<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 September 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
(Address of principal executive offices) (Zip code)
(203) 259-7843
(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 October
31, 1996: Common Stock, $1 par value - 26,916,800.
Page 1 of 16
<PAGE> 2
INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1996
and December 31, 1995 3
Condensed consolidated statements of income--Three months
ended September 30, 1996 and 1995; Nine months ended
September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows--Nine months
ended September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements--
September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
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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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,227 $ 3,633
Short-term investments 47,413 43,477
Trade receivables, less allowances
for doubtful accounts ($840 and $981)
and discounts ($134 and $871) 18,378 19,864
Inventories:
Finished products 8,652 6,039
Materials and products in process 37,817 36,253
-------- --------
46,469 42,292
Deferred income taxes 7,091 7,231
Prepaid expenses and other assets 1,465 1,044
-------- --------
TOTAL CURRENT ASSETS 125,043 117,541
PROPERTY, PLANT AND EQUIPMENT 116,671 110,872
Less accumulated depreciation 72,599 66,742
-------- --------
44,072 44,130
DEFERRED INCOME TAXES 4,748 4,338
INVESTMENT IN JOINT VENTURE 6,889 1,645
OTHER ASSETS 10,836 10,898
-------- --------
$191,588 $178,552
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 4,292 $ 3,993
Product safety modifications 1,356 1,439
Product liability 3,000 3,000
Employee compensation 8,884 7,888
Workers' compensation 6,504 6,262
Income taxes 1,155 3,017
-------- --------
TOTAL CURRENT LIABILITIES 25,191 25,599
PRODUCT LIABILITY ACCRUAL 20,244 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 26,916,800
and 26,910,800 26,917 26,911
Additional paid-in capital 2,514 2,380
Retained earnings 116,722 104,444
-------- --------
146,153 133,735
-------- --------
$191,588 $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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<PAGE> 4
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Firearms sales $32,814 $32,180 $120,481 $113,664
Castings sales 15,222 9,906 59,038 23,921
------- ------- -------- --------
Net sales 48,036 42,086 179,519 137,585
Cost of products sold 34,941 34,586 120,273 98,352
------- ------- -------- --------
13,095 7,500 59,246 39,233
Expenses:
Selling 3,036 3,333 9,824 9,257
General and administrative 1,473 1,276 4,377 3,469
------- ------- -------- --------
4,509 4,609 14,201 12,726
------- ------- -------- --------
8,586 2,891 45,045 26,507
Other income-net, principally interest 856 628 2,334 2,203
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 9,442 3,519 47,379 28,710
Income taxes 3,777 1,418 18,952 11,570
------- ------- -------- --------
NET INCOME $ 5,665 $ 2,101 $ 28,427 $ 17,140
======= ======= ======== ========
Net income per share $ 0.21 $ 0.08 $ 1.06 $ 0.64
======= ======= ======== ========
Cash dividends per share $ 0.20 $ 0.18 $ 0.60 $ 0.53
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
---- ----
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 31,721 $ 1,280
INVESTING ACTIVITIES
Property, plant and equipment additions (5,799) (13,322)
Purchases of short-term investments (135,246) (113,823)
Proceeds from sales or maturities of
short-term investments 131,310 137,357
Investment in joint venture (5,244) (2,160)
--------- ---------
Cash provided (used) by investing activities (14,979) 8,052
--------- ---------
FINANCING ACTIVITIES
Dividends paid (16,148) (14,126)
--------- ---------
Cash used by financing activities (16,148) (14,126)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 594 (4,794)
Cash and cash equivalents at beginning of period 3,633 7,719
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,227 $ 2,925
========= =========
</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)
September 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 nine months ended September
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.
Certain amounts in the 1995 condensed consolidated statements of cash
flows categories of cash provided by operating activities, property, plant and
equipment and investment in joint venture have been reclassified to conform to
the 1996 presentation.
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
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<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation. At September 30, 1996, inventory
quantities used in the LIFO calculation were greater than quantities on hand at
the end of 1995.
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 nine months ended September 30, 1996 and 1995 were $21.1 million and $13.5
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 was 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 17 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 June 30,
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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<PAGE> 8
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales of $48.0 million and $179.5 million were
achieved by the Company for the three and nine months ended September 30, 1996
which represented increases of 14.1% and 30.5% from the respective 1995
consolidated net sales amounts of $42.1 million and $137.6 million.
Firearms segment net sales increased by 2% and 6%, respectively, to
$32.8 million and $120.5 million in the third quarter and nine months ended
September 30, 1996 compared to $32.2 million and $113.7 million in the
corresponding 1995 periods. Firearms unit shipments in the third quarter of 1996
were approximately the same as the third quarter of 1995. For the nine months
ended September 30, 1996 firearms unit shipments increased 5.5% from the same
1995 period.
Sales in units of the Company's pistol models, which had been subject
to decreased consumer demand from the second quarter of 1995 to the first
quarter of 1996, increased in the third quarter of 1996 as compared to the third
quarter of 1995. For the nine months ended September 30, 1996 sales in units of
pistols are greater than the corresponding 1995 nine month period. These
increases in 1996 are principally the result of sales of the Company's new P95
pistol models and a sales promotion program that provides discounts of up to 10%
on certain pistol models based on quantities purchased. The Company anticipates
that consumer demand for pistols will remain relatively stable, at least through
the fourth quarter of 1996. However, fourth quarter 1996 pistol sales in units
may be less than fourth quarter 1995 pistol sales since the 1995 period included
a favorable impact on unit shipments of a one-time special sales promotion
program on certain pistol models that reduced the average selling price of such
pistol models by 10% to 30%.
Sales of the Company's firearm models in the industry product
categories of rifles and revolvers, which are manufactured at the Company's
Newport, New Hampshire, facility declined in the third quarter of 1996 as
compared to the corresponding 1995 quarter and the first two quarters of 1996.
This decrease is from a decline in overall market demand for most rifle and
revolver models. For the nine months ended September 30, 1996 sales of rifles,
shotguns, and revolvers are greater than the comparable nine months in 1995 due
to sales of certain new firearm models, including the Model 96 lever action
rifle and the 10/22T Target rifle which commenced shipments in the first quarter
of 1996. The Company believes that overall consumer demand for firearms in the
categories of rifles, revolvers, and shotguns has decreased and anticipates that
overall firearms segment sales in the fourth quarter of 1996 may not exceed
fourth quarter 1995 levels.
Castings segment net sales increased by 53.7% and 146.8% to $15.2
million and $59.0 million in the three and nine months ended September 30, 1996
from $9.9 million and $23.9 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 for
Callaway Golf, Inc. ("Callaway Golf"). Sales of Great Big Bertha titanium golf
club heads in the third quarter of 1996 were affected by changes in production
mix and the completion of 1996 model requirements for Callaway Golf which
resulted in less shipments in the third quarter of 1996 than in either of the
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
first two quarters of 1996. In August 1996 the Company received shipping
instructions from Callaway Golf covering the 1997 golf club production program
for titanium golf club heads. This order valued at approximately $65.7 million
was part of the production anticipated in the existing contract between the two
companies and is to run through October 1997. The sales price per unit of
titanium golf club heads was reduced in this order from the amount the Company
has previously received through most of the first three quarters of 1996. The
Company anticipates that certain new process improvements and extensive
production experience will reduce manufacturing costs and therefore, may
partially offset the unfavorable impact on gross profit resulting from the
reduced sales price per unit. At the present time the Company plans to produce
at a level rate of production all the titanium golf club heads required to fill
this order at its present manufacturing facility, RIC.
Consolidated cost of products sold for the third quarter and first nine
months of 1996 were $34.9 million and $120.3 million compared to $34.6 million
and $98.4 million in the corresponding 1995 periods, respectively, representing
increases of 1.0% and 22.3%, respectively. These increases were primarily
attributable to increases in sales by both the castings and firearms segments.
Third quarter and nine month 1995 cost of sales were also impacted by
unfavorable firearms product sales mix, certain operating costs incurred by RIC
to expand capacity for production of titanium golf club heads, inefficiencies
from decreased firearm unit production of the Company's Prescott, Arizona
facility, and increases in LIFO inventory costs.
Gross profit as a percentage of net sales increased in the three and
nine months ended September 30, 1996 to 27.3% and 33.0%, respectively, from
17.8% and 28.5% 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 decreased by 2.2% to $4.5
million in the third quarter of 1996 as compared to $4.6 million in the third
quarter of 1995. This decrease was primarily the result of the settlement of a
sales commission contract with an outside sales representative in the 1995
period. For the nine months ended September 30, 1996, selling, general and
administrative expenses increased by 11.6% to $14.2 million from $12.7 million
in the corresponding nine months in 1995 primarily as the result of increased
advertising costs and the addition of executive management to the Company in the
later part of 1995 and first quarter of 1996.
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 nine months ended September 30, 1996 increased to $5.7 million and
$28.4 million, respectively, from $2.1 million and $17.1 million for the three
and nine months ended September 30, 1995 or by $3.6 million and 169.6% and $11.3
million and 65.9%, respectively.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Financial Condition
At September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $51.6 million, working capital of $99.9 million and a
current ratio of 5.0 to 1.
Cash provided by operating activities was $31.7 million and $1.3
million for the nine months ended September 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 generally in December, the start of
the Company's dating plan year, and pay for them on extended terms. Discounts
are offered for early payment. The dating plan provides a revolving payment plan
under which payments for all shipments made during the period December through
March have to be made by April 30. Shipments made in subsequent months have to
be paid for within 90 days. Dating plan receivable balances were $4.5 million at
September 30, 1996 as compared to $5.5 million at September 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 might 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 nine months ended September 30, 1996
totaled $5.8 million and for the past two years averaged approximately $3.4
million per quarter. For 1996, the Company has budgeted to spend approximately
$9.6 million on capital expenditures to upgrade and modernize the Newport
Firearms 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 $4.8 million were made by the Company during
the nine months ended September 30, 1996 and have totaled $6.4 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,
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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 uncertainty regarding Callaway Golf's production requirements, the joint
venture is not expected to contribute to the Company's earnings in 1996.
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 was 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 nine months ended September 30, 1996, dividends paid totaled
$16.1 million. This amount reflects the regular quarterly dividend of $.20 per
share paid on March 15, 1996, June 15, 1996, and September 16, 1996. On October
30, 1996 the Company declared a regular quarterly dividend of $.20 per share
payable on December 15, 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.
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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
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.
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<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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, the effect of
certain process improvements and production experience, 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 titanium golf club heads, the failure to realize expected productivity
improvements and new product acceptance, and adverse 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 were no new cases instituted against the Company during the three
months ended September 30, 1996, which involved significant demands for
compensatory and/or punitive damages.
During the three months ending September 30, 1996, no previously
reported cases were settled.
The Jordan case (Wisconsin) was withdrawn by plaintiff and dismissed
with prejudice on July 12, 1996, without any payment by the Company.
In the Hamilton case (New York), the U.S. Court of Appeals for the
Second Circuit denied defendants' petition for a writ of mandamus on August 6,
1996. Defendants filed other dispositive motions in this case, which the court
granted in part on October 25, but one count of alleged negligence against the
Company and all other pistol and revolver manufacturers for oversupplying the
legitimate "Firearms Market" remains. While management believes and assumes that
it will ultimately prevail in this case given the virtually unanimous legal
precedents in its favor (including recent New York trial court and appellate
court cases), there can be no certainty in predicting the outcome of litigation
or its ultimate effect upon the Company's financial results.
In the United States of America case (NH), the Company contested a
subpoena from the Occupational Safety and Health Administration (OSHA) in which
that agency sought information from the Company in order to develop undefined
"ergonomic standards" for the workplace. The Company believes that OSHA has no
statutory authority to require such information. The U.S. District Court in New
Hampshire initially rejected the Company's position, and the United States First
Circuit Court of Appeals denied the Company's appeal. However, when the Company
filed a writ of certiorari to the U.S. Supreme Court on August 15, 1996, the
United States subsequently served notice on August 22, 1996 that it was
withdrawing the matter against the Company with prejudice, and the matter is now
closed.
- 14 -
<PAGE> 15
PART II. OTHER INFORMATION--CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on July 23, 1996 for the
purpose of the approval of an amendment to the Certificate of
Incorporation of the Company to increase the authorized voting common
stock, par value $1.00 per share, to 40,000,000 shares. The table below
sets forth the results of votes taken at the special meeting:
<TABLE>
<CAPTION>
Abstentions and
Votes For Votes Against Broker Non-Votes
--------- ------------- ----------------
<S> <C> <C> <C>
11,523,010 102,729 1,829,661
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) The Company did not file any reports on Form 8-K during the
three months ended September 30, 1996.
- 15 -
<PAGE> 16
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 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: November 14, 1996 S/JOHN M. KINGSLEY, JR.
---------------------- ------------------------
John M. Kingsley, Jr.
Principal Financial and
Accounting Officer,
Executive Vice President
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,227
<SECURITIES> 47,413
<RECEIVABLES> 19,352
<ALLOWANCES> 974
<INVENTORY> 46,469
<CURRENT-ASSETS> 125,043
<PP&E> 116,671
<DEPRECIATION> 72,599
<TOTAL-ASSETS> 191,588
<CURRENT-LIABILITIES> 25,191
<BONDS> 0
0
0
<COMMON> 26,917
<OTHER-SE> 119,236
<TOTAL-LIABILITY-AND-EQUITY> 191,588
<SALES> 179,519
<TOTAL-REVENUES> 179,519
<CGS> 120,273
<TOTAL-COSTS> 120,273
<OTHER-EXPENSES> 14,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,379
<INCOME-TAX> 18,952
<INCOME-CONTINUING> 18,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,427
<EPS-PRIMARY> 1.06<F1>
<EPS-DILUTED> 1.06
<FN>
<F1>EPS ADJUSTED FOR 2-FOR-1 STOCK SPLIT
</FN>
</TABLE>
