<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to _______________
Commission file number 0-4776
STURM, RUGER & COMPANY, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0633559
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lacey Place, Southport, Connecticut 06490
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(203) 259-7843
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's common stock
as of April 30, 1999: Common Stock, $1 par value - 26,910,720.
Page 1 of 20
<PAGE> 2
INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1999 and
December 31, 1998 3
Condensed consolidated statements of income--Three months ended
March 31, 1999 and 1998 5
Condensed consolidated statements of cash flows--Three months
ended March 31, 1999 and 1998 6
Notes to condensed consolidated financial statements--March 31, 1999 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,739 $ 4,680
Short-term investments 58,119 43,247
Trade receivables, less allowances for
doubtful accounts ($1,297 and $1,299) and
discounts ($719 and $1,888) 26,199 23,046
Inventories:
Finished products 12,094 13,402
Materials and products in process 31,099 34,150
--------- ---------
43,193 47,552
Deferred income taxes 8,950 7,999
Prepaid expenses and other assets 728 1,091
--------- ---------
TOTAL CURRENT ASSETS 141,928 127,615
PROPERTY, PLANT AND EQUIPMENT 145,578 144,918
Less allowances for depreciation (96,072) (93,833)
--------- ---------
49,506 51,085
Deferred income taxes 3,864 3,400
Other assets 14,606 14,634
--------- ---------
$ 209,904 $ 196,734
========= =========
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 6,893 $ 3,936
Product safety modifications 696 752
Product liability 3,000 3,000
Employee compensation 12,853 11,181
Workers' compensation 4,278 4,173
Income taxes 8,244 2,178
--------- ---------
TOTAL CURRENT LIABILITIES 35,964 25,220
Product liability accrual 16,376 16,950
Contingent liabilities --Note 7 -- --
STOCKHOLDERS' EQUITY
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued
Common Stock, par value $1: Authorized shares -
40,000,000; issued and outstanding 26,910,720 26,911 26,911
Additional paid-in capital 2,434 2,434
Retained earnings 128,409 125,409
Accumulated other comprehensive income (190) (190)
--------- ---------
157,564 154,564
--------- ---------
$ 209,904 $ 196,734
========= =========
</TABLE>
Note:
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
4
<PAGE> 5
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------- -------
<S> <C> <C>
Net firearms sales $47,438 $37,013
Net castings sales 15,453 21,508
------- -------
Total net sales 62,891 58,521
Cost of products sold 44,617 42,197
------- -------
18,274 16,324
Expenses:
Selling 3,220 3,306
General and administrative 1,649 1,737
------- -------
4,869 5,043
------- -------
13,405 11,281
Other income-net 684 756
------- -------
Income before income taxes 14,089 12,037
Income taxes 5,706 4,875
------- -------
Net income $ 8,383 $ 7,162
======= =======
Basic and diluted earnings per share $ 0.31 $ 0.27
Cash dividends per share $ 0.20 $ 0.20
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------- --------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 20,974 $ 14,725
INVESTING ACTIVITIES
Property, plant and equipment additions (660) (1,571)
Purchases of short-term investments (44,917) (35,904)
Proceeds from sales or maturities of
short-term investments 30,045 29,933
-------- --------
Cash used by investing activities (15,532) (7,542)
-------- --------
FINANCING ACTIVITIES
Dividends paid (5,383) (5,383)
Repurchase of Common Stock -- (210)
-------- --------
Cash used by financing activities (5,383) (5,593)
-------- --------
Increase in cash and cash equivalents 59 1,590
Cash and cash equivalents at beginning of period 4,680 4,488
-------- --------
Cash and cash equivalents at end of period $ 4,739 $ 6,078
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
STURM RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the results
of the interim periods. Operating results for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1999. For further information refer to the consolidated
financial statements and footnotes thereto included in the Sturm, Ruger &
Company, Inc. Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Organization: Sturm, Ruger & Company, Inc. ("Company") is principally
engaged in the design, manufacture, and sale of firearms and investment
castings. The Company's design and manufacturing operations are located in the
United States. Substantially all sales are domestic. The Company's firearms are
sold through a select number of distributors to the sporting and law enforcement
markets. Investment castings are sold either directly to or through
manufacturers' representatives to companies in a wide variety of industries.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3--INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method. An
actual valuation of inventory under the LIFO method can be made only at the end
of each year based on the inventory levels and costs existing at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 4--INCOME TAXES
The Company's effective tax rate differs from the statutory tax rate
principally as a result of state income taxes. Total income tax payments during
the three months ended March 31, 1999 and 1998 were $1.1 million and $2.6
million, respectively.
NOTE 5--BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the impact of options outstanding using the treasury stock
method, when applicable.
NOTE 6--COMPREHENSIVE INCOME
As there were no non-owner changes in equity during the first quarter
of 1999 and 1998, total comprehensive income equals net income, or $8.4 million
and $7.2 million, respectively.
NOTE 7--CONTINGENT LIABILITIES
The Company is a defendant in approximately 16 lawsuits involving
product liability claims 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 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.
In 1995, the Company was a named defendant, along with numerous other
firearm manufacturers and distributors, in the Hamilton, et. al. vs. Accu-tek,
et. al. lawsuit claiming damages as a result of alleged negligent sales
practices and "industry-wide" liability. The suit was tried to a defense verdict
as to the Company on February 11, 1999. The Company was completely exonerated
and no damages were awarded against the Company by the jury for any of the seven
criminal shootings which comprised this case when tried. The Company is a named
defendant, along with numerous other firearms manufacturers, distributors, and
dealers, in lawsuits filed by the mayors of New Orleans, Chicago, Miami, and
Bridgeport, alleging, among other things, that the Company created a "public
nuisance" and conspired to ignore certain safety devices in its manufacturing
process, allegedly resulting in the ability of criminals and careless
individuals to illegally obtain and misuse firearms. While it is difficult to
forecast the outcome of litigation or the timing of costs, management believes,
after consultation with counsel, that those allegations are unfounded and that
this litigation is not likely to have a material adverse effect on the financial
condition of the Company.
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
The Company's management monitors the status of known claims and the
product liability accrual, which includes amounts for asserted and unasserted
claims. In the opinion of management, after consultation with special and
corporate counsel, it is not probable and unlikely that litigation or punitive
damage verdicts will have a material adverse effect on the results of operations
or financial condition of the Company.
The Company has reported all lawsuits instituted against it through
December 31, 1998 and the results of those lawsuits, where terminated, to the
S.E.C. on its Form 10-K and Form 10-Q reports, to which reference is hereby
made.
NOTE 8--OPERATING SEGMENT INFORMATION
The Company has two reportable segments: firearms and investment
castings. The firearms segment manufactures and sells rifles, pistols,
revolvers, and shotguns principally to a select number of independent wholesale
distributors primarily located in the United States. The investment castings
segment consists of three operating divisions which manufacture and sell
titanium, ferrous, and aluminum investment castings.
Selected operating segment financial information follows (in
thousands):
<TABLE>
<CAPTION>
Quarter ended March 31, 1999 1998
-------- --------
<S> <C> <C>
Net Sales
Firearms $ 47,438 $ 37,013
Castings
Unaffiliated 15,453 21,508
Intersegment 6,996 5,220
-------- --------
22,449 26,728
Eliminations (6,996) (5,220)
-------- --------
$ 62,891 $ 58,521
======== ========
Income Before Income Taxes
Firearms $ 12,485 $ 7,218
Castings 1,382 4,603
Corporate 222 216
-------- --------
$ 14,089 $ 12,037
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
Identifiable Assets 1999 1998
--------- ------------
<S> <C> <C>
Firearms $ 76,647 $ 79,633
Castings 44,651 43,760
Corporate 88,606 73,341
-------- --------
$209,904 $196,734
======== ========
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Consolidated net sales of $62.9 million were achieved by the Company in
the first quarter of 1999. This represents an increase of $4.4 million or 7.5%
from the first quarter of 1998 consolidated net sales of $58.5 million.
Firearms segment net sales were $47.4 million in the first quarter of
1999 compared to $37.0 million in the corresponding 1998 period, an increase of
$10.4 million or 28.2%. Firearms unit shipments increased 22.8% reflecting
strong overall market demand as evidenced by double-digit growth in all four
industry product categories from 1998. The industry product categories of
pistols and revolvers enjoyed increased shipments of 38.7% and 34.4%,
respectively. The heightened level of demand for most existing models and the
Company's Fiftieth Anniversary commemorative pistol, the MK-450, has contributed
to the overall increase in firearms unit sales. In 1999, the Company instituted
a new sales incentive program for its distributors which allows them to earn
rebates of up to 15% if certain annual overall sales targets are achieved. This
program replaces programs offered in previous years which rewarded distributors
for meeting overall annual sales targets as well as sales targets within
specific product lines. Overall 1999 firearms sales are not expected to maintain
the level of growth experienced during the first quarter.
Castings segment net sales decreased 28.2% from $21.5 million in the
first quarter of 1998 to $15.5 million in the first quarter of 1999. This was
primarily due to decreased shipments of titanium golf club heads to Callaway
Golf Company, Inc. partially offset by increased club head sales to other
customers. The Company anticipates that total casting segment sales in 1999 may
be below the level achieved in 1998.
Consolidated cost of products sold for the first quarter of 1999 was
$44.6 million compared to $42.2 million for the first quarter of 1998, an
increase of $2.4 million or 5.7%. This was primarily attributable to increased
sales activity by the firearms segment, partially offset by lower casting
segment sales, as discussed above.
Gross profit as a percentage of net sales increased to 29.1% in the
first quarter of 1999 from 27.9% in the comparable 1998 period. This increase is
due to increased sales volumes in the firearms segment and the firearms price
increase that went into effect July 1, 1998, partially offset by margin erosion
caused by the reduction in investment casting sales.
Selling, general & administrative expenses decreased by 3.5% to $4.9
million in the first quarter of 1999 from $5.0 million in the first quarter of
1998. Selling, general & administrative expense as a percentage of net sales for
the first three months of 1999 was 7.7%, an improvement from the 9.1% ratio for
the year ended December 31, 1998.
Other income-net, comprised primarily of interest on short-term
investments, for the first quarter of 1999 and 1998 were consistent.
The effective income tax rate was 40.5% in the first quarter of 1999
and 1998.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
As a result of the foregoing factors, consolidated net income for the
first quarter of 1999 increased to $8.4 million from $7.2 million for the first
quarter of 1998 representing an increase of $1.2 million or 17.0%.
Financial Condition
At March 31, 1999, the Company had cash, cash equivalents and
short-term investments of $62.9 million, working capital of $106.0 million and a
current ratio of 3.9 to 1, compared to $47.9 million, $102.4, and 5.1 to 1,
respectively, at December 31, 1998.
Cash provided by operating activities was $21.0 million and $14.7
million for the three months ended March 31, 1999 and 1998, respectively. This
change in cash flows is principally a result of reductions in inventories and
increases in accounts payable and other liabilities, partially offset by an
increase in accounts receivable.
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
February have to be made by April 30. Generally, shipments made in subsequent
months have to be paid for within approximately 90 days. Dating plan receivable
balances were $7.9 million at March 31, 1999 as compared to $6.1 million at
March 31, 1998. The Company has reserved the right to discontinue the dating
plan at any time and has been able to finance this dating plan from internally
generated funds provided by operating activities.
Capital expenditures during the three months ended March 31, 1999
totaled $0.7 million. For the past two years capital expenditures averaged
approximately $1.2 million per quarter. In 1999, the Company expects to spend
approximately $4 million on capital expenditures to upgrade and modernize all of
its divisions. The Company finances, and intends to continue to finance, all of
these activities with funds provided by operations.
For the three months ended March 31, 1999 dividends paid totaled $5.4
million. This amount reflects the regular quarterly dividend of $.20 per share
paid on March 15, 1999. Future dividends depend on many factors, including
internal estimates of future performance and the Company's need for funds.
Historically, the Company has not required external financing. Based on
its cash flow and unencumbered assets, the Company believes it has the ability
to raise substantial amounts of short-term or long-term debt. The Company does
not anticipate any need for external financing through 1999.
The purchase of firearms is subject to federal, state and local
governmental regulations. The basic federal laws are the National Firearms Act,
the Federal Firearms Act, and the Gun Control Act of 1968. 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
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
manufacture fully automatic weapons, other than for the law enforcement market,
and holds all necessary licenses under these federal laws. From time to time,
congressional committees review proposed bills relating to the regulation of
firearms. These proposed bills generally seek either to restrict or ban the sale
and, in some cases, the ownership of various types of firearms. Several states
currently have laws in effect similar to the aforementioned legislation.
Until November 30, 1998 the "Brady Law" mandated a nationwide five-day
waiting period and background check prior to the purchase of a handgun. As of
November 30, 1998, the National Instant Check System, which applies to both
handguns and long guns, replaced the five-day waiting period. The Company
believes that the "Brady Law" has not had a significant effect on the Company's
sales of firearms, nor does it anticipate any impact on sales in the future. 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." 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. The Company is
a named defendant, along with numerous other firearms manufacturers,
distributors, and dealers, in lawsuits filed by the mayors of New Orleans,
Chicago, Miami and Bridgeport, alleging, among other things, that the Company
created a "public nuisance" and conspired to ignore certain safety devices in
its manufacturing process, allegedly resulting in the ability of criminals and
careless individuals to illegally obtain and misuse firearms. While it is
difficult to forecast the outcome of litigation or the timing of costs,
management believes, after consultation with counsel, that those allegations are
unfounded and that this litigation is not likely to have a material adverse
effect on the financial condition of the Company.
In the normal course of its manufacturing operations, the Company is
subject to occasional governmental proceedings and orders pertaining to waste
disposal, air emissions and water discharges into the environment. The Company
believes that it is generally in compliance with applicable environmental
regulations and the outcome of such proceedings and orders will not have a
material adverse effect on its business.
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carry back against taxes previously
paid.
Inflation's effect on the Company's operations is most immediately felt
in cost of products sold because the Company values inventory on the LIFO basis.
Generally under this method, the cost of products sold reported in the financial
statements approximates current costs, and thus, reduces distortion in reported
income which would result from the slower recognition of increased costs when
other methods are used. The use of historical cost depreciation has a beneficial
effect on cost of products sold. The Company has been affected by inflation in
line with the general economy.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. This is commonly referred to as the "Year 2000" issue.
The Company has completed its assessment of the Year 2000 issue as it
relates to both information technology systems and non-information technology
applications. With respect to information technology systems, numerous programs
and files on the Company's mainframe computer system have been identified as
candidates for conversion, many of which have already been converted. At the
current personnel level, the remaining remediation effort will continue through
the third quarter of 1999. This allows for any necessary final review to occur
during the fourth quarter of 1999. As systems are converted, they are placed
into active service. If program failures result or any other unforeseen problems
or issues arise with the identified programs or if it is determined that
additional programs require remediation, additional personnel from outside the
Company may be needed to complete the Year 2000 remediation in a timely manner.
Currently, the Company has not established a contingency plan in the
event it does not complete all phases of the Year 2000 program. The Company
plans to evaluate the status of completion in the fourth quarter of 1999 to
determine whether such a plan is necessary. Its conversion schedule prioritized
critical applications and, as such, all critical applications have been
converted. However, all applications have not been tested.
As noted above, the Company has not yet completed all necessary phases
of the Year 2000 remediation. In the event that the Company does not complete
any additional phases, certain of the Company's functions could be adversely
impacted; including but not limited to, production, shipping, invoicing,
purchasing, payroll, credit and collections.
The Company has not completed its assessment of Year 2000 issues
related to third parties, as approximately one third of third party responses
have not yet been received. Thus far, the Company is unaware of any significant
issues related to third parties with which it has a material relationship. As
the Company is relying on the truthfulness and completeness of third party
information and certification, there can be no assurance that the systems of
other companies will be converted on time or that any such failure to convert by
another company would not have an adverse effect on the Company.
Results of the efforts underway and the Company's current assessments
continue to indicate that the impact of the Year 2000 remediation relating to
information technology, non-information technology and third parties will be
immaterial to the Company's future operating results and cash flows. However,
the Company will continue to closely monitor and disclose the impact of Year
2000 issues throughout 1999.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Forward-Looking Statements and Projections
The Company may, from time to time, make forward-looking statements and
projections concerning future expectations. Such statements are based on current
expectations and are subject to certain qualifying risks and uncertainties, such
as market demand, sales levels of firearms, anticipated castings sales and
earnings (including those from titanium golf club components), the need for
external financing for operations or capital expenditures, the impact of Year
2000 issues, the results of pending litigation against the Company, and the
impact of future firearms control and environmental legislation, any one or more
of which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date made, and the Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date such forward-looking statements are made or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in prevailing market interest rates
affecting the return on its investments but does not consider this interest rate
market risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in United States Treasury Bills with
short-term (less than one year) maturities. The carrying amount of these
investments approximates fair value due to the short-term maturities. Under its
current policies, the Company does not use derivative financial instruments,
derivative commodity instruments or other financial instruments to manage its
exposure to changes in interest rates or commodity prices.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Note 7--Contingent Liabilities" presented in Part I is incorporated herein by
reference.
The following cases were instituted against the Company during the
three months ended March 31, 1999, which involved significant demands for
compensatory and/or punitive damages:
James Michael Webb v. Sturm, Ruger & Company, Inc. et. al., in the
District Court in Washington, Minnesota. The complaint, which was filed on
January 11, 1999, alleges that a Ruger pistol owned by the plaintiff jammed and
then misfired, resulting in serious injury to his leg. The amount in demand is
unstated.
Emil Kurthy v. Sturm, Ruger & Company, Inc. et. al., in the Superior
Court in Los Angeles, California. The complaint, which was filed on January 25,
1999, alleges that the plaintiff's rifle blew up, resulting in injuries to his
ears, neck, head, arms, teeth, and hands. General and compensatory damages to be
proven at trial are demanded.
Mark A. Schuett v. Sturm, Ruger & Company, Inc. et. al., in the
Superior Court in Kenai, Alaska. The complaint, which was filed on February 8,
1999, alleges that the plaintiff was injured while handling a revolver
manufactured by the Company. General damages in the excess of $500,000 plus
compensatory and punitive damages which are to be proven at trial are demanded.
Mayor Joseph P. Ganim v. Smith & Wesson Corp., et. al., in the Superior
Court in Bridgeport, Connecticut. The complaint, which was filed on February 16,
1999, alleges that handgun manufacturers failed to design handguns to be
"self-locking" and "childproof." The complaint also alleges that these handguns
are sold lacking adequate warnings. The complaint also alleges public nuisance
and unjust enrichment among other theories. Damages in excess of $15,000, plus
punitive and compensatory damages, are demanded.
Obrellia Smith, Administratrix and Individually, v. Navegar, Inc. et.
al., in the Circuit Court of Cook County, Illinois. The complaint, which was
filed on March 8, 1999 as a putative class action, alleges that the plaintiff's
decedent was murdered by Darnell Foxx (a gang member) with a non-Ruger handgun.
The complaint also alleges that firearms manufacturers have created a "public
nuisance" by intentionally supplying handguns to the underground market for use
by gang members and juveniles. Damages plus fees and costs to be determined by
the Court are demanded.
Stephen Young, Administratrix and Individually, v. Bryco Arms, et. al.,
in the Circuit Court of Cook County, Illinois. The complaint, which was filed on
March 15, 1999 as a putative class action, alleges that the plaintiff's decedent
was killed by Mario Ramos and a juvenile gang member with a non-Ruger handgun.
The complaint also alleges that firearms manufacturers have created a "public
nuisance" by "oversupplying" the handgun market resulting in illegal possession
and use by gang members and juveniles. Damages plus fees and costs to be
determined by the Court are demanded.
During the three months ending March 31, 1999, no reported cases were
settled.
15
<PAGE> 16
LEGAL PROCEEDINGS--CONTINUED
The previously reported case of Hamilton, et. al. v. Accu-tek, et. al.
(NY) was tried to a defense verdict as to the Company on February 11, 1999. The
Company was completely exonerated and no damages were awarded against the
Company by the jury for any of the seven criminal shootings which comprised this
case when tried. Damages totaling $520,000 were awarded against three other
manufacturing defendant companies in one of the seven shootings. Judgment on the
verdict has not yet been entered, and post-trial motions to dismiss have been
filed by the remaining defendants. An appeal is likely by these three defendants
if a judgment on the verdict is entered against them.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports of Form 8-K during the
three months ended March 31, 1999.
16
<PAGE> 17
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
-----------------------------------
Date: May 6, 1999 /s/ ERLE G. BLANCHARD VP
----------- -----------------------------------
Erle G. Blanchard
Principal Financial and
Accounting Officer,
Vice President, Controller
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,739
<SECURITIES> 58,119
<RECEIVABLES> 28,215
<ALLOWANCES> 2,016
<INVENTORY> 43,193
<CURRENT-ASSETS> 141,928
<PP&E> 145,578
<DEPRECIATION> 96,072
<TOTAL-ASSETS> 209,904
<CURRENT-LIABILITIES> 35,964
<BONDS> 0
0
0
<COMMON> 26,911
<OTHER-SE> 130,653
<TOTAL-LIABILITY-AND-EQUITY> 209,904
<SALES> 62,891
<TOTAL-REVENUES> 62,891
<CGS> 44,617
<TOTAL-COSTS> 44,617
<OTHER-EXPENSES> 4,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,089
<INCOME-TAX> 5,706
<INCOME-CONTINUING> 8,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,383
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
