<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, 1997
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 001-10435
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
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's common stock as of
July 31, 1997: Common Stock, $1 par value - 26,916,800.
Page 1 of 16
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INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1997 and
December 31, 1996 3
Condensed consolidated statements of income--Three months ended
June 30, 1997 and 1996; Six months ended June 30, 1997 and 1996 5
Condensed consolidated statements of cash flows--Six months
ended June 30, 1997 and 1996 6
Notes to condensed consolidated financial statements--June 30, 1997 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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
2
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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,
1997 1996
----------- ------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,374 $ 2,729
Short-term investments 45,446 30,652
Trade receivables, less allowances for
doubtful accounts ($905 and $834) and
discounts ($249 and $1,095) 18,814 21,074
Inventories:
Finished products 10,878 11,895
Materials and products in process 32,984 43,173
-------- --------
43,862 55,068
Deferred income taxes 7,393 7,949
Prepaid expenses and other assets 729 1,690
-------- --------
TOTAL CURRENT ASSETS 122,618 119,162
PROPERTY, PLANT AND EQUIPMENT 137,280 118,497
Less allowances for depreciation (79,013) (74,330)
-------- --------
58,267 44,167
DEFERRED INCOME TAXES 4,063 4,672
INVESTMENT IN JOINT VENTURE (Note 7) -- 10,586
OTHER ASSETS 12,558 11,303
-------- --------
$197,506 $189,890
======== ========
</TABLE>
3
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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,
1997 1996
----------- ------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 5,363 $ 4,628
Product safety modifications 965 1,302
Product liability 3,000 3,000
Employee compensation 12,026 8,312
Workers' compensation 5,578 6,108
Income taxes -- 595
-------- --------
TOTAL CURRENT LIABILITIES 26,932 23,945
PRODUCT LIABILITY ACCRUAL 19,218 19,218
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 -
40,000,000; issued and outstanding 26,916,800 26,917 26,917
Additional paid-in capital 2,514 2,514
Retained earnings 121,925 117,296
-------- --------
151,356 146,727
-------- --------
$197,506 $189,890
======== ========
</TABLE>
Note:
The balance sheet at December 31, 1996 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.
4
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Firearms sales $40,772 $40,107 $ 82,924 $ 87,667
Castings sales 13,733 25,819 26,669 43,816
------- ------- -------- --------
Net sales 54,505 65,926 109,593 131,483
Cost of products sold 36,397 42,243 74,749 85,332
------- ------- -------- --------
18,108 23,683 34,844 46,151
Expenses:
Selling 3,083 3,622 6,242 6,788
General and administrative 1,847 1,350 2,723 2,904
------- ------- -------- --------
4,930 4,972 8,965 9,692
------- ------- -------- --------
13,178 18,711 25,879 36,459
Other income (expense)-net (99) 703 70 1,478
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 13,079 19,414 25,949 37,937
Income taxes 5,431 7,766 10,553 15,175
------- ------- -------- --------
NET INCOME $ 7,648 $11,648 $ 15,396 $ 22,762
======= ======= ======== ========
Net income per share $ 0.28 $ 0.43 $ 0.57 $ 0.85
------- ------- -------- --------
Cash dividends per share $ 0.20 $ 0.20 $ 0.40 $ 0.40
------- ------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 38,152 $ 25,153
INVESTING ACTIVITIES
Property, plant and equipment additions (2,465) (3,881)
Purchases of short-term investments (89,596) (95,560)
Proceeds from sales or maturities of
short-term investments 74,802 88,594
Investment in joint venture 518 (3,354)
Purchase of Callaway's interest in joint venture (7,000) --
-------- --------
Cash used in investing activities (23,741) (14,201)
-------- --------
FINANCING ACTIVITIES
Dividends paid (10,766) (10,764)
-------- --------
Cash used by financing activities (10,766) (10,764)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 3,645 188
Cash and cash equivalents at beginning of period 2,729 3,633
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,374 $ 3,821
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
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, 1997
are not necessarily indicative of the results to be expected for the full year
ending December 31, 1997. 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, 1996.
NOTE 2--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
manufacturers' 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. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3--INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method. 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 existing 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. During 1997, inventory
quantities have been reduced. This reduction will result in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the current cost of purchases. Although the reduction in inventory
levels is expected to remain through year-end, the effect of this liquidation
can not be quantified at the present time. However, management believes that the
impact will not be material to the financial statements.
7
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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, 1997 and 1996 were $10.1 million and $17.1
million, respectively.
NOTE 5--NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number
of common shares outstanding during the period.
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.
NOTE 6--CONTINGENT LIABILITIES
The Company is a defendant in approximately 15 lawsuits involving
product liability claims which allege defective product design and is aware of
other product liability claims. 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 shooting 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, 1997 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.
NOTE 7--ANTELOPE HILLS
In 1995, the Company entered into a joint venture agreement with
Callaway Golf Company, Inc. ("Callaway") to construct and operate a foundry for
the production of golf club heads investment cast in titanium. The joint
venture, named Antelope Hills, LLC ("Antelope Hills"), was owned 50% by the
Company and 50% by Callaway. On June 25, 1997, the Company purchased Callaway's
interest in Antelope Hills for $7 million, an amount approximating Callaway's
equity in the venture. As a result, Antelope Hills is now a wholly-owned
subsidiary of the Company and is consolidated in the Condensed Consolidated
Balance Sheet as of June 30, 1997.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Consolidated net sales of $54.5 million and $109.6 million were
achieved by the Company for the three and six months ended June 30, 1997. This
represents a decrease of 17.3% and 16.6% from the respective 1996 consolidated
net sales amounts of $65.9 million and $131.5 million.
Firearms segment net sales increased by $0.7 million or 1.7% in the
second quarter to $40.8 million from $40.1 in the prior year. For the six months
ended June 30, 1997, firearms segment net sales decreased by $4.7 million or
5.4% to $82.9 million, compared to the corresponding 1996 period. Firearms unit
shipments increased 0.4% in the quarter but remained below shipments for the
six months period ended June 30, 1996. The slight increase in the quarter
reflects continuing strong demand for the rimfire and centerfire pistols offset
by reduced overall market demand, particularly for certain revolvers and
rifles. Special incentive programs introduced previously are continuing for
discounts of 10% of the sales price of certain pistol models. Additionally, new
incentive programs for selected revolver models were introduced for the
calendar year 1997, and a special 1% overall incentive program for customers
exceeding specific sales targets based on prior year volumes was announced in
December 1996 for the marketing year 1997. Shipments of certain new firearms
models, including the new Ruger Bisley-Vaquero revolver, continued to grow
during the second quarter. The Company anticipates 1997 sales levels of pistols
will exceed 1996 levels, while the overall shipments of rifles and revolvers
for 1997 will fall short of 1996.
Casting segment net sales decreased by 46.8% and 39.1% to $13.7 million
and $26.7 million, respectively, in the three and six months ended June 30, 1997
from $25.8 million and $43.8 million in the comparable 1996 periods. This was
due to decreased shipments of titanium golf club heads to Callaway Golf Company,
Inc. ("Callaway") during the first half of 1997 as a result of the Company's
March 1997 agreement with Callaway to "stretch out" the delivery schedule of
golf club heads pursuant to the August 1996 order from completion in October
1997 to completion in September 1998. In return, the Company was released from
the provision in its agreement with Callaway which prohibited the Company from
producing titanium golf club heads for any other golf club customer. The Company
feels that this agreement is beneficial as it allows it the flexibility to
actively seek additional customers for titanium golf club heads while
maintaining its current business with Callaway. The original extension of
delivery times adversely affected first quarter, and thereby six months casting
sales, and was expected to shift some 1997 revenues into 1998. However, in June
Callaway again revised its delivery schedule, but reversed its previously
requested "stretch out", accelerating it to more closely resemble the original
delivery terms. Casting segment net sales are expected to increase significantly
in the third quarter from the levels achieved in the first half of 1997 as a
result of this acceleration. Also, in June 1997 in conjunction with the
Company's purchase of Callaway's 50% interest in Antelope Hills, LLC ("Antelope
Hills"), a former joint venture of the two entities, Callaway agreed to order an
additional 1 million cast titanium golf club heads, over and above the present
orders, commencing when the present order is completed in early 1998. The
Company continues to actively pursue other titanium markets as well as other
golf club casting business.
Consolidated cost of products sold for the second quarter and the six
months ended June 30, 1997 were $36.4 million and $74.7 million compared to
$42.2 million and $85.3 million in the corresponding 1996 periods, respectively,
representing a decrease of 13.8% and 12.4%, respectively. This was primarily
attributable to decreased sales activities by the investment casting segment
during the quarter and by both the firearms and investment casting segments
during the six months ended June 30, 1997, as detailed above. During 1997,
inventory quantities have been reduced which will result in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the current cost of purchases. Although the reduction in
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
inventory levels is expected to remain through year-end, the effect of this
liquidation on costs of products sold can not be quantified at the present time.
However, management believes that the impact will not be material to the
financial statements.
Gross profit as a percentage of net sales decreased to 33.2% in the
current quarter from 35.9% in the second quarter of 1996 and decreased to 31.8%
in the current six month period from 35.1% in the same period of 1996. The
decrease is due to the reduced overall volume of business in the castings
segments and pricing pressures created by the softening demand in the firearms
market. Although variable costs were reduced during the periods in response to
the changes in sales volumes, the impact of fixed costs associated with
operating the Company's facilities resulted in reduced gross profit margins from
the like period in 1996.
Selling, general & administrative expenses decreased by 0.8% to $4.9
million and 7.5% to $9.0 million, respectively, in the second quarter and six
months ended June 30, 1997 from $5.0 million and $9.7 million, in the comparable
1996 periods. The decrease reflects lower than anticipated employee related
expenses as well as reduced professional services fees for the period,
particularly in the first quarter.
Other income (expense)-net decreased in 1997 compared to the
corresponding 1996 periods due to the fixed costs incurred in 1997 at Antelope
Hills, which was in development in 1996, the elimination of royalty income
related to the licensed use by Callaway of the "Ruger Titanium"(R) trademark for
titanium golf club head castings which ceased in 1996, as well as reduced
earnings on Treasury bill investments.
The effective income tax rate increased to 41.5% and 40.7% in the
second quarter and six months ended June 30, 1997 from 40.0% in the
corresponding 1996 periods due to increased state income taxes.
As a result of the foregoing factors, consolidated net income for the
three and six months ended June 30, 1997 decreased to $7.6 million and $15.4
million, respectively, from $11.6 million and $22.8 million for the three and
six months ended June 30, 1996, representing decreases of $4.0 million or 34.3%
and $7.4 million or 32.4%, respectively.
Financial Condition
At June 30, 1997, the Company had cash, cash equivalents and short-term
investments of $51.8 million, working capital of $95.7 million and a current
ratio of 4.6 to 1.
Cash provided by operating activities was $38.2 million and $25.2
million for the six months ended June 30, 1997 and 1996, respectively. This
change in cash flows is principally a result of reductions in inventories and
trade receivables, increases in the employee compensation liability, offset by
lower net income.
The Company follows an industry-wide practice of offering a "dating
plan" to its firearms 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
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
have to be paid for within 90 days. Dating plan receivable balances were $5.1
million at June 30, 1997 compared to $7.1 million at June 30, 1996. The Company
has reserved the right to discontinue the dating plan at any time and has been
able to finance this dating plan from internally generated funds provided by
operating activities.
Capital expenditures during the six months ended June 30, 1997 totaled
$2.5 million. For the past two years capital expenditures averaged approximately
$2.1 million per quarter. For 1997, the Company expects to spend approximately
$7.5 million on capital expenditures to upgrade and modernize equipment at the
Newport Firearms, Pine Tree Castings, and Ruger Investment Casting Divisions.
Additional funds are committed for the introduction of new metal matrix
composite infiltration processes at the Uni-Cast Division. The Company finances,
and intends to continue to finance, all of these activities with funds provided
by operations.
During the first quarter of 1997, the construction and outfitting of
the foundry for Antelope Hills was completed. As previously noted, the Company
purchased Callaway Golf's 50% interest in Antelope Hills in June 1997. Antelope
Hills is now a wholly-owned subsidiary of the Company and operations are
commencing at that facility.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which changes the methodology of calculating earnings per share.
SFAS No. 128 requires the disclosure of diluted earnings per share regardless of
its difference from basic earnings per share. The Company plans to adopt SFAS
No. 128 in December 1997. Early adoption is not permitted. Had the Company
adopted SFAS No. 128 as of June 30, 1997 the related per share disclosure for
both basic and diluted earnings per share would have remained as previously
reported for the quarters and six months ended June 30, 1997 and June 30, 1996.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." While the Company is studying the application of the
disclosure provision, it does not expect either of these statements to affect
its financial position or results of operations.
For the six months ended June 30, 1997 dividends paid totaled $10.8
million. This amount reflects the regular quarterly dividend of $.20 per share
paid in March and June 1997. On July 25, 1997, the Company declared a regular
quarterly dividend of $.20 per share payable on September 15, 1997. 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 1997.
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. Several
states currently have laws in effect similar to the aforementioned legislation.
11
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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 then-manufactured long guns were 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.
12
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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. Such statements are based on current
expectations and are subject to certain qualifying risks and uncertainties, such
as market demand and sales levels of firearms for the second half of 1997,
anticipated castings sales and earnings contributions from the Foundry
operations through the third quarter of 1997, the need for external financing
for operations or capital expenditures, the results of pending litigation
against the Company, and the impact of future firearms control and environmental
legislation, which would cause actual results to differ materially from these
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date made and the Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date such forward-looking statements
are made or to reflect the occurrence of unanticipated events.
13
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Note 6--Contingent Liabilities" presented in Part I is incorporated herein by
reference.
The following case was instituted against the Company during the three
months ended June 30, 1997, which involved significant demands for compensatory
and/or punitive damages:
Robert Alston, Plaintiff vs. City of Camden et al., Third Party
Plaintiffs vs. Michael's of Oregon Co. d/b/a Uncle Mike's, Sturm, Ruger &
Company, Inc., John Visintini and Bill Quinn in the Superior Court of New
Jersey, Camden County Law Division. The complaint, which was filed on May 30,
1997, alleges that on or about July 7, 1993, a 9mm pistol manufactured by the
Company allegedly discharged when it dropped out of Officer Ron Conley's
holster, resulting in injuries to Alston's left leg and pelvis. Plaintiff is
seeking third party damages in an amount equal to the judgment amount (if any)
obtained by Alston.
During the three months ending June 30, 1997, one previously reported
case was settled:
Name Jurisdiction
Davidson Mississippi
This case was settled for an amount within the insurance limits and/or
self-insured retention of the Company.
The previously reported case of Hart vs. Company (West Virginia) was
dismissed by the trial court on motion for summary judgment by the Company for
failure to state a cause of action. No appeal was taken.
In the previously reported cases of Lovett and Thomas (Michigan),
summary judgments in favor of the Company were affirmed on appeal by the
Michigan Court of Appeals. Additionally, the court held that the plaintiff's
appeals were vexatious because they were taken without any basis in the law. The
Plaintiff is appealing these decisions to the Michigan Supreme Court.
14
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PART II. OTHER INFORMATION--CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of the Stockholders of the Company was held on
May 20, 1997. the table below sets forth the results of the votes taken
at the 1997 Annual Meeting:
<TABLE>
<CAPTION>
1. Votes
Election of Directors Votes For Withheld
--------------------- --------- --------
<S> <C> <C>
William B. Ruger 25,166,812 164,698
William B. Ruger, Jr. 25,166,806 164,704
Gerald W. Bersett 25,167,668 163,842
Richard T. Cunniff 25,154,368 177,142
Townsend Hornor 25,155,368 176,142
Paul X. Kelley 25,164,021 167,489
John M. Kingsley, Jr. 25,167,068 164,442
James E. Service 25,159,516 171,994
Stanley B. Terhune 25,155,768 175,742
</TABLE>
As nominated at the Annual Meeting held May 20, 1997:
<TABLE>
<S> <C> <C>
Rick Gray 1,973 0
</TABLE>
2. Ratification of Ernst & Young as Auditors for 1997:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
--------- ------------- --------------
<S> <C> <C>
25,217,550 40,056 73,904
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1997.
15
<PAGE> 16
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1997
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 13, 1997 /s/ Erle G. Blanchard
---------------------------------
Erle G. Blanchard
Principal Financial and
Accounting Officer,
Vice President, Controller
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,374
<SECURITIES> 45,446
<RECEIVABLES> 19,968
<ALLOWANCES> 1,154
<INVENTORY> 43,862
<CURRENT-ASSETS> 122,618
<PP&E> 137,280
<DEPRECIATION> 79,013
<TOTAL-ASSETS> 197,506
<CURRENT-LIABILITIES> 26,932
<BONDS> 0
0
0
<COMMON> 26,917
<OTHER-SE> 124,439
<TOTAL-LIABILITY-AND-EQUITY> 197,506
<SALES> 109,593
<TOTAL-REVENUES> 109,593
<CGS> 74,749
<TOTAL-COSTS> 74,749
<OTHER-EXPENSES> 8,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,949
<INCOME-TAX> 10,553
<INCOME-CONTINUING> 15,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,396
<EPS-PRIMARY> 0.57<F1>
<EPS-DILUTED> 0.57<F1>
<FN>
<F1>EPS ADJUSTED FOR 2-FOR-1 STOCK SPLIT.
</FN>
</TABLE>
