<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to
_______________
Commission file number 0-4776
STURM, RUGER & COMPANY, INC.
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(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 (Zip code)
offices)
(203) 259-7843
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the issuer's common stock as of
October 31, 1998: Common Stock, $1 par value - 26,910,720.
Page 1 of 19
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INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<S> <C>
Condensed consolidated balance sheets--September 30, 1998 and
December 31, 1997 3
Condensed consolidated statements of income--Three months ended
September 30, 1998 and 1997; Nine months ended September 30,
1998 and 1997 5
Condensed consolidated statements of cash flows--Nine months ended
September 30, 1998 and 1997 6
Notes to condensed consolidated financial statements--September
30, 1998 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(unaudited) (Note)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,013 $ 4,488
Short-term investments 46,074 45,484
Trade receivables, less allowances
for doubtful accounts ($ 1,302 and
$1,001) and discounts ($ 1,455 and $2,842) 21,664 21,118
Inventories:
Finished products 12,890 12,708
Materials and products in
process 33,146 32,841
------------ ------------
46,036 45,549
Deferred income taxes 8,934 7,224
Prepaid expenses and other assets 1,350 1,344
------------ ------------
TOTAL CURRENT ASSETS 129,071 125,207
PROPERTY, PLANT AND EQUIPMENT 143,626 139,201
Less allowances for depreciation (90,722) (83,538)
------------ -----------
52,904 55,663
DEFERRED INCOME TAXES 4,237 4,701
OTHER ASSETS 14,310 14,223
------------ ------------
$200,522 $199,794
============ ============
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued
expenses $ 5,600 $ 4,628
Product safety modifications 769 870
Product liability 3,000 3,000
Employee compensation 12,432 10,303
Workers' compensation 4,407 5,063
Income taxes 2,223 3,792
------------ ------------
TOTAL CURRENT LIABILITIES 28,431 27,656
PRODUCT LIABILITY ACCRUAL 17,503 19,218
CONTINGENT LIABILITIES --Note 7 -- --
STOCKHOLDERS' EQUITY
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued
Common Stock, par value $1:
Authorized shares - 40,000,000; issued and
outstanding 26,910,720 and 26,922,800 26,911 26,923
Additional paid-in capital 2,435 2,632
Retained earnings 125,387 123,510
Additional minimum pension liability (145) (145)
------------ ------------
154,588 152,920
------------ ------------
$200,522 $199,794
============ ============
</TABLE>
Note:
The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Firearms sales $ 28,812 $ 27,704 $107,598 $110,628
Castings sales 14,561 19,522 54,293 46,191
-------- -------- -------- --------
Net sales 43,373 47,226 161,891 156,819
Cost of products sold 35,440 34,874 120,316 109,623
-------- -------- -------- --------
7,933 12,352 41,575 47,196
Expenses:
Selling 3,223 3,185 9,997 9,427
General and administrative 1,386 1,489 4,543 4,212
-------- -------- -------- --------
4,609 4,674 14,540 13,639
-------- -------- -------- --------
3,324 7,678 27,035 33,557
Other income-net 802 396 3,257 466
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,126 8,074 30,292 34,023
Income taxes 1,672 3,226 12,269 13,779
-------- -------- -------- --------
NET INCOME $ 2,454 $ 4,848 $ 18,023 $ 20,244
======== ======== ======== ========
Basic and diluted earnings per share $ 0.09 $ 0.18 $ 0.67 $ 0.75
-------- -------- -------- --------
Cash dividends per share $ 0.20 $ 0.20 $ 0.60 $ 0.60
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 21,002 $ 46,194
INVESTING ACTIVITIES
Property, plant and equipment additions (4,608) (3,252)
Purchases of short-term investments (95,275) (125,511)
Proceeds from sales or maturities of
short-term investments 94,685 107,688
Net proceeds from sale of land 1,077 --
Investment in joint venture -- 518
Purchase of Callaway's interest in joint venture -- (7,000)
--------- ---------
Cash used in investing activities (4,121) (27,557)
--------- ---------
FINANCING ACTIVITIES
Repurchase of Common Stock (210) --
Dividends paid (16,146) (16,151)
--------- ---------
Cash used in financing activities (16,356) (16,151)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 525 2,486
Cash and cash equivalents at beginning of period 4,488 2,729
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,013 $ 5,215
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
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STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments considered necessary
for a fair presentation of the results of the interim periods. Operating results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year ending December 31, 1998. For
further information refer to the consolidated financial statements and footnotes
thereto included in the Sturm, Ruger & Company, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Organization: Sturm, Ruger & Company, Inc. ("Company") is principally
engaged in the design, manufacture, and sale of firearms and investment
castings. The Company's design and manufacturing operations are located in the
United States. Substantially all sales are domestic. The Company's firearms are
sold through a select number of distributors to the sporting and law enforcement
markets. Investment castings are sold either directly or through manufacturers'
representatives to companies in a wide variety of industries.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
NOTE 3--INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method. An
actual valuation of inventory under the LIFO method can be made only at the end
of each year based on the inventory levels and costs existing at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 4--INCOME TAXES
The Company's effective tax rate differs from the statutory tax rate
principally as a result of state income taxes. Total income tax payments during
the nine months ended September 30, 1998 and 1997 were $15.1 million and $13.4
million, respectively.
NOTE 5-- BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period.
NOTE 6--COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS 130 had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires that all
non-owner changes in equity, such as additional minimum pension liability, which
are not included in net income, be included in other comprehensive income. As
there were no non-owner changes in equity during the nine months ended September
30, 1998 and 1997, total comprehensive income equals net income for the three
and nine months ended September 30, 1998 and 1997, or $2.5 million and $4.8
million, and $18.0 million and $20.2 million, respectively.
NOTE 7--CONTINGENT LIABILITIES
The Company is a defendant in approximately 12 lawsuits involving product
liability claims which allege defective product design and is aware of other
product liability claims. These lawsuits and claims are based principally on the
theory of "strict liability" but also may be based on negligence, breach of
warranty and other legal theories. In many of the lawsuits, punitive damages, as
well as compensatory damages, are demanded. Aggregate claimed amounts presently
exceed product liability accruals and, if applicable, insurance coverage.
Management believes that, in every case, the allegations of defective product
design are unfounded, and that the shooting and any results therefrom were due
to negligence or misuse of the firearm by the claimant or a third party and that
there should be no recovery against the Company.
The Company's management monitors the status of known claims and the
product liability accrual, which includes amounts for asserted and unasserted
claims. While it is difficult to forecast the outcome of these claims, in the
opinion of management, after consultation with special and corporate counsel,
the outcome of these claims will not have a material adverse effect on the
results of operations or financial condition of the Company.
The Company has reported all product liability lawsuits instituted against
it through June 30, 1998 and the results of those lawsuits, where terminated, to
the S.E.C. on its Form 10-K and Form 10-Q reports, to which reference is hereby
made.
During the three months ended September 30, 1998, cost of products sold
were reduced by a $0.6 million adjustment to the product liability accrual due
to favorable litigation experience.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales of $43.4 million and $161.9 million were achieved
by the Company for the three and nine months ended September 30, 1998,
respectively. This represents a decrease of 8.2% and an increase of 3.2% from
the respective 1997 consolidated net sales of $47.2 million and $156.8 million.
Firearms segment net sales increased by $1.1 million or 4.0% in the third
quarter of 1998 to $28.8 million from $27.7 in the prior year. For the nine
months ended September 30, 1998, firearms segment net sales decreased by $3.0
million or 2.7% to $107.6 million, compared to the corresponding 1997 period.
Firearms unit shipments for the quarter ended September 30, 1998 increased 13.5%
from the corresponding 1997 quarter due principally to a special promotion in
September 1998 that allowed for an 11% discount on certain of the Company's
rifles. For the nine month period ended September 30, 1998 firearms unit
shipments decreased 1.6% reflecting reductions in revolvers and pistols,
partially offset by increases in rifles and shotguns. The Company continues to
employ three other sales incentive programs which were in effect in 1997. Two of
these programs provide discounts of up to 10% of the sales price of selected
pistol and revolver models, while another provides a 1% overall discount for
customers meeting specific annual sales targets. In 1998 one new program was
introduced offering an additional 1% for distributors qualifying for each of the
aforementioned three programs.
Casting segment net sales decreased by 25.4% to $14.6 million in the three
months ended September 30, 1998 from $19.5 million in the third quarter of 1997.
For the nine months ended September 30, 1998, casting segment net sales
increased $8.1 million or 17.5% to $54.3 million. The reduction in casting
segment sales for the quarter ended September 30, 1998 was attributable to a
decrease in golf club heads shipped to Callaway Golf Company, Inc. ("Callaway").
The increase in the year-to-date casting sales was due to strong golf club head
shipments to Callaway in the first half of 1998. The Company anticipates that
fourth quarter investment casting sales will be below the level achieved in
1997.
Consolidated cost of products sold for the third quarter of 1998 and the
nine months ended September 30, 1998 was $35.4 million and $120.3 million
compared to $34.9 million and $109.6 million in the corresponding 1997 periods,
respectively, representing an increase of 1.6% and 9.8%, respectively. The
increase for the quarter ended September 30, 1998 was primarily attributable to
significant additional start-up costs associated with new customers and products
in the investment casting segment and increased sales by the firearms segment,
partially offset by a reduction in product liability expense as a result of
favorable litigation experience. For the nine months ended September 30, 1998,
the increase reflects the aforementioned third quarter factors as well as
increased investment casting segment sales during the first half of 1998.
Gross profit as a percentage of net sales decreased to 18.3% and 25.7% in
the three and nine month periods ended September 30, 1998, respectively, from
26.2% and 30.1% in the corresponding periods of 1997. These decreases are due to
significant additional start-up costs associated with new customers and products
in the investment casting segment and the aforementioned special firearms
promotion in September.
Selling, general & administrative expenses decreased slightly to $4.6
million in the third quarter of 1998 from $4.7 million in the third quarter of
1997 and increased by 6.6% to $14.5 million in the nine months ended September
30, 1998 compared to $13.6 million in the prior year period. The increase during
the first nine months of 1998 reflects higher than anticipated employee related
expenses as well as increased professional services fees, and increased expenses
related to national advertising and promotional efforts in the firearms segment.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Other income-net increased by $0.4 million and $2.8 million in the three
and nine months ended September 30, 1998 compared to the corresponding 1997
periods. The increase in the quarter ended September 30, 1998 reflects increased
earnings on Treasury bill investments. For the nine months ended September 30,
1998, the increase reflects non recurring expenses incurred in 1997 at Antelope
Hills, LLC ("Antelope Hills"), a former joint venture between the Company and
Callaway which was formed to construct and operate a foundry for the production
of golf club heads investment cast in titanium, and a gain on the sale of non
manufacturing real estate in the second quarter of 1998.
.
The effective income tax rate of 40.5% in the third quarter and nine
months ended September 30, 1998 is consistent with the tax rate in 1997.
As a result of the foregoing factors, consolidated net income for the
three months and nine months ended September 30, 1998 decreased to $2.5 million
and $18.0 million, respectively, from $4.8 million and $20.2 million for the
three months and nine months ended September 30, 1997, respectively,
representing decreases of $2.4 million or 49.4% and $2.2 million or 11.0%,
respectively.
Financial Condition
At September 30, 1998, the Company had cash, cash equivalents and
short-term investments of $51.1 million, working capital of $100.6 million and a
current ratio of 4.5 to 1.
Cash provided by operating activities was $21.0 million and $46.2 million
for the nine months ended September 30, 1998 and 1997, respectively. This change
in cash flows is principally a result of reductions in inventories and trade
receivables in 1997 that did not recur in 1998.
The Company follows an industry-wide practice of offering a "dating plan"
to its firearms customers on selected products, which allows the purchasing
distributor to buy the products commencing in December, the start of the
Company's dating plan year, and pay for them on extended terms. Discounts are
offered for early payment. The dating plan provides a revolving payment plan
under which payments for all shipments made during the period December through
March have to be made by April 30. Shipments made in subsequent months have to
be paid for within 90 days. As a result of the aforementioned special firearms
promotion in September 1998, dating plan receivable balances were $12.7 million
at September 30, 1998 compared to $3.1 million at September 30, 1997. The
Company has reserved the right to discontinue the dating plan at any time.
Capital expenditures during the nine months ended September 30, 1998
totaled $4.6 million. For the past two years capital expenditures averaged
approximately $1.3 million per quarter. For the fourth quarter of 1998, the
Company expects to spend approximately $2.5 million on capital expenditures to
upgrade and modernize manufacturing equipment primarily at the Newport Firearms,
Ruger Investment Casting, and Pine Tree Castings Divisions. The Company
finances, and intends to continue to finance, all of these activities with funds
provided by operations. On June 25, 1997, the Company purchased Callaway's
interest in Antelope Hills for $7.0 million, an amount approximating Callaway's
equity in the venture.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
For the nine months ended September 30, 1998 dividends paid totaled $16.1
million. This amount reflects the regular quarterly dividend of $.20 per share
paid in March, June and September 1998. On October 28, 1998, the Company
declared a regular quarterly dividend of $.20 per share payable on December 15,
1998. Future dividends depend on many factors, including internal estimates of
future performance and the Company's need for funds.
Historically, the Company has not required external financing. Based on
its cash flow and unencumbered assets, the Company believes it has the ability
to raise substantial amounts of short-term or long-term debt. The Company does
not anticipate any need for external financing through 1998.
The purchase of firearms is subject to federal, state and local
governmental regulations. The basic federal laws are the National Firearms Act
and the Federal Firearms Act. These laws generally prohibit the private
ownership of fully automatic weapons and place certain restrictions on the
interstate sale of firearms unless certain licenses are obtained. The Company
does not manufacture fully automatic weapons, other than for the law enforcement
market, and holds all necessary licenses under these federal laws. From time to
time, congressional committees review proposed bills relating to the regulation
of firearms. These proposed bills generally seek either to restrict or ban the
sale and, in some cases, the ownership of various types of firearms. Several
states currently have laws in effect similar to the aforementioned legislation.
The "Brady Law" mandates a nationwide 5-day waiting period prior to the
purchase of a handgun. The Company believes that, because its customers are
sportsmen, hunters, gun collectors and law enforcement agencies and since 26
states had previously enacted some form of a waiting period prior to purchase,
the "Brady Law" has not had a significant effect on the Company's sales of
firearms. The Crime Bill took effect on September 13, 1994, but none of the
Company's products were banned as so-called "assault weapons." To the contrary,
all the Company's then-manufactured long guns were exempted by name as
"legitimate sporting firearms." A separate provision of the Crime Bill
prohibited production or sale of detachable magazines of over 10-round capacity
manufactured after September 13, 1994, other than to law enforcement. Only two
such magazines (9mm and .40 caliber) were commercially sold by the Company, and
production of substitute 10-round magazines in these calibers (approved by the
BATF) began immediately. The Company remains strongly opposed to laws which
would unduly restrict the rights of law-abiding citizens to acquire firearms for
legitimate purposes. The Company believes that the private ownership of firearms
is guaranteed by the Second Amendment to the United States Constitution and that
the widespread private ownership of firearms in the United States will continue.
However, there can be no assurance that the regulation of firearms will not
become more restrictive in the future and that any such restriction would not
have a material adverse effect on the business of the Company.
The Company has expended significant amounts of financial resources and
management time in connection with product liability litigation. While it is
difficult to forecast the outcome of litigation or the timing of costs,
management believes, after consultation with counsel, that this litigation will
not have a material adverse effect on the financial condition of the Company.
The Company is not aware of any adverse trends in its litigation as a whole.
In the normal course of its manufacturing operations, the Company is
subject to occasional governmental proceedings and orders pertaining to waste
disposal, air emissions and water discharges into the environment. The Company
believes that it is generally in compliance with applicable environmental
regulations and the outcome of such proceedings and orders will not have a
material adverse effect on its business.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carry back against taxes previously
paid.
Inflation's effect on the Company's operations is most immediately felt in
cost of products sold because the Company values inventory on the LIFO basis.
Generally under this method, the cost of products sold reported in the financial
statements approximates current costs, and thus, reduces distortion in reported
income which would result from the slower recognition of increased costs when
other methods are used. The use of historical cost depreciation has a beneficial
effect on cost of products sold. The Company has been affected by inflation in
line with the general economy.
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. This is commonly referred to as the "Year 2000" issue.
The Company has completed its assessment of the Year 2000 issue. Numerous
programs and files on the Company's mainframe computer system have been
identified as candidates for conversion, some of which have already been
converted. At the current personnel level, the remaining remediation effort will
continue through the third quarter of 1999. This allows for any necessary final
review to occur during the fourth quarter of 1999. User testing will be
performed at the completion of each conversion. If as a result of user testing
or other procedures, unforeseen problems or issues arise with the identified
programs or if it is determined that additional programs require remediation,
additional personnel from outside the Company may be needed to complete the Year
2000 remediation in a timely manner.
The costs associated with the Year 2000 remediation of the mainframe
system, which consist principally of employee related expenses, are expected to
be immaterial to the Company's future operating results.
Currently, the Company has not established a contingency plan. Its
conversion schedule has prioritized critical applications. As such, any
disruption caused by the failure to complete the conversion on all of the
identified candidates for remediation should be mitigated. However, if one or
more of the critical applications are not corrected in a timely manner, certain
of the Company's functions may be adversely impacted; including but not limited
to, production, shipping, invoicing, purchasing, payroll, credit and
collections.
The Company's assessment of the Year 2000 impact on non-information
technology will be completed during the fourth quarter of 1998. The impact, and
the costs to remedy any issues, are expected to be insignificant.
The Company has not completed its assessment of Year 2000 issues related
to third parties, as all third party responses have not yet been received. Thus
far, the Company is unaware of any significant issues related to third parties
with which it has a material relationship. As the Company is relying on the
truthfulness and completeness of third party information and certification,
there can be no assurance that the systems of other companies will be timely
converted or that any such failure to convert by another company would not have
an adverse effect on the Company.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Results of the efforts underway and the Company's current assessments
continue to indicate that the impact of the Year 2000 remediation will be
immaterial to the Company's future operating results and cash flows. However,
the Company will continue to monitor and disclose the impact of Year 2000 issues
throughout the remainder of 1998 and 1999.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes standards
for the way that public business enterprises report information about operating
segments. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the new
requirements before the end of 1998. SFAS 131 does not need to be applied to
interim financial information in the year of adoption. The Company does not
anticipate that the adoption of this statement will result in the identification
of additional segments.
In October 1997, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post Retirement Benefits" which changes financial
statement disclosure requirements for pension and other post retirement
benefits. The Company does not expect SFAS 132 to affect its financial position
or results of operations.
Forward-Looking Statements and Projections
The Company may, from time to time, make forward-looking statements and
projections concerning future expectations. Such statements are based on current
expectations and are subject to certain qualifying risks and uncertainties, such
as market demand, sales levels of firearms, anticipated castings sales and
earnings (including those from titanium golf club components), the need for
external financing for operations or capital expenditures, the impact of Year
2000 issues, the results of pending litigation against the Company, and the
impact of future firearms control and environmental legislation, any one or more
of which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date made and the Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date such forward-looking statements are made or to
reflect the occurrence of unanticipated events.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Note 7--Contingent Liabilities" presented in Part I is incorporated herein by
reference.
The following three cases were instituted against the Company during the
three months ended September 30, 1998, which involved significant demands for
compensatory and/or punitive damages:
Monalisa Harris, Administratrix and Individually, v. American Arms., et.
al., in the U.S. District Court for the Eastern District of New York. The
complaint, which was filed on August 28, 1998, alleges that on August 10, 1996
the plaintiff's decedent was injured as a result of a criminal shooting by
persons unknown using a firearm manufactured and sold by persons unknown.
Actual, compensatory, and punitive damages to be determined by the Court are
demanded.
Stephen Amestoy v. Accu-Sport, et. al., in the Superior Court of the
State of California, County of Sacramento. The complaint, which was filed on
September 8, 1998, alleges that on September 4, 1997, the plaintiff was injured
while firing a rifle made by the Company, while utilizing allegedly defective
ammunition sold by defendant Accu-Sport. Compensatory damages according to proof
are demanded.
Robert L. Grover, Jr. v.. Sturm, Ruger & Company, Inc., in the Superior
Court of Connecticut, Judicial District of Fairfield. The complaint which was
filed on August 10, 1998, alleges that on or about August 10, 1996, the
plaintiff "dropped" a revolver made by the Company and shot himself in the
buttocks and abdomen. Money damages, punitive damages, attorney fees, interest
and costs, and equitable relief are demanded.
During the three months ending September 30, 1998, two previously
reported cases were settled:
Case Name Jurisdiction
--------- ------------
Tate Texas
Backof Nevada
The settlement amounts were within the Company's limits of its
self-insurance coverage, totaling less than $22,000.00.
The previously reported case of McDermott, et. al. v. Company (NY), which
arose out of Colin Ferguson's criminal shootings on the Long Island Railroad on
December 7, 1993, was dismissed on September 28, 1998 as failing to state any
recognized cause of action under New York law. It is unknown if plaintiffs will
appeal this dismissal.
On July 1, 1998, the Company (along with 7 other plaintiffs) obtained a
preliminary injunction in the Commonwealth of Massachusetts Superior Court
enjoining enforcement of the Massachusetts Attorney General's "Handgun
Regulations" as being beyond the scope of that official's lawful authority in
the case of ASSC, et. al. v. Harshbarger. The Massachusetts Attorney General
filed a motion to appeal this decision to the Massachusetts Supreme Court on
September 24, 1998.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended September 30, 1998.
15
<PAGE> 16
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
----------------------------------
Date: November 11, 1998 /S/ERLE G. BLANCHARD
------------------ ----------------------------------
Erle G. Blanchard
Principal Financial and
Accounting Officer,
Vice President, Controller
16
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,013
<SECURITIES> 46,074
<RECEIVABLES> 24,421
<ALLOWANCES> 2,757
<INVENTORY> 46,036
<CURRENT-ASSETS> 129,071
<PP&E> 143,626
<DEPRECIATION> 90,722
<TOTAL-ASSETS> 200,522
<CURRENT-LIABILITIES> 28,431
<BONDS> 0
0
0
<COMMON> 26,911
<OTHER-SE> 127,677
<TOTAL-LIABILITY-AND-EQUITY> 200,522
<SALES> 161,891
<TOTAL-REVENUES> 161,891
<CGS> 120,316
<TOTAL-COSTS> 120,316
<OTHER-EXPENSES> 14,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,292
<INCOME-TAX> 12,269
<INCOME-CONTINUING> 18,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 18,023
<EPS-PRIMARY> 0.67
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