<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ____________ to ___________
Commission File Number 0-4776
STURM, RUGER & COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0633559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lacey Place, Southport, Connecticut 06490
(Address of principal executive offices) (Zip Code)
(203) 259-7843
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 1, 1999:
Common Stock, $1 par value - $177,452,862
The number of shares outstanding of the issuer's common stock as of March 14,
1999:
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, 1998 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 13, 1999 are incorporated by reference into Part III of this
Report.
Page 1 of 64
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PART I
ITEM 1--BUSINESS
The Company is principally engaged in the design, manufacture, and sale of
firearms and precision metal investment castings. The Company is the only U.S.
firearms manufacturer which offers products in all four industry categories
(rifles, shotguns, pistols, and revolvers) and believes that it is the largest
U.S. firearms manufacturer, based on data reported in the Bureau of Alcohol,
Tobacco and Firearms' 1997 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, double-action, and muzzleloading
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 and Mini-14
autoloading, M-77 bolt-action, 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 including the new Ruger 77/50 Muzzleloading
rifle, the Ruger 77/44 Bolt Action rifle, the Ruger Carbine, the Ruger M-77 Mark
II stainless rifle, the Ruger 10/22 "All-Weather" rifle, the Ruger 22/45 P-4
Target Pistol, and the Ruger Bisley-Vaquero.
The Company's continuing commitment to the development and introduction of new
models of firearms in appropriate product categories again spawned several new
products in 1998. The Ruger 10/22 Magnum rifle is a steel-receiver .22 Magnum
version of this most famous rimfire rifle. A longer, heavier tungsten alloy bolt
is used to handle the more powerful .22 magnum cartridge along with a longer
version of the original Ruger rotary magazine. The Ruger Super Redhawk double
action revolver chambered in .454 Casull, one of the most powerful revolver
cartridges, is ideal for hunting dangerous game and has all the strength and
reliability of the proven Super Redhawk design. The 50th Anniversary Model Ruger
Mark II pistol commemorates the introduction of the Company's first commercial
firearm in 1949. The original pistols were shipped with an unblued steel bolt,
and to retain this impression a corrosion-resistant stainless steel bolt adorned
at the rear with the famous Ruger logo has been substituted. The Company
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ITEM 1--BUSINESS (continued)
expanded its line of "All Weather" rifles, which combine the benefit of
corrosion-resistant stainless steel with a weather-resistant synthetic stock, in
the following models: the Ruger "All Weather" 77/50 Muzzleloading Rifle, the
Ruger "All Weather" .44 Magnum compact bolt-action rifle, the Ruger "All
Weather" Mini-14 and Ranch Rifles, and the Ruger "All Weather" Red Label
Shotgun. The popular P-series pistol line was enhanced by the introduction of
the P97 centerfire pistol which provides the .45 ACP caliber in a lightweight
polymer frame first introduced three years ago in the Ruger P95.
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 1998 and 1997, the Company's foremost
investment castings product was titanium golf club heads for Callaway Golf
Company, Inc. ("Callaway Golf"). In 1998, the Company produced titanium golf
club heads for Karsten Manufacturing ("Ping") and other golf club manufacturers,
and will continue to pursue other titanium markets, as well as other golf club
casting business.
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. In
June 1997, the Company purchased the 50% interest in Antelope Hills owned by
Callaway Golf.
For the years ended December 31, 1998, 1997, and 1996, net sales attributable to
the Company's firearms operations were approximately 68%, 68%, and 67%,
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 page 24 of the Company's 1998 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
$71.6 million, $67.7 million, and $77.0 million of revenues for the years 1998,
1997, and 1996, 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 $10.4 million, $9.3 million, and $7.6
million of revenues for the years 1998, 1997, and 1996, 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 $33.5 million, $33.6 million, and $30.3 million of revenues for
the years 1998, 1997, and 1996, respectively.
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ITEM 1--BUSINESS (continued)
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 $26.0 million, $28.5 million, and $31.5 million of revenues for
the years 1998, 1997, and 1996, respectively.
The Company also manufactures and sells accessories and replacement parts for
its firearms. These sales accounted for approximately $3.4 million, $2.8
million, and $2.4 million of revenues for the years 1998, 1997, and 1996,
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 63%, 76%, and 80% of casting
revenues for the years 1998, 1997, and 1996, respectively. 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 1998, 1997, and
1996 for outside customers consisted primarily of producing titanium golf club
heads for Callaway Golf. Sales of golf club heads to Callaway Golf accounted for
approximately $41.9 million, $51.6 million, and $59.7 million of revenues during
1998, 1997, and 1996, 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
metal matrix composite materials and products.
Sales from the Company's investment castings operations (excluding intercompany
transactions) accounted for approximately $66.7 million, $67.5 million, and
$74.5 million, or 32%, 32%, and 33% of the Company's total net sales for 1998,
1997, and 1996, 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 casting. See "Manufacturing-Investment Castings"
for a description of the investment casting process. The Company initiated the
use of this process in the production of component parts for firearms in 1953
and believes
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ITEM 1--BUSINESS (continued)
that its widespread use of investment castings in the firearms manufacturing
process is unique among firearms manufacturers. The investment casting 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 casting 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 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. This facility, one of the largest investment castings facilities in
the Southwest, also has the capabilities of producing ferrous and aluminum
investment castings.
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.
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, 21 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 1998,
1997, and 1996, one distributor, Jerry's Sport
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ITEM 1--BUSINESS (continued)
Center, accounted for approximately 15%, 16%, and 18%, of the Company's net
sales of firearms and 10%, 11%, 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 1998, the Company received annual orders from its
distributors for the 1999 marketing year. These orders may be adjusted in the
second quarter by the distributors to allow for market fluctuations. In 1998,
quarterly adjustments to the annual orders were allowed. As of March 1, 1999,
unfilled firearms orders were approximately $128 million as compared to
approximately $93 million at March 1, 1998.
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. In 1998, 1997, and 1996, one castings
segment customer, Callaway Golf, accounted for approximately 20%, 25%, and 27%
of consolidated net sales and 63%, 76%, and 80% of castings segment sales,
respectively. Historically, the Company has obtained purchase orders from
Callaway Golf that cover periods in excess of one year. At projected shipment
levels, it is anticipated that the current purchase order will be depleted in
the fourth quarter of 1999. The Company will endeavor to obtain a new purchase
order prior to this occurrence.
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.
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ITEM 1--BUSINESS (continued)
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 during the last several years.
Employees
As of February 28, 1999, the Company employed 2,171 full-time employees of which
approximately 30% 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 49-year
history and believes its employee relations are satisfactory.
Research and Development
In 1998, 1997, and 1996, the Company spent approximately $1.1 million, $1.3
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, 1999, the Company had approximately 51 employees engaged in
research and development activities as part of their responsibilities.
Patents and Trademarks
The Company owns various United States and foreign patents and trademarks which
have been secured over a period of years and which expire at various times. It
is the policy of the Company to apply for patents and trademarks whenever new
products or processes deemed commercially valuable are developed or marketed by
the Company. However, none of these patents and trademarks are considered to be
basic to any important product or manufacturing process of the Company and,
although the Company deems its patents and trademarks to be of value, it does
not consider its business materially dependent on patent or trademark
protection.
Environmental Matters
The Company has programs in place that monitor compliance with various
environmental regulations. However, in the normal course of its manufacturing
operations the Company is subject to occasional governmental proceedings and
orders pertaining to waste disposal, air emissions, and water discharges into
the environment. The Company believes that it is generally in compliance with
applicable environmental regulations and the outcome of such proceedings and
orders will not have a material effect on its business.
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ITEM 1--BUSINESS (continued)
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 82 Chairman of the Board, Chief Executive
Officer, Treasurer, and Director
William B. Ruger, Jr. 59 Vice Chairman, Senior Executive Officer,
President, Chief Operating Officer, and
Director
Stephen L. Sanetti 49 Vice President, General Counsel, and Director
Erle G. Blanchard 52 Vice President, Controller
Leslie M. Gasper 45 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.
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>
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ITEM 2--PROPERTIES (continued)
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.
There are no mortgages on any of the real estate owned by the Company.
ITEM 3--LEGAL PROCEEDINGS
As of December 31, 1998, the Company was a defendant in approximately 10 cases
involving product liability claims which allege defective product design. These
cases are based principally on the theory of "strict liability," as well as
negligence, breach of warranty, and other legal theories. In many of these
cases, punitive damages, as well as compensatory damages, are demanded.
Management believes that in every case the allegations of defective product
design are unfounded, and that the shooting and any results thereof were due to
negligence or misuse of the gun by the plaintiff or a third party, and that
there should be no recovery against the Company. In the opinion of management,
after consultation with its counsel, it is not probable and unlikely that
litigation or punitive damage verdicts will have a material adverse effect on
the Company's financial statements.
Claims for punitive damages are significant. As of March 18, 1982, compensatory
and punitive damage insurance coverage is provided, in States where permitted,
for losses exceeding $1.0 million of loss per occurrence or an aggregate maximum
loss of $4.0 million. For claims which the Company has been notified in writing
between July 10, 1988, through July 10, 1989, coverage is provided for losses
exceeding $2.5 million per claim or an aggregate maximum loss of $9.0 million.
For claims made between July 10, 1989, and July 10, 1991, the aggregate maximum
loss is $7.5 million. For claims made after July 10, 1992, coverage is provided
for losses exceeding $2.25 million per claim, or an aggregate maximum loss of
$6.5 million. For claims made after July 10, 1994, coverage is provided for
losses exceeding $2.0 million per claim, or an aggregate maximum loss of $6.0
million. For claims made after July 10, 1997, coverage is provided for annual
losses exceeding $2.0 million per claim, or an aggregate maximum loss of $5.5
million annually.
The Company has reported all cases instituted against it through September 30,
1998, and the results of those cases, where terminated, to the S.E.C. on its
previous Form 10-K and 10-Q reports, to which reference is hereby made.
For a description of all pending lawsuits against the Company through September
30, 1998, reference is made to the discussion under the caption "Item 3. LEGAL
PROCEEDINGS" of the Company's Annual Report on Form 10-K for the year ended
December 31, 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, March 31, 1995, March 31 and June 30,
1996, September 30, 1997, and September 30, 1998.
The following cases were instituted against the Company during the three months
ended December 31, 1998 which involved significant demands for compensatory
and/or punitive damages:
City of Chicago and County of Cook v. Beretta U.S.A. Corp., et al, in the
Circuit Court of Cook County, Illinois. The complaint, which was filed on
December 1, 1998, alleges that firearms manufacturers, distributors, and dealers
contribute to the sale of guns which are illegal to possess in, and which are
used in the commission of violent crimes in, the city of Chicago. The complaint
also alleges that certain Ruger
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ITEM 3--LEGAL PROCEEDINGS (continued)
firearms recovered by the Chicago Police Department were possessed and used
illegally in the city of Chicago, allegedly creating a "public nuisance."
Allocated compensatory and punitive damages in excess of $433 million against
each defendant are demanded.
Mayor Marc H. Morial and the City of New Orleans v. Smith and Wesson Corp. et
al, in the Civil District Court for the Parish of Orleans was filed on November
17, 1998. The complaint alleges that firearms manufacturers produce products
without certain "safety devices" which result in criminals using their products
illegally. Civil conspiracy among firearms manufacturers is also alleged.
General, punitive, and compensatory damages are demanded from each defendant in
an amount to be proven at trial.
During the three months ended December 31, 1998, one previously reported case
was settled:
Grover Connecticut
The settlement amount was within the Company's limits of its self-insurance
coverage.
The previously reported case of Hutchinson v. Company (MA) was dismissed with
prejudice by the trial court on July 16, 1998, with no payment by the Company.
No appeal was taken by plaintiff.
The dismissal by the trial court of the McDermott, et al, v. Company, et al,
(NY) lawsuit was not appealed to the 2nd Circuit Court of Appeals by plaintiffs,
and the matter was finally closed on November 11, 1998.
The previously reported case of Amestoy v. Company (CA) was dismissed without
prejudice on October 5, 1998. It is unknown if the case will be refiled at a
later date.
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 from pages
11 and 27 of the Company's 1998 Annual Report to Stockholders.
ITEM 6--SELECTED FINANCIAL DATA
The information required for this Item is incorporated by reference from page 11
of the Company's 1998 Annual Report to Stockholders.
10
<PAGE> 11
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required for this Item is incorporated by reference from pages
12 through 15 of the Company's 1998 Annual Report to Stockholders.
ITEM 7A--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.
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, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998 and the report dated
February 12, 1999 of Ernst & Young LLP, independent auditors, are
incorporated by reference from pages 16 through 26 of the Company's 1998
Annual Report to Stockholders.
(B) Supplementary Data
Quarterly results of operations for 1998 and 1997 are incorporated by
reference from page 25 of the Company's 1998 Annual Report to Stockholders.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to the directors of the Company under the caption "ELECTION
OF DIRECTORS" on pages 2 and 3 of the Company's Proxy Statement relating to the
Annual Meeting of Stockholders to be held May 13, 1999 is incorporated by
reference into this Report. The information set forth under the caption "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 18 of the Proxy
Statement relating to the Annual Meeting of Stockholders to be held May 13, 1999
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.
11
<PAGE> 12
ITEM 11--EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 13, 1999 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," "1998 STOCK
INCENTIVE PLAN," "1998 OPTION GRANTS," "AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES," "COMPANY STOCK PRICE PERFORMANCE,"
"PENSION PLAN TABLE," and "SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE" on
pages 4 through 15.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 13, 1999 under the captions "ELECTION OF DIRECTORS,"
"PRINCIPAL STOCKHOLDERS," and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2, 3,
16, and 17.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 13, 1999 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE
COMPENSATION," "1998 STOCK INCENTIVE PLAN," "1998 OPTION GRANTS," AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES," and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on pages 4, 5, 7 through 11,
and 18.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Documents filed as part of this Form 10-K.
(1) Financial Statements:
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Income--Years ended December 31, 1998,
1997, and 1996
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows--Years ended December 31,
1998, 1997, and 1996
Notes to Consolidated Financial Statements
12
<PAGE> 13
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (continued)
Report of Independent Auditors
This information is incorporated by reference from the Company's 1998
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).
13
<PAGE> 14
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (continued)
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 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan.
Exhibit 13.1 Annual Report to Stockholders of the Company for the
year ended December 31, 1998. 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 March
31, 1995, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.4 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 99.5 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
14
<PAGE> 15
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (continued)
Exhibit 99.6 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on
Form 10-Q of the Company for the quarter ended
September 30, 1997, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.7 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended
September 30, 1998, 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 1998: None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
--------------------------------
(Registrant)
S/LESLIE M. GASPER
--------------------------------
Leslie M. Gasper
Corporate Secretary
March 17, 1999
--------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
S/WILLIAM B. RUGER 3/15/99 S/WILLIAM B. RUGER, JR. 3/15/99
- -------------------------------------- ----------------------------------------
William B. Ruger William B. Ruger, Jr.
Chairman of the Board, Chief Executive Vice Chairman, Senior Executive Officer,
Officer, Treasurer, Director President, Chief Operating Officer,
(Principal Executive Officer) Director
S/JOHN M. KINGSLEY, JR. 3/15/99 S/STANLEY B. TERHUNE 3/15/99
- -------------------------------------- ----------------------------------------
John M. Kingsley, Jr. Stanley B. Terhune
Director Director
S/RICHARD T. CUNNIFF 3/15/99 S/TOWNSEND HORNOR 3/15/99
- -------------------------------------- ----------------------------------------
Richard T. Cunniff Townsend Hornor
Director Director
S/PAUL X. KELLEY 3/15/99
- -------------------------------------- ----------------------------------------
Paul X. Kelley James E. Service
Director Director
S/STEPHEN L. SANETTI 3/15/99 S/ERLE G. BLANCHARD 3/15/99
- -------------------------------------- ----------------------------------------
Stephen L. Sanetti Erle G. Blanchard
Vice President, General Counsel, Vice President, Controller
Director (Principal Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
Page No.
--------
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 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan. 21
17
<PAGE> 18
EXHIBIT INDEX (continued)
Page No.
--------
Exhibit 13.1 Annual Report to Stockholders of the Company for
the year ended December 31, 1998. 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. 28
Exhibit 23.1 Consent of Independent Auditors. 61
Exhibit 27.1 Financial Data Schedule. 62
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 March
31, 1995, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.4 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 99.5 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 99.6 Item 1 LEGAL PROCEEDINGS from the Quarterly
Reports on Form 10-Q of the Company for the quarter
September 30, 1997, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.7 Item 1 LEGAL PROCEEDINGS from the Quarterly Report
on Form 10-Q of the Company for the quarter ended
September 30, 1998, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
18
<PAGE> 19
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1998
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
SOUTHPORT, CONNECTICUT
ITEMS 14(a)(2) AND 14(d)
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
19
<PAGE> 20
Sturm, Ruger & Company, Inc. and Subsidiaries
Item 14(a)(2) and Item 14(d)--Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------
ADDITIONS
-----------------------
(1) (2)
Balance Charged to Balance
at Charged to Other at End
Beginning Costs and Accounts of
Description of Period Expenses -Describe Deductions Period
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deductions from asset accounts:
Allowance for doubtful
accounts:
Year ended December 31, 1998 $1,001 $ 350 $ 52(a) $1,299
------ ------- ---------- ------
Year ended December 31, 1997 $ 834 $ 251 $ 300(d) $ 384(a) $1,001
------ ------- ---------- ---------- ------
Year ended December 31, 1996 $ 981 $ 18 $ 165(a) $ 834
------ ------- ---------- ------
Allowance for discounts:
Year ended December 31, 1998 $2,842 $ 9,948 $10,902(b) $1,888
------ ------- ---------- ------
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
------ ------- ------- ------
Product safety modifications
accrual:
Year ended December 31, 1998 $ 870 $ 118(c) $ 752
------ ---------- ------
Year ended December 31, 1997 $1,302 $ (300)(d) $ 132(c) $ 870
------ ----------- ---------- ------
Year ended December 31, 1996 $1,439 $ 137(c) $1,302
------ ---------- ------
</TABLE>
(a) Accounts written off
(b) Discounts taken
(c) Costs incurred
(d) Amount reclassified from product safety modifications accrual to allowance
for doubtful accounts
(e) Amount reclassified from accrued expenses to allowance for discounts
20
<PAGE> 1
Exhibit 10.7
STURM, RUGER & COMPANY, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of the Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan (the "Plan") is to enable Sturm, Ruger & Company, Inc. (the "Company") and
any Related Company (as defined below) to attract and retain employees who
contribute to the Company's success by their ability, ingenuity and industry,
and to enable such employees to participate in the long-term success and growth
of the Company by giving them an equity interest in the Company. For purposes of
the Plan, a "Related Company" means any corporation, partnership, joint venture
or other entity in which the Company owns, directly or indirectly, at least a
20% beneficial ownership interest.
2. Types of Awards.
2.1 Awards under the Plan may be in the form of Stock Options or
Stock Appreciation Rights;
2.2 An eligible employee may be granted one or more types of awards,
which may be independent or granted in tandem. If two awards are granted in
tandem the employee may exercise (or otherwise receive the benefit of) one award
only to the extent he or she relinquishes the tandem award.
3. Administration.
3.1 The Plan shall be administered by the Compensation Committee of
the Company's Board of Directors or such other committee appointed either by the
Board of Directors of the Company (the "Board") or by such Compensation
Committee (the "Committee"); provided, however, to the extent determined
necessary to satisfy the requirements for exemption from Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect
to the acquisition or disposition of securities granted or awarded hereunder,
action by the Committee may be by a committee composed solely of two or more
"non-employee directors," within the meaning of Rule 16b-3 as promulgated under
Section 16(b) of the Exchange Act, appointed by the Board or by the Compensation
Committee of the Board. Members of the Committee shall serve at the pleasure of
the Board.
3.2 The Committee shall have the authority to grant awards to
eligible employees under the Plan; to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
deem advisable; to interpret the terms and provisions of the Plan and any award
granted under the Plan; and to otherwise supervise the administration of the
Plan. In particular, and without limiting its authority and powers, the
Committee shall have the authority:
(a) to determine whether and to what extent any award or
combination of awards
21
<PAGE> 2
will be granted hereunder, including whether any awards will
be granted in tandem with each other;
(b) to select the employees to whom awards will be granted;
(c) to determine the number of shares of the common stock of the
Company (the "Stock") to be covered by each award granted
hereunder;
(d) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other
restrictions based on performance and such other factors as
the Committee may determine, and to determine whether the
terms and conditions of the award are satisfied;
(e) to determine the treatment of awards upon an employee's
retirement, disability, death, termination for cause or other
termination of employment;
(f) to determine pursuant to a formula or otherwise the fair
market value of the Stock on a given date;
(g) to determine that amounts equal to the amount of any dividends
declared with respect to the number of shares covered by an
award (i) will be paid to the employee currently or (ii) will
be deferred and deemed to be reinvested or (iii) will
otherwise be credited to the employee, or (iv) that the
employee has no rights with respect to such dividends;
(h) to provide that the shares of Stock received as a result of an
award shall be subject to a right of first refusal, pursuant
to which the employee shall be required to offer to the
Company any shares that the employee wishes to sell, subject
to such terms and conditions as the Committee may specify;
(i) to amend the terms of any award, or to accelerate the vesting
of any award prospectively or retroactively; provided,
however, that no amendment shall impair the rights of the
award holder without his or her consent; and
(j) to substitute new Stock Options or new Stock Appreciation
Rights for previously granted Stock Options or previously
granted Stock Appreciation Rights, in each case including
previously granted Stock Options or previously granted Stock
Appreciation Rights having higher exercise prices.
3.3 All determinations made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
3.4 The Committee may from time to time delegate to one or more
officers of the Company or any Related Company any or all of its authorities
granted hereunder except with respect to awards granted to persons subject to
Section 16 of the Exchange Act. The Committee shall specify the maximum number
of shares that the officer or officers to whom such authority is delegated may
award.
22
<PAGE> 3
3.5 Notwithstanding anything in the Plan to the contrary, and to the
extent determined to be necessary to satisfy an exemption under Rule 16b-3 with
respect to the grant of an award hereunder (and, as applicable, with respect to
the disposition to the Company of a security acquired pursuant to an award
hereunder), or as otherwise determined advisable by the Committee, the terms of
the grant of awards under the Plan shall be subject to the prior approval of the
Board. Any prior approval of the Board, as provided in the preceding sentence,
shall not otherwise limit or restrict the authority of the Committee to grant
awards under the Plan, including, but not limited to, the authority of the
Committee to grant awards qualifying for the special performance-based
compensation exemption under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and the treasury regulations thereunder.
4. Stock Subject to Plan.
4.1 The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,000,000. The shares of Stock hereunder
may consist of authorized but unissued shares or treasury shares. No more than
500,000 shares of Stock shall be available for distribution under the Plan to
any single individual with respect to any Stock Options awarded hereunder and no
single individual shall be granted Stock Appreciation Rights hereunder related
to more than 500,000 shares of Stock. The exercise of a Stock Appreciation Right
for cash or the payment of any other award in cash shall not count against
either of these share limits, except as may otherwise be provided under Section
162(m) of the Code. Shares of Stock reserved and available for distribution
under the Plan shall further be subject to adjustment as provided below.
4.2 To the extent a Stock Option or Stock Appreciation Right is
surrendered, canceled or terminated without having been exercised, the shares
subject to such award shall again be available for distribution in connection
with future awards under the Plan. Notwithstanding the foregoing, surrender,
cancellation, termination or forfeiture of a Stock Option, award or issuance of
shares shall not be disregarded for purposes of applying the individual limit on
available shares described in Section 4.1 with respect to any individual with
respect to whom the provisions of Section 162(m) of the Code apply. At no time
will the overall number of shares issued under the Plan plus the number of
shares covered by outstanding awards under the Plan exceed the aggregate number
of shares authorized under the Plan. At no time will the number of shares issued
under the Plan to any individual plus the number of shares covered by a previous
award to such individual under the Plan, whether or not outstanding, exceed the
number of shares authorized under this Plan for a single individual.
4.3 In the event of any merger, reorganization, consolidation, sale
of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets (including cash) or other
change in corporate structure affecting the Stock, a substitution or adjustment,
as may be determined to be appropriate by the Committee in its sole discretion,
shall be made in the aggregate number of shares reserved for issuance under the
Plan, the aggregate number of shares of Stock available for distribution under
the Plan to any single individual with respect to a Stock Option awarded
hereunder, the aggregate number of shares of Stock that relate to Stock
Appreciation Rights that may be granted to any single individual hereunder, the
identity of the stock to be issued under the Plan, the number of shares subject
to outstanding awards and the amounts to be paid by employees, the Company or
any Related Company, as the case may be, with respect to outstanding awards.
23
<PAGE> 4
5. Eligibility.
Officers and other employees of the Company and Related Companies
are eligible to be granted awards under the Plan. A director of the Company or a
Related Company who is not also an employee of the Company or a Related Company
will not be eligible to be granted awards under the Plan. The participants under
the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible.
6. Stock Options.
6.1 The Stock Options awarded under the Plan may be of two types;
(i) Incentive Stock Options within the meaning of Section 422 of the Code or any
successor provision thereto and (ii) Non-Qualified Stock Options. To the extent
that any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option.
6.2 Subject to the following provisions, Stock Options awarded under
the Plan shall be in such form and shall have such terms and conditions as the
Committee may determine:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee;
provided, however, that with respect to persons subject to
Section 16 of the Exchange Act, the option price shall not be
less than 50% of the fair market value of the Stock on the
date of the award of the Stock Option.
(b) Option Term. The term of each Stock Option shall be determined
by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as
shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in
installments, the Committee may waive such installment
exercise provisions at any time in whole or in part.
(d) Method of Exercise. Stock Options may be exercised in whole or
in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of
shares to be purchased, accompanied by payment of the purchase
price. Payment of the purchase price shall be made in such
manner as the Committee may provide in the award, which may
include cash (including cash equivalents), delivery of shares
of Stock already owned by the optionee or subject to awards
hereunder, any other manner permitted by law as determined by
the Committee, or any combination of the foregoing.
(e) No Stockholder Rights. An optionee shall have neither rights
to dividends (other than amounts credited in accordance with
Section 3.2(g)) nor other rights of a stockholder with respect
to shares subject to a Stock Option until
24
<PAGE> 5
the optionee has given written notice of exercise and has paid
for such shares.
(f) Surrender Rights. The Committee may provide that Stock Options
may be surrendered for cash upon any terms and conditions set
by the Committee.
(g) Non-transferability. Except as provided in this Section
6.2(g), Stock Options granted under the Plan shall not be
transferable other than by will or the laws of descent and
distribution and shall be exercisable during the optionee's
lifetime only by the optionee or by the optionee's guardian or
legal representative. Subject to such administrative
conditions as the Committee may prescribe, an optionee may,
upon providing written notice to the Committee or its
designee, elect to transfer, without consideration therefor,
all or any portion of the Non-Qualified Options granted to the
optionee under the Plan to members of his or her "immediate
family" (as defined below), to a trust or trusts maintained
solely for the benefit of the optionee and/or the members of
his or her immediate family, or to such other entities as may
be determined by the Committee (each, a "permissible
transferee"). Any purported assignment, alienation, pledge,
attachment, sale, transfer, or encumbrance that does not
qualify as a permissible transfer under this Section 6.2(g)
shall be void and unenforceable against the Plan and the
Company. For purposes of this Section 6.2(g), the term
"immediate family" shall mean, with respect to a particular
optionee, the optionee's spouse, parents, children,
stepchildren, legally adopted children, and grandchildren, and
such other persons as may be determined by the Committee. The
terms of any such Non-Qualified Option, as set forth under the
Plan or otherwise, shall be binding upon the beneficiaries,
executors, administrators, heirs and successors of the
optionee and, as applicable, a permissible transferee
hereunder. The exercise of a Non-Qualified Option that is
transferred pursuant to this Section 6.2(g) and the shares of
Common Stock acquired thereby shall be subject to the
applicable provisions of the Plan and to all applicable
requirements of law, including, but not limited to, to the
extent applicable, the registration requirements under the
Securities Act of 1933, as amended. Upon any transfer of a
Non-Qualified Option, as provided in this Section 6.2(g), the
permissible transferee with respect to such option shall be
subject to the provisions of the Plan that otherwise would
apply to such option if it was still held by the optionee. The
Committee may further restrict the transferability of such
shares and require a legend to be endorsed on the certificates
representing the shares.
(h) Option Agreement. Each Stock Option granted pursuant to the
Plan shall be evidenced by a written stock option agreement
executed by the Company and the person to whom such Option is
granted or a grant letter executed by the Company.
(i) Investment Purposes. The Committee may require a Stock Option
holder to give satisfactory assurances that the shares
purchased by him pursuant to any
25
<PAGE> 6
such Stock Option are being purchased for investment and not
with a view to resale or distribution, and will not be
transferred in violation of applicable securities laws.
(j) Registration. The Committee may condition the exercise of a
Stock Option upon the listing, registration or qualification
of the shares covered by such Stock Option upon a securities
exchange or under applicable securities laws.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive
Stock Option shall (i) be awarded to any person who is not an employee of the
Company (or any subsidiary thereof); (ii) have an option price which is less
than 100% of the fair market value of the stock on the date of the award of the
Stock Option (110% for 10% owners), (iii) be exercisable more than ten years
after the date such Incentive Stock Option is awarded (five years for 10%
owners) or (iv) be awarded more than ten years after the effective date of the
Plan.
7. Stock Appreciation Rights.
7.1 A Stock Appreciation Right shall entitle the holder thereof to
receive payment of an amount, in cash, shares of Stock or a combination thereof,
as determined by the Committee, equal in value to the excess of the fair market
value of the shares as to which the award is granted on the date of exercise
over an amount specified by the Committee. Any such award shall be in such form
and shall have such terms and conditions as the Committee may determine.
8. Tax Withholding.
8.1 Each employee shall, no later than the date as of which the
value of an award (or portion thereof) first becomes includible in the
employee's income for applicable tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, local or other taxes of any kind required by law to be withheld with
respect to the award (or portion thereof). The obligation of the Company under
the Plan shall be conditional on such payment or arrangements, and the Company
(and, where applicable, any Related Company), shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee including, but not limited to, the right to
withhold shares of Stock otherwise deliverable to the employee with respect to
any awards hereunder.
8.2 To the extent permitted by the Committee, and subject to such
terms and conditions as the Committee may provide, an employee may irrevocably
elect to have the withholding tax obligation or any additional tax obligation
with respect to any awards hereunder satisfied by (i) having the Company
withhold shares of Stock otherwise deliverable to the employee with respect to
the award, (ii) delivering to the Company shares of unrestricted Stock, or (iii)
through any combination of withheld and delivered shares of Stock, as described
in (i) and (ii).
9. Amendments and Termination.
The Board or the Committee may discontinue the Plan at any time and
may amend it from time to time. No amendment or discontinuation of the Plan
shall adversely affect any award previously
26
<PAGE> 7
granted without the employee's written consent. Amendments may be made without
stockholder approval except as required to satisfy Rule 16b-3 (or any successor
rule) or other regulatory requirements.
10. General Provisions.
10.1 Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body or (iii) an agreement by the
recipient of an award with respect to the disposition of Stock is necessary or
desirable (in connection with any requirement or interpretation of any federal
or state securities law, rule or regulation) as a condition of, or in connection
with, the granting of such award or the issuance, purchase or delivery of Stock
thereunder, such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
10.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the adoption of
the Plan nor any award hereunder shall confer upon any employee of the Company
or of a Related Company, any right to continued employment.
10.3 Determinations by the Committee under the Plan relating to the
form, amount and terms and conditions of awards need not be uniform, and may be
made selectively among persons who receive or are eligible to receive awards
under the Plan, whether or not such persons are similarly situated.
10.4 No member of the Board or the Committee, nor any officer or
employee of the Company or a Related Company acting on behalf of the Board or
the Committee, shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan, and all members of the
Board or the Committee and all officers or employees of the Company and Related
Companies acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
11. Effective Date and Duration.
The Plan shall be effective on October 28, 1998, subject, to the
extent required by law, to approval by the Company's stockholders. No awards
shall be made under the Plan after ten years following the date of adoption.
27
<PAGE> 1
[GRAPHIC OMITTED]
Sturm, Ruger & Company, Inc.
1998 Annual Report
<PAGE> 2
[GRAPHIC OMITTED]
Fifty Years of Fine Firearms
When Sturm, Ruger & Company, Inc. opened for business 50 years ago on a meager
$50,000 investment, the start was in the face of serious doubts from industry
insiders. The "it can't be done" remarks of the experts reflected the widespread
view that the manufacture of guns had likely peaked, and was in a state of
decline. There seemed to be few new ideas, and the apparent trend was that the
large, established gunmakers would continue to dominate the market.
But this fledgling company was guided by several well-thought-out
concepts, not the least of which was Bill Ruger's intent to build products "to a
standard so I would want it even if it was made by a competitor." This
fundamental concept, this deceptively simple touchstone of the underlying
principles of innovation, quality and value, has proved so compelling that some
50 years later there is no question which company is pre-eminent in the American
firearms industry. Sturm, Ruger's rise to its present well-earned position has
made it a respected company on the New York Stock Exchange since 1990. In 1998
alone, Ruger produced more than 600,000 firearms for hunting, target-shooting,
collecting, self-defense, law enforcement, and the armed forces. And in the
course of the past half century, the Company has had the opportunity to purchase
each one of its "big four" rivals.
From the very first months in that little red barn near the Southport,
Connecticut train station, innovative products were designed and sound decisions
were made. The Company maintained a basic philosophy of top-thin staff of
management, designers and engineers (the majority themselves gun enthusiasts),
using advanced business techniques and creating original firearms concepts,
built using cutting-edge manufacturing technology. Each product was not only
sound, reliable, accurate, and safe, but was produced with technological
excellence. And every model was fairly and reasonably priced for the consumer --
i.e. built to that standard, "so I would want it even if it was made by a
competitor."
No other gunmaker in modern times has demonstrated such consistent,
unrelenting, on-the-mark product innovation and development. Owning a Ruger has
become a new goal for a loyal, worldwide and ever-increasing multitude of
consumers.
By the 50th anniversary, the total of firearms built stands in excess of
18,000,000. At the same time, the Company which achieved this resounding success
has captured the imagination, interest and dedication of the hunting, shooting
and technologically keen public at a level that begs comparisons in any field.
One can also take heart in recognizing the fact that Sturm, Ruger's
achievements are firmly within the time-honored traditions of the American
Industrial Revolution, and the "Yankee ingenuity" that Revolution represents.
Sturm, Ruger & Co. has extended the historic achievements of pioneers like Eli
Whitney, Simeon North, Robbins & Lawrence and Colonel Samuel Colt by
spearheading a modern "industrial revolution" of its own creation. Among the
most striking contributions of Sturm, Ruger in this technological transformation
have been in pioneering precision investment casting technology, not only in
ferrous and aluminum metals, but in the high-tech world of titanium.
<PAGE> 3
It is as satisfying to view the four modern factory sites, in New
Hampshire and Arizona (with corporate offices in Connecticut), as it is to
admire the over 50 models of guns in the Company's line, in variations totaling
over 300. In excess of 2,000 employees make and market the line of firearms and
specialized castings, the latter for industrial clients as diverse as aerospace,
automotive, medicine, and golf.
Yet another exemplary facet of the Sturm, Ruger epic is that all of this
was achieved through sound business practices, and (virtually unheard-of in
modern times) through reinvested earnings. In each year of its existence, Sturm,
Ruger has posted a profit -- never once borrowing a penny.
The Company's history is all the more remarkable because it spans a period
during which America's industrial base has been shrinking; when pundits have
relegated the country to a service economy; and when media and activist
pressures against firearms and hunting have reached peak levels. Yet even as the
market shares of other major U.S. firearms firms have decreased, Ruger's
continue to increase. Furthermore, only Ruger, of all the world's gunmakers,
designs, engineers and manufactures a complete line of rifles, shotguns,
revolvers and pistols. There is a Ruger gun for virtually every sporting,
personal defense, military and police purpose. This unprecedented, unequaled and
unsurpassed line is produced entirely in Ruger factories in America.
Under the leadership of Sturm, Ruger & Co., gunmaking has been revitalized
and, in some ways, reassumed a dominant place in contemporary technology. This
is particularly true in the arena of precision investment casting. Sturm, Ruger
& Co. occupies a singular position at the forefront of that time-honored
discipline.
Sturm, Ruger & Co. has also been a pivotal institution with far-reaching
impact on the shooting sports. As a designer, gunmaker, manufacturer, marketer
and technical innovator, Ruger has led the firearms field toward the 21st
century. And in its catalogues, manuals, public service messages and
advertising, the Company has continuously stressed safety and responsibility.
Recognition of the stature of Sturm, Ruger & Co. beyond the firearms field
has been widespread, ranging from a case study by the Harvard Business School,
to articles in Forbes magazine (in which the founder was termed "crusty and
unflappable"), to such television programs as CNN's "Pinnacle" and "60 Minutes,"
and in countless other media.
Despite all the recognition, the fanfare and, the hoopla, William B. Ruger
himself remains dedicated to the same principles and ideals that guided the
Company from the very beginning. He remains devoted to the Company, and to its
future. Typically, he has stated: "It's the Company's 50th anniversary -- not
mine."
The fact remains that the story is one of which America can be proud. The
world of firearms has long ago recognized and welcomed the once-tiny New England
company, about which some had mistakenly said, "it can't be done."
That little red barn, where it all began five decades ago, still stands, a
symbol of the extraordinary continuity of Sturm, Ruger & Co. -- the same
leadership, the same vision of quality -- through five decades of continuous
innovation and growth.
One need not state that Sturm, Ruger & Co. is ready for the 21st century
- -- the more accurate observation is that, after 50 years of unprecedented
achievement, the Company is already there. And after that half century, although
the goal of a complete firearms line has been reached, this Company -- and its
founder -- continue to set the example for an entire industry. In the process,
Sturm, Ruger & Co. reminds the United States of America that it is still the
leader of the free world, that precision American manufacturing is alive and
well -- and that "it can be done."
-- R.L. Wilson
Author, Ruger & His Guns
[GRAPHIC OMITTED]
Painting of "The Red Barn" by Hanic, first home of Sturm, Ruger & Co., Inc.
1
<PAGE> 4
New Ruger Products
A longer steel receiver, special tungsten alloy bolt, and a new .22 Magnum
rotary magazine distinguish this powerful rimfire magnum from its .22 Long Rifle
predecessor introduced in 1964. As the original 10/22 has set the standard for
all .22 rifles worldwide, so will the new Ruger 10/22 Magnum exceed the demands
of those shooters requiring the longer range and power of the .22 WMR cartridge
in the hunting field.
Stepping up a considerable notch in power from the rimfires, Ruger's
famous five-shot .223 centerfire rifles have proven themselves in
the fields and ranches of the country since 1974. Always rugged and
dependable, the "All-Weather" Mini-14 rifles now are available in
stainless steel with synthetic stocks, making them virtually
impervious to moisture and changes in impact caused by stock warpage
when hunting in wet climates.
Ideal for short-range hunting of deer-sized game in heavy cover, this bolt
action .44 Magnum rifle is also offered in stainless steel with a
synthetic stock of Ruger "All-Weather" polymer construction. It is
compact, lightweight, accurate, powerful enough for deer, and can be
carried afield on those days when blued steel and wood simply can't take
the abuse.
2
<PAGE> 5
for 1999
The Ruger 10/22 Magnum Carbine
[GRAPHIC OMITTED]
The Ruger "All-Weather" Mini-14 and Ranch Rifles
[GRAPHIC OMITTED]
The Ruger "All-Weather" 77/44 Rifle
[GRAPHIC OMITTED]
3
<PAGE> 6
The Ruger "All-Weather" M77 MKII Ultra Light Rifles
[GRAPHIC OMITTED]
The Ruger "All-Weather" 77/50 Muzzleloading Rifle
[GRAPHIC OMITTED]
The Ruger "All-Weather" Red Label Shotgun
[GRAPHIC OMITTED]
<PAGE> 7
Moving up even further in big-game power, these rifles are chambered for
cartridges suited to all North American big-game and are specially designed not
to be burdensome. They carry light but carry a big punch, with the additional
attributes of worry-free "All-Weather" stainless steel and synthetic stock
materials.
Hunters who take to the field for special "black powder only"
hunting seasons will appreciate the joys of a .50 caliber
muzzleloader that will retain its newness for many seasons, due to
its modern design and synthetic stock. An added bonus is that its
stainless steel metal components greatly ease the normally tedious
chore of cleaning up corrosive black powder residue.
No longer will the thought of bringing a fine over-and-under shotgun into
the corrosive environment of a saltwater duck blind cause owners of this
shotgun to pause. It is specifically designed for outdoor use in such
situations, and is equally at home on the target range, especially on
those days when the game is on, rain or shine.
5
<PAGE> 8
This pistol is a tribute to the inventive genius of William B. Ruger and his
original design which launched the Company in 1949. Like the original, it sports
a polished bolt and "red eagle" grip medallions, but it also bears the unique
Ruger 50th Anniversary logo rollmarked above the chamber. No better testament to
the enduring excellence of Ruger firearms could be devised than this simple,
classic epitome of reliable design. It will only be available in 1999.
As American as Sturm, Ruger, the .45 ACP cartridge will forever be
associated with those pistols proudly carried by our armed forces in
conflicts around the world since 1911. Now Ruger introduces a
thoroughly modern .45, made of advanced materials and embodying the
latest thinking of what will become a 21st century American classic.
The Ruger Super Redhawk simply has no equal in the world of rugged,
big-game revolvers. Its power is now brought to new heights by the
introduction of the caliber .454 Casull, one of the most powerful hunting
cartridges ever invented for any revolver. Only a few guns can handle it,
and the massive Ruger Super Redhawk is by far the best.
6
<PAGE> 9
The Ruger "50th Year Commemorative" Mark II Pistol
[GRAPHIC OMITTED]
The Ruger P97 Pistol
[GRAPHIC OMITTED]
The Ruger Super Redhawk Revolver in Caliber .454 Casull
[GRAPHIC OMITTED]
7
<PAGE> 10
To Our Stockholders
We are pleased to report that 1998 marks the completion of 50 years of
successful business for Sturm, Ruger & Company, Inc., a milestone not imagined
in 1949 with the first shipment of the Ruger Standard automatic pistol. Each
year has brought forth interesting challenges, new engineering concepts, and
most of all, successful growth in overall operations.
During 1998, significant challenges confronted both the firearms and
investment castings segments of the Company. Though the firearms market improved
slightly quarter by quarter, in spite of an approximate 5% price increase
effective July 1, casting sales levels were disappointing in the final half of
the year. However, we are pleased to report that despite these pressures,
Company-wide sales in both dollar amounts and unit shipments were slightly
improved over the levels achieved during the previous year. Overall profits did
not keep pace with the increased sales, and were substantially less than planned
for our golf club head business, and below 1997 levels. Despite these results,
it is important to note the continued financial strength of the Company as
represented on the enclosed Consolidated Balance Sheets. Our long-standing
policies of internally financed growth, aversion to long-term debt, and high
liquidity, all remain intact, providing us with a sound basis for the future.
[PHOTO OMITTED]
Specific results for 1998 were sales of $211.6 million, net income of
$23.4 million, earnings per share of $0.87, and dividends of $0.80 per share.
Comparable figures for 1997 were sales of $209.4 million, net income of $27.8
million, earnings per share of $1.03, and dividends of $0.80 per share.
Engineering and production developments within the firearms divisions
resulted in several new product introductions for 1999 at both the National
Association of Sporting Goods Wholesalers Show in November and at the Shooting,
Hunting and Outdoor Trade ("SHOT") Show in Atlanta, Georgia. These include the
Ruger 10/22 Magnum rifle, a new Ruger Super Redhawk revolver chambered in .454
Casull, the 50th Anniversary Commemorative Mark II pistol, several new
"All-Weather" models in our existing rifle and shotgun lines, and a new P97
centerfire pistol utilizing a compound polymer frame chambered for the popular
.45 ACP caliber. We are pleased to report a high level of genuine enthusiasm for
these products, supported by significant customer orders. These new models are
more fully described below and showcased on pages 2-7 of this report.
o The Ruger 10/22 Magnum rifle is a steel-receiver .22 Magnum version of
this most famous rimfire rifle. A longer, heavier tungsten alloy bolt is
used to handle the more powerful .22 Magnum cartridge, along with a longer
version of the original Ruger rotary magazine. As with the original .22
long
8
<PAGE> 11
Net Sales
Millions of Dollars
[BAR CHART OMITTED]
Net Income
Millions of Dollars
[BAR CHART OMITTED]
rifle version, this rotary magazine fits flush with the stock, enhancing
the rifle's appearance and ease of carrying.
o The new Ruger Super Redhawk double action revolver chambered in .454
Casull, one of the most powerful revolver cartridges available, will be
introduced in the second quarter. It is ideal for hunting dangerous game
and has all the strength and reliability of the proven Super Redhawk
design.
o The 50th Anniversary Model Ruger Mark II Pistol commemorates the
introduction of Ruger's first commercial firearm in 1949. The original
pistols were shipped with an unblued steel bolt, and to retain this
impression we have substituted a corrosion-resistant stainless steel bolt
adorned at the rear with the famous Ruger logo. The magazine and both
grips use Ruger medallions with a red background, and the impressive 50th
Anniversary Ruger crest is rollmarked into portion of the receiver.
o Several years ago, the Company introduced the first "All-Weather" rifles
which combine the benefit of corrosion-resistant stainless steel with a
weather-resistant synthetic stock. The popularity of this concept has led
to the introduction of additional such models in recent years. For 1999,
we have added "All-Weather" models to our muzzleloading rifle, .44 Magnum
compact bolt-action rif Mini-14 Ranch Rifles, and for the first time we
now offer an "All-Weather" Red Label Shotgun.
o The new P97 centerfire pistol provides the .45 ACP caliber with a
lightweight polymer frame first introduced three years ago in our P95
series pistols.
With respect to our titanium investment casting business in 1998, we were
fortunate to begin working on the development, production and shipment of
several new products for a number of significant manufacturers of titanium golf
clubs. In addition to our titanium golf club head business, we continue to
produce castings for non-golf customers, and are investigating investment
casting applications in areas not previously considered. These additional
efforts, while requiring more Company resources and adversely impacting profits
in 1998, have already broadened our business base and demonstrated our continued
commitment to this emerging segment of our business. In short, we are investing
in the future of our castings business.
Our conventional product liability situation continues to improve.
Accident claims have dropped to levels not seen since the early 1970's, with
only 12 pending product liability cases. The National Safety Council has once
again reported a significant decline in firearms accidents to the lowest level
since 1903. Criminal misuse of firearms has also declined to 1970's levels; yet
for some unfathomable reason a few
9
<PAGE> 12
To Our Stockholders
(Continued)
Return on
Stockholders'
Equity
Percent
[BAR CHART OMITTED]
Net Income
Per Share
Dollars
[BAR CHART OMITTED]
mayors of cities in which these notable improvements have not occurred have seen
fit to sue us and other firearms manufacturers, claiming that the manufacture
and sale of firearms in accordance with complex Federal, State, and local
regulations somehow causes violent crime.
Most commentators and editors, including those located within the few cities who
have filed such misguided lawsuits, recognize that the legal foundations of
these suits have no precedent in tort law, and categorically condemn these
actions. We will of course vigorously defend such unfounded claims, as we have
successfully done in all prior attempts to so misuse our court system. Our sales
and marketing practices are completely appropriate and prudent. Along with our
defenses, we will continue to try to educate those who misperceive our Company
and reassure them that we stand at the forefront of those who urge the strongest
possible enforcement of laws aimed at those violent few who misuse the right to
own firearms.
At the outset of the year, William B. Ruger, Jr. assumed the additional role of
President, and Stephen L. Sanetti, our Vice President and General Counsel,
became a member of the Board of Directors. As expected, this transition was
successful and has strengthened the management structure of the Company. The
Board of Directors has approved, subject to stockholder approval, a stock option
plan as part of the compensation program for certain key employees. We believe
this type of incentive compensation will prove to be beneficial to all
stockholders as well as these employees. It is the efforts of each of our
employees that lead to our successes, and again we offer them our sincere
appreciation for a job well done.
We hope you plan on joining us for the annual Stockholders' Meeting on May 13,
in New London, New Hampshire.
/s/ William B. Ruger
William B. Ruger
Chairman, Chief Executive Officer, and Treasurer
/s/ William B. Ruger, Jr.
William B. Ruger, Jr.
Vice Chairman, Senior Executive Officer, President, and Chief Operating Officer
February 12, 1999
10
<PAGE> 13
Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net firearms sales ...................... $144,898 $141,863 $148,829 $155,622 $180,079
Net castings sales ...................... 66,682 67,520 74,466 36,847 16,358
- -----------------------------------------------------------------------------------------------------------------
Total net sales ......................... $211,580 $209,383 $223,295 $192,469 $196,437
=================================================================================================================
Cost of products sold ................... $157,048 $146,143 $150,200 $134,930 $125,439
Gross profit ............................ 54,532 63,240 73,095 57,539 70,998
Income before income taxes .............. 39,372 46,639 56,835 43,846 56,992
Income taxes ............................ 15,946 18,889 22,450 17,670 22,943
Net income .............................. 23,426 27,750 34,385 26,176 34,049
Basic and diluted earnings per share .... 0.87 1.03 1.28 0.97 1.27
Cash dividends per share ................ 0.80 0.80 0.80 0.70 0.60
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital ......................... $ 102,395 $ 97,551 $ 95,217 $ 91,942 $ 93,852
Total assets ............................ 196,734 199,794 189,890 178,552 169,492
Total stockholders' equity .............. 154,564 152,920 146,727 133,735 126,295
Book value per share .................... 5.74 5.68 5.45 4.97 4.69
Return on stockholders' equity .......... 15.2% 18.5% 24.5% 20.1% 29.0%
Current ratio ........................... 5.1 to 1 4.5 to 1 5.0 to 1 4.6 to 1 4.8 to 1
Common shares outstanding ............... 26,910,700 26,922,800 26,916,800 26,910,800 26,904,800
Number of stockholders of record ........ 1,974 1,971 1,899 1,678 1,478
Number of employees ..................... 2,130 1,978 2,094 1,937 1,905
</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.
11
<PAGE> 14
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
Year ended December 31, 1998, as compared to year ended December 31, 1997:
Consolidated net sales of $211.6 million were achieved by the Company in
1998 representing an increase of $2.2 million or 1.0% from net sales of $209.4
million in 1997.
Firearms segment net sales increased by $3.0 million or 2.1% to $144.9
million in 1998 from $141.9 million in the prior year. Firearms unit shipments
for 1998 increased modestly (1.7%) from 1997 due to growth in rifles partially
offset by a reduced demand for revolvers. Shipments of pistols were consistent
for both years. Rifle growth reflects an increase of 18.6% in shipments of M-77
models, and 11.2% for 10/22 models, over 1997. Rifle models were aided by a
special promotion in September 1998 that allowed for an 11% discount on certain
of the Company's rifles, including the M-77 and 10/22 models. Firearms segment
sales were favorably impacted by a price increase on selected models which went
into effect on July 1, 1998. In 1998, the Company employed four sales incentive
programs, three of which were in effect in 1997. These four programs were
replaced with a new program for 1999 which will provide a rebate to distributors
who achieve specific annual sales targets, based on their prior performance.
Casting segment net sales experienced a slight decrease of 1.2% to $66.7
million in 1998 from $67.5 million in 1997 as a result of slightly lower volume.
Strong golf club head shipments, primarily to Callaway Golf Company, Inc.
("Callaway Golf") in the first half of 1998, waned during the latter half of the
year. Shipments to other golf companies in the second half of the year partially
offset the absence of Callaway Golf shipments during that period. The apparent
downturn in the golf club marketplace, caused in part by uncertainties
surrounding the Asian economy, appears to have been a major factor in the
slowdown of club head shipments. The anticipated level of 1999 casting sales is
dependent, in part, on the recovery of the golf industry. The Company continues
to actively pursue other titanium markets as well as other golf club casting
business.
Consolidated cost of products sold for 1998 was $157.0 million compared to
$146.1 million in 1997, representing an increase of 7.5%. This increase of $10.9
million was primarily attributable to significant additional start-up costs
associated with new investment castings segment customers and products and
increased sales by the firearms segment, partially offset by a $1.4 million
reduction in product liability expense as a result of favorable litigation
experience.
Gross profit as a percentage of net sales decreased to 25.8% in 1998 from
30.2% in 1997. The decrease is due to significant additional start-up costs
associated with new customers and products in the investment castings segment
and the increased level of participation in the firearms sales incentive
programs in 1998, partially offset by the firearms price increases effective
July 1, 1998.
Selling, general and administrative expenses increased by 7.3% or $1.3
million to $19.2 million in 1998 from $17.9 million in 1997. This increase
resulted from a national marketing campaign employed by the Company in 1998
which featured numerous advertisement placements in various outdoor and sporting
media.
Other income-net increased from $1.3 million in 1997 to $4.0 million in
1998 reflecting start-up expenses incurred in 1997 at Antelope Hills, LLC
("Antelope Hills"), a former joint venture between the Company and Callaway Golf
which was formed to construct and operate a foundry for the production of golf
club heads investment cast in titanium, and a gain on the sale of non
manufacturing real estate in the second quarter of 1998.
The effective income tax rate was 40.5% in 1998 and 1997.
As a result of the foregoing factors, consolidated net income in 1998
decreased to $23.4 million from $27.8 million in 1997, representing a decrease
of $4.4 million or 15.6%.
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 reflected the continuing overall
slowdown in the firearms market while the decrease in casting sales was
attributable to a sluggish first half of the year, partially offset by a
significant increase during the last six months.
12
<PAGE> 15
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 was 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 of which was in effect in 1996.
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 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.
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 was 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 additional special incentive
programs mentioned previously. Although variable costs were reduced during 1997
in response to the changes in sales volumes, the impact of fixed costs
associated with operating the Company's facilities resulted in reduced gross
profit margins from 1996.
Selling, general and administrative expenses decreased by 6.8% or $1.3
million to $17.9 million in 1997 from $19.2 million in 1996. This decrease was
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%.
Financial Condition
At December 31, 1998, the Company had cash, cash equivalents and
short-term investments of $47.9 million, working capital of $102.4 million and a
current ratio of 5.1 to 1.
Cash provided by operating activities was $24.6 million, $49.1 million,
and $24.4 million in 1998, 1997, and 1996, respectively. The decrease in cash
provided in 1998 is principally the result of lower net income and the $9.5
million reduction in inventories in 1997 compared to an increase in inventories
of $2.0 million in 1998.
The Company follows an industry-wide practice of offering a "dating plan"
to its firearms customers on selected products, which allows the purchasing
distributor to buy the products commencing in December, the start of the
Company's marketing 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. Shipments made in subsequent months have
to be paid for within approximately 90 days. Dating plan receivable balances
were $15.7 million and $8.9 million at December 31, 1998 and 1997, 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 market
conditions result in a significant prolonged inflation of titanium prices, the
Company's results could be adversely affected.
Capital expenditures during the past three years averaged $6.0 million per
year. In 1999, the Company expects to spend approximately $6 million on capital
expenditures to
13
<PAGE> 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
continue to upgrade and modernize equipment at each of its manufacturing
facilities. The Company finances, and intends to continue to finance, all of
these activities with funds provided by operations.
In 1998 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 1998. On January 13, 1999, the Company declared a regular quarterly
dividend of $.20 per share payable 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 in 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 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. In 1995, the
Company was a named defendant, along with numerous other firearms manufacturers
and distributors, in the Hamilton, et. al. vs. Accu-tek, et. al. lawsuit
claiming damage as a result of allegedly negligent sales practices and
"industry-wide" liability. The suit proceeded to trial in January 1999, and the
jury verdict completely exonerated the Company of any negligence. In 1998 and
early 1999, the Company was a named defendant, along with numerous other
firearms manufacturers, distributors, and dealers, in lawsuits filed by the
mayors of New Orleans, Chicago, 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
14
<PAGE> 17
financial statements approximates current costs, and thus, reduces distortion in
reported income. The use of historical cost depreciation has a beneficial effect
on cost of products sold. The Company has been affected by inflation in line
with the general economy.
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. This is commonly referred to as the "Year 2000" issue.
The Company has completed its assessment of the Year 2000 issue 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. User testing will be performed at the
completion of each conversion. If as a result of user testing or other
procedures, unforeseen problems or issues arise with the identified programs or
if it is determined that additional programs require remediation, additional
personnel from outside the Company may be needed to complete the Year 2000
remediation in a timely manner.
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 has prioritized
critical applications. As such, any disruption caused by the failure to complete
the conversion on all of the identified candidates for remediation should be
mitigated. 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.
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.
15
<PAGE> 18
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents .............................. $ 4,680 $ 4,488
Short-term investments ................................. 43,247 45,484
Trade receivables, less allowances for doubtful accounts
($1,299 and $1,001) and discounts ($1,888 and $2,842) 23,046 21,118
Inventories:
Finished products .................................... 13,402 12,708
Materials and products in process .................... 34,150 32,841
- --------------------------------------------------------------------------------
47,552 45,549
Deferred income taxes .................................. 7,999 7,224
Prepaid expenses and other assets ...................... 1,091 1,344
- --------------------------------------------------------------------------------
Total Current Assets ................................... 127,615 125,207
Property, Plant, and Equipment
Land and improvements ................................ 3,495 3,575
Buildings and improvements ........................... 30,370 30,136
Machinery and equipment .............................. 88,067 83,788
Dies and tools ....................................... 22,986 21,702
- --------------------------------------------------------------------------------
144,918 139,201
Allowances for depreciation .......................... (93,833) (83,538)
- --------------------------------------------------------------------------------
51,085 55,663
Deferred income taxes .................................. 3,400 4,701
Other assets ........................................... 14,634 14,223
- --------------------------------------------------------------------------------
Total Assets ........................................... $196,734 $199,794
===============================================================================
</TABLE>
See accompanying notes.
16
<PAGE> 19
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable and accrued expenses .................. $ 3,936 $ 4,628
Product safety modifications ................................. 752 870
Product liability ............................................ 3,000 3,000
Employee compensation ........................................ 11,181 10,303
Workers' compensation ........................................ 4,173 5,063
Income taxes ................................................. 2,178 3,792
- -------------------------------------------------------------------------------------
Total Current Liabilities .................................... 25,220 27,656
Product Liability Accrual .................................... 16,950 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 - 26,910,700 and 26,922,800 .. 26,911 26,923
Additional paid-in capital ................................... 2,434 2,632
Retained earnings ............................................ 125,409 123,510
Accumulated other comprehensive income ....................... (190) (145)
- -------------------------------------------------------------------------------------
Total Stockholders' Equity ................................... 154,564 152,920
- -------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity ................... $196,734 $199,794
=====================================================================================
</TABLE>
17
<PAGE> 20
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net firearms sales ......................... $144,898 $141,863 $148,829
Net castings sales ......................... 66,682 67,520 74,466
Total net sales ............................ 211,580 209,383 223,295
Cost of products sold ...................... 157,048 146,143 150,200
- --------------------------------------------------------------------------------
Gross profit ............................... 54,532 63,240 73,095
Expenses:
Selling .................................. 13,515 12,412 13,214
General and administrative ............... 5,655 5,453 5,959
- --------------------------------------------------------------------------------
19,170 17,865 19,173
- --------------------------------------------------------------------------------
35,362 45,375 53,922
Other income-net ........................... 4,010 1,264 2,913
- --------------------------------------------------------------------------------
Income before income taxes ................. 39,372 46,639 56,835
Income taxes ............................... 15,946 18,889 22,450
- --------------------------------------------------------------------------------
Net Income ................................. $ 23,426 $ 27,750 $ 34,385
================================================================================
Basic and Diluted Earnings Per Share ....... $ 0.87 $ 1.03 $ 1.28
================================================================================
Cash Dividends Per Share ................... $ 0.80 $ 0.80 $ 0.80
================================================================================
</TABLE>
See accompanying notes.
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ................... $ 26,911 $ 2,380 $ 104,444 $ -- $ 133,735
Net income ................................... 34,385 34,385
Issuance of 6,000 shares of Common Stock ..... 6 134 (3) 137
Cash dividends ............................... (21,530) (21,530)
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ................... 26,917 2,514 117,296 -- 146,727
Net income ................................... 27,750 27,750
Additional minimum pension liability ......... (145) (145)
Comprehensive income ......................... 27,605
Issuance of 6,000 shares of Common Stock ..... 6 118 124
Cash dividends ............................... (21,536) (21,536)
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 ................... 26,923 2,632 123,510 (145) 152,920
Net income ................................... 23,426 23,426
Additional minimum pension liability ......... (45) (45)
Comprehensive income ......................... 23,381
Repurchase of 12,100 shares of Common Stock .. (12) (198) (210)
Cash dividends ............................... (21,527) (21,527)
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 ................... $ 26,911 $ 2,434 $ 125,409 $ (190) $ 154,564
==================================================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 21
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net income ................................................... $ 23,426 $ 27,750 $ 34,385
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation ............................................. 10,295 9,208 7,588
Gain on sale of land ..................................... (825) -- --
Issuance of Common Stock ................................. -- 124 137
Net provision for product safety modifications ........... (118) (432) (137)
Deferred income taxes .................................... 526 696 (1,052)
Changes in operating assets and liabilities:
Trade receivables ...................................... (1,928) (44) (1,210)
Inventories ............................................ (2,003) 9,534 (12,776)
Trade accounts payable and accrued expenses ............ (692) (3) 635
Prepaid expenses, other assets, and other liabilities .. (215) (910) (781)
Product liability ...................................... (2,268) -- --
Income taxes ........................................... (1,614) 3,197 (2,422)
- ------------------------------------------------------------------------------------------------------
Cash provided by operating activities .................... 24,584 49,120 24,367
Investing Activities
Property, plant, and equipment additions ..................... (5,969) (4,511) (7,625)
Purchases of short-term investments .......................... (131,521) (160,757) (156,132)
Proceeds from sales or maturities of
short-term investments ..................................... 133,758 145,925 168,957
Net proceeds from sale of land ............................... 1,077 -- --
Investment in joint venture .................................. -- 518 (8,941)
Purchase of Callaway Golf's interest in joint venture ........ -- (7,000) --
Cash used by investing activities ........................ (2,655) (25,825) (3,741)
Financing Activities
Dividends paid ............................................... (21,527) (21,536) (21,530)
Repurchase of Common Stock ................................... (210) -- --
======================================================================================================
Cash used by financing activities ........................ (21,737) (21,536) (21,530)
- ------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents ............... 192 1,759 (904)
Cash and cash equivalents at beginning of year ................. 4,488 2,729 3,633
- ------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ....................... $ 4,680 $ 4,488 $ 2,729
======================================================================================================
</TABLE>
See accompanying notes.
19
<PAGE> 22
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 independent wholesale distributors to the sporting and law
enforcement markets. Investment castings are sold either directly to or through
manufacturers' representatives to companies in a wide variety of industries.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. A joint venture, in which the Company had a
50% investment, 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 $38.7 million and $39.4 million at December 31, 1998 and 1997,
respectively.
Property, Plant, and Equipment
Property, plant, and equipment are stated on the basis of cost.
Depreciation is computed by the straight-line and declining balance methods.
Income Taxes
Income taxes are accounted for using the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109. Under the
liability method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of the Company's assets and liabilities.
Product Liability
The Company provides for product liability claims. The provision for
product liability claims is charged to cost of products sold.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 1998, 1997, and 1996 were $3.1 million, $2.3
million, and $3.2 million, respectively.
Stock Options
The Company records stock option compensation on an intrinsic value basis
in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company also provides pro forma disclosures
of stock option compensation recorded on a fair value basis in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation."
20
<PAGE> 23
Notes to Consolidated Financial Statements
(Continued)
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which changed 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 and
1996. Basic earnings per share is based upon the weighted-average number of
shares of Common Stock outstanding during the year, which was 26,911,700 in
1998, 26,918,800 in 1997, and 26,913,300 in 1996. Diluted earnings per share for
1998 reflects the impact of options outstanding using the treasury stock method.
This results in diluted weighted-average shares outstanding of 26,912,900.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established new rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires the
additional minimum pension liability adjustment to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position, but did affect the disclosure of segment
information (see Note 7). In 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," that supersedes
the disclosure requirements of SFAS No. 87, "Employers' Accounting for
Pensions." The adoption of SFAS No. 132 did not affect results of operations or
financial position, but did affect the disclosure of pension information (see
Note 4).
2. Income Taxes
The Federal and state income tax provision (benefit) consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
Current Deferred Current Deferred Current Deferred
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal ............... $13,593 $464 $15,865 $607 $19,036 $ (816)
State ................. 1,827 62 2,328 89 4,466 (236)
- ------------------------------------------------------------------------------------------
$15,420 $526 $18,193 $696 $23,502 $(1,052)
==========================================================================================
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product liability .................................... $ 8,080 $ 8,998
Employee compensation ................................ 2,167 2,107
Product safety modifications ......................... 305 352
Allowances for doubtful accounts and discounts ....... 1,652 799
Inventory ............................................ 948 947
Other ................................................ 2,682 2,680
- --------------------------------------------------------------------------------
Total deferred tax assets .............................. 15,834 15,883
Deferred tax liabilities:
Prepaid insurance .................................... 313 382
Depreciation ......................................... 2,287 1,970
Pension plans ........................................ 1,835 1,606
Total deferred tax liabilities ......................... 4,435 3,958
- --------------------------------------------------------------------------------
Net deferred tax assets ................................ $11,399 $11,925
================================================================================
</TABLE>
21
<PAGE> 24
Notes to Consolidated Financial Statements
(Continued)
The effective income tax rate varied from the statutory Federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate ............... 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit .. 4.7 5.0 4.8
Other items ..................................... .8 .5 (.3)
- ------------------------------------------------------------------------------
Effective income tax rate ....................... 40.5% 40.5% 39.5%
==============================================================================
</TABLE>
The Company made income tax payments of approximately $17.0 million, $15.0
million, and $25.9 million, during 1998, 1997, and 1996, 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. 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 employees. A third defined benefit pension plan is
non-qualified and covers certain executive officers of the Company.
The cost of these defined benefit plans and the balances of plan assets
and obligations are shown below (in thousands):
<TABLE>
<CAPTION>
Change in Benefit Obligation 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation
at January 1, ................................ $ 30,738 $ 25,781
Service cost ................................... 1,252 1,054
Interest cost .................................. 2,114 1,950
Actuarial gain ................................. 1,386 3,047
Benefits paid .................................. (1,240) (1,094)
- ------------------------------------------------------------------------------
Benefit obligation
at December 31, .............................. 34,250 30,738
- ------------------------------------------------------------------------------
Change in Plan Assets
- ------------------------------------------------------------------------------
Fair value of plan assets
at January 1, ................................ 26,016 23,332
Actual return on plan assets ................... 2,783 1,875
Employer contributions ......................... 1,766 1,903
Benefits paid .................................. (1,240) (1,094)
- ------------------------------------------------------------------------------
Fair value of plan assets
at December 31, .............................. 29,325 26,016
- ------------------------------------------------------------------------------
Funded status (underfunded) .................... (4,925) (4,722)
Unrecognized net actuarial loss ................ 6,272 5,504
Unrecognized prior
service cost ................................. 2,555 3,007
Unrecognized transition
obligation ................................... (452) (574)
- ------------------------------------------------------------------------------
Net amount recognized .......................... $ 3,450 $ 3,215
==============================================================================
<CAPTION>
Amounts Recognized on the Balance Sheet 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Prepaid benefit cost ........................... $ 5,369 $ 4,582
Accrued benefit liability ...................... (3,767) (3,423)
Intangible asset ............................... 1,528 1,810
Accumulated other
comprehensive income ......................... 190 145
Deferred tax asset ............................. 130 101
- ------------------------------------------------------------------------------
$ 3,450 $ 3,215
- ------------------------------------------------------------------------------
Weighted-Average
Assumptions as of December 31,
- ------------------------------------------------------------------------------
Discount rate .................................. 6.75% 7.00%
Expected return on plan assets ................. 9.00% 9.00%
Rate of compensation increases ................. 5.00% 5.00%
Components of Net Periodic Pension Cost
- ------------------------------------------------------------------------------
Service cost ................................... $ 1,252 $ 1,054
Interest cost .................................. 2,114 1,950
Expected return
on assets .................................... (2,336) (2,119)
Amortization of unrecognized
transition asset ............................. (122) (121)
Recognized gains ............................... 171 45
Prior service cost recognized .................. 452 445
- ------------------------------------------------------------------------------
Net periodic pension cost ...................... $ 1,531 $ 1,254
==============================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $10.3 million, $8.1 million, and $5.1 million,
respectively, as of December 31, 1998 and $9.3 million, $7.4 million, and $4.3
million, respectively, as of December 31, 1997.
22
<PAGE> 25
Notes to Consolidated Financial Statements
(Continued)
The Company also sponsors a defined contribution plan which covers
substantially all of its salaried employees and a non-qualified defined
contribution plan which covers certain of its salaried employees. Expenses
related to the defined contribution plans were $1.1 million, $1.1 million, and
$1.2 million, in 1998, 1997, and 1996, respectively.
In 1998 and 1997, the Company changed the weighted-average discount rates
which increased the projected benefit obligation by approximately $1.2 million
and $2.0 million at December 31, 1998 and 1997, respectively.
In accordance with SFAS No. 87, "Employers' Accounting for Pension Costs",
the Company recorded an additional minimum pension liability which reduced
comprehensive income by $45,000 and $145,000 in 1998 and 1997, respectively.
5. Stock Incentive and Bonus Plans
In 1998, the Company adopted, subject to shareholder approval, the 1998
Stock Incentive Plan (the "1998 Plan") under which employees may be granted
options to purchase shares of the Company's authorized but unissued stock and
stock appreciation rights. The Company has reserved 2,000,000 shares for
issuance under the 1998 Plan.
On December 31, 1998, 1,470,000 stock options were granted under the 1998
Plan. These options have an exercise price equal to the fair market value of the
shares of the Company at the date of grant, become vested ratably over five
years, and expire ten years from the date of grant. To date, no stock
appreciation rights have been granted.
The following table summarizes the activity of the 1998 Plan:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1998 ........................ -- --
Granted ............................................... 1,470,000 $11.94
Exercised ............................................. -- --
Canceled .............................................. -- --
- ---------------------------------------------------------------------------------------
Outstanding at December 31, 1998 ...................... 1,470,000 $11.94
- ---------------------------------------------------------------------------------------
</TABLE>
There were no exercisable options at December 31, 1998. At December 31,
1998, an aggregate of 530,000 shares remain available for grant under the 1998
Plan.
The Company accounts for employee stock options under APB Opinion No. 25,
"Accounting for Stock-Based Compensation." The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense has been recognized for the
stock option plans.
The weighted-average fair value of options granted under the 1998 Plan was
estimated at $3.15 on the date of grant using the Black- Scholes option-pricing
model with the following weighted-average assumptions: 6.7% dividend yield,
expected volatility of 30.3%, risk free rate of return of 5.5% and expected
lives of 5 years. The estimated fair value of options granted is subject to the
assumptions made and if the assumptions changed, the estimated fair value
amounts could be significantly different.
However, as the options were granted on December 31, 1998, the effect of
applying SFAS No. 123's fair value method to the Company's options results in
net income and earnings per share that are not materially different from amounts
reported in the accompanying financial statements. In future years, application
of the fair value method is likely to have a material effect on the pro forma
amounts, and in such an instance, disclosure will be made.
The Company's Stock Bonus Plan, as amended, covers its key employees
excluding members of the Ruger family. Pursuant to the Plan, awards are made of
Common Stock and a cash bonus approximating the estimated income tax on the
awards. At December 31, 1998, 502,000 shares of Common Stock were reserved for
future awards.
6. Contingent Liabilities
The Company is a defendant in approximately 10 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 or negligence by the Company are unfounded, and that the
shootings 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.
23
<PAGE> 26
Notes to Consolidated Financial Statements
(Continued)
In 1995, the Company was a named defendant, along with numerous other
firearms 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 proceeded to trial in January
1999, and the jury verdict resulted in complete exoneration of the Company. 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, 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. The number of lawsuits and
claims that were tried, dismissed, settled or otherwise resolved and average
settlement payments (excluding legal fees) were as follows: 1998-21 and $31,000,
1997-14 and $44,000, and 1996-21 and $45,000. Total cash payments, including
legal fees, related to product liability management were $2.2 million, $1.4
million, and $2.3 million in 1998, 1997, and 1996, respectively.
7. 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.
The Company evaluates performance and allocates resources, in part, based
on profit or loss before taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies (see Note 1). Intersegment sales are recorded at the
Company's cost plus a fixed profit percentage.
The Company's assets are located entirely in the United States and export
sales are insignificant.
Revenues from one customer in the firearms segment totaled $22.2 million,
$23.8 million, and $28.8 million in 1998, 1997, and 1996, respectively. Revenues
from one customer in the castings segment totaled $41.9 million, $51.6 million,
and $59.7 million in 1998, 1997, and 1996, respectively.
<TABLE>
<CAPTION>
Year ended December 31, (in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Firearms ................................. $144,898 $141,863 $148,829
Castings
Unaffiliated ........................... 66,682 67,520 74,466
Intersegment ........................... 25,322 20,698 21,128
- --------------------------------------------------------------------------------
92,004 88,218 95,594
Eliminations ............................. (25,322) (20,698) (21,128)
- --------------------------------------------------------------------------------
$211,580 $209,383 $223,295
================================================================================
Income Before Income Taxes
Firearms ................................. $ 33,166 $ 31,811 $ 32,688
Castings ................................. 4,320 13,663 21,474
Corporate ................................ 1,886 1,165 2,673
- --------------------------------------------------------------------------------
$ 39,372 $ 46,639 $ 56,835
================================================================================
Identifiable Assets
Firearms ................................. $ 79,633 $ 75,024 $ 80,504
Castings ................................. 43,760 50,097 58,239
Corporate ................................ 73,341 74,673 51,147
- --------------------------------------------------------------------------------
$196,734 $199,794 $189,890
================================================================================
Depreciation
Firearms ................................. $ 4,774 $ 4,413 $ 4,550
Castings ................................. 5,521 4,795 3,038
- --------------------------------------------------------------------------------
$ 10,295 $ 9,208 $ 7,588
================================================================================
Capital Expenditures
Firearms ................................. $ 3,011 $ 1,350 $ 2,899
Castings ................................. 2,958 3,161 4,726
- --------------------------------------------------------------------------------
$ 5,969 $ 4,511 $ 7,625
================================================================================
</TABLE>
24
<PAGE> 27
Notes to Consolidated Financial Statements
(Continued)
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, 1998 (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------------------
3/31/98 6/30/98 9/30/98 12/31/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .............................. $58,521 $59,997 $43,373 $49,689
Gross profit ........................... 16,324 17,318 7,933 12,957
Net income ............................. 7,162 8,407 2,454 5,403
Basic and diluted earnings per share ... 0.27 0.31 0.09 0.20
<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
Basic and diluted earnings per share ... 0.29 0.28 0.18 0.28
</TABLE>
The sum of the quarters' earnings 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 1998
resulting from changes in estimates that were material to the operating results
of the quarter. These adjustments related primarily to LIFO inventory valuation
and increased net income in the fourth quarter of 1998 by approximately $3.1
million or $.07 per share.
25
<PAGE> 28
Report of Independent Auditors
[Letterhead of Ernst & Young LLP]
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
February 12, 1999
26
<PAGE> 29
Stockholder Information
Common Stock Data
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "RGR". At February 12, 1999 the Company had 1,992 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>
1998:
First Quarter ............................ $20.94 $17.13 $ .20
Second Quarter ........................... 21.19 16.56 .20
Third Quarter ............................ 17.38 13.44 .20
Fourth Quarter ........................... 15.94 10.56 .20
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
</TABLE>
Items of Interest to Stockholders
Annual Meeting
The Annual Meeting of Stockholders will be held on May 13, 1999 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
311 W. Monroe Street, 11th Floor
Chicago, Illinois 60606
312-360-5190
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 1998 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
Facilities
Southport, Connecticut
Corporate Headquarters
Newport, New Hampshire
Firearms Division
Pine Tree Castings Division
Prescott, Arizona
Firearms Division
Ruger Investment Casting Division
Antelope Hills, LLC
Manchester, New Hampshire
Uni-Cast Division
27
<PAGE> 30
Directors and Officers
Directors
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Sturm, Ruger Board of Directors, January 1999 meeting.
Back Row (L to R) Service, Kingsley, Cunniff, Sanetti, Terhune, Kelley. Front
Row (L to R) Ruger, Ruger, Jr., Hornor.
**William B. Ruger
Chairman,
Chief Executive Officer,
and Treasurer
*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,
Chief Executive Officer,
and Treasurer
William B. Ruger, Jr.
Vice Chairman,
Senior Executive Officer,
President, and
Chief Operating Officer
Stephen L. Sanetti
Vice President,
General Counsel
[PHOTO OMITTED]
Erle G. Blanchard
Vice President,
Controller
[PHOTO OMITTED]
Leslie M. Gasper
Corporate Secretary
28
<PAGE> 31
- --------------------------------------------------------------------------------
Walter P. Sych
- --------------
Ruger Awards
50-Year Employee
Special Presentation
Shotgun
[PHOTO OMITTED]
Bill Ruger (right)
with Walter Sych
(left), 1999
On the 50th Anniversary of its founding, Sturm, Ruger & Company, Inc.
awarded its longest-term employee, Walter P. Sych of Fairfield, Connecticut, a
uniquely engraved special presentation version of its famous Ruger Woodside
Shotgun.
Chairman William B. Ruger, who founded the Company along with Alexander
Sturm, in 1949, made the presentation honoring Walter Sych for his fifty
continuous years of faithful service to the Company. Mr. Ruger said, "Walter and
I go back to the very origins of Sturm, Ruger. Through his dedicated efforts,
and those of thousands of employees during the last half-century, this Company
has grown to become a model of American manufacturing efficiency. In a sense,
this fine shotgun is being symbolically presented to all our employees, past and
present, who strived for and achieved the excellence in the design and
production of Ruger firearms that has always been our goal. For their unswerving
loyalty and efforts, I am profoundly grateful."
[PHOTO OMITTED]
Alexander Sturm
(far left) and
Walter Sych (far
right), 1949
Mr. Sych was hired on July 13, 1949, when the Company had only six
employees, made one product, and was located in what was a small red barn
(pictured on page 1) next to the railroad station in the quiet Connecticut
hamlet of Southport.
29
<PAGE> 32
Arms Makers
for
Responsible
Citizens
[LOGO]
Sturm, Ruger & Company, Inc.
One Lacey Place
Southport
Connecticut 06490
203 259 7843
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 12, 1999, included
in the 1998 Annual Report to Stockholders of Sturm, Ruger & Company, Inc.
Our audit 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 12, 1999
61
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1,000
<CASH> 4,680
<SECURITIES> 43,247
<RECEIVABLES> 26,233
<ALLOWANCES> 3,187
<INVENTORY> 47,522
<CURRENT-ASSETS> 127,615
<PP&E> 144,918
<DEPRECIATION> 93,833
<TOTAL-ASSETS> 196,734
<CURRENT-LIABILITIES> 25,220
<BONDS> 0
0
0
<COMMON> 26,911
<OTHER-SE> 127,653
<TOTAL-LIABILITY-AND-EQUITY> 196,734
<SALES> 211,580
<TOTAL-REVENUES> 211,580
<CGS> 157,048
<TOTAL-COSTS> 157,048
<OTHER-EXPENSES> 19,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,372
<INCOME-TAX> 15,946
<INCOME-CONTINUING> 23,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,426
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
