219
</TABLE>
2. Ratification of Ernst & Young as Auditors for 1996
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
---------- ------------- --------------
<S> <C> <C>
10,844,765 10,333 35,200
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Amendment to Certificate of Incorporation.
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
- 15 -
<PAGE> 16
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
Date: August 14, 1996 S/JOHN M. KINGSLEY, JR.
-------------------------
John M. Kingsley, Jr.
Principal Financial and
Accounting Officer,
Executive Vice President
- 16 -
<PAGE> 17
INDEX TO EXHIBITS
Exhibit No. Description Page No.
- -------------------------------------------------------------------------
3.3 Amendment to Certificate of Incorporation 18
27 Financial Data Schedule 20
- 17 -
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
STURM, RUGER & COMPANY, INC.
________________________________________________________
Adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware
________________________________________________________
STURM, RUGER & COMPANY, INC., a corporation organized and
existing under the laws of the State of Delaware, pursuant to the provisions of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as
follows:
FIRST: The name of the corporation is STURM, RUGER & COMPANY,
INC. (the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation
is hereby amended by deleting Article FOURTH thereof in its entirety and
substituting therefor a new Article FOURTH which shall read in full as follows:
"FOURTH: Number and Classes of Shares. The total number of
shares of capital stock which the Corporation shall have
authority to issue is (i) 40,000,000 shares of Common Stock,
par value $1.00 per share (the "Common Stock"), and (ii)
50,000 shares of Non-Voting Common Stock, par value $1.00 per
share (the "Non- Voting Common Stock"). The Common Stock and
the Non-Voting Common Stock shall be identical in all respects
except that the holders of Non-Voting Common Stock shall have
no voting power for any purpose except when the vote of the
class shall be required by law."
<PAGE> 2
THIRD: The amendment to the Certificate of Incorporation of
the Corporation set forth in this Certificate of Amendment has been duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by the adoption by a majority of the
members of the Board of Directors of the Corporation of a resolution approving
such amendment followed by approval of such amendment by the affirmative vote
of (i) a majority of the outstanding stock of the Corporation entitled to vote
on the amendment and (ii) a majority of the outstanding stock of each class of
the Corporation entitled to vote on the amendment as a class at a
specialmeeting of the stockholders duly called and held in accordance with the
provisions of Section 222 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of the Certificate of Incorporation of the Corporation to be signed
by John M. Kingsley, Jr., its Executive Vice President, and attested by Leslie
M. Gasper, its Secretary, on behalf of the Corporation this 23rd day of July,
1996.
STURM, RUGER & COMPANY, INC.
By: /s/ John M. Kingsley, Jr.
John M. Kingsley, Jr.
Executive Vice President
ATTEST:
/s/ Leslie M. Gasper
Leslie M. Gasper
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,821
<SECURITIES> 50,443
<RECEIVABLES> 25,874
<ALLOWANCES> 1,289
<INVENTORY> 41,797
<CURRENT-ASSETS> 128,987
<PP&E> 114,753
<DEPRECIATION> 70,642
<TOTAL-ASSETS> 193,612
<CURRENT-LIABILITIES> 27,856
<BONDS> 0
0
0
<COMMON> 26,911
<OTHER-SE> 118,822
<TOTAL-LIABILITY-AND-EQUITY> 193,612
<SALES> 131,483
<TOTAL-REVENUES> 131,483
<CGS> 85,332
<TOTAL-COSTS> 85,332
<OTHER-EXPENSES> 9,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,937
<INCOME-TAX> 15,175
<INCOME-CONTINUING> 15,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,762
<EPS-PRIMARY> 0.85<F1>
<EPS-DILUTED> 0.85
<FN>
<F1>EPS ADJUSTED FOR 2-FOR-1 STOCK SPLIT.
</FN>
</TABLE>
