<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 28, 1997:
Common Stock, $1 par value - $322,904,714
The number of shares outstanding of the issuer's common stock as of March 14,
1997:
Common Stock, $1 par value - 26,916,800
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended December
31, 1996 are incorporated by reference into Parts I, II and IV of this Report.
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held May 20, 1997 are incorporated by reference into Part III of this
Report.
Page 1 of 49
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PART I
ITEM 1--BUSINESS
The Company is principally engaged in the design, manufacture, and sale of
firearms and precision metal investment castings. The Company is the only U.S.
firearms manufacturer which offers products in all four industry categories
(rifles, shotguns, pistols, and revolvers) and believes that it is the largest
U.S. firearms manufacturer, based on data reported in the Bureau of Alcohol,
Tobacco and Firearms' 1995 Annual Firearms Manufacturing and Exportation Report
("BATF Data"). The Company, which has been profitable every year since 1950,
believes it has a preeminent reputation among sportsmen, hunters, and gun
collectors for technical innovation and quality construction, based on reports
in industry and business publications. The Company has been in business since
1949 and was incorporated in its present form under the laws of Delaware in
1969.
The Company's firearms, which are sold under the "Ruger" name and trademark,
consist of single-shot, autoloading, bolt action and lever action rifles in a
broad range of hunting calibers; shotguns in three gauges; .22 caliber rimfire
autoloading pistols and centerfire autoloading pistols in various calibers; and
single-action and double-action revolvers in various calibers. The Company
manufactures a wide range of high quality products and does not manufacture
inexpensive concealable firearms, sometimes known as "Saturday Night Specials,"
"Junk Guns," or any firearm included on the list of "assault weapons" which was
part of anti-crime legislation enacted by Congress in 1994.
Many of the firearms introduced by the Company over the years have become
"classics" which have retained their popularity for decades and are sought by
collectors. These firearms include the single-action Single-Six, Blackhawk, and
Bearcat revolvers, the double-action Redhawk revolvers, the 10/22, M-77, and
Number One Single-Shot rifles, and the Red Label over-and-under shotguns. The
Company has supplemented these "classics" with the introduction of new models
and variations of existing models. In 1987, the Company introduced the P85, a
9mm centerfire autoloading pistol, and the GP100 and Super Redhawk revolvers. In
1988 and 1989, it introduced a new line of small frame double-action revolvers,
the SP101. The Company augmented its line of centerfire autoloading pistols in
1990, 1991, and 1992 by offering new versions of the 9mm model and two new
calibers, .40 S&W and .45 ACP. In 1992 and 1993, the Company introduced the
Ruger 22/45 pistol, the Vaquero single-action revolver, the 77/22 Varmint
bolt-action rifle, the P89, P90, and P93 centerfire autoloading pistols, and the
Spurless SP101 double-action revolver. New variations of several of the
Company's most popular models were introduced in 1994 and 1995 including the P94
centerfire autoloading pistol in 9mm and .40 S&W calibers which further
strengthened the Company's P-Series pistol line, the 77/22 bolt-action rifle in
.22 Hornet caliber, and a Woodside model of the Company's over-and-under
shotgun. In 1996, the Company introduced the P95 pistol with an Isoplast polymer
grip frame, the MK-4B .22 caliber target pistol, the Model 96 Lever Action
rifle, and the 10/22 T Target rifle. All of these products have exhibited strong
sales and consumer interest since their introduction. The Company plans to
introduce in 1997 the all new Ruger Carbine, an autoloading rifle which uses
pistol ammunition, the Ruger M-77 Mark II stainless rifle with a laminated
wooden stock, the Ruger 10/22 "All-Weather" rifle featuring a stainless steel
barrel and synthetic stock, the Ruger 22/45 P-4 Target Pistol with a heavy
barrel, and the Ruger Bisley-Vaquero which features a Bisley target style
hammer, grip, and trigger.
The Company is also engaged in the manufacture of titanium, ferrous, and
aluminum investment castings for a wide variety of markets including sporting
goods, commercial, and military. In 1996 and 1995, the Company's foremost
investment castings product was titanium "Great Big Bertha" golf club heads for
Callaway Golf Company, Inc. ("Callaway Golf").
In 1995, the Company entered into a joint venture agreement with Callaway Golf
to construct and operate a foundry for the production of golf club heads
investment cast in titanium. The joint venture, named Antelope Hills, LLC is
owned 50% by the Company and 50% by Callaway Golf. Construction of the Antelope
Hills foundry is substantially complete and production could commence in 1997.
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ITEM 1--BUSINESS (CONTINUED)
For the years ended December 31, 1996, 1995, and 1994, net sales attributable to
the Company's firearms operations were approximately 66.7%, 80.9%, and 91.7%,
respectively, of total net sales. The balance of the Company's net sales for the
aforementioned periods was attributable to its investment castings operations.
Further information regarding industry segment data is incorporated by reference
to pages 20 and 21 of the Company's 1996 Annual Report to Stockholders.
PRODUCTS--FIREARMS
The Company presently manufactures 26 different types of firearm products in
four industry categories: rifles, shotguns, pistols, and revolvers. Most are
available in several models based upon caliber, finish, barrel length, and other
features.
RIFLES--A rifle is a long gun with spiral grooves cut into the interior of the
barrel to give the bullet a stabilizing spin after it leaves the barrel. The
Company presently manufactures nine different types of rifles: the M77 Mark II,
the M77 Mark II Magnum, the 77/22, the 10/22, the Model 96, the Mini-14, the
Mini Thirty, the Ruger Carbine, and the No. 1 Single-Shot. Sales of rifles by
the Company accounted for approximately $77.0 million, $76.5 million, and $68.6
million of revenues for the years 1996, 1995, and 1994, respectively.
SHOTGUNS--A shotgun is a long gun with a smooth barrel interior which fires lead
or steel pellets. The Company presently manufactures two different types of
over-and-under shotguns: the Red Label available in 12, 20, and 28 gauge, and
the Woodside available in 12 gauge. Most of the Red Label models are available
in special Sporting Clays and English Field versions. Sales of shotguns by the
Company accounted for approximately $7.6 million, $4.7 million, and $5.1 million
of revenues for the years 1996, 1995, and 1994, respectively.
PISTOLS--A pistol is a handgun in which the ammunition chamber is an integral
part of the barrel and which is fed ammunition from a magazine contained in the
grip. The Company presently manufactures three different types of pistols, the
Ruger Mark II .22 caliber in Standard, Competition, and Target models, the Ruger
22/45, and the P-series centerfire autoloading pistols in various calibers,
configurations, and finishes. Sales of pistols by the Company accounted for
approximately $30.3 million, $37.0 million, and $70.6 million of revenues for
the years 1996, 1995, and 1994, respectively.
REVOLVERS--A revolver is a handgun which has a cylinder that holds the
ammunition in a series of chambers which are successively aligned with the
barrel of the gun during each firing cycle. There are two general types of
revolvers, single-action and double-action. To fire a single-action revolver,
the hammer must be pulled back to cock the gun and align the cylinder before the
trigger is pulled. To fire a double-action revolver, a single trigger pull
advances the cylinder and cocks and releases the hammer. The Company presently
manufactures eight different types of single-action revolvers: the New Model
Super Single-Six, the New Model .32 magnum Super Single-Six, the New Model
Blackhawk, the New Model Super Blackhawk, the Vaquero, the Bisley, the Old Army
Cap & Ball, and the New Bearcat. The Company presently manufactures four
different types of double-action revolvers: the SP101, the GP100, the Redhawk,
and the Super Redhawk. Sales of revolvers by the Company accounted for
approximately $31.5 million, $34.8 million, and $32.9 million of revenues for
the years 1996, 1995, and 1994, respectively.
The Company also manufactures and sells accessories and replacement parts for
its firearms. These sales accounted for approximately $2.4 million, $2.6
million, and $2.9 million of revenues for the years 1996, 1995, and 1994,
respectively.
PRODUCTS--INVESTMENT CASTINGS
The investment castings products currently manufactured by the Company and sold
to unrelated third parties consist of titanium, ferrous (both chrome-moly and
stainless), and aluminum parts for a wide variety of industries including
sporting goods, commercial, and military.
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ITEM 1--BUSINESS (CONTINUED)
The Company's newest castings facility, Ruger Investment Casting ("RIC"),
located in Prescott, Arizona, engineers and produces titanium, ferrous, and
aluminum castings. This facility's manufacturing activity during 1996 and 1995
for outside customers consisted primarily of producing titanium "Great Big
Bertha" golf club heads for Callaway Golf. Sales of golf club heads to Callaway
Golf accounted for approximately $59.7 million and $23.1 million of revenues
during 1996 and 1995, respectively. No sales were made to Callaway Golf during
1994.
The Pine Tree Castings Division of the Company, located in Newport, New
Hampshire, engineers and produces ferrous castings for a wide range of
commercial customers.
The Company's Uni-Cast Division, located in Manchester, New Hampshire, engineers
and produces primarily large complicated aluminum castings for a number of prime
defense contractors. Uni-Cast is also involved with research and development of
composite metal matrix technology licensed from the Lanxide Corporation.
Sales from the Company's investment castings operations (excluding intercompany
transactions) accounted for approximately $74.5 million, $36.8 million, and
$16.4 million or 33.3%, 19.1%, and 8.3% of the Company's total net sales for
1996, 1995, and 1994, respectively.
MANUFACTURING
FIREARMS--The Company produces most rifles, and all shotguns and revolvers at
the Newport, New Hampshire facility. Some rifles and all pistols are produced at
the Prescott, Arizona facility.
Many of the basic metal component parts of the firearms manufactured by the
Company are produced by the Company's castings facilities through a process
known as precision investment castings. See "Manufacturing-Investment Castings"
for a description of the investment castings process. The Company initiated the
use of this process in the production of component parts for firearms in 1953
and believes that its widespread use of investment castings in the firearms
manufacturing process is unique among firearms manufacturers. The investment
castings process provides greater design flexibility and results in component
parts which are generally close to their ultimate shape and, therefore, require
less machining. Through the use of investment castings, the Company is able to
produce durable and less costly component parts for its firearms.
Third parties supply the Company with various raw materials for its firearms,
such as fabricated steel components, walnut and birch lumber for rifle and
shotgun stocks and other component parts. These raw materials and component
parts are readily available from multiple sources at competitive prices.
All assembly, inspection, and testing of firearms manufactured by the Company is
performed at the Company's manufacturing facilities. Every firearm, including
every chamber of every revolver, manufactured by the Company is test-fired prior
to shipment.
INVESTMENT CASTINGS--The Company manufactures all of its precision investment
castings products at one of its three investment castings facilities. To produce
a product by the investment castings method, a wax model of the product is
created and coated ("invested") with several layers of ceramic material. The
shell is then heated to melt the interior wax which is poured off, leaving a
hollow mold. To cast the desired product, molten metal is poured into the mold
and allowed to cool and solidify. The mold is then broken off to reveal a near
net shape cast metal part.
Titanium investment castings products are manufactured by the Company's RIC
Division located in Prescott, Arizona. This is the Company's newest investment
castings facility and also has the capabilities of producing ferrous and
aluminum investment castings products. In the latter part of 1994 and throughout
1995 and 1996, the Company significantly added to the production capacity of
Ruger Investment Casting and believes that this facility is one of the largest
investment castings facilities in the Southwest.
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ITEM 1--BUSINESS (CONTINUED)
The Company and Callaway Golf entered into a joint venture agreement in June
1995 to plan, develop, build, and operate a foundry for the production of golf
club heads investment cast in titanium. The joint venture, named Antelope Hills,
LLC, is owned 50% by the Company and 50% by Callaway Golf. This facility was
completed in the first quarter of 1997 and has production capacity for titanium
products similar to that of RIC.
The Company's Pine Tree Castings Division manufactures primarily all of the
ferrous investment castings produced by the Company. Aluminum investment
castings products are primarily manufactured by the Company's Uni-Cast Division
located in Manchester, New Hampshire. In 1996 the Company spent $2.2 million in
capital expenditures for the Uni-Cast Division to both modernize and outfit the
facility to produce castings made of inorganic composites such as ceramic
reinforced aluminum alloys. Additional capital expenditures of $2.5 million are
budgeted in 1997.
Raw materials including wax, ceramic material, and metal alloys necessary for
the production of investment cast products are supplied to the Company through
third parties. The Company believes that all these raw materials, with the
exception of certain titanium metal alloys ("titanium"), are readily available
from multiple sources at competitive prices. Presently, the Company buys most of
its titanium under a short-term (approximately one year) purchasing arrangement
from one supplier. Although there are limited suppliers of titanium, management
believes that other sources could provide the Company with the requirements to
meet production demands. If it becomes necessary to change titanium suppliers,
the Company believes that it has adequate quantities of titanium in inventory to
provide enough time to locate another supplier without interruption of
manufacturing operations.
MARKETING AND DISTRIBUTION
FIREARMS--The Company's firearms are primarily marketed through a network of
selected independent distributors who purchase the products directly from the
Company for resale to gun dealers and legally authorized end-users. These
end-users include sportsmen, hunters, law enforcement and other governmental
organizations, and gun collectors. In late 1987, the Company reduced by more
than one-half the number of domestic commercial distributors of its firearms in
order to encourage its remaining distributors to focus their efforts on the
Company's products. Each of these distributors carries the entire line of
firearms manufactured by the Company for the commercial market. Management
believes that the increase in sales since 1988 is due in part to this strategy.
In 1996, the number of distributors decreased primarily as a result of certain
distributors consolidating operations with other distributors of the Company.
Currently, 21 distributors service the domestic commercial market, with an
additional 57 servicing the domestic law enforcement market and two servicing
the Canadian market. Three of these distributors service both the domestic
commercial market and the domestic law enforcement market. Currently, five
distributors account for approximately 54% of the Company's sales of firearms,
with the largest distributor, Jerry's Sport Center (Forest City, Pennsylvania),
accounting for approximately 12% of consolidated net sales. The Company employs
seven employees and two independent contractors who service these distributors
and call on dealers and law enforcement agencies. Because the ultimate demand
for the Company's firearms comes from end-users, rather than from the Company's
distributors, the Company believes that the loss of any distributor would not
have a material adverse effect on the Company. The Company considers its
relationships with its distributors to be satisfactory.
In addition, the Company markets its firearms directly to foreign customers,
consisting primarily of law enforcement agencies and foreign governments.
Foreign sales were less than 10% of the Company's consolidated net sales for
each of the past three years. No material portion of the Company's business is
subject to renegotiation of profits or termination of contracts at the election
of a government purchaser.
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ITEM 1--BUSINESS (CONTINUED)
In the fourth quarter of 1996, the Company received annual orders from its
distributors for the 1997 marketing year. These orders may be adjusted quarterly
by the distributors to allow for market fluctuations. In prior years, only one
adjustment to the annual orders, in the second quarter of the year, was allowed.
As of March 1, 1997, unfilled firearms were approximately $122.4 million as
compared to approximately $203.7 million at March 1, 1996. The Company believes
that the major reason for this decrease is an overall slowdown in the United
States firearms market, especially in the industry product categories of rifles,
shotguns, and revolvers. In addition, the Company believes that firearms segment
orders at March 1, 1996 were inflated by distributors seeking certain models of
the Company's products that were in short supply due to production constraints
during 1995. The impact of the Company's change in the annual order policy and
recently introduced firearm models on unfilled orders as of March 1, 1997 is not
readily determinable at this time. However, it is anticipated that demand for
new firearms models will be strong.
Most of the firearms manufactured by the Company are sold on terms requiring
payment in full within 30 days. However, certain products which are generally
used during the fall hunting season are sold pursuant to a "dating plan" which
in general allows the purchasing distributor to buy the products commencing in
December, the normal start of the Company's dating plan year, and pay for them
on extended terms. Discounts are offered for early payment. Management believes
that this dating plan serves to level out the demand for these seasonal products
throughout the entire year and facilitates an efficient manufacturing schedule.
The Company does not consider its overall firearms business to be significantly
seasonal; however sales of certain models of firearms are usually lower in the
third quarter of the year.
INVESTMENT CASTINGS--The investment castings segment's principal markets are
sporting goods, commercial, and military. Sales are made directly to customers
or through manufacturers' representatives. The Company's largest castings
segment customer in 1996 and 1995, Callaway Golf Company, Inc. (Carlsbad,
California) accounted for approximately 27% and 12% of consolidated net sales
and 80% and 62% of castings segment sales, respectively. One customer in 1994
represented 23% of castings segment sales.
COMPETITION
FIREARMS--Competition in the firearms industry is intense and comes from both
foreign and domestic manufacturers. While some of these competitors concentrate
on a single industry product category, such as rifles or pistols, several
foreign competitors manufacture products in all four industry categories
(rifles, shotguns, pistols and revolvers). Some of these competitors are
subsidiaries of large corporations with substantially greater financial
resources than the Company. The Company is the only domestic manufacturer which
produces firearms in all four industry product categories and believes that it
is the largest U.S. firearms manufacturer, according to BATF Data. The principal
methods of competition in the industry are product quality and price. The
Company believes that it can compete effectively with all of its present
competitors based upon the high quality, reliability and performance of its
products, and the competitiveness of its pricing.
INVESTMENT CASTINGS--There are a large number of investment castings
manufacturers, both domestic and foreign, with which the Company competes.
Competition varies based on the type of investment castings products (titanium,
ferrous, or aluminum) and the end use of the product (sporting goods,
commercial, or military). Many of these competitors are larger than the Company
and may have greater resources. The principal methods of competition in the
industry are quality, production lead time, and price. The Company believes that
it can compete effectively with all of its present competitors and has expended
significant amounts of resources on both expanding and modernizing its
investment castings facilities in 1996, 1995 and 1994.
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ITEM 1--BUSINESS (CONTINUED)
EMPLOYEES
As of February 28, 1997, the Company employed 2,010 full-time employees of which
approximately 26% had at least ten years of service with the Company.
None of the Company's employees are subject to a collective bargaining
agreement. The Company has never experienced a strike during its entire 47-year
history and believes its employee relations are satisfactory.
RESEARCH AND DEVELOPMENT
In 1996, 1995 and 1994, the Company spent approximately $1.7 million, $1.7
million and $1.9 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. As of
February 28, 1997, the Company had approximately 53 employees engaged in
research and development activities as part of their responsibilities.
PATENTS AND TRADEMARKS
The Company owns various United States and foreign patents and trademarks which
have been secured over a period of years and which expire at various times. It
is the policy of the Company to apply for patents and trademarks whenever new
products or processes deemed commercially valuable are developed or marketed by
the Company. However, none of these patents and trademarks are considered to be
basic to any important product or manufacturing process of the Company and,
although the Company deems its patents and trademarks to be of value, it does
not consider its business materially dependent on patent or trademark
protection.
ENVIRONMENTAL MATTERS
The Company has programs in place that monitor compliance with various
environmental regulations. However, in the normal course of its manufacturing
operations, the Company is subject to occasional governmental proceedings and
orders pertaining to waste disposal, air emissions, and water discharges into
the environment. The Company believes that it is generally in compliance with
applicable environmental regulations and the outcome of such proceedings and
orders will not have a material effect on its business.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages, and positions of the executive officers of
the Company. Officers serve at the pleasure of the Board of Directors of the
Company.
<TABLE>
<CAPTION>
Name Age Position With Company
- --------------------------------------------------------------------------------
<S> <C> <C>
William B. Ruger 80 Chairman of the Board, Chief Executive Officer,
Treasurer, and Director
William B. Ruger, Jr. 57 Vice Chairman, Senior Executive Officer, and Director
Gerald W. Bersett 56 President, Chief Operating Officer, and Director
Erle G. Blanchard 50 Vice President, Controller
Stephen L. Sanetti 47 Vice President, General Counsel
Leslie M. Gasper 43 Corporate Secretary
John R. Pagano 32 Assistant Controller
</TABLE>
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ITEM 1--BUSINESS (CONTINUED)
William B. Ruger has been the Chairman of the Board, Chief Executive Officer,
and Treasurer of the Company since 1949. He is the father of William B. Ruger,
Jr.
William B. Ruger, Jr. became Vice Chairman and Senior Executive Officer of the
Company in 1995 and has been a Director of the Company since 1970. Previously,
he served as President of the Company from 1991 to 1995 and as Senior Vice
President of the Company from 1970 to 1990.
Gerald W. Bersett became President and Chief Operating Officer of the Company in
August 1995 and a Director of the Company in November 1996. Previously, he was
the President of the Winchester Division of the Olin Corporation since 1988 and
Vice President of the Olin Corporation since 1993.
Erle G. Blanchard returned to the Company as Vice President, Controller in March
1996. From March 1995 to March 1996, he was not employed by the Company. Prior
to this, he served as Plant Manager of the Newport Firearms Manufacturing
facility since 1986 and became Vice President - Controller - Newport in 1993.
Stephen L. Sanetti has been Vice President, General Counsel of the Company since
1993. Prior to this, he served as General Counsel since 1980.
Leslie M. Gasper has been Secretary of the Company since 1994. Prior to this,
she was the Administrator of the Company's pension plans which position she held
for more than five years prior thereto.
John R. Pagano became Assistant Controller of the Company in 1996. Previously he
was the Manager of Corporate Accounting since 1991. Prior to joining the Company
in 1991, he was a Manager at Ernst & Young LLP.
ITEM 2--PROPERTIES
The Company's manufacturing operations are carried out at three facilities. The
following table sets forth certain information regarding each of these
facilities:
<TABLE>
<CAPTION>
Approximate
Aggregate Usable
Square Feet Status
------------------------------------------
<S> <C> <C>
Newport, New Hampshire 350,000 Owned
Prescott, Arizona 230,000 Leased
Manchester, New Hampshire 50,000 Owned
</TABLE>
The Company completed construction of a 15,000 square foot addition to the
Manchester, New Hampshire facility in 1996 to be used for manufacturing
operations.
The Newport and Prescott facilities each contain enclosed ranges for testing
firearms and also contain modern tool room facilities. The lease of the Prescott
facility provides for rental payments which approximate real property taxes.
The Company's headquarters and related operations are in Southport, Connecticut.
Manufacturing operations at this location were moved in 1991 to the Company's
Newport and Prescott facilities.
There are no mortgages on any of the real estate owned by the Company.
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ITEM 3--LEGAL PROCEEDINGS
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 number of lawsuits and
claims that were tried, dismissed, settled, or otherwise resolved and average
settlement payments (excluding legal fees) were as follows: 1996-21 and $45,000,
1995-18 and $46,000, 1994-24 and $55,000.
For a description of all pending lawsuits against the Company through September
30, 1996, reference is made to the discussion under the caption "Item 3. LEGAL
PROCEEDINGS" of the Company's Annual Reports on Form 10-K for the years ended
December 31, 1988, 1994 and 1995 and to the discussion under caption "Item 1.
LEGAL PROCEEDINGS" of the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1987, September 30, 1990, September 30, 1993, June 30,
and September 30, 1994, March 31 and June 30, 1995, and March 31 and June 30,
1996.
The following case was instituted against the Company during the three months
ended December 31, 1996, which involved significant demands for compensatory
and/or punitive damages:
Armol J. Davidson v. Sturm Ruger & Company, Inc. instituted in the USDC for the
District of Mississippi (Southern Division) on October 29, 1996. The complaint
alleges that on or about May 31, 1996, a Ruger magnum pistol discharged while
plaintiff was loading it, resulting in injury to his right calf. Actual and
punitive damages totaling $30,000,000 are demanded.
During the three months ending December 31, 1996, two previously reported cases
were settled:
Clark Montana
Lowry Alaska
These cases were settled for amounts within the insurance limits and/or
self-insured retention of the Company.
The dismissal of the Forni case (New York), which involved a claim arising out
of an intentional criminal shooting, was upheld by the New York Supreme Court's
Appellate Division on October 3, 1996. No further appeal was taken by
plaintiffs.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required for this Item is incorporated by reference to pages 4
and 23 of the Company's 1996 Annual Report to Stockholders.
ITEM 6--SELECTED FINANCIAL DATA
The information required for this Item is incorporated by reference to page 4 of
the Company's 1996 Annual Report to Stockholders.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required for this Item is incorporated by reference to pages 6
through 9 of the Company's 1996 Annual Report to Stockholders.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) FINANCIAL STATEMENTS
The consolidated balance sheets of Sturm, Ruger & Company, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 and the report dated
February 21, 1997 of Ernst & Young LLP, independent auditors, are
incorporated by reference to pages 12 through 22 of the Company's 1996
Annual Report to Stockholders.
(B) SUPPLEMENTARY DATA
Quarterly results of operations for 1996 and 1995 are incorporated by
reference to page 21 of the Company's 1996 Annual Report to Stockholders.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to the directors of the Company under the caption "ELECTION
OF DIRECTORS" on pages 2 and 3 of the Company's Proxy Statement relating to the
Annual Meeting of Stockholders to be held May 20, 1997 is incorporated by
reference into this Report. The information set forth under the caption "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 12 of the Proxy
Statement relating to the Annual Meeting of Stockholders to be held May 20, 1997
is incorporated by reference into this Report. The information as to executive
officers of the Company is included in Part I hereof under the caption
"Executive Officers of the Company" in reliance upon General Instruction G to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
-10-
<PAGE> 11
ITEM 11--EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 20, 1997 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE
COMPENSATION," "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION,"
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "COMPANY STOCK
PRICE PERFORMANCE", "PENSION PLAN TABLE," and "SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN TABLE" on pages 4 through 10.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 20, 1997 under the captions "ELECTION OF DIRECTORS,"
"PRINCIPAL STOCKHOLDERS," and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2, 3,
10, and 11.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 20, 1997 under the caption "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES" and "EXECUTIVE
COMPENSATION" on pages 4 and 5.
-11-
<PAGE> 12
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K.
(1) Financial Statements:
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended December 31, 1996,
1995, and 1994
Consolidated Statements of Stockholders' Equity--Years ended December
31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
This information is incorporated by reference to the Company's 1996 Annual
Report to Stockholders as noted in Item 8.
(2) Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts-Page 15
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, or the
required information is disclosed elsewhere, and therefore, have been
omitted.
<TABLE>
<CAPTION>
(3) Listing of Exhibits: Page No.
--------
<S> <C> <C>
Exhibit 3.1 Certificate of Incorporation of the Company,
as amended (Incorporated by reference to
Exhibits 4.1 and 4.2 to the Form S-3
Registration Statement previously filed by the
Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended
(Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1995, SEC File No.
0-4776).
Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the
Bylaws of the Company. 18
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock
Bonus Plan (Incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, as amended
by Form 8 filed March 27, 1990, SEC File No.
0-4776).
</TABLE>
-12-
<PAGE> 13
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986
Stock Bonus Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991,
SEC File No. 0-4776).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental
Executive Profit Sharing Retirement Plan
(Incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No.
0-4776).
Exhibit 10.4 Agreement and Assignment of Lease dated
September 30, 1987 by and between Emerson
Electric Co. and Sturm, Ruger & Company, Inc.
(Incorporated by reference to Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No.
0-4776).
Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental
Executive Retirement Plan (Incorporated by
reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995, SEC File No. 0-4776).
Exhibit 10.6 Operating Agreement of Antelope Hills, LLC,
a Delaware Limited Liability Company, dated as
of October 5, 1995 (Incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995,
SEC File No. 0-4776).
Exhibit 13.1 Annual Report to Stockholders of the
Company for the year ended December 31, 1996.
Except for those portions of such Annual Report
to Stockholders expressly incorporated by
reference into the Report, such Annual Report to
Stockholders is furnished solely for the
information of the Securities and Exchange
Commission and shall not be deemed a "filed"
document. 20
Exhibit 23.1 Consent of Independent Auditors. 49
Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly
Report on Form 10-Q of the Company for the
quarter ended March 31, 1987, SEC File No.
1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS.
Exhibit 99.2 Item 3 LEGAL PROCEEDINGS from the Annual
Report on Form 10-K of the Company for the year
ended December 31, 1988, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.3 Item 1 LEGAL PROCEEDINGS from the Quarterly
Report on Form 10-Q of the Company for the
quarter ended September 30, 1990, SEC File No.
1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS.
</TABLE>
-13-
<PAGE> 14
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C>
Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly
Report on Form 10-Q of the Company for the
quarter ended September 30, 1993, SEC File No.
1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS.
Exhibit 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly
Reports on Form 10-Q of the Company for the
quarters ended June 30 and September 30, 1994,
SEC File No. 1-10435, incorporated by reference
in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.6 Item 3 LEGAL PROCEEDINGS from the Annual
Report on Form 10-K of the Company for the year
ended December 31, 1994, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.7 Item 1 LEGAL PROCEEDINGS from the Quarterly
Reports on Form 10-Q of the Company for the
quarters ended March 31 and June 30, 1995, SEC
File No. 1-10435, incorporated by reference in
Item 3 LEGAL PROCEEDINGS.
Exhibit 99.8 Items 3 LEGAL PROCEEDINGS from the Annual
Report on Form 10-K of the Company for the year
ended December 31, 1995, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.9 Item 1 LEGAL PROCEEDINGS from the Quarterly
Reports on Form 10-Q of the Company for the
quarters ended March 31 and June 30, 1996, SEC
File No. 1-10435, incorporated by reference in
Item 3 LEGAL PROCEEDINGS.
</TABLE>
(b) Report on Form 8-K filed in the fourth quarter of 1996: None
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
S/LESLIE M. GASPER
-----------------------
Leslie M. Gasper
Corporate Secretary
March 21, 1997
-----------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
S/WILLIAM B. RUGER 3/14/97 S/WILLIAM B. RUGER, JR. 3/14/97
- ---------------------------------------------------- ------------------------------------------------
William B. Ruger William B. Ruger, Jr.
Principal Executive Officer, Chairman, Vice Chairman, Senior Executive Officer,
Chief Executive Officer, Treasurer, Director Director
S/JOHN M. KINGSLEY, JR. 3/15/97 S/STANLEY B. TERHUNE 3/14/97
- ---------------------------------------------------- ------------------------------------------------
John M. Kingsley, Jr. Stanley B. Terhune
Director Director
S/RICHARD T. CUNNIFF 3/17/97 S/TOWNSEND HORNOR 3/17/97
- ---------------------------------------------------- ------------------------------------------------
Richard T. Cunniff Townsend Hornor
Director Director
S/PAUL X. KELLEY 3/14/97 S/GERALD W. BERSETT 3/14/97
- ---------------------------------------------------- ------------------------------------------------
Paul X. Kelley Gerald W. Bersett
Director President and Chief Operating
Officer, Director
S/JAMES E. SERVICE 3/14/97
- ----------------------------------------------------
James E. Service
Director
</TABLE>
-15-
<PAGE> 16
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
SOUTHPORT, CONNECTICUT
ITEMS 14(a)(2) AND 14(d)
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
-16-
<PAGE> 17
Sturm, Ruger & Company, Inc. and Subsidiaries
Item 14(a)(2) and Item 14(d)--Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------
(1) (2)
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts at End
Description of Period Expenses -Describe Deductions of Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 1996 $ 981 $ 18 $ 165 (a) $ 834
------- -------- ----------- -------
Year ended December 31, 1995 $ 900 $ 200 $ 119 (a) $ 981
------- ------- ----------- -------
Year ended December 31, 1994 $ 922 $ 50 $ 72 (a) $ 900
------- -------- ------------ -------
Allowance for discounts:
Year ended December 31, 1996 $ 871 $4,408 $4,184 (b) $1,095
------- ------ ---------- ------
Year ended December 31, 1995 $ 650 $7,451 $7,230 (b) $ 871
------- ------ ---------- -------
Year ended December 31, 1994 $ 919 $4,202 $4,471 (b) $ 650
------- ------ ---------- -------
Product safety modifications accrual:
Year ended December 31, 1996 $1,439 $ 137 (c) $1,302
------ ---------- ------
Year ended December 31, 1995 $1,548 $ 109 (c) $1,439
------ ---------- ------
Year ended December 31, 1994 $1,705 $ 157 (c) $1,548
------ ---------- ------
</TABLE>
]----------
(a) Accounts written off
(b) Discounts taken
(c) Costs incurred
-17-
<PAGE> 1
STURM, RUGER & COMPANY, INC.
Unanimous Written Consent of Directors
In Lieu of Meeting
Pursuant to Section 141(f) of the
Delaware General Corporation Law
February 13, 1997
RESOLVED, that the Board of Directors of the Corporation deems it advisable
and in the best interests of the Corporation that Article 2, Sections 4 and 5 of
the Bylaws of the Corporation be amended to read in full as follows:
"Section 4. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given by or at the
direction of the President or Secretary to each shareholder of record entitled
to vote at such meeting, by leaving such notice with him or at his residence or
usual place of business, or by mailing a copy thereof addressed to him at his
last known post-office address as last shown on the stock records of the
corporation, postage pre-paid, not less than ten nor more than sixty days before
the date of such meeting.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders of any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than sixty days and, in case of a meeting of the shareholders, not
less than ten days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of the
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When the determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof."
CERTIFICATION
I, Leslie M. Gaspar, Secretary of Sturm, Ruger & Company, Inc., a Delaware
Corporation, do hereby certify that the above is a true and complete excerpt of
the unanimous written consent of the Board of Directors of Sturm, Ruger &
Company, Inc. which was made on February 13, 1997.
S/Leslie M. Gaspar
---------------------------
Leslie M. Gaspar, Secretary
STURM, RUGER & COMPANY, INC.
a Delaware Corporation
Subscribed and Sworn to before me
this 20th day of March 1997
S/Mary Krim
- -----------------------------------
Notary Commission Exp. May 31, 2000
<PAGE> 1
EXHIBIT 13.1
Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net firearms sales ................................. $ 148,829 $ 155,622 $ 180,079 $ 176,203 $ 138,967
Net castings sales ................................. 74,466 36,847 16,358 17,996 17,108
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales .................................... $ 223,295 $ 192,469 $ 196,437 $ 194,199 $ 156,075
===================================================================================================================================
Cost of products sold .............................. $ 150,200 $ 134,930 $ 125,439 $ 123,336 $ 105,826
Gross profit ....................................... 73,095 57,539 70,998 70,863 50,249
Income before income taxes and cumulative
effect of accounting change ................ 56,835 43,846 56,992 55,997 37,142
Income taxes ....................................... 22,450 17,670 22,943 22,768 14,991
Net income ......................................... 34,385 26,176 34,049 32,789 22,151
Net income per share ............................... 1.28 0.97 1.27 1.22 0.82
Cash dividends per share ........................... 0.80 0.70 0.60 0.525 0.625
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital .................................... $ 95,217 $ 91,942 $ 93,852 $ 81,504 $ 65,358
Total assets ....................................... 189,890 178,552 169,492 150,085 124,185
Total stockholders' equity ......................... 146,727 133,735 126,295 108,389 89,725
Book value per share ............................... 5.45 4.97 4.69 4.03 3.33
Return on stockholders' equity ..................... 24.5% 20.1% 29.0% 33.1% 25.4%
Current ratio ...................................... 5.0 to 1 4.6 to 1 4.8 to 1 4.3 to 1 4.5 to 1
Common shares outstanding .......................... 26,916,800 26,910,800 26,904,800 26,904,800 26,904,800
Number of stockholders of record ................... 1,899 1,678 1,478 1,400 1,164
Number of employees ................................ 2,094 1,937 1,905 1,719 1,549
</TABLE>
Selected Financial Data should be read in conjunction with the Consolidated
Financial Statements and accompanying notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
[THE FOLLOWING TABLES WERE PRESENTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
<<<<<<<<<<<<<<<<<<<<<<<<<INSERT TABLES HERE>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
4-----
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
The Company's sales are comprised of the sales of fire- arms and investment
castings. The Company is the only U.S. firearms manufacturer which offers
products in all four industry product categories - rifles, shotguns, pistols,
and revolvers. Investment castings are manufactured using titanium, ferrous, and
aluminum alloys.
Results of Operations
All share and per share amounts have been adjusted to reflect the two-for-one
stock split on September 16, 1996.
Year ended December 31, 1996, as compared to year ended December 31, 1995:
Record consolidated net sales of $223.3 million were achieved by the Company in
1996, an increase of $30.8 million or 16.0% from 1995 net sales of $192.5
million. The record 1996 consolidated net sales were achieved by strong
operations of the castings segment, offset by a slight decrease in the firearms
segment during a difficult year for the entire firearms industry. The Company's
previous record consolidated net sales of $196.4 million were reached in 1994.
Firearms segment net sales were $148.8 million in 1996 compared to $155.6
million in 1995, a decrease of $6.8 million or 4.4%. Unit shipments of firearms
in 1996 decreased by 6.6% from 1995. This is the second year in a row that
firearms segment sales decreased and was primarily a result of reduced overall
market demand and corresponding sales levels in the latter half of 1996 of the
Company's firearms models in the industry product categories of rifles, pistols,
and revolvers.
The Company's Newport, New Hampshire manufacturing facility, which produces
rifles, shotguns, and revolvers, implemented certain operational changes in the
fourth quarter of 1996 and first quarter of 1997 to more accurately match
firearm production levels with expected market demand and reduce inventory
quantities. Also, in December 1996, the Company commenced a sales promotion
program that provides discounts of up to 10% on certain double-action revolver
models based on customer purchases. This program did not have a significant
impact on 1996 sales or operating results and the impact of the program on 1997
sales or operating results cannot be estimated by the Company at the present
time. The Company anticipates that sales levels of rifles and revolvers for the
first half of 1997 will be less than the first half of 1996.
Sales and unit shipments of pistols in 1996 were less than in 1995 due to a
special sales promotion offered in the fourth quarter of 1995. At the present
time the Company anticipates that demand for pistols in 1997 will approximate
1996 levels.
Castings segment net sales increased by 102.1% to $74.5 million in 1996 from
$36.8 million in 1995. This increase was primarily achieved by Ruger Investment
Casting ("RIC") producing and shipping greater quantities of titanium golf club
heads for Callaway Golf, Inc. ("Callaway Golf"). Approximately 61% of the sales
in dollars to Callaway Golf were made in the first six months of 1996. Sales of
titanium golf club heads in the latter half of 1996 were affected by changes in
production mix, completion of 1996 golf club model requirements, and a reduction
of sales price per unit. In August 1996, the Company received shipping
instructions from Callaway Golf covering the 1997 golf club production program
for titanium golf club heads through 1997. This order, valued at approximately
$66 million, was part of the production anticipated in the existing contract
between the two companies. The sales price per unit of titanium golf club heads
was reduced in this order from the amount the Company had previously received
through most of 1996. In March 1997 the Company agreed to stretch out the
delivery schedule of golf club heads pursuant to the August 1996 Callaway Golf
order from completion in October 1997 to completion in September 1998. In
return, the Company was released from the provision of its agreement with
Callaway Golf which prohibited the Company from producing titanium golf club
heads for any golf club customer other than Callaway Golf. The extension of the
delivery times of the August 1996 order will shift some anticipated 1997
revenues into 1998, and therefore may affect 1997 castings sales and operating
results. However, the Company feels that this agreement is beneficial as it
allows the Company the flexibility to actively seek additional customers for
titanium golf club heads while maintaining its current business with Callaway
Golf. New business could utilize capacity available at RIC.
Consolidated cost of products sold for 1996 was $150.2 million compared to
$134.9 million for 1995. This increase of $15.3 million or 11.3% was primarily
attributable to increases in sales by the castings segment.
Gross profit as a percentage of net sales increased to 32.7% in 1996 from 29.9%
in 1995. Efficiencies realized from increased production and sales of investment
cast titanium golf club heads and reductions in product liability and workers'
compensation costs were the primary reasons for this increase. The 1995 year was
adversely impacted by a number of factors including the special sales promotion
offered on most pistol models in the fourth quarter of 1995, an unfavorable
firearm product sales mix, costs incurred by RIC to expand capacity for the
production of titanium golf club heads, and inefficiencies from decreased
firearm unit production at the Company's Prescott, Arizona facility. The gross
profit margin for castings segment sales was higher in 1996 than in 1995.
6-----
<PAGE> 3
Selling, general and administrative expenses increased by 13.1% to $19.2 million
in 1996 from $17.0 million in 1995. This increase was primarily the result of
increased advertising costs and additions to the Company's executive management
in the latter part of 1995 and first quarter of 1996.
The effective income tax rate decreased in 1996 to 39.5% from 40.3% in 1995 due
to lower state income taxes.
As a result of the preceding factors, consolidated net income for 1996 increased
to $34.4 million from $26.2 million for 1995, or by $8.2 million and 31.4%.
Results of Operations
Year ended December 31, 1995, as compared to year ended December 31, 1994:
Consolidated net sales of $192.5 million were reached by the Company in 1995, a
decrease of $4.0 million or 2.0% from 1994 consolidated net sales of $196.4
million.
Firearms segment net sales decreased in 1995 by $24.5 million or 13.6% to $155.6
million from $180.1 million in 1994. The decrease in firearm unit shipments of
12.8% was primarily attributable to weak demand throughout most of the year for
pistols, which are manufactured in the Company's Prescott, Arizona facility. In
the fourth quarter of 1995, the Company offered a special sales promotion on
most pistol models. This program, which reduced the average selling price of
these pistols by 10% to 30%, had the impact of producing significantly greater
sales quantities than those anticipated if the program had not been offered.
Sales of firearms in the other industry product categories - rifles, shotguns,
and revolvers - remained strong in 1995 with demand for these products being
substantially in excess of the production capacity of the Company's Newport, New
Hampshire facility through most of the year. In the third quarter of 1995, the
outfitting of machinery and equipment in the 65,000 square foot addition to the
Newport facility was completed which enabled the facility to realize significant
firearm production increases in the fourth quarter.
Castings segment net sales increased by 125.3% to $36.8 million in 1995 from
$16.4 million in 1994. This increase was achieved by RIC commencing the shipment
of "Great Big Bertha" titanium golf club heads to Callaway Golf in the first
quarter of 1995. The Company invested considerable resources in late 1994 and
throughout 1995 to significantly increase its capacity to produce titanium
investment castings. Higher production quantities of "Great Big Bertha" titanium
golf club heads were achieved beginning in the latter part of the third quarter
and increased steadily through the fourth quarter of 1995.
Consolidated cost of products sold for 1995 was $134.9 million compared to
$125.4 million for 1994, an increase of $9.5 million or 7.6%. This increase was
primarily attributable to a number of factors which affected both the firearms
and castings segments, consisting of an unfavorable firearm product sales mix,
costs incurred by RIC to expand capacity for the production of an increasing
number of titanium golf club heads, inefficiencies from decreased firearm unit
production at the Company's Prescott, Arizona facility, and increases in
castings segment sales which had higher manufacturing costs as a percentage of
sales dollars.
During the third quarter of 1995, the Company implemented certain steps that
reallocated production capacity from the Prescott firearms facility.
Specifically, the Company transferred skilled production employees and
manufacturing floor space to RIC. Also, significant process changes in the
manufacturing of titanium golf club heads were made in the fourth quarter of
1995 which had a positive impact on both production and operating margins.
In June 1995, the Company entered into a joint venture agreement with Callaway
Golf to collaborate in the construction and operation of a new investment
castings foundry, Antelope Hills, LLC ("Antelope Hills"), for the production of
titanium golf club heads. Under the terms of this agreement, Callaway Golf
committed to purchase a quantity of titanium golf club heads with sales prices
totalling a minimum of approximately $150 million in the years 1996 through 1998
from combined Company and Antelope Hills facilities.
As a result of the foregoing and the impact of the special sales promotion
offered on most pistol models in the fourth quarter of 1995, gross profit as a
percentage of net sales decreased to 29.9% in 1995 from 36.1% in 1994.
Selling, general and administrative expenses increased nominally by 1.5% to
$17.0 million in 1995 from $16.7 million in 1994. This increase was primarily
due to the addition of a new executive officer to the Company.
Other income-net increased in 1995 compared to 1994 primarily as a result of
interest rates on Treasury Bills which while declining during 1995, generally
were higher than those prevailing during most of 1994. This more than offset the
decrease in average fund balances available for investment in 1995.
The effective tax rate remained unchanged in 1995 from 1994 at 40.3%.
As a result of the foregoing factors, consolidated net income for 1995 decreased
to $26.2 million from $34.0 million for 1994, or by $7.9 million and 23.1%.
Financial Condition
At December 31, 1996, the Company had cash, cash equivalents,
-----7
<PAGE> 4
and short-term investments of $33.4 million, working capital of $95.2 million,
and a current ratio of 5.0 to 1. Cash provided by operating activities was $24.4
million, $16.9 million, and $35.4 million for the years ended December 31, 1996,
1995, and 1994, respectively. The $7.4 million increase in 1996 from 1995 is
primarily a result of increased net income. The 1995 decrease from 1994 is the
result of a decline in net income of $7.9 million as well as an increase in
inventory of $15.2 million in 1995. Future inventory levels will be determined
based on a number of conditions including market demand for the Company's
products, production capabilities, and the Company's ability to obtain raw
materials at favorable prices. The Company has reviewed its inventory
management policies in the latter part of 1996 and plans to reduce inventory
quantities of raw material, work-in-process, and finished goods throughout 1997.
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 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 are required to be paid
for within 90 days. Dating plan receivables were $10.0 million at December 31,
1996 compared to $7.9 million at December 31, 1995. The Company has reserved
the right to discontinue the dating plan at any time and has been able to
finance this plan from internally generated funds provided by operating
activities.
The Company's production of titanium golf club heads requires certain titanium
metal alloys ("titanium"). Presently, the Company buys a majority of its
titanium under a short-term purchasing arrangement from one supplier. Although
there are limited suppliers of titanium, management believes that other sources
could provide the Company with the requirements to meet production demands.
However, purchase prices charged by these alternative suppliers might be higher
than 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 in inventory to provide enough time to locate another supplier without
interruption of manufacturing operations.
Capital expenditures for the past three years averaged $11.9 million per year.
These expenditures have all been internally financed through funds provided by
operations. The Company has budgeted $7.9 million for capital expenditures in
1997 to upgrade and modernize its facilities and to add capacity for the
production of ceramic-reinforced metal composite products at the Uni-Cast
Division. The Company finances and intends to continue to finance these
activities with funds provided from operations.
Additional capital expenditures of $7.5 million were made by the Company during
1996 and have totaled $9.2 million to date towards the construction and
outfitting of Antelope Hills.
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 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 the 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.
In 1996 dividends paid totaled $21.5 million. This amount reflects regular
quarterly dividends of $0.20 per share paid on March 15, 1996, June 15, 1996,
September 16, 1996, and December 15, 1996. On February 1, 1997 the Company
declared a regular quarterly dividend of $0.20 per share payable on March 14,
1997. Future dividends depend on many factors including internal estimates of
future performance and the Company's needs for funds. Historically the Company
has not required external financing. Based on its cash flow and unencumbered
assets, the Company believes that it has the ability to raise substantial
amounts of short-term and long-term debt. However, 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 sales
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.
8-----
<PAGE> 5
The "Brady Law" mandates a nationwide five 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
approximately twenty-six 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 ten
round capacity manufactured after September 13, 1994 other than to law
enforcement agencies. Only two such magazines (9mm and .40 caliber) were
commercially sold by the Company and production of substitute ten 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 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 such restrictions will 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 and
as a result of favorable litigation experiences over the past several years
product liability expenses declined in 1996. The Company anticipates that these
types of expenses in 1997 will approximate 1996 levels.
In the normal course of its manufacturing operations, the Company is subject to
occasional governmental proceedings and orders pertaining to waste disposal, air
emissions, and water discharges into the environment. The Company believes that
it is generally in compliance with applicable environmental regulations and the
outcome of such proceedings and orders will not have a material effect on its
business.
In October 1996, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 96-1, Environmental
Remediation Liabilities, the effect of which is not expected to be material to
the operating results of the Company.
The Company expects to realize its deferred tax assets through tax deductions
against future taxable income or a carryback against taxes previously paid.
Inflation's effect on the Company's operations is most immediately felt in the
cost of products sold because the Company values inventory on the LIFO basis.
Generally under this method, the cost of products sold reported in the financial
statements approximates current costs and thus reduces distortion in reporting
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 with the exception of higher prices of titanium in
1996. In 1996, the rate of inflationary cost increases was higher than in 1995,
and in 1995 was lower than 1994.
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 market demand for the Company's firearms products,
the Company's efforts to match production with market demand and reduce
inventory quantities, the ability to generate additional titanium investment
castings sales, the results of pending litigation against the Company, and the
impact of possible additional firearms control legislation 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 castings, the failure to achieve
certain operational goals, new firearm 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 the 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 or non-occurrence of anticipated events.
-----9
<PAGE> 6
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents .................................. $ 2,729 $ 3,633
Short-term investments ..................................... 30,652 43,477
Trade receivables, less allowances for doubtful accounts
($834 and $981) and discounts ($1,095 and $871) .......... 21,074 19,864
Inventories:
Finished products ........................................ 11,895 6,039
Materials and products in process ........................ 43,173 36,253
- -------------------------------------------------------------------------------------
55,068 42,292
Deferred income taxes ...................................... 7,949 7,231
Prepaid expenses and other assets .......................... 1,690 1,044
- -------------------------------------------------------------------------------------
Total Current Assets ....................................... 119,162 117,541
Property, Plant, and Equipment
Land and improvements .................................... 3,495 3,423
Buildings and improvements ............................... 21,830 20,087
Machinery and equipment .................................. 72,440 67,913
Dies and tools ........................................... 20,732 19,449
- -------------------------------------------------------------------------------------
118,497 110,872
Allowances for depreciation .............................. (74,330) (66,742)
- -------------------------------------------------------------------------------------
44,167 44,130
Deferred Income Taxes ...................................... 4,672 4,338
Investment in Joint Venture (Note 3) ....................... 10,586 1,645
Other Assets ............................................... 11,303 10,898
- -------------------------------------------------------------------------------------
Total Assets ............................................... $ 189,890 $ 178,552
=====================================================================================
</TABLE>
See accompanying notes
12-----
<PAGE> 7
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable and accrued expenses ................ $ 4,628 $ 3,993
Product safety modifications ............................... 1,302 1,439
Product liability .......................................... 3,000 3,000
Employee compensation ...................................... 8,312 7,888
Workers' compensation ...................................... 6,108 6,262
Income taxes ............................................... 595 3,017
- -------------------------------------------------------------------------------------
Total Current Liabilities .................................. 23,945 25,599
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
shares -26,916,800 and 26,910,800 ........................ 26,917 26,911
Additional paid-in capital ................................. 2,514 2,380
Retained earnings .......................................... 117,296 104,444
- -------------------------------------------------------------------------------------
Total Stockholders' Equity ................................. 146,727 133,735
- -------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity ................. $ 189,890 $ 178,552
=====================================================================================
</TABLE>
-----13
<PAGE> 8
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net firearms sales .......................................... $ 148,829 $ 155,622 $ 180,079
Net castings sales .......................................... 74,466 36,847 16,358
- ---------------------------------------------------------------------------------------------------
Total net sales ............................................. 223,295 192,469 196,437
Cost of products sold ....................................... 150,200 134,930 125,439
- ---------------------------------------------------------------------------------------------------
Gross profit ................................................ 73,095 57,539 70,998
Expenses:
Selling ................................................... 13,214 12,345 12,399
General and administrative ................................ 5,959 4,612 4,304
- ---------------------------------------------------------------------------------------------------
19,173 16,957 16,703
- ---------------------------------------------------------------------------------------------------
53,922 40,582 54,295
Other income-net, principally interest ...................... 2,913 3,264 2,697
- ---------------------------------------------------------------------------------------------------
Income Before Income Taxes .................................. 56,835 43,846 56,992
Income taxes ................................................ 22,450 17,670 22,943
- ---------------------------------------------------------------------------------------------------
Net Income .................................................. $ 34,385 $ 26,176 $ 34,049
===================================================================================================
Net Income Per Share ........................................ $ 1.28 $ 0.97 $ 1.27
===================================================================================================
Cash Dividends Per Share .................................... $ 0.80 $ 0.70 $ 0.60
===================================================================================================
</TABLE>
See accompanying notes
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 - Note 1 ....................... $ 26,905 $ 2,283 $ 79,201
Net income ................................................ 34,049
Cash dividends ............................................ (16,143)
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1994 ................................ 26,905 2,283 97,107
Net income ................................................ 26,176
Issuance of 6,000 shares of Common Stock .................. 6 97 (3)
Cash dividends ............................................ (18,836)
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ................................ 26,911 2,380 104,444
Net income ................................................ 34,385
Issuance of 6,000 shares of Common Stock .................... 6 134 (3)
Cash dividends ............................................ (21,530)
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ................................ $ 26,917 $ 2,514 $ 117,296
===================================================================================================
</TABLE>
See accompanying notes
14-----
<PAGE> 9
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income ................................................ $ 34,385 $ 26,176 $ 34,049
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation .......................................... 7,588 6,876 5,281
Issuance of Common Stock .............................. 137 100 --
Net provision for product safety modifications ........ (137) (109) (157)
Provision for product liability claims, net
of payments of $2,300, $3,269, and $2,564 ........... -- 731 1,436
Deferred income taxes ................................. (1,052) (960) (1,036)
Changes in operating assets and liabilities:
Trade receivables ................................... (1,210) (1,975) 1,374
Inventories ......................................... (12,776) (15,188) (5,757)
Trade accounts payable and accrued expenses ......... 635 (2,086) 1,675
Prepaid expenses, other assets, and other liabilities (781) 1,095 1,913
Income taxes ........................................ (2,422) 2,276 (3,414)
- ---------------------------------------------------------------------------------------------------
Cash provided by operating activities ............. 24,367 16,936 35,364
Investing Activities
Property, plant, and equipment additions .................. (7,625) (15,714) (12,434)
Purchases of short-term investments ....................... (156,132) (158,953) (168,621)
Proceeds from sales or maturities of
short-term investments .................................. 168,957 174,126 161,883
Investment in joint venture ............................... (8,941) (1,645) --
- ---------------------------------------------------------------------------------------------------
Cash used by investing activities ................. (3,741) (2,186) (19,172)
Financing Activities
Dividends paid ............................................ (21,530) (18,836) (16,143)
- ---------------------------------------------------------------------------------------------------
Cash used by financing activities ................. (21,530) (18,836) (16,143)
- ---------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents ............ (904) (4,086) 49
Cash and cash equivalents at beginning of year .............. 3,633 7,719 7,670
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year .................... $ 2,729 $ 3,633 $ 7,719
===================================================================================================
</TABLE>
See accompanying notes.
-----15
<PAGE> 10
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
STOCK SPLIT
Sturm, Ruger & Company, Inc. (the "Company") effected a two-for-one stock split,
in the form of a 100% stock dividend, 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 dividend resulted in a
retroactively applied transfer of $13,458,400 (par value of $1 per share) from
retained earnings to Common Stock, which had the effect of decreasing retained
earnings and increasing Common Stock.
ORGANIZATION
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 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. A joint venture, of which the Company owns 50%,
is accounted for using the equity method (See Note 3). All significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products.
CASH EQUIVALENTS
The Company considers interest-bearing deposits with financial institutions with
remaining maturities of three months or less at the time of acquisition to be
cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments are recorded at cost plus accrued interest, which
approximates market, and are principally United States Treasury Bills, all
maturing within one year. The income from short-term investments is included in
other income - net. The Company intends to hold these investments until
maturity.
INVENTORIES
Inventories are stated at the lower of cost, principally determined by the
last-in, first-out (LIFO) method, or market. If inventories had been valued
using the first-in, first-out method, inventory values would have been higher by
approximately $37.8 million and $33.1 million at December 31, 1996 and 1995,
respectively.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost. Depreciation is
computed by the straight-line and declining balance methods.
INCOME TAXES
Income taxes are accounted for using the liability method in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109. Under the
liability method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of the Company's assets and liabilities.
PRODUCT LIABILITY
The Company provides for product liability claims. The provision for product
liability claims is charged to cost of products sold.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses for the
years ended December 31, 1996, 1995, and 1994 were $3.2 million, $2.1 million,
and $2.1 million, respectively.
16-----
<PAGE> 11
Notes to Consolidated Financial Statements
(continued)
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of shares
of Common Stock outstanding during the year which was 26,913,300 in 1996,
26,906,936 in 1995, and 26,904,800 in 1994. Common Stock equivalents represent
shares awarded, but not issued, pursuant to the Company's Stock Bonus Plan (See
Note 5). Common Stock equivalents in 1996, 1995, and 1994 were immaterial.
2. INCOME TAXES
The Federal and state income tax provision (benefit) consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT DEFERRED Current Deferred Current Deferred
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal ................ $ 19,036 $ (816) $ 15,292 $ (775) $ 19,485 $ (841)
State .................. 4,466 (236) 3,338 (185) 4,494 (195)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 23,502 $ (1,052) $ 18,630 $ (960) $ 23,979 $ (1,036)
====================================================================================================================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product liability ................................................................ $ 8,776 $ 8,887
Employee compensation ............................................................ 2,241 2,047
Product safety modifications ..................................................... 514 575
Allowances for doubtful accounts and discounts ................................... 1,016 741
Inventory ........................................................................ 414 1,113
Other ............................................................................ 3,930 2,186
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets .......................................................... 16,891 15,549
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid insurance ................................................................ 361 372
Depreciation ..................................................................... 2,343 2,065
Pension plans .................................................................... 1,566 1,543
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities ..................................................... 4,270 3,980
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets ............................................................ $12,621 $11,569
====================================================================================================================================
</TABLE>
The effective income tax rate varied from the statutory Federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate ........................................ 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit ........................... 4.8 4.7 5.0
Other items .............................................................. (.3) .6 .3
- ------------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate ................................................ 39.5% 40.3% 40.3%
====================================================================================================================================
</TABLE>
The Company made income tax payments of approximately $25.9 million, $16.4
million, and $27.4 million during 1996, 1995, and 1994, respectively.
-----17
<PAGE> 12
Notes to Consolidated Financial Statements
(continued)
3. JOINT VENTURE
In 1995, the Company entered into a joint venture agreement with Callaway Golf
Company, Inc. ("Callaway Golf") 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"), is owned 50% by the Company and
50% by Callaway Golf. The Company has been designated as the manager of the
facility and is responsible for all daily activity and recordkeeping.
Construction of Antelope Hills is substantially complete, and production is
expected to commence in 1997. Assets and liabilities of Antelope Hills were
$15.7 million and $ .1 million, respectively, at December 31, 1996. Antelope
Hills incurred a net loss of $ .3 million in 1996, one-half of which has been
charged to the Company's 1996 operations. The Company has the option of
purchasing Callaway Golf's interest in Antelope Hills at a price equal to
Callaway Golf's investment plus 10% per year.
4. PENSION PLANS
The Company and its subsidiaries sponsor two defined benefit pension plans which
cover substantially all hourly (Hourly Plan) and salaried (Salaried Plan)
employees. A third defined benefit pension plan, the Supplemental Executive
Retirement Plan (Supplemental Plan), is non-qualified and covers certain
executive officers of the Company. Benefits under the Hourly Plan are based on
the number of years of service. Benefits under the Salaried Plan are based on
years of service, basic compensation during the last five years of employment,
and Social Security "Covered Compensation". The Company's funding policy for the
Hourly Plan and Salaried Plan is to contribute annually amounts sufficient to
fund each plan's normal cost and provide for amortization of any unfunded prior
service cost over a period of approximately twenty years. Benefits under the
Supplemental Plan are based on years of service, compensation as defined, and
certain offsets for benefits received under the Company's other pension plans
and from Social Security. The Supplemental Plan is unfunded.
The Company also sponsors a defined contribution plan (Profit Sharing Plan)
which covers substantially all of its salaried employees and a non-qualified
defined contribution plan (Supplemental Executive Profit Sharing Plan) which
covers certain of its salaried employees. Contributions to these plans are
determined annually by the Company's Board of Directors and, in the case of the
Profit Sharing Plan, contributions cannot exceed the maximum amount deductible
for Federal income tax purposes.
A summary of the components of net periodic pension cost for the defined
benefit pension plans and amounts charged to pension expense for the defined
contribution plans follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the period ....................... $ 1,134 $ 817 $ 832
Interest cost on projected benefit obligation ........................ 1,747 1,472 1,278
Actual return on plan assets ......................................... (1,074) (3,249) 550
Net amortization and deferral ........................................ (534) 1,687 (2,478)
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost of defined benefit plans ..................... 1,273 727 182
Profit Sharing Plan .................................................... 814 706 684
Supplemental Executive Profit Sharing Plan ............................. 360 285 211
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost .............................................. $ 2,447 $ 1,718 $ 1,077
====================================================================================================================================
</TABLE>
18-----
<PAGE> 13
Notes to Consolidated Financial Statements
(continued)
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets for the Company's defined benefit pension plans
(in thousands):
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED
ACCUMULATED BENEFITS EXCEED ACCUMULATED
BENEFITS ASSETS BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $23,158 in 1996 and
$21,200 in 1995 .............................................................. $(18,088) $ (5,718) $(21,918)
====================================================================================================================================
Actuarial present value of projected benefit obligation for
services rendered to date ..................................................... $(18,088) $ (7,693) $(23,611)
Plans' assets (unallocated insurance contracts) at market value ................. 19,313 4,019 21,784
- ------------------------------------------------------------------------------------------------------------------------------------
Plans' assets in excess of (less than) projected benefit obligation ............. 1,225 (3,674) (1,827)
Prior service cost not yet recognized in net periodic pension cost .............. 651 2,641 1,536
Unrecognized net gain from past experience, different from
that assumed, and effects of changes in assumptions ........................... 2,372 48 3,640
Unrecognized net liability (asset) from date of adoption of
SFAS No. 87 (January 1, 1987) ................................................. (796) 100 (818)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost .................................................. $ 3,452 $ (885) $ 2,531
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Hourly Plan Salaried Plan Supplemental Plan
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
1996 1995 1994 1996 1995 1994 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of significant actuarial assumptions used:
Weighted average discount rate ......................... 7.5% 7% 8% 7.5% 7% 8% 7.5%
Rate of increase in compensation levels ................ N/A N/A N/A 5% 5% 5% 5%
Expected long-term rate of return on assets ............ 9% 9% 9% 9% 9% 9% N/A
</TABLE>
In 1996, the Company changed the weighted average discount rates which
decreased the projected benefit obligation by approximately $1.9 million at
December 31, 1996.
5. STOCK BONUS PLAN
The Company's Stock Bonus Plan, as amended, covers its key employees excluding
members of the Ruger family. Pursuant to the Plan, awards are made of Common
Stock and a cash bonus approximating the estimated income tax on the awards. At
December 31, 1996, 502,000 shares of Common Stock are reserved for future
awards.
6. CONTINGENT LIABILITIES
The Company is a defendant in approximately 15 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 number of
lawsuits and claims that were tried, dismissed, settled or otherwise resolved
and average settlement payments (excluding legal fees) were as follows: 1996-21
and $45,000, 1995-18 and $46,000, 1994-24 and $55,000.
-----19
<PAGE> 14
Notes to Consolidated Financial Statements
(continued)
7. INDUSTRY SEGMENT DATA AND CONCENTRATIONS OF CREDIT RISK
The Company's business segments are engaged in manufacturing firearms and
ferrous and nonferrous investment castings. Corporate assets, consisting
principally of cash and cash equivalents, short-term investments, and deferred
taxes, have been segregated along with related income; however, general
corporate expenses are allocated to the segments in relation to the size of
their operations.
The Company's manufacturing operations are located in the United States of
America and export sales are not significant. Intersegment sales are accounted
for at cost.
The firearms segment's principal markets are sporting and law enforcement.
Distribution is mainly through a select number of distributors primarily located
throughout the United States. Sales of firearms to two distributors accounted
for approximately 12% and 7% of 1996, 12% and 9% of 1995, and 15% and 8% of 1994
consolidated net sales, respectively.
The castings segment's principal markets are sporting goods, commercial,
and military. Sales are made direct to customers and through manufacturers'
representatives. In 1996 and 1995, sales of castings to one customer accounted
for approximately 27% and 12%, respectively, of consolidated net sales.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
(in thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Firearms ........................ $ 148,829 $ 155,622 $ 180,079
Castings
Unaffiliated .................. 74,466 36,847 16,358
Intersegment .................. 21,128 30,956 33,468
- --------------------------------------------------------------------------------
95,594 67,803 49,826
Eliminations .................... (21,128) (30,956) (33,468)
- --------------------------------------------------------------------------------
$ 223,295 $ 192,469 $ 196,437
================================================================================
Income Before Income Taxes
Firearms ........................ $ 32,688 $ 34,778 $ 51,275
Castings ........................ 21,474 6,051 3,204
Corporate (principally
interest income) .............. 2,673 3,017 2,513
- --------------------------------------------------------------------------------
$ 56,835 $ 43,846 $ 56,992
================================================================================
Identifiable Assets
Firearms ........................ $ 80,504 $ 80,006 $ 68,734
Castings ........................ 58,239 34,730 18,655
Corporate ....................... 51,147 63,816 82,103
- --------------------------------------------------------------------------------
$ 189,890 $ 178,552 $ 169,492
================================================================================
Depreciation
Firearms ........................ $ 4,550 $ 4,523 $ 3,782
Castings ........................ 3,038 2,353 1,499
- --------------------------------------------------------------------------------
$ 7,588 $ 6,876 $ 5,281
================================================================================
Capital Expenditures
Firearms ........................ $ 2,899 $ 7,245 $ 8,009
Castings ........................ 4,726 8,469 4,425
- --------------------------------------------------------------------------------
$ 7,625 $ 15,714 $ 12,434
================================================================================
</TABLE>
20-----
<PAGE> 15
Notes to Consolidated Financial Statements
(continued)
The Company performs periodic credit evaluations of its distributors' and
other customers' financial condition and generally does not require collateral.
The Company had a concentration of trade receivables from five firearms
distributors aggregating $10.0 million (ranging from $.9 million to $3.7
million) and $8.1 million (ranging from $.8 million to $2.5 million) as of
December 31, 1996 and 1995, respectively. These distributors sell to numerous
retailers and dealers in different regions of the country. The Company had a
trade receivable with one castings segment customer of $5.5 million and $5.1
million as of December 31, 1996 and 1995, respectively.
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 1996 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- --------------------------------------------------------------------------------
3/31/96 6/30/96 9/30/96 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES .................. $65,557 $65,926 $48,036 $43,776
GROSS PROFIT ............... 22,468 23,683 13,095 13,849
NET INCOME ................. 11,114 11,648 5,665 5,958
NET INCOME PER SHARE ....... .41 .43 .21 .22
<CAPTION>
Three Months Ended
- --------------------------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .................. $50,303 $45,196 $42,086 $54,884
Gross profit ............... 17,627 14,106 7,500 18,306
Net income ................. 8,559 6,480 2,101 9,036
Net income per share ....... .32 .24 .08 .34
</TABLE>
The sum of the quarters' net income per share may not equal the full year
per share amounts due to rounding differences resulting from changes in the
number of shares of Common Stock outstanding.
The Company made certain adjustments in the fourth quarters of 1996 and
1995 resulting from changes in estimates that were material to the operating
results of each quarter. These adjustments related primarily to inventory and
increased net income in the fourth quarters of 1996 and 1995 by approximately
$1.2 million or $.05 per share and $1.5 million or $.06 per share, respectively.
-----21
<PAGE> 16
Report of Independent Auditors
[LOGO] ERNST & YOUNG LLP 1111 Summer Street Phone: 203 326 8200
Stamford, Connecticut 06905 Fax: 203 326 8228
Stockholders and Board of Directors
Sturm, Ruger & Company, Inc.
We have audited the accompanying consolidated balance sheets of Sturm, Ruger &
Company, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sturm, Ruger &
Company, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/S/ERNST & YOUNG LLP
February 21, 1997
22-----
<PAGE> 17
Stockholder Information
COMMON STOCK DATA
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "RGR". At February 28, 1997 the Company had 1,916 stockholders of record.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Common Stock as reported on the New York Stock Exchange and
dividends paid on Common Stock.
DIVIDENDS
HIGH LOW PER SHARE
- -----------------------------------------------------------------------
1996:
FIRST QUARTER $19.25 $13.81 $ .20
SECOND QUARTER 27.00 18.25 .20
THIRD QUARTER 24.88 16.63 .20
FOURTH QUARTER 20.38 16.50 .20
1995:
First Quarter $17.25 $14.00 $.175
Second Quarter 16.31 13.50 .175
Third Quarter 17.81 15.38 .175
Fourth Quarter 15.63 12.94 .175
ITEMS OF INTEREST TO STOCKHOLDERS
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Tuesday, May 20, 1997 at the
Fairfield County Hunt Club, Westport, Connecticut, at 10:30 a.m.
PRINCIPAL BANKS
Fleet Bank, Southport, Connecticut
Lake Sunapee Savings Bank, Newport, New Hampshire
Bank One, Arizona, NA, Prescott, Arizona
INDEPENDENT AUDITORS
Ernst & Young LLP, Stamford, Connecticut
TRANSFER AGENT
Harris Trust & Savings Bank, Chicago, Illinois
FORM 10-K REPORT AVAILABLE
A copy of the Sturm, Ruger & Company, Inc. Annual Report on Form 10-K filed with
the Securities and Exchange Commission for 1996 can be obtained free of charge
by writing to:
Corporate Secretary
Sturm, Ruger & Company, Inc.
Lacey Place
Southport, Connecticut 06490
CALL US AT 203-259-7843, OR FAX AT 203-254-2195.
VISIT US ON THE INTERNET AT WWW.RUGER-FIREARMS.COM
-----23
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sturm, Ruger & Company, Inc. of our report dated February 21, 1997, included
in the 1996 Annual Report to Stockholders of Sturm, Ruger & Company, Inc.
Our audits also included the consolidated financial statement schedule of Sturm,
Ruger & Company, Inc. and Subsidiaries listed in Item 14(a). This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the consolidated financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
S/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Stamford, Connecticut
February 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,729
<SECURITIES> 30,652
<RECEIVABLES> 23,003
<ALLOWANCES> 1,929
<INVENTORY> 55,068
<CURRENT-ASSETS> 119,162
<PP&E> 118,497
<DEPRECIATION> 74,330
<TOTAL-ASSETS> 189,890
<CURRENT-LIABILITIES> 23,945
<BONDS> 0
0
0
<COMMON> 26,917
<OTHER-SE> 119,810
<TOTAL-LIABILITY-AND-EQUITY> 189,890
<SALES> 223,295
<TOTAL-REVENUES> 223,295
<CGS> 150,200
<TOTAL-COSTS> 19,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,835
<INCOME-TAX> 22,450
<INCOME-CONTINUING> 34,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,385
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
