STURM RUGER & CO INC, 10-K405, 1998-03-23

STURM RUGER & CO INC
10-K405, 1998-03-23
ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES)

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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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] 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)

<TABLE>
<S> <C>
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)
</TABLE>

(203) 259-7843
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------- -------------------------------------

COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>

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. [X]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 28, 1998:

Common Stock, $1 par value -- $374,646,933

The number of shares outstanding of the issuer's common stock as of March
14, 1998:

Common Stock, $1 par value -- 26,910,720

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1997 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 12, 1998 are incorporated by reference into Part III
of this Report.
================================================================================
<PAGE> 2

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' 1996 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, lever action, and
muzzleloading 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.

In 1997, the Company introduced several new firearms. The new Ruger 77/50
Muzzleloading rifle, in .50 caliber, adds an entirely new product line to meet
the demand created by the rapid growth of the sport of hunting with
muzzleloading firearms. This rifle is available in several models, and
substantial shipments have already commenced. The compact Ruger 77/44 Bolt
Action Rifle offers the power of a .44 magnum, but through new engineering
design is virtually the same size and weight of our compact .22 caliber bolt
action rifle. As with the 77/50, this model is also in production and is
appearing at retail dealers. The Ruger Carbine is an autoloading rifle which
uses pistol ammunition. Other firearms introduced in 1997 include 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, and
the Ruger 22/45 P-4 Target Pistol with a heavy barrel. Finally, the Ruger
Bisley-Vaquero, a gun that combines the Ruger New Model single-action transfer
bar mechanism with traditional styling, has enjoyed the strongest demand and
sales of all the new products in 1997. The Company continues its commitment to
the development and introduction of new models of firearms in appropriate
product categories.

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 1997 and 1996, the

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Company's foremost investment castings product was titanium "Great Big Bertha"
and "Biggest 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
("Antelope Hills") was owned 50% by the Company and 50% by Callaway Golf. During
the first quarter of 1997 the construction of Antelope Hills was substantially
completed. In June 1997, the Company purchased the 50% interest in Antelope
Hills, LLC owned by Callaway Golf. In 1998, the Company will begin producing
titanium golf club heads for Karsten Manufacturing ("Ping"), and will continue
to pursue other titanium markets, as well as other golf club casting business.

For the years ended December 31, 1997, 1996, and 1995, net sales
attributable to the Company's firearms operations were approximately 68%, 67%,
and 81%, 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 1997 Annual Report to
Stockholders.

PRODUCTS -- FIREARMS

The Company presently manufactures 28 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 eleven different types of rifles: the M77
Mark II, the M77 Mark II Magnum, the 77/22, the 77/44, the 10/22, the Model 96,
the Mini-14, the Mini Thirty, the Ruger Carbine, the No. 1 Single-Shot, and the
77/50 Muzzle Loader. Sales of rifles by the Company accounted for approximately
$67.7 million, $77.0 million, and $76.5 million of revenues for the years 1997,
1996, and 1995, 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 $9.3 million, $7.6 million,
and $4.7 million of revenues for the years 1997, 1996, and 1995, 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 $33.6 million, $30.3 million, and $37.0 million of
revenues for the years 1997, 1996, and 1995, 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 is 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 Ruger 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 $28.5 million, $31.5 million, and $34.8 million of revenues for
the years 1997, 1996, and 1995, respectively.

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The Company also manufactures and sells accessories and replacement parts
for its firearms. These sales accounted for approximately $2.8 million, $2.4
million, $2.6 million of revenues for the years 1997, 1996, and 1995,
respectively.

PRODUCTS -- INVESTMENT CASTINGS

The investment castings products currently manufactured by the Company
consist of titanium, ferrous (both chrome-moly and stainless), and aluminum.
Sales of golf club heads to Callaway Golf approximated 76%, 80%, and 62% of
casting revenues for the years 1997, 1996, and 1995. The remaining revenue
represents parts sold to unrelated third parties for a wide variety of
industries including sporting goods, commercial, and military.

Ruger Investment Casting ("RIC"), which includes the Antelope Hills
foundry, is located in Prescott, Arizona and engineers and produces titanium,
ferrous, and aluminum castings. This facility's manufacturing activity during
1997, 1996, and 1995 for outside customers consisted primarily of producing
titanium "Great Big Bertha" and "Biggest Big Bertha" golf club heads for
Callaway Golf. Sales of golf club heads to Callaway Golf accounted for
approximately $51.6 million, $59.7 million, and $23.1 million of revenues during
1997, 1996, and 1995, respectively.

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 complex aluminum castings for a number of
prime defense contractors. Uni-Cast is also involved with research and
development of composite metal matrix materials and products.

Sales from the Company's investment castings operations (excluding
intercompany transactions) accounted for approximately $67.5 million, $74.5
million, and $36.8 million, or 32%, 33%, and 19% of the Company's total net
sales for 1997, 1996, and 1995, 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, birch, maple and
laminated lumber for rifle and shotgun stocks, various synthetic products 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 part
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 part, molten

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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 facility has the capabilities of
producing ferrous and aluminum investment castings. The Company's purchase of
Callaway Golf's interest in Antelope Hills, which doubles the production
capacity for titanium products of RIC, makes this one of the largest investment
castings facilities in the Southwest. Capital expenditures of $2.0 million, to
purchase all of the remaining equipment needed to operate the Antelope Hills
facility at full capacity, are budgeted in 1998.

The Company's Pine Tree Castings Division manufactures most 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 and 1997, the Company spent a total of
$3.7 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.

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 possible exception of titanium, are readily available from multiple sources
at competitive prices. Presently, the Company buys titanium from a number of
suppliers. There is, however, a limited supply of titanium in the marketplace
which could cause the purchase price to vary based upon numerous market factors.
The Company believes that it has adequate quantities of titanium in inventory to
provide ample time to locate and obtain additional titanium at a reasonable cost
without interruption of manufacturing operations.

MARKETING AND DISTRIBUTION

Firearms -- The Company's firearms are primarily marketed through a network
of selected independent wholesale 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. Currently, 19 distributors service the domestic commercial market,
with an additional 58 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. In 1997,
1996, and 1995, one distributor, Jerry's Sport Center (Forest City,
Pennsylvania), accounted for approximately 16%, 18%, and 15% of the Company's
net sales of firearms and 11%, 12%, and 12% of consolidated net sales,
respectively. The Company employs six 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.

In the fourth quarter of 1997, the Company received annual orders from its
distributors for the 1998 marketing year. These orders may be adjusted quarterly
by the distributors to allow for market fluctuations. Prior to 1997, only one
adjustment to the annual orders, in the second quarter of the year, was allowed.

As of March 1, 1998, unfilled firearms orders were approximately $93.0
million as compared to approximately $122.4 million at March 1, 1997. The
Company believes that the major reason for this decrease

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is a continuing overall slowdown in the United States firearms market,
especially in the industry product categories of rifles and revolvers.

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 1997, 1996, and 1995, Callaway Golf Company, Inc.
(Carlsbad, California) accounted for approximately 25%, 27%, and 12% of
consolidated net sales and 76%, 80%, and 62% of castings segment sales,
respectively.

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 1997, 1996, and 1995.

EMPLOYEES

As of February 28, 1998, the Company employed 2,064 full-time employees of
which approximately 27% 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 48-year
history and believes its employee relations are satisfactory.

RESEARCH AND DEVELOPMENT

In 1997, 1996, and 1995, the Company spent approximately $1.3 million, $1.7
million, and $1.7 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. As of
February 28, 1998, the Company had approximately 52 employees engaged in
research and development activities as part of their responsibilities.

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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........................ 81 Chairman of the Board, Chief Executive Officer,
Treasurer, and Director
William B. Ruger, Jr.................... 58 Vice Chairman, Senior Executive Officer,
President, Chief Operating Officer, and
Director
Stephen L. Sanetti...................... 48 Vice President, General Counsel, and Director
Erle G. Blanchard....................... 51 Vice President, Controller
Leslie M. Gasper........................ 44 Corporate Secretary
</TABLE>

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 President and Chief Operating Officer
effective March 1, 1998. Mr. Ruger has been Vice Chairman and Senior Executive
Officer of the Company since 1995 and 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.

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 became a Director effective March 1, 1998. He has been
Vice President, General Counsel of the Company since 1993 and has 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, a position she
held for more than five years prior thereto.

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ITEM 2 -- PROPERTIES

The Company's manufacturing operations are carried out at four 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
Prescott, Arizona.................................. 110,000 Owned
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 one of the 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 one of the Prescott facilities.

There are no mortgages on any of the real estate owned by the Company.

ITEM 3 -- LEGAL PROCEEDINGS

The Company is a defendant in approximately 16 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: 1997-14
and $44,000, 1996 21 and $45,000, and 1995 18 and $46,000.

For a description of all pending lawsuits against the Company through
September 30, 1997, 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, 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, 1995, March 31 and June 30, 1996, and March
31, June 30, and September 30, 1997.

The following cases were instituted against the Company during the three
months ended December 31, 1997 which involve significant demands for
compensatory and/or punitive damages:

Thomas R. Cota v. Sturm, Ruger & Company, Inc. and Federal Cartridge
Company, in the Superior Court of the State of Arizona in and for the County of
Pima. The complaint, which was filed on June 25, 1997, and served on October 16,
1997, alleges that on or around July 1, 1995, a .223 caliber rifle manufactured
by

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the Company was blown up when the plaintiff pulled the trigger, resulting in
injuries to his chest, face, and forehead. Amount in demand is $35,000.

Michael Backof v. Michael O'Donoghue d/b/a Discount Firearms et. al., in
District Court, Clark County, Nevada. The complaint, which was filed on December
23, 1997, alleges that on or around December 4, 1996, a .22 caliber pistol
manufactured by the Company malfunctioned, resulting in leg injuries to the
plaintiff. General damages of $75,000 plus medicals, lost wages and costs
incurred and deemed proper by the Court are in demand.

During the three months ended December 31, 1997, one previously reported
case was settled:

Clark, M.K. South Carolina

This case was settled for amounts within the insurance limits and/or
self-insured retention of the Company.

The Company's motion to dismiss the Cummins case (Iowa) was granted on
October 15, 1997. Plaintiff's motion to reconsider was denied by the trial court
on November 10, 1997, and plaintiff did not appeal the dismissal.

The previously reported case of Morris v. Company (Texas) was dismissed
with prejudice due to lack of prosecution by plaintiff, without any payment by
the Company.

ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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 1997 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 1997 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 1997 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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997 and the report dated February 20,
1998 of Ernst & Young LLP, independent auditors, are incorporated by reference
to pages 12 through 22 of the Company's 1997 Annual Report to Stockholders.

(B) SUPPLEMENTARY DATA

Quarterly results of operations for 1997 and 1996 are incorporated by
reference to page 21 of the Company's 1997 Annual Report to Stockholders.

9
<PAGE> 10

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 12, 1998 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 12, 1998 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.

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 12, 1998 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 9.

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 12, 1998 under the captions "ELECTION OF DIRECTORS",
"PRINCIPAL STOCKHOLDERS", and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 1, 2,
3, 9, and 10.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this Form 10-K.

10
<PAGE> 11

(1) Financial Statements:

Consolidated Balance Sheets -- December 31, 1997 and 1996

Consolidated Statements of Income -- Years ended December 31, 1997,
1996, and 1995

Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1997, 1996, and 1995

Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1996, and 1995

Notes to Consolidated Financial Statements

Report of Independent Auditors

This information is incorporated by reference to the Company's 1997
Annual Report to Stockholders as noted in Item 8.

(2) Financial Statement Schedules:

Schedule II-Valuation and Qualifying Accounts

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.

(3) Listing of Exhibits:

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 (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, SEC File No. 0-4776).

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).

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

11
<PAGE> 12

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, 1997. 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.

Exhibit 23.1 Consent of Independent Auditors.

Exhibit 27.1 Financial Data Schedule.

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 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.

Exhibit 99.3 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 99.4 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 99.5 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 99.6 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form
10-Q of the Company for the quarter ended March 31, 1995, SEC
File No. 1-10435, incorporated by reference in Item 3 LEGAL
PROCEEDINGS.

Exhibit 99.7 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 99.8 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form
10-Q of the Company for the quarters ended March 31, June 30,
1996, 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, June 30,
and September 30 1997, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.

(b) Report on Form 8-K filed in the fourth quarter of 1997: None

12
<PAGE> 13

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

Date: March 20, 1998

-----------------------------------

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>
<C> <S> <C>
/s/ WILLIAM B. RUGER Chairman of the Board, Chief March 16, 1998
- -------------------------------------------------------- Executive Officer,
William B. Ruger Treasurer, Director
(Principal Executive
Officer)

/s/ WILLIAM B. RUGER, JR. Vice Chairman, Senior March 16, 1998
- -------------------------------------------------------- Executive Officer,
William B. Ruger, Jr. President, Chief Operating
Officer, Director

/s/ JOHN M. KINGSLEY, JR. Director March 16, 1998
- --------------------------------------------------------
John M. Kingsley, Jr.

/s/ STANLEY B. TERHUNE Director March 16, 1998
- --------------------------------------------------------
Stanley B. Terhune

/s/ RICHARD T. CUNNIFF Director March 16, 1998
- --------------------------------------------------------
Richard T. Cunniff

/s/ TOWNSEND HORNOR Director March 16, 1998
- --------------------------------------------------------
Townsend Hornor

/s/ PAUL X. KELLEY Director March 16, 1998
- --------------------------------------------------------
Paul X. Kelley

/s/ JAMES E. SERVICE Director March 16, 1998
- --------------------------------------------------------
James E. Service

/s/ STEPHEN L. SANETTI Vice President, General March 16, 1998
- -------------------------------------------------------- Counsel, Director
Stephen L. Sanetti

/s/ ERLE G. BLANCHARD Vice President, Controller March 16, 1998
- -------------------------------------------------------- (Principal Financial
Erle G. Blanchard Officer)
</TABLE>

13
<PAGE> 14

EXHIBIT INDEX

<TABLE>
<CAPTION>
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 (Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, SEC File No. 0-4776).....................
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).................................................
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, 1997. 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............................................ 18
Exhibit 23.1 Consent of Independent Auditors............................. 47
Exhibit 27.1 Financial Data Schedule..................................... 48
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 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....................................
Exhibit 99.3 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....................................
</TABLE>

14
<PAGE> 15

<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Exhibit 99.4 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 99.5 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 99.6 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form
10-Q of the Company for the quarter ended March 31, 1995,
SEC File No. 1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS...........................................
Exhibit 99.7 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 99.8 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form
10-Q of the Company for the quarters ended March 31, June
30, 1996, 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 March 31, June 30, and
September 30, 1997, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.......................
</TABLE>

15
<PAGE> 16

STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES

ITEM 14(a)(2) AND ITEM 14(d) -- FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------- ---------- ------------------------ ---------- ---------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE DEDUCTIONS OF PERIOD
- ------------------------------------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 1997.... $ 834 $ 251 $ 300(d) $ 384(a) $1,001
------ ------ ----- ------ ------
Year ended December 31, 1996.... $ 981 $ 18 $ 165(a) $ 834
------ ------ ------ ------
Year ended December 31, 1995.... $ 900 $ 200 $ 119(a) $ 981
------ ------ ------ ------
Allowance for discounts:
Year ended December 31, 1997.... $1,095 $5,861 $ 690(e) $4,804(b) $2,842
------ ------ ----- ------ ------
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
------ ------ ------ ------
Product safety modifications accrual:
Year ended December 31, 1997....... $1,302 $(300)(d) $ 132(c) $ 870
------ ----- ------ ------
Year ended December 31, 1996....... $1,439 $ 137(c) $1,302
------ ------ ------
Year ended December 31, 1995....... $1,548 $ 109(c) $1,439
------ ------ ------
</TABLE>

- ---------------
(a) Accounts written off

(b) Discounts taken

(d) Amount reclassified from product safety modifications accrual to allowance
for doubtful accounts

(e) Amount reclassified from accrued expenses to allowance for discounts
<PAGE> 17
EXHIBIT INDEX
-------------

Exhibit No. Description
- ----------- -----------

Exhibit 13.1 Annual Report to Stockholders of the Company for the year
ended December 31, 1997. 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

Exhibit 23.1 Consent of Independent Auditors

Exhibit 27.1 Financial Data Schedule

<PAGE> 1

EXHIBIT 13.1
<PAGE> 2

TO OUR STOCKHOLDERS

Early in the year we experienced reduced sales for both our firearms and
investment castings segments. Indeed, the entire firearms industry had a
continued generally soft demand carried over from 1996 which adversely affected
firearms sales in the first half of 1997. Furthermore, titanium casting
deliveries were delayed from earlier to later quarters in the year because of
decreased demand. It is gratifying to note, however, that many of these
circumstances turned around during the course of the year. Quarterly results
improved significantly by the end of the year with earnings for the last half of
the year exceeding those achieved during the last half of 1996.

Sales for the entire Company in 1997 were $209.4 million, net income was
$27.8 million, and earnings per share were $1.03. Comparable figures for 1996
were sales of $223.3 million, net income of $34.4 million, and earnings per
share of $1.28. 1997 dividends of $.80 per share remained unchanged from 1996.
All share and per share amounts have been adjusted to reflect the Company's
two-for-one stock split which occurred on September 16, 1996.

Despite reduced earnings, the Company made progress on several fronts
during the year. New firearms development allowed for the successful
introduction of several products at the Shooting, Hunting and Outdoor Trade
("SHOT") Show in Las Vegas during the last week of January 1998. The new Ruger
77/50 Muzzleloading Rifle, in .50 caliber, adds an entirely new product line to
meet the demand created by the rapid growth of the sport of hunting with
muzzleloading firearms. This rifle is available in several models, and
substantial shipments have already commenced. The compact Ruger 77/44 Bolt
Action Rifle offers the power of a .44 magnum, but through new engineering
design is virtually the same size and weight of our compact .22 caliber bolt
action rifle. As with the 77/50, this model is also in production and is
appearing at retail dealers. It is also especially gratifying to note that the
Ruger Bisley-Vaquero introduced at the 1997 SHOT Show received the 1997 "Handgun
of the Year" award based on a dealer poll at that show. We remain committed to
the development and introduction of new models of firearms in appropriate
product categories. Further detailed descriptions of these and other product
enhancements are found elsewhere in this report.

1997 also saw several noteworthy accomplishments with respect to our
investment castings operations. During the first quarter of 1997 the Company
completed the construction of Antelope Hills, LLC, a titanium investment casting
plant whose capacity will be equal to the wholly owned Ruger Investment Casting
Division. Antelope Hills, LLC was at that time a joint venture between Sturm,
Ruger & Company, Inc. and Callaway Golf Company, Inc. ("Callaway Golf"). In
March, the Company was released from the provision in its agreement with
Callaway Golf which prohibited the Company from producing golf club heads for
other customers. This change has allowed us to seek additional customers for
golf club heads while maintaining our current business relationship with
Callaway Golf. In June 1997, the Company purchased the 50% interest in Antelope
Hills, LLC owned by Callaway Golf, and in conjunction with the purchase,
Callaway Golf ordered one million golf club heads over and above existing orders
to be delivered starting in early 1998. The Company recently began producing
titanium golf club heads for Karsten Manufacturing ("Ping"), and continues to
actively pursue other titanium markets, as well as other golf club casting
business.

Interest in the Company seems to be increasing, as we receive considerable
favorable publicity approaching our 50th Anniversary in 1999. Several articles,
as well as a CNN television documentary, appeared during the year outlining the
history and growth of the Company. We believe this is a sign of the Company's
maturity and progress and are pleased to represent the "Arms Makers for
Responsible Citizens", as our motto states. Several of these articles are
highlighted in the center of this report.

On the litigation front, we are most pleased to report that the Company's
experience mirrors the gratifying trend of ever-decreasing firearms accidents
nationwide. National Safety Council figures show that total fatal firearms
accidents with all guns in 1997 dropped to this century's all-time low,
following a pattern of steady decreases to almost half the 1970 rate, despite
significant increases in both the number of guns and the population since that
time. Accidents reported to the Company have also reached a two-decade low. A
grand total of 15 product liability cases remain on file against the Company,
down from 69 such cases in 1979.
<PAGE> 3

Perhaps even more significantly, accidents with our "old model" (1953-1972)
single action revolvers have decreased steadily since 1979, with only one such
lawsuit remaining active. A widely publicized trial in the case of Siblerud v.
Company was tried to a verdict completely in favor of the Company on January 13,
1998. This verdict vindicated our contention, and that of millions of
responsible shooters for more than 100 years, that the "old model" Colt-type
single action revolver is absolutely safe to use when properly handled. In fact,
juries in Los Angeles, Ft. Lauderdale, Milwaukee, Spokane, Jackson, Ft. Worth,
San Antonio, Butte, Missoula, Austin, and Moscow (Idaho) have all agreed that it
was and is a safe design that fully meets the expectations of consumers who use
and prefer this type of firearm.

Our ongoing safety programs undoubtedly also contribute to this extremely
low accident rate. We have repeatedly notified all known owners of "old model"
Ruger single action revolvers of the availability of our free safety conversion,
and have even sent them free shipping boxes to return their guns to us. We have
run countless safety advertisements in firearms and outdoor publications, have
included millions of single action safety conversion notices along with every
new gun we have shipped since 1982, and prominently display such notices and
empty chamber safety warnings in all of the many millions of product catalogs we
have sent out since 1984. Our safety conversion notices also appear on TV,
radio, and on the Internet. We have undertaken these voluntary efforts without
the need for government intervention, and are immensely proud of our successful
industry-leading safety efforts. All firearms accidents are senseless and
needless: just a modicum's thought on the part of the shooter to follow basic
common sense safety rules can prevent every last one.

On January 26, 1998, Jerry Bersett tendered his resignation as President,
Chief Operating Officer, and from the Board of Directors, effective March 1,
1998. We have valued our association with him and wish him well for the future.
William B. Ruger, Jr. will assume the additional position of President and
Stephen L. Sanetti will take Mr. Bersett's seat on the Board of Directors. Both
these gentlemen have had long associations with the Company and we look forward
to their continued contributions to its ongoing success.

Again this year we would like to recognize the efforts of each of our 2,000
employees, to whom we extend our sincere thanks and appreciation. This support
and loyalty to the Company will be invaluable as we work toward a more
successful year in 1998.

We hope you will plan on joining us for the Stockholders' Meeting in May.

/s/ WILLIAM B. RUGER

--------------------------------------
William B. Ruger
Chairman and Chief Executive Officer

/s/ WILLIAM B. RUGER, JR.

--------------------------------------
William B. Ruger, Jr.
Vice Chairman and Senior Executive
Officer

February 20, 1998

2
<PAGE> 4

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net firearms sales................... $ 141,863 $ 148,829 $ 155,622 $ 180,079 $ 176,203
Net castings sales................... 67,520 74,466 36,847 16,358 17,996
---------- ---------- ---------- ---------- ----------
Total net sales...................... $ 209,383 $ 223,295 $ 192,469 $ 196,437 $ 194,199
========== ========== ========== ========== ==========
Cost of products sold................ $ 146,143 $ 150,200 $ 134,930 $ 125,439 $ 123,336
Gross profit......................... 63,240 73,095 57,539 70,998 70,863
Income before income taxes and
cumulative effect of accounting
change............................. 46,639 56,835 43,846 56,992 55,997
Income taxes......................... 18,889 22,450 17,670 22,943 22,768
Net income........................... 27,750 34,385 26,176 34,049 32,789
Net income per share................. 1.03 1.28 0.97 1.27 1.22
Cash dividends per share............. 0.80 0.80 0.70 0.60 0.525
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Working capital...................... $ 97,551 $ 95,217 $ 91,942 $ 93,852 $ 81,504
Total assets......................... 199,794 189,890 178,552 169,492 150,085
Total stockholders' equity........... 152,920 146,727 133,735 126,295 108,389
Book value per share................. 5.68 5.45 4.97 4.69 4.03
Return on stockholders' equity....... 18.5% 24.5% 20.1% 29.0% 33.1%
Current ratio........................ 4.5 TO 1 5.0 to 1 4.6 to 1 4.8 to 1 4.3 to 1
Common shares outstanding............ 26,922,800 26,916,800 26,910,800 26,904,800 26,904,800
Number of stockholders of record..... 1,971 1,899 1,678 1,478 1,400
Number of employees.................. 1,978 2,094 1,937 1,905 1,719
</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.
3
<PAGE> 5

NEW RUGER PRODUCTS FOR 1998

THE RUGER 77/50 MUZZLELOADING RIFLE

[PHOTO OF RIFLE]

Now available in standard, stainless steel, and a special "Officer's Model"
that harkens back to the deluxe U.S. Army Springfield rifles privately purchased
by cavalry officers over a century ago. This powerful .50 caliber blackpowder
rifle combines the visual appeal of yesteryear with the thoroughly modern Ruger
77/22 action for today's muzzleloading hunting seasons.

THE RUGER 77/44 BOLT ACTION RIFLE

[PHOTO OF RIFLE]

No, this is not the famous Ruger 77/22. It is a full-powered .44 Magnum
hunting rifle that is almost exactly the same size and weight as our .22, and
another tribute to its amazing strength and engineering. It is not only a joy to
carry, but identical in size and operation to the Ruger 77/22. This permits
low-cost off-season practice with the .22 that directly translates into
familiarity and proficiency with the .44 when deer season arrives in the fall.

RUGER NEW MODEL BLACKHAWK AND REDHAWK
DOUBLE ACTION .45 CALIBER REVOLVERS

[PHOTO OF TWO GUNS]

The enduring popularity of .45 caliber cartridges, perhaps the most
quintessentially American of them all, is evident in these two new versions of
popular Ruger revolvers. Single action fans will appreciate the .45 Colt caliber
Ruger New Model Blackhawk with an extra .45 ACP cylinder for even more
versatility - - they can shoot .45 Automatic pistol cartridges in their
revolver. Double action shooters who choose the stainless steel Ruger Redhawk
will now have the powerful .45 Colt cartridge available to them, with its
perfect balance of power and manageable recoil in this massive revolver. Barrel
lengths of 5 1/2" and 7 1/2" will be available.

RUGER P-SERIES PISTOLS

[PHOTO OF ONE GUN]

These precision pistols are available in dozens of variations. The latest
additions to the Ruger line include the .45 caliber Ruger P90 with a manual
safety, a similar version of the Ruger P94 pistol, and a version of the compact
Ruger P93 pistol in blued steel with an ambidextrous decocking mechanism. The
choice of which Ruger pistol to purchase is now even wider. Whatever choice is
made, the shooter will have purchased the finest in American craftsmanship.

4
<PAGE> 6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company's sales are comprised of the sales of firearms 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, 1997, as compared to year ended December 31, 1996:

Consolidated net sales of $209.4 million were achieved by the Company in
1997, representing a decrease of $13.9 million or 6.2% from net sales of $223.3
million in 1996. The decline in firearms sales reflects the continuing overall
slowdown in the firearms market while the decrease in casting sales is
attributable to a sluggish first half of the year, partially offset by a
significant increase during the last six months.

Firearms segment net sales decreased by $6.9 million or 4.7% to $141.9
million in 1997 from $148.8 million in the prior year. This is the third
consecutive year in which firearms sales declined. Firearms unit shipments for
1997 decreased 6.7% from 1996 due to reduced demand for rifles and revolvers
partially offset by increased demand for pistols and shotguns. Shipments of
certain new firearms models, including the new Ruger Bisley-Vaquero revolver,
continued to grow during 1997. The Company employed three sales incentive
programs during 1997. One program, which was implemented in January 1996,
provided discounts of up to 10% of the sales price of selected pistol models. A
special 1% overall incentive program for customers which exceed their specific
sales targets and an incentive program which provided discounts of up to 10% of
the sales price of certain revolver models were both originated in December
1996. All three programs will remain in effect in 1998, with an additional 1%
available for distributors qualifying for the three continuing programs.

Casting segment net sales decreased by 9.3% to $67.5 million in 1997 from
$74.5 million in 1996. This was due to decreased shipments of titanium golf club
heads to Callaway Golf Company, Inc. ("Callaway Golf") during the first half of
1997.

In 1997, the Company was released from the provision in its agreement with
Callaway Golf which prohibited the Company from producing titanium golf club
heads for any other golf club customer. In 1998, Karsten Manufacturing announced
that Ruger Investment Casting ("RIC") will be a manufacturer of its Ping ISI
titanium metal woods. In addition, several other golf companies have expressed
an interest in using the Company as a supplier of titanium club heads.

Also, in June 1997 in conjunction with the Company's purchase of Callaway
Golf's 50% interest in Antelope Hills, LLC ("Antelope Hills"), a former joint
venture of the two entities, Callaway Golf agreed to order an additional 1
million cast titanium golf club heads, over and above the present orders,
commencing when the present order is completed in early 1998. The Company
continues to pursue other titanium markets as well as other golf club casting
business.

Consolidated cost of products sold for 1997 was $146.1 million compared to
$150.2 in 1996, representing a decrease of 2.7%. This decrease of $4.1 million
was primarily attributable to decreased sales activities in both segments.

Gross profit as a percentage of net sales decreased to 30.2% in 1997 from
32.7% in 1996. The decrease is due to the reduced overall volume of business in
both the firearms and investment castings segments coupled with pricing
pressures in both markets, as evidenced by the special incentive programs
previously discussed. Although variable costs were reduced during 1997 in
response to the changes in sales volumes, the impact of

5
<PAGE> 7

fixed costs associated with operating the Company's facilities resulted in
reduced gross profit margins from 1996.

Selling, general and administrative expenses decreased by 6.8% or $1.3
million to $17.9 million from $19.2 million in 1996. This decrease is
principally attributable to decreased national advertising and marketing
expenses incurred during the year.

Other income-net decreased to $1.3 million in 1997 from $2.9 million in
1996 due to the fixed costs incurred in 1997 at Antelope Hills, which was in
development in 1996, the elimination of royalty income related to the licensed
use by Callaway Golf of the "Ruger Titanium" trademark for titanium golf club
head castings which ceased in 1996, as well as reduced earnings on Treasury bill
investments.

The effective income tax rate increased to 40.5% in 1997 from 39.5% in 1996
due to higher state income taxes.

As a result of the foregoing factors, consolidated net income in 1997
decreased to $27.8 million from $34.4 million in 1996, representing a decrease
of $6.6 million or 19.3%.

RESULTS OF OPERATIONS

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. Firearms segment sales decreased as 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. In addition, 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.

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 RIC
producing and shipping greater quantities of titanium golf club heads for
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.

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 the castings segment sales was higher in 1996 than
in 1995.

Selling, general and administrative expenses increased by 13.1% to $19.2
million in 1996 from $17.0 million in 1995. This increase in 1996 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.

6
<PAGE> 8

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 or
31.4%.

FINANCIAL CONDITION

At December 31, 1997, the Company had cash, cash equivalents and short-term
investments of $50.0 million, working capital of $97.6 million and a current
ratio of 4.5 to 1.

Cash provided by operating activities was $49.1 million, $24.4 million, and
$16.9 million in 1997, 1996, and 1995, respectively. The increase in cash
provided in 1997 is principally the result of the $9.5 million reduction in
inventories in 1997 compared to an increase in inventories of $12.8 million in
1996.

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. Dating plan receivable balances were $8.9 million
and $10.0 million at December 31, 1997 and 1996, respectively. 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 purchases titanium from a number of suppliers. There is,
however, a limited supply of titanium in the marketplace at any given time which
can cause the purchase price to vary based upon numerous market factors. The
Company believes that it has adequate quantities of titanium in inventory to
provide ample time to locate and obtain additional titanium at a reasonable cost
without interruption of its manufacturing operations. However, if the market
experiences a significant prolonged inflation of titanium prices, the Company's
results could be adversely affected.

Capital expenditures during the past three years averaged $9.3 million per
year. In 1998, the Company expects to spend approximately $9 million on capital
expenditures to upgrade and modernize equipment at Newport Firearms, Pine Tree
Castings, and Ruger Investment Casting Divisions, continue to expand the
capacity of the Antelope Hills foundry, and continue to develop the
infrastructure at the Uni-Cast Division related to the introduction of the new
metal matrix composite infiltration processes. The Company finances, and intends
to continue to finance, all of these activities with funds provided by
operations.

During the first quarter of 1997, the construction and initial outfitting
of the foundry at Antelope Hills was completed. As previously noted, the Company
purchased Callaway Golf's 50% interest in Antelope Hills in June 1997 for $7.0
million. Antelope Hills is now a wholly owned subsidiary of the Company and
operations have commenced at that facility.

In 1997, the Company paid dividends of $21.5 million. This amount reflects
the regular quarterly dividend of $.20 per share paid in March, June, September,
and December 1997. On January 26, 1998, the Company declared a regular quarterly
dividend of $.20 per share payable on March 15, 1998. Future dividend payments
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 in 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

7
<PAGE> 9

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.

The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carryback 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
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company is in the process of assessing the need to
modify or replace portions of its software or hardware so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. Preliminary results of this assessment indicate the impact of this
replacement or modification will be immaterial to the Company's future operating
results and cash flows.

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income", SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information",
and SFAS No. 132, "Employer's Disclosure about Pensions and Other Post
Retirement Benefits". While the Company is studying the application of these
disclosure provisions, it does not expect these statements to affect its
financial position or results of operations.

8
<PAGE> 10

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 results of
pending litigation against the Company, and the impact of future firearms
control, environmental legislation, and computer systems replacement and
modification, 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.

9
<PAGE> 11

RUGER IN THE NEWS

1997 saw a noticeable increase in the visibility of the Company, its
products, and founder William B. Ruger in both traditional and non-traditional
media.

The Ruger Bisley-Vaquero was voted "Handgun of the Year" in a dealer poll
held at the 1997 SHOT Show.

[PHOTO OF A PLAQUE & GUN]

10
<PAGE> 12

[PINNACLE CNN LOGO]

[PHOTO OF DOCUMENTARY]

On September 21, the CNN Network aired a half-hour documentary, Pinnacle,
devoted to Chairman William B. Ruger as part of a series about executives at the
pinnacle of their industries.

[PHOTO OF ADVERTISEMENT]

This advertisement, which appealed for support for the NRA Endowment to
help fund firearms and safety education programs, appeared in many outdoor
publications in the fall of 1997.

[PHOTO OF QUEST MAGAZINE]

The March 1997 issue of Quest Magazine, an upscale New York City
publication, also featured a spotlight on William B. Ruger by Katherine Pew.

[PHOTO OF "THE STORY OF THE GUN"]

The Company also received much favorable publicity for its sponsorship of
the Cody Celebrity Shootout, the Ruger Challenge of Champions and Bill Ruger's
appearance on A&E's "The Story of the Gun." ESPN broadcast "Shooting Sports
America", which featured the Company's free "Old Model" single action safety
conversion offer, and the Ruger Sporting Clays-Golf Championship at the
Homestead in Virginia.

[PHOTO OF CONNECTICUT MAGAZINE]

The March 1997 issue of Connecticut Magazine featured an article entitled
"Aiming High" by Resa King, outlining the life of William B. Ruger.

11
<PAGE> 13

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 4,488 $ 2,729
Short-term investments...................................... 45,484 30,652
Trade receivables, less allowances for doubtful accounts
($1,001 and $834) and discounts ($2,842 and $1,095)....... 21,118 21,074
Inventories:
Finished products......................................... 12,708 11,895
Materials and products in process......................... 32,841 43,173
45,549 55,068
Deferred income taxes....................................... 7,224 7,949
Prepaid expenses and other assets........................... 1,344 1,690
-------- --------
TOTAL CURRENT ASSETS........................................ 125,207 119,162

PROPERTY, PLANT, AND EQUIPMENT
Land and improvements..................................... 3,575 3,495
Buildings and improvements................................ 30,136 21,830
Machinery and equipment................................... 83,788 72,440
Dies and tools............................................ 21,702 20,732
-------- --------
139,201 118,497
Allowances for depreciation............................... (83,538) (74,330)
-------- --------
55,663 44,167
DEFERRED INCOME TAXES....................................... 4,701 4,672
INVESTMENT IN JOINT VENTURE (NOTE 3)........................ -- 10,586
OTHER ASSETS................................................ 14,223 11,303
-------- --------
TOTAL ASSETS................................................ $199,794 $189,890
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses................. $ 4,628 $ 4,628
Product safety modifications................................ 870 1,302
Product liability........................................... 3,000 3,000
Employee compensation....................................... 10,303 8,312
Workers' compensation....................................... 5,063 6,108
Income taxes................................................ 3,792 595
-------- --------
TOTAL CURRENT LIABILITIES................................... 27,656 23,945

PRODUCT LIABILITY ACCRUAL................................... 19,218 19,218

CONTINGENT LIABILITIES (NOTE 6)............................. -- --

STOCKHOLDERS' EQUITY
Common Stock, non-voting, par value $1:
Authorized shares -- 50,000; none issued
Common Stock, par value $1:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 26,922,800 and
26,916,800............................................. 26,923 26,917
Additional paid-in capital.................................. 2,632 2,514
Retained earnings........................................... 123,510 117,296
Additional minimum pension liability........................ (145) --
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 152,920 146,727
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $199,794 $189,890
======== ========
</TABLE>

See accompanying notes.
12
<PAGE> 14

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net firearms sales.......................................... $141,863 $148,829 $155,622
Net castings sales.......................................... 67,520 74,466 36,847
-------- -------- --------
Total net sales............................................. 209,383 223,295 192,469
Cost of products sold....................................... 146,143 150,200 134,930
-------- -------- --------
Gross profit................................................ 63,240 73,095 57,539
Expenses:
Selling................................................... 12,412 13,214 12,345
General and administrative................................ 5,453 5,959 4,612
-------- -------- --------
17,865 19,173 16,957
-------- -------- --------
45,375 53,922 40,582
Other income-net............................................ 1,264 2,913 3,264
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 46,639 56,835 43,846
Income taxes................................................ 18,889 22,450 17,670
-------- -------- --------
NET INCOME.................................................. $ 27,750 $ 34,385 $ 26,176
======== ======== ========
BASIC AND DILUTED EARNINGS PER SHARE........................ $ 1.03 $ 1.28 $ 0.97
======== ======== ========
CASH DIVIDENDS PER SHARE.................................... $ 0.80 $ 0.80 $ 0.70
======== ======== ========
</TABLE>

See accompanying notes.
13
<PAGE> 15

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
ADDITIONAL MINIMUM
COMMON PAID-IN RETAINED PENSION
STOCK CAPITAL EARNINGS LIABILITY
------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 --
Net income....................................... 27,750
Issuance of 6,000 shares of Common Stock......... 6 118
Cash dividends................................... (21,536)
Additional minimum pension liability............. (145)
------- ------ -------- -----
BALANCE AT DECEMBER 31, 1997....................... $26,923 $2,632 $123,510 $(145)
======= ====== ======== =====
</TABLE>

See accompanying notes.
14
<PAGE> 16

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 27,750 $ 34,385 $ 26,176
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 9,208 7,588 6,876
Issuance of Common Stock............................... 124 137 100
Net provision for product safety modifications......... (432) (137) (109)
Provision for product liability claims, net of payments
of $1,437, $2,300, and $3,269........................ -- -- 731
Deferred income taxes.................................. 696 (1,052) (960)
Changes in operating assets and liabilities:
Trade receivables.................................... (44) (1,210) (1,975)
Inventories.......................................... 9,534 (12,776) (15,188)
Trade accounts payable and accrued expenses.......... (3) 635 (2,086)
Prepaid expenses, other assets, and other
liabilities....................................... (910) (781) 1,095
Income taxes......................................... 3,197 (2,422) 2,276
-------- --------- ---------
Cash provided by operating activities.................. 49,120 24,367 16,936
INVESTING ACTIVITIES
Property, plant, and equipment additions.................. (4,511) (7,625) (15,714)
Purchases of short-term investments....................... (160,757) (156,132) (158,953)
Proceeds from sales or maturities of short-term
investments............................................ 145,925 168,957 174,126
Investment in joint venture............................... 518 (8,941) (1,645)
Purchase of Callaway Golf's interest in joint venture..... (7,000) -- --
-------- --------- ---------
Cash used by investing activities...................... (25,825) (3,741) (2,186)
FINANCING ACTIVITIES
Dividends paid............................................ (21,536) (21,530) (18,836)
-------- --------- ---------
Cash used by financing activities...................... (21,536) (21,530) (18,836)
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 1,759 (904) (4,086)
Cash and cash equivalents at beginning of year.............. 2,729 3,633 7,719
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 4,488 $ 2,729 $ 3,633
======== ========= =========
</TABLE>

See accompanying notes.
15
<PAGE> 17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the
design, manufacture, and sale of firearms and precision 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 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, in which the Company had a
50% investment at December 31, 1996, was accounted for using the equity method
through June 1997. In June 1997, the Company purchased its partner's 50%
interest in the joint venture and accordingly, the former joint venture is
consolidated in the accompanying financial statements from that date (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 $39.4 million and $37.8 million at December 31, 1997 and 1996,
respectively. During 1997, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the current cost of purchases, the
effect of which decreased cost of products sold by approximately $0.2 million.

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.

16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1997, 1996, and 1995 were $2.3 million, $3.2
million, and $2.1 million, respectively.

STOCK SPLIT

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.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which changes the methodology of calculating
earnings per share. SFAS No. 128 requires the disclosure of diluted earnings per
share regardless of its difference from basic earnings per share. The Company
adopted SFAS No. 128 in December 1997. This adoption had no impact on earnings
per share as the Company had no material common share equivalents in 1997, 1996,
and 1995.

Earnings per share is based upon the weighted-average number of shares of
Common Stock outstanding during the year which was 26,918,800 in 1997,
26,913,300 in 1996, and 26,906,936 in 1995.

RECENT ACCOUNTING PRONOUNCEMENTS

2. INCOME TAXES

The Federal and state income tax provision (benefit) consisted of the
following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
CURRENT DEFERRED Current Deferred Current Deferred
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal................. $15,865 $607 $19,036 $ (816) $15,292 $(775)
State................... 2,328 89 4,466 (236) 3,338 (185)
------- ---- ------- ------- ------- -----
$18,193 $696 $23,502 $(1,052) $18,630 $(960)
======= ==== ======= ======= ======= =====
</TABLE>

17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Product liability......................................... $ 8,998 $ 8,776
Employee compensation..................................... 2,107 2,241
Product safety modifications.............................. 352 514
Allowances for doubtful accounts and discounts............ 799 1,016
Inventory................................................. 947 414
Other..................................................... 2,680 3,930
------- -------
Total deferred tax assets................................... 15,883 16,891
------- -------
Deferred tax liabilities:
Prepaid insurance......................................... 382 361
Depreciation.............................................. 1,970 2,343
Pension plans............................................. 1,606 1,566
------- -------
Total deferred tax liabilities.............................. 3,958 4,270
------- -------
Net deferred tax assets..................................... $11,925 $12,621
======= =======
</TABLE>

The effective income tax rate varied from the statutory Federal income tax
rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit.............. 5.0 4.8 4.7
Other items................................................. .5 (.3) .6
---- ---- ----
Effective income tax rate................................... 40.5% 39.5% 40.3%
==== ==== ====
</TABLE>

The Company made income tax payments of approximately $15.0 million, $25.9
million, and $16.4 million, during 1997, 1996, and 1995, respectively.

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"), was owned 50% by the Company and
50% by Callaway Golf. The operating results of Antelope Hills were insignificant
to the Company in 1997 and 1996. On June 25, 1997, the Company purchased
Callaway Golf's interest in Antelope Hills for $7 million, an amount
approximating Callaway Golf's equity in the venture. As a result, Antelope Hills
is now a wholly owned subsidiary of the Company and is consolidated in the
accompanying financial statements.

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 make contributions at least
sufficient to satisfy the funding

18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

requirements of U.S. Pension Law and to contribute such additional amounts as
are deemed necessary to maintain the Plans in a sound actuarial condition. The
Plans' assets are invested in commercial mortgages, private placement bonds, and
debt instruments. 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 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
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Defined benefit plans:
Service cost -- benefits earned during the period... $ 1,054 $ 1,134 $ 817
Interest cost on projected benefit obligation....... 1,950 1,747 1,472
Actual return on plan assets........................ (1,863) (1,074) (3,249)
Net amortization and deferral....................... 113 (534) 1,687
------- ------- -------
Net periodic pension cost of defined benefit plans.... 1,254 1,273 727
Profit Sharing Plan................................... 876 814 706
Supplemental Executive Profit Sharing Plan............ 255 360 285
------- ------- -------
Net periodic pension cost............................. $ 2,385 $ 2,447 $ 1,718
======= ======= =======
</TABLE>

19
<PAGE> 21
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,
-----------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation,
including vested benefits of
$25,043 in 1997 and $23,158 in
1996............................. $(21,394) $(7,407) $(18,088) $(5,718)
-------- ------- -------- -------
Actuarial present value of
projected benefit obligation for
services rendered to date........ $(21,394) $(9,344) $(18,088) $(7,693)
Plans' assets (unallocated
insurance contracts) at market
value............................ 21,688 4,329 19,313 4,019
-------- ------- -------- -------
Plans' assets in excess of (less
than) projected benefit
obligation....................... 294 (5,015) 1,225 (3,674)
Prior service cost not yet
recognized in net periodic
pension cost..................... 561 2,446 651 2,641
Unrecognized net gain from past
experience, different from that
assumed, and effects of changes
in assumptions................... 4,390 1,114 2,372 48
Unrecognized net liability (asset)
from date of adoption of SFAS No.
87 (January 1, 1987)............. (663) 89 (796) 100
-------- ------- -------- -------
Prepaid (accrued) pension cost..... $ 4,582 $(1,366) $ 3,452 $ (885)
======== ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
SUPPLEMENTAL
HOURLY PLAN SALARIED PLAN PLAN
------------------ ------------------ -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997 1996 1995 1997 1996
---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of significant
actuarial assumptions used:
Weighted-average discount
rate...................... 7% 7.5% 7% 7% 7.5% 7% 7% 7.5%
Rate of increase in
compensation levels....... N/A N/A N/A 5% 5% 5% 5% 5%
Expected long-term rate of
return on assets.......... 9% 9% 9% 9% 9% 9% N/A N/A
</TABLE>

In 1997 and 1996, the Company changed the weighted-average discount rates
which increased the projected benefit obligation by approximately $2.0 million
at December 31, 1997 and decreased the projected benefit obligation by
approximately $1.9 million at December 31, 1996.

In accordance with SFAS No. 87, "Employers' Accounting for Pension Costs",
the Company recorded an additional minimum pension liability in 1997 related to
the Supplemental Plan, a portion of which exceeded the unrecognized prior
service cost of the plan and is therefore reported as a separate component of
stockholders' equity in the accompanying financial statements.

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

20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated income tax on the awards. At December 31, 1997, 502,000 shares of
Common Stock were reserved for future awards.

6. CONTINGENT LIABILITIES

The Company is a defendant in approximately 16 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:
1997 -- 14 and $44,000, 1996 -- 21 and $45,000, and 1995 -- 18 and $46,000.

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 one distributor accounted for
approximately 11% of 1997, 12% of 1996, and 12% of 1995 consolidated net sales.

The castings segment's principal markets are sporting goods, commercial,
and military. Sales are made directly to customers and through manufacturers'
representatives. In 1997, 1996, and 1995, sales of castings to Callaway Golf
accounted for approximately 25%, 27%, and 12%, respectively, of consolidated net
sales.

21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales
Firearms................................................. $141,863 $148,829 $155,622
Castings
Unaffiliated.......................................... 67,520 74,466 36,847
Intersegment.......................................... 20,698 21,128 30,956
-------- -------- --------
88,218 95,594 67,803
Eliminations............................................. (20,698) (21,128) (30,956)
-------- -------- --------
$209,383 $223,295 $192,469
======== ======== ========
Income Before Income Taxes Firearms........................ $ 31,811 $ 32,688 $ 34,778
Castings................................................. 13,663 21,474 6,051
Corporate................................................ 1,165 2,673 3,017
-------- -------- --------
$ 46,639 $ 56,835 $ 43,846
======== ======== ========
Identifiable Assets
Firearms................................................. $ 75,024 $ 80,504 $ 80,006
Castings................................................. 50,097 58,239 34,730
Corporate................................................ 74,673 51,147 63,816
-------- -------- --------
$199,794 $189,890 $178,552
======== ======== ========
Depreciation
Firearms................................................. $ 4,413 $ 4,550 $ 4,523
Castings................................................. 4,795 3,038 2,353
-------- -------- --------
$ 9,208 $ 7,588 $ 6,876
======== ======== ========
Capital Expenditures
Firearms................................................. $ 1,350 $ 2,899 $ 7,245
Castings................................................. 3,161 4,726 8,469
-------- -------- --------
$ 4,511 $ 7,625 $ 15,714
======== ======== ========
</TABLE>

The Company performs periodic credit evaluations of its distributors' and
other customers' financial condition and generally does not require collateral.
The Company had trade receivables from one firearm distributor aggregating $2.7
million and $3.7 million as of December 31, 1997 and 1996, respectively. The
Company had a trade receivable with Callaway Golf of $7.1 million and $5.5
million as of December 31, 1997 and 1996, 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, 1997 (in thousands, except per
share data):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $55,088 $54,505 $47,226 $52,564
Gross profit.................................. 16,736 18,108 12,352 16,044
Net income.................................... 7,748 7,648 4,848 7,506
Net income per share.......................... .29 .28 .18 .28
</TABLE>

22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<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
</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 quarter of 1996
resulting from changes in estimates that were material to the operating results
of the quarter. These adjustments related primarily to inventory and increased
net income in the fourth quarter of 1996 by approximately $1.2 million or $.05
per share.

23
<PAGE> 25

REPORT OF INDEPENDENT AUDITORS

<TABLE>
<S> <C> <C>
[ERNST & YOUNG LLP] - 1111 SUMMER STREET - PHONE: 203 326 8200
STAMFORD, CONNECTICUT 06905 FAX: 203 326 8228
</TABLE>

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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

[/s/ ERNST & YOUNG LLP]

February 20, 1998

24
<PAGE> 26

STOCKHOLDER INFORMATION

COMMON STOCK DATA

The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "RGR". At February 20, 1998 the Company had 1,968 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.

<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
1997:
FIRST QUARTER............................................. $19.88 $15.75 $.20
SECOND QUARTER............................................ 19.82 14.75 .20
THIRD QUARTER............................................. 22.38 18.50 .20
FOURTH QUARTER............................................ 19.88 17.75 .20
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
</TABLE>

ITEMS OF INTEREST TO STOCKHOLDERS

ANNUAL MEETING

The Annual Meeting of Stockholders will be held on Tuesday, May 12, 1998 at
the Lake Sunapee Country Club, New London, New Hampshire, 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 1997 can be obtained free of
charge by writing to:

Corporate Secretary
Sturm, Ruger & Company, Inc.
One Lacey Place
Southport, Connecticut 06490
Telephone: 203-259-7843
Fax: 203-254-2195

25
<PAGE> 27

DIRECTORS AND OFFICERS

DIRECTORS

[PHOTO OF BOARD OF DIRECTORS]

**William B. Ruger
Chairman and
Chief Executive Officer

*William B. Ruger, Jr.
Vice Chairman,
Senior Executive Officer,
President and
Chief Operating Officer

Stephen L. Sanetti
Vice President,
General Counsel

*Richard T. Cunniff
**President, Ruane, Cunniff & Co., Inc.

*Townsend Hornor
Corporate Director

Paul X. Kelley
Partner
J.F. Lehman & Company

John M. Kingsley, Jr.
Corporate Director

**James E. Service
Consultant
PGGR/Russell, Inc.

Stanley B. Terhune
Consultant

* Audit Committee Member
**Compensation Committee Member

OFFICERS
William B. Ruger
Chairman and
Chief Executive Officer

William B. Ruger, Jr.
Vice Chairman,
Senior Executive Officer,
President and
Chief Operating Officer

[PHOTO STEPHEN L. SANETTI]
Stephen L. Sanetti
Vice President,
General Counsel

[PHOTO ERLE G. BLANCHARD]
Erle G. Blanchard
Vice President,
Controller

[PHOTO OF LESLIE M. GASPER]
Leslie M. Gasper
Corporate Secretary

26
<PAGE> 28

PLANT LOCATIONS

Sturm, Ruger & Company, Inc. manufactures sporting and law enforcement
firearms in Newport, NH, and Prescott, AZ. Southport, CT is the site of the
Company's Corporate Headquarters. Newport is also the site of Pine Tree
Castings, a major producer of high-quality ferrous(both chromemolybdenum and
stainless steel) investment casings. In addition, the company operated two
state-of-the art investment casting foundries in Prescott, Ruger Investment
Casting, and Antelop Hills, LLC, which produce titanium, ferrous, and aluminum
commercial investment castings as well as components for the Company's firearms.
These facilities also house the continuing research efforts endeavoring to
produce technologically superior small arms, golf club heads, and other
precision castings. The Company also operates and aluminum foundry, Uni-Cast, in
Manchester, NH, which produces a wide variety of complex parts, including
products utilizing new metal matrix composite materials.

[PHOTO OF SOUTHPORT, CONNECTICUT [PHOTO OF NEWPORT, NEW HAMPSHIRE
CORPORATE HEADQUARTERS] PINE TREE CASTINGS DIVISION]
Southport, Connecticut Newport, New Hampshire,
Corporate Headquarters Pine Tree Castings Division

[PHOTO OF PRESCOTT, ARIZONA
[PHOTO OF NEWPORT, NEW HAMPSHIRE ANTELOPE HILLS, LLC.
FIREARMS DIVISION] TITANIUM FOUNDRY]
Newport, New Hampshire, Prescott, Arizona
Firearms Division Antelope Hills, LLC. Titanium
Foundry

[PHOTO OF PRESCOTT, ARIZONA
FIREARMS & RUGER INVESTMENT [PHOTO OF MANCHESTER, NEW HAMPSHIRE
CASTING DIVISION] UNI-CAST DIVISION]
Prescott, Arizona Manchester, New Hampshire,
Firearms & Ruger Investment Uni-Cast Division
Casting Divisions

27
<PAGE> 29

ARMS MAKERS
FOR
RESPONSIBLE
CITIZENS

[RUGER LOGO]
Sturm, Ruger & Company, Inc.
One Lacey Place
Southport
Connecticut 06490

www.ruger-firearms.com

<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 20, 1998,
included in the 1997 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.

ERNST & YOUNG LLP

Stamford, Connecticut
February 20, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,488
<SECURITIES> 45,484
<RECEIVABLES> 24,961
<ALLOWANCES> 3,843
<INVENTORY> 45,549
<CURRENT-ASSETS> 125,207
<PP&E> 139,201
<DEPRECIATION> 83,538
<TOTAL-ASSETS> 199,794
<CURRENT-LIABILITIES> 27,656
<BONDS> 0
0
0
<COMMON> 26,923
<OTHER-SE> 125,997
<TOTAL-LIABILITY-AND-EQUITY> 199,794
<SALES> 209,383
<TOTAL-REVENUES> 209,383
<CGS> 146,143
<TOTAL-COSTS> 17,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 46,639
<INCOME-TAX> 18,889
<INCOME-CONTINUING> 27,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,750
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03

</TABLE>