<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4776
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STURM, RUGER & COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-0633559
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lacey Place, Southport, Connecticut 06490
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(Address of principal executive (Zip code)
offices)
(203) 259-7843
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the issuer's common stock as of
October 31, 2000: Common Stock, $1 par value - 26,910,720.
Page 1 of 22
<PAGE> 2
INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
-----------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 2000 and
December 31, 1999 3
Condensed consolidated statements of income--Three months ended September 30,
2000 and 1999; Nine months ended September 30, 2000 and 1999 5
Condensed consolidated statements of cash flows--Nine months ended
September 30, 2000 and 1999 6
Notes to condensed consolidated financial statements--September 30, 2000 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,011 $ 8,164
Short-term investments 68,143 70,611
Trade receivables, less allowances for
doubtful accounts ($1,267 and $1,392) and
discounts ($1,793 and $1,749) 20,459 20,270
Inventories:
Finished products 13,479 9,467
Materials and products in process 34,659 28,518
--------------- --------------
48,138 37,985
Deferred income taxes 10,139 8,700
Prepaid expenses and other assets 1,078 1,123
--------------- --------------
Total Current Assets 152,968 146,853
Property, plant and equipment 149,082 149,433
Less allowances for depreciation (106,114) (102,567)
--------------- --------------
42,968 46,866
Deferred income taxes 2,531 2,979
Other assets 16,478 14,887
--------------- --------------
$214,945 $211,585
=============== ==============
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- --------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and accrued expenses $ 10,464 $ 5,623
Product safety modifications 502 598
Product liability 3,000 3,000
Employee compensation 9,365 11,158
Workers' compensation 4,803 4,975
Income taxes 1,422 2,906
---------------- --------------
Total Current Liabilities 29,556 28,260
Product liability accrual 15,161 16,499
Contingent liabilities --Note 7 -- --
Stockholders' Equity
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued -- --
Common Stock, par value $1:
Authorized shares - 40,000,000
Issued and outstanding - 26,910,720 26,911 26,911
Additional paid-in capital 2,434 2,434
Retained earnings 141,016 137,614
Accumulated other comprehensive income (133) (133)
---------------- --------------
170,228 166,826
---------------- --------------
$214,945 $211,585
================ ==============
</TABLE>
Note:
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
<PAGE> 5
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Firearms sales $33,985 $42,651 $122,674 $139,518
Castings sales 9,049 12,793 29,184 41,835
------------- -------------- -------------- --------------
Net sales 43,034 55,444 151,858 181,353
Cost of products sold 31,949 39,826 109,762 131,024
------------- -------------- -------------- --------------
11,085 15,618 42,096 50,329
Expenses:
Selling 3,544 3,344 10,466 9,823
General and administrative 1,360 1,534 4,309 4,627
------------- -------------- -------------- --------------
4,904 4,878 14,775 14,450
------------- -------------- -------------- --------------
6,181 10,740 27,321 35,879
Other income-net 1,382 993 4,833 2,610
------------- -------------- -------------- --------------
Income before income taxes 7,563 11,733 32,154 38,489
Income taxes 2,964 4,752 12,604 15,588
------------- -------------- -------------- --------------
Net income $ 4,599 $ 6,981 $ 19,550 $ 22,901
============= ============== ============== ==============
Basic and diluted earnings per share $0.17 $0.26 $0.73 $0.85
===== ===== ===== =====
Cash dividends per share $0.20 $0.20 $0.60 $0.60
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---------------------------------
<S> <C> <C>
Cash Provided By Operating Activities $12,464 $ 47,955
Investing Activities
Property, plant and equipment additions (4,297) (3,040)
Purchases of short-term investments (106,497) (133,603)
Proceeds from maturities of short-term investments 108,965 106,351
Net proceeds from sale of non-manufacturing real estate 1,978 169
Net proceeds from sale of Uni-Cast assets 382 --
--------------- ----------------
Cash provided by (used in)
investing activities 531 (30,123)
--------------- ----------------
Financing Activities
Dividends paid (16,148) (16,148)
--------------- ----------------
Cash used in financing activities (16,148) (16,148)
--------------- ----------------
(Decrease)increase in cash and cash equivalents (3,153) 1,684
Cash and cash equivalents at beginning of period 8,164 4,680
--------------- ----------------
Cash and cash equivalents at end of period $5,011 $ 6,364
=============== ================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
NOTE 1--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the results
of the interim periods. Operating results for the nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for the
full year ending December 31, 2000. For further information refer to the
consolidated financial statements and footnotes thereto included in the Sturm,
Ruger & Company, Inc. Annual Report on Form 10-K for the year ended December 31,
1999.
NOTE 2--Significant Accounting Policies
Organization: Sturm, Ruger & Company, Inc. ("Company") is principally
engaged in the design, manufacture, and sale of firearms and investment
castings. The Company's design and manufacturing operations are located in the
United States. Substantially all sales are domestic. The Company's firearms are
sold through a select number of distributors to the sporting and law enforcement
markets. Investment castings are sold either directly or through manufacturers'
representatives to companies in a wide variety of industries.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3--Inventories
Inventories are valued using the last-in, first-out (LIFO) method. An
actual valuation of inventory under the LIFO method can be made only at the end
of each year based on the inventory levels and costs existing at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 4--Income Taxes
The Company's effective tax rate differs from the statutory tax rate
principally as a result of state income taxes. Total income tax payments during
the nine months ended September 30, 2000 and 1999 were $15.1 million and $15.7
million, respectively.
NOTE 5-- Basic and Diluted Earnings Per Share
Basic and diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the impact of options outstanding using the treasury stock
method, when applicable.
NOTE 6--Comprehensive Income
As there were no non-owner changes in equity during the first nine
months of 2000 and 1999, total comprehensive income equals net income for the
three and nine months ended September 30, 2000 and 1999, or $4.6 million and
$7.0 million, and $19.6 million and $22.9 million, respectively.
NOTE 7--Contingent Liabilities
As of September 30, 2000 the Company is a defendant in approximately 44
lawsuits involving its products and is aware of certain other such claims. These
lawsuits and claims fall within two categories:
(i) those that claim damages from the Company related to allegedly defective
product design which stem from a specific incident. 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,
and
(ii) those brought by cities, municipalities, counties, individuals (including
certain putative class actions) and one state Attorney General against
numerous firearms manufacturers, distributors and dealers seeking to
recover damages allegedly arising out of the misuse of firearms by third
parties in the commission of homicides, suicides and other shootings
involving juveniles and adults. The complaints by municipalities seek
damages, among other things, for the costs of medical care, police and
emergency services, public health services, and the maintenance of
courts, prisons, and other services. In certain instances, the plaintiffs
seek to recover for decreases in property values and loss of business
within the city due to criminal violence. In addition, nuisance abatement
and/or injunctive relief is sought to change the design, manufacture,
marketing and distribution practices of the various defendants. These
suits allege, among other claims, strict liability or negligence in the
design of products, public nuisance, negligent entrustment, negligent
distribution, deceptive or fraudulent advertising, violation of consumer
protection statutes and conspiracy or concert of action theories. None of
these cases allege a specific injury to a specific individual as a result
of the misuse or use of any of the Company's products.
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
Management believes that, in every case, the allegations are unfounded,
and that the shootings and any results therefrom were due to negligence or
misuse of the firearms by third-parties or the claimant, and that there should
be no recovery against the Company. Defenses further exist to the suits brought
by cities, municipalities, counties, and the Attorney General based, among other
reasons, on established state law precluding recovery by municipalities for
essential government services, the remoteness of the claims, the types of
damages sought to be recovered, and limitations on the extraterritorial
authority which may be exerted by a city, municipality, county or state county
under state and federal law, including State and Federal Constitutions.
The only case against the Company alleging liability for criminal
shootings by third-parties to ever be permitted to go before a jury, Hamilton,
et. al. v. Accu-tek, et. al., resulted in a defense verdict in favor of the
Company on February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. The Court upheld the verdict of the jury
and dismissed each case as to the Company in its later opinion. The three
defendants found liable have filed a notice of appeal from the Court's decision.
On August 16, 2000, the U.S. 2nd Circuit Court of Appeals certified certain
questions involving the appeal to the Appellate Division of the New York State
Supreme Court for resolution.
On October 7, 1999 a lawsuit brought against the Company and numerous
firearms manufacturers and distributors by the mayor of Cincinnati, City of
Cincinnati v. Beretta U.S.A. Corp., et. al., was dismissed. This was the first
dismissal of one of the lawsuits which have been filed by certain cities,
municipalities and counties. The Ohio Court of Appeals affirmed this decision on
August 11, 2000. Such lawsuits filed by the cities of Bridgeport, Connecticut,
Miami, Florida and Chicago, Illinois have been completely dismissed and that
filed by the city of Atlanta has been partially dismissed. The Cleveland suit
has withstood an initial motion to dismiss in the trial court, and in New
Orleans the Court declared legislation passed to prohibit such suits
unconstitutional. The Detroit/Wayne County case was also partially dismissed,
and the Michigan legislature has passed legislation precluding such suits. The
Boston case and the California city claims (consolidated into one case) have
been permitted to proceed into the discovery phase. Appeals of all trial court
decisions are pending or will be filed when appropriate. Motions to dismiss
other such lawsuits are pending or will be filed when timely.
The Company management monitors the status of known claims and the
product liability accrual, which includes amounts for asserted and unasserted
claims. While it is not possible to forecast the outcome of litigation or the
timing of costs, in the opinion of management, after consultation with special
and corporate counsel, it is not probable and is unlikely that litigation,
including punitive damage claims, will have a material adverse effect on the
financial position of the Company, but may have a material impact on the
Company's financial results for a particular period.
Punitive damages, as well as compensatory damages, are demanded in many
of the lawsuits and claims. Aggregate claimed amounts presently exceed product
liability accruals and applicable insurance coverage. 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
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
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.
On March 17, 2000, Smith & Wesson announced that it had reached a settlement to
conclude some of the municipal lawsuits with various governmental entities. On
March 30, 2000, the Office of the Connecticut Attorney General began an
investigation of certain alleged "anticompetitive practices in the firearms
industry." On April 17, the State of Maryland's Attorney General also made
similar inquiries as to the Company. On August 9, 2000, the U.S. Federal Trade
Commission also filed such a civil investigative demand regarding the Smith &
Wesson settlement. The Company has not engaged in any improper conduct and has
cooperated with these investigations.
The Company has reported all cases instituted against it through June 30, 2000
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.
10
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 8--Operating Segment Information
The Company has two reportable segments: firearms and investment
castings. The firearms segment manufactures and sells rifles, pistols,
revolvers, and shotguns principally to a select number of independent wholesale
distributors primarily located in the United States. The investment castings
segment consists of two operating divisions which manufacture and sell titanium
and steel investment castings. Selected operating segment financial information
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Firearms $33,985 $42,651 $122,674 $ 139,518
Castings
Unaffiliated 9,049 12,793 29,184 41,835
Intersegment 7,784 5,116 22,853 19,156
------------------------------------------------------------------------------------------------------
16,833 17,909 52,037 60,991
Eliminations (7,784) (5,116) (22,853) (19,156)
------------------------------------------------------------------------------------------------------
$43,034 $55,444 $151,858 $181,353
------------------------------------------------------------------------------------------------------
Income Before Income Taxes
Firearms $6,231 $10,163 $26,952 $34,337
Castings 348 1,011 1,426 2,814
Corporate 984 559 3,776 1,338
------------------------------------------------------------------------------------------------------
$7,563 $11,733 $32,154 $38,489
------------------------------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
2000 1999
----------------------------------
<S> <C> <C>
Identifiable Assets
Firearms $80,373 $71,756
Castings 33,700 35,753
Corporate 100,872 104,076
----------------------------------
$214,945 $211,585
----------------------------------
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company achieved consolidated net sales of $43.0 million and $151.9
million for the three and nine months ended September 30, 2000, respectively.
This represents decreases of 22.4% and 16.3% from the respective 1999
consolidated net sales of $55.4 million and $181.4 million.
Firearms segment net sales decreased by $8.7 million or 20.3% in the
third quarter of 2000 to $34.0 million from $42.7 million in the third quarter
of the prior year. For the nine months ended September 30, 2000, firearms
segment net sales decreased by $16.8 million or 12.1% to $122.7 million,
compared to the corresponding 1999 period. Firearms unit shipments decreased
26.2% for the three-month period and 18.3% for the nine-month period ended
September 30, 2000 from the comparable 1999 periods. The unit decrease reflects
a decline in overall market demand with the exception of double action and
single action revolvers, which increased by 17.4% in the third quarter of 2000.
The Company's Fiftieth Anniversary commemorative models which were available
exclusively in 1999 may have increased firearms unit sales in the second quarter
of 1999. Partially compensating for this reduced demand during 2000 was a
special promotion in September 2000 that allowed for an 11% discount on certain
of the Company's rifles and shotguns which favorably impacted the third quarter
of 2000. The Company anticipates that total firearms sales in 2000 may be below
the level achieved in 1999. In 2000, the Company instituted a sales incentive
program for its distributors that allows them to earn rebates of up to 15% if
certain annual overall sales targets are achieved. This program replaces a
similar program offered in 1999.
Casting segment net sales decreased by $3.7 million or 29.3% to $9.0
million in the three months ended September 30, 2000 from $12.8 million in the
third quarter of 1999. For the nine months ended September 30, 2000, casting
segment net sales decreased $12.7 million or 30.2% to $29.2 million. The
reduction in casting segment sales for the three and nine months ended September
30,2000 from the comparable 1999 periods was principally due to a decrease in
golf club heads shipped to Callaway Golf Company, Inc. Shipments to other golf
companies (primarily Karsten Manufacturing Corporation) for the first nine
months of 2000, increased 136% from the comparable 1999 period, and partially
offset this decrease. Increased shipments of non-golf products, including marine
propellers, also partially compensated for the decrease in club head shipments.
The Company anticipates that total casting segment sales in 2000 may be below
the level achieved in 1999. The Company continues to actively pursue other
titanium and steel casting business opportunities.
Consolidated cost of products sold for the third quarter of 2000 and the
nine months ended September 30, 2000 was $31.9 million and $109.8 million
compared to $39.8 million and $131.0 million in the corresponding 1999 periods,
respectively, representing a decrease of 19.8% and 16.2%, respectively. This was
primarily attributable to decreased firearms and casting segment sales during
the third quarter and the nine months ended September 30, 2000.
Gross profit as a percentage of net sales remained consistent at 27.7%
for the nine-month period ended September 30, 2000, as compared to 27.8% in the
comparable 1999 period. For the third quarter of 2000, gross profit as a
percent of net sales decreased to 25.8% from 28.2% in the third quarter of
1999. Margin erosion in the quarter was caused by lower sales partially offset
by lower product liability expenses than were experienced in 1999.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Selling, general and administrative expenses of $4.9 million remained
consistent for the quarters ended September 30, 2000 and 1999. For the nine
months ended September 30, 2000, selling, general and administrative expenses
increased slightly to $14.8 million from $14.5 million in 1999 due to increased
national advertising initiatives incurred in the first half of 2000 compared to
the first half of 1999.
Other income-net increased by $0.4 million in the three months ended
September 30, 2000 compared to the third quarter of 1999 and increased $2.2
million in the nine months ended September 30, 2000 compared to the
corresponding 1999 period. The increase for the nine month period reflects a
gain on the sale of non-manufacturing real estate in the second quarter of 2000.
The increase for the quarter is due to increased earnings on Treasury Bill and
Treasury Bond investments as a result of increased principal and improved
interest rates.
The effective income tax rate of 39.2% in the third quarter and nine
months ended September 30, 2000, compared to 40.5% in the corresponding 1999
periods, reflects lower effective state tax rates.
As a result of the foregoing factors, consolidated net income for the
three and nine months ended September 30, 2000 decreased to $4.6 million and
$19.6 million, respectively, from $7.0 million and $22.9 million for the three
and nine months ended September 30, 1999, respectively, representing decreases
of $2.4 million or 34.1% and $3.3 million or 14.6%, respectively.
Financial Condition
At September 30, 2000, the Company had cash, cash equivalents and
short-term investments of $73.2 million, working capital of $123.4 million and a
current ratio of 5.2 to 1.
Cash provided by operating activities was $12.5 million and $48.0
million for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in cash provided by operating activities for the 2000 period is
principally a result of the increase in inventories in the first nine months of
2000 compared to a reduction in inventories in the comparable 1999 period and
various other working capital requirements.
The Company follows an industry-wide practice of offering a "dating
plan" to its firearms customers on selected products, which allows the
purchasing distributor to buy the products commencing in December, the start of
the Company's dating plan year, and pay for them on extended terms. Discounts
are offered for early payment. The dating plan provides a revolving payment plan
under which payments for all shipments made during the period December through
February have to be made by April 30. Shipments made in subsequent months have
to be paid for within approximately 90 days. The Company has reserved the right
to discontinue the dating plan at any time and has been able to finance this
dating plan from internally generated funds provided by operating activities.
Capital expenditures during the nine months ended September 30, 2000
totaled $4.3 million. For the past two years capital expenditures averaged
approximately $1.3 million per quarter. For the fourth quarter of 2000, the
Company expects to spend approximately $2 million on capital expenditures to
upgrade and modernize manufacturing equipment. The Company finances, and intends
to continue to finance, all of these activities with funds provided by
operations.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
For the nine months ended September 30, 2000 dividends paid totaled
$16.1 million. This amount reflects the regular quarterly dividend of $.20 per
share paid in March, June and September 2000. On October 24, 2000 the Company
declared a regular quarterly dividend of $.20 per share payable on December 15,
2000. Future dividends depend on many factors, including internal estimates of
future performance and the Company's need for funds.
Historically, the Company has not required external financing. Based on
its cash flow and unencumbered assets, the Company believes it has the ability
to raise substantial amounts of short-term or long-term debt. The Company does
not anticipate any need for external financing through 2000.
The purchase of firearms is subject to many 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 is a defendant in certain lawsuits involving its products and
is aware of certain other such claims. The Company has expended significant
amounts of financial resources and management time in connection with product
liability litigation. Management believes that, in every case, the allegations
are unfounded, and that the shootings and any results therefrom were due to
negligence or misuse of the firearm by third parties or the claimant, and that
there should be no recovery against the Company. Defenses further exist to the
suits brought by cities, municipalities, counties, and the Attorney General
based, among other reasons, on established state law precluding recovery by
municipalities for essential government services, the remoteness of the claims,
the types of damages sought to be recovered, and limitations on the
extraterritorial authority which may be exerted by a city, municipality, county
or state county under state and federal law, including State and Federal
Constitutions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
The only case against the Company alleging liability for criminal
shootings by third-parties to ever be permitted to go before a jury, Hamilton,
et. al. v. Accu-tek, et. al., resulted in a defense verdict in favor of the
Company on February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. The Court upheld the verdict of the jury
and dismissed each case as to the Company in its later opinion. The three
defendants found liable have filed a notice of appeal from the Court's decision.
On August 16, 2000, the U.S. 2nd Circuit Court of Appeals certified certain
questions involving the appeal to the Appellate Division of the New York State
Supreme Court for resolution.
On October 7, 1999 a lawsuit brought against the Company and numerous
firearms manufacturers and distributors by the mayor of Cincinnati, City of
Cincinnati v. Beretta U.S.A. Corp., et. al., was dismissed. This was the first
dismissal of one of the lawsuits which have been filed by certain cities,
municipalities and counties. The Ohio Court of Appeals affirmed this decision on
August 11, 2000. Such lawsuits filed by the cities of Bridgeport, Connecticut,
Miami, Florida and Chicago, Illinois have been completely dismissed and that
filed by the city of Atlanta has been partially dismissed. The Cleveland suit
has withstood an initial motion to dismiss in the trial court, and in New
Orleans the Court declared legislation passed to prohibit such suits
unconstitutional. The Detroit/Wayne County case was also partially dismissed,
and the Michigan legislature has passed legislation precluding such suits. The
Boston case and the California city claims (consolidated into one case) have
been permitted to proceed into the discovery phase. Appeals of all trial court
decisions are pending or will be filed when appropriate. Motions to dismiss
other such lawsuits are pending or will be filed when timely.
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 not possible to forecast the outcome of litigation or the
timing of costs, in the opinion of management, after consultation with special
and corporate counsel, it is not probable and is unlikely that litigation,
including punitive damage claims, will have a material adverse effect on the
financial position of the Company, but may have a material impact on the
Company's financial results for a particular period.
In the normal course of its manufacturing operations, the Company is
subject to occasional governmental proceedings and orders pertaining to waste
disposal, air emissions and water discharges into the environment. The Company
believes that it is generally in compliance with applicable environmental
regulations and the outcome of such proceedings and orders will not have a
material adverse effect on its business.
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carry back against taxes previously
paid.
Inflation's effect on the Company's operations is most immediately felt
in cost of products sold because the Company values inventory on the LIFO basis.
Generally under this method, the cost of products sold reported in the financial
statements approximates current costs, and thus, reduces distortion in reported
income which would result from the slower recognition of increased costs when
other methods are used. The use of historical cost depreciation has a beneficial
effect on cost of products sold. The Company has been affected by inflation in
line with the general economy.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
In 1999, the Company completed an assessment of the Year 2000 issue as
it related to information technology systems, non-information technology
applications, and third parties. Currently, the Company has not experienced any
material Year 2000 problems with its internal systems, and is not aware of any
such problems experienced by its customers, vendors or other third parties.
However, if latent Year 2000 problems exist in internal systems or Year 2000
problems exist with third parties and remain unknown, the Company may experience
an adverse material impact related to Year 2000.
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, the need for external financing for operations or capital
expenditures, the results of pending litigation against the Company including
lawsuits filed by mayors, attorneys general and other governmental entities and
membership organizations, 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. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
such forward-looking statements are made or to reflect the occurrence of
subsequent unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in prevailing market interest rates
affecting the return on its investments but does not consider this interest rate
market risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in United States Treasury Bills and
United States Treasury Bonds 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the legal proceedings against the Company is discussed in
Note 7 to the condensed consolidated financial statements included in this Form
10-Q report, which is incorporated herein by reference.
The Company has reported all cases instituted against it through June
30, 2000, 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.
The following cases were instituted against the Company during the three
months ended September 30, 2000, which involved significant demands for
compensatory and/or punitive damages:
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LEGAL PROCEEDINGS--CONTINUED
City of New York, et. al. v. Arms Technology, Et. et. al. (NY) in the
United States District Court for the Eastern District of New York. The Company
learned of this complaint on June 20, 2000, but was not served until September
6, 2000. The complaint alleges that the defendants have created, contributed to,
and maintained a public nuisance to the City of New York because of their
allegedly negligent marketing and distribution practices. The complaint also
alleges that the defendants have failed to design firearms with safety devices,
and have allegedly failed to provide adequate warnings. Plaintiffs seek
injunctive relief, compensatory, general and punitive damages, plus other costs
to be determined by the Court.
People of the State of New York, et. al. v. Company, et. al. (NY) in the
New York State Supreme Court, County of New York. The Company learned of this
complaint on June 26, 2000, but was not served until August 4, 2000. The
complaint alleges that the defendants have contributed to and maintained a
public nuisance to the State of New York allegedly through negligent marketing,
advertising, and distribution practices. Plaintiffs are seeking injunctive
relief, plus other costs to be determined by the Court.
Stephen Tracy Anderson, et. al. v. Bryco Arms, et. al. (IL) in the
Circuit Court of Cook County, Illinois. The Company learned of this complaint on
June 29, 2000, but was not served until July 7, 2000. The complaint alleges that
plaintiffs were injured by Benjamin Smith using various types of firearms, one
injured party sustaining injuries arising out of the use of a Ruger handgun.
Damages and other costs to be determined by the Court are demanded.
James Foster-el, et. al. v. Beretta, U.S.A. Corp., et. al. (DC) in the
Superior Court for the District of Columbia. The Company learned of this
complaint on July 7, 2000. The complaint alleges that the plaintiff's wife was
fatally injured during a neighborhood dispute by an assailant utilizing a
handgun of unknown manufacture. Plaintiffs seek general, special, compensatory,
and punitive damages, injunctive relief, and other costs to be determined by the
Court.
Rose Binkley, et. al. v. Company (MI) in the Court of the County of
Eaton, State of Michigan. The complaint, which was served on September 26, 2000,
alleges that plaintiff's son was fatally injured by George Campbell arising out
of the use of a Ruger rifle, allegedly while also abusing alcohol and marijuana.
Damages and other costs to be determined by the Court are demanded.
During the three months ending September 30, 2000, one
previously-reported case was settled:
Case Name Jurisdiction
Kurthy California
The settlement amount was within the Company's limits of its
self-insurance coverage.
The public nuisance claims in the case of The City of Chicago (IL) were
dismissed as to all defendants by the Circuit Court of Cook County on September
15, 2000. Negligence claims had previously been dismissed by the trial court.
The case has now been dismissed in its entirety. Plaintiffs have said they will
appeal this dismissal.
The dismissal of the previously-reported case of City of Cincinnati (OH)
was affirmed by the Ohio Court of Appeals on August 11, 2000. It is unknown at
this time if the city will attempt a further appeal.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
---------------------------------------
Date: November 3, 2000 S/ERLE G. BLANCHARD
---------------- ---------------------------------------
Erle G. Blanchard
Principal Financial and Accounting Officer,
Vice Chairman, President, Chief
Operating Officer and Treasurer
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