<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 March 31, 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 _______________
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)
<TABLE>
<CAPTION>
Delaware 06-0633559
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<S> <C>
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Lacey Place, Southport, Connecticut 06490
- -------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
(203) 259-7843
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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 April
30, 2000: Common Stock, $1 par value - 26,910,720.
Page 1 of 21
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INDEX
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 2000 and
December 31, 1999 3
Condensed consolidated statements of income--Three months ended
March 31, 2000 and 1999 5
Condensed consolidated statements of cash flows--Three months
ended March 31, 2000 and 1999 6
Notes to condensed consolidated financial statements--March 31, 2000 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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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>
March 31, December 31,
2000 1999
---------- ---------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,153 $ 8,164
Short-term investments 81,196 70,611
Trade receivables, less allowances for
doubtful accounts ($1,392 and $1,392) and
discounts ($899 and $1,749) 23,130 20,270
Inventories:
Finished products 8,756 9,467
Materials and products in process 30,669 28,518
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39,425 37,985
Deferred income taxes 9,154 8,700
Prepaid expenses and other assets 859 1,123
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Total Current Assets 158,917 146,853
Property, Plant and Equipment 150,786 149,433
Less allowances for depreciation (104,624) (102,567)
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46,162 46,866
Deferred income taxes 3,069 2,979
Other assets 14,903 14,887
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$ 223,051 $ 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>
March 31, December 31,
2000 1999
--------- ---------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and accrued expenses $ 8,574 $ 5,623
Product safety modifications 564 598
Product liability 3,000 3,000
Employee compensation 11,881 11,158
Workers' compensation 4,821 4,975
Income taxes 7,253 2,906
--------- ---------
Total Current Liabilities 36,093 28,260
Product liability accrual 16,488 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 26,910,700 26,911 26,911
Additional paid-in capital 2,434 2,434
Retained earnings 141,258 137,614
Accumulated other comprehensive income (133) (133)
--------- ---------
170,470 166,826
--------- ---------
$ 223,051 $ 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)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------------------------
<S> <C> <C>
Net firearms sales $51,095 $47,438
Net castings sales 8,794 15,453
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Total net sales 59,889 62,891
Cost of products sold 41,437 44,617
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18,452 18,274
Expenses:
Selling 3,648 3,220
General and administrative 1,418 1,649
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5,066 4,869
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13,386 13,405
Other income-net 1,459 684
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Income before income taxes 14,845 14,089
Income taxes 5,819 5,706
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Net income $ 9,026 $ 8,383
======= =======
Basic and diluted earnings per share $ 0.34 $ 0.31
======= =======
Cash dividends per share $ 0.20 $ 0.20
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
----------------------------
<S> <C> <C>
Cash Provided by Operating Activities $ 14,309 $ 20,974
Investing Activities
Property, plant and equipment additions (1,353) (660)
Purchases of short-term investments (41,355) (44,917)
Proceeds from sales or maturities of
short-term investments 30,770 30,045
-------- --------
Cash used by investing activities (11,938) (15,532)
-------- --------
Financing Activities
Dividends paid (5,382) (5,383)
-------- --------
Cash used by financing activities (5,382) (5,383)
-------- --------
Increase in cash and cash equivalents (3,011) 59
Cash and cash equivalents at beginning of period 8,164 4,680
-------- --------
Cash and cash equivalents at end of period $ 5,153 $ 4,739
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
STURM RUGER & COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 three months ended March 31,
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 to or through
manufacturers' representatives to companies in a wide variety of industries.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3--INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method. An
actual valuation of inventory under the LIFO method can be made only at the end
of each year based on the inventory levels and costs existing at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
7
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 4--INCOME TAXES
The Company's effective tax rate differs from the statutory tax rate
principally as a result of state income taxes. Total income tax payments during
the three months ended March 31, 2000 and 1999 were $2.0 million and $1.1
million, respectively.
NOTE 5--BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the impact of options outstanding using the treasury stock
method, when applicable.
NOTE 6--COMPREHENSIVE INCOME
As there were no non-owner changes in equity during the first quarter of
2000 and 1999, total comprehensive income equals net income, or $9.0 million and
$8.4 million, respectively.
NOTE 7--CONTINGENT LIABILITIES
As of March 31, 2000 the Company is a defendant in approximately 42
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, and individuals
(including certain putative class actions) 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
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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 and counties 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 or 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 be tried 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 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. Since that time, such lawsuits filed by the cities
of Bridgeport, Connecticut and Miami, Florida have been completely dismissed and
those filed by the cities of Chicago and Atlanta have 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. 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 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
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
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." The Company has not engaged in any improper conduct and is
cooperating with this investigation.
The Company has reported all cases instituted against it through December
31, 1999 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.
NOTE 8--OPERATING SEGMENT INFORMATION
The Company has two reportable segments: firearms and investment
castings. The firearms segment manufactures and sells rifles, pistols,
revolvers, and shotguns principally to a select number of independent wholesale
distributors primarily located in the United States. The investment castings
segment consists of three operating divisions which manufacture and sell
titanium, ferrous, and aluminum investment castings.
Selected operating segment financial information follows (in thousands):
<TABLE>
<CAPTION>
Quarter ended March 31, 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales
Firearms $ 51,095 $ 47,438
Castings
Unaffiliated 8,794 15,453
Intersegment 7,829 6,996
- ----------------------------------------------------------------------------------------------------
16,623 22,449
Eliminations (7,829) (6,996)
- ----------------------------------------------------------------------------------------------------
$ 59,889 $ 62,891
====================================================================================================
Income Before Income Taxes
Firearms $ 13,183 $ 12,485
Castings (a) 570 1,382
Corporate 1,092 222
- ----------------------------------------------------------------------------------------------------
$ 14,845 $ 14,089
====================================================================================================
March 31, December 31,
Identifiable Assets 2000 1999
--------- ---------
Firearms $ 75,294 $ 71,756
Castings 35,316 35,753
Corporate 112,441 104,076
- ----------------------------------------------------------------------------------------------------
$ 223,051 $ 211,585
====================================================================================================
</TABLE>
(a) Income before income taxes for the quarter ended March 31, 2000 was
favorably impacted by an inventory adjustment of $1.3 million.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales of $59.9 million were achieved by the Company in
the first quarter of 2000. This represents a decrease of $3.0 million or 4.8%
from the first quarter of 1999 consolidated net sales of $62.9 million.
Firearms segment net sales were $51.1 million in the first quarter of
2000 compared to $47.4 million in the corresponding 1999 period, an increase of
$3.7 million or 7.7%. Firearms unit shipments increased 1.3%. In 2000, the
Company instituted a sales incentive program for its distributors which allows
them to earn rebates of up to 15% if certain annual overall sales targets are
achieved. This program replaces a similar program offered in 1999.
Castings segment net sales decreased 43.1% from $15.5 million in the
first quarter of 1999 to $8.8 million in the first quarter of 2000. This was
primarily due to decreased shipments of titanium golf club heads to Callaway
Golf Company, Inc. partially offset by increased club head sales to other
customers. The Company anticipates that total casting segment sales in 2000 may
be below the level achieved in 1999.
Consolidated cost of products sold for the first quarter of 2000 was
$41.4 million compared to $44.6 million for the first quarter of 1999, a
decrease of $3.2 million or 7.1%. This was primarily attributable to lower
casting segment sales, as discussed above.
Gross profit as a percentage of net sales increased to 30.8% in the first
quarter of 2000 from 29.1% in the comparable 1999 period. This improvement is
primarily due to pricing increases for selected firearms models effective July
1, 1999 and December 1, 1999.
Selling, general & administrative expenses increased slightly to $5.1
million in the first quarter of 2000 from $4.9 million in the first quarter of
1999.
Other income-net increased by $0.8 million or 113.3% to $1.5 million in
2000 from $0.7 million in 1999 due to increased earnings on Treasury Bill
investments resulting from increased principal and improved earnings on these
investments.
The effective income tax rate was 39.2% in the first quarter of 2000
compared to 40.5% in the first quarter of 1999, reflecting lower effective state
tax rates.
As a result of the foregoing factors, consolidated net income for the
first quarter of 2000 increased to $9.0 million from $8.4 million for the first
quarter of 1999 representing an increase of $0.6 million or 7.7%.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Financial Condition
At March 31, 2000, the Company had cash, cash equivalents and short-term
investments of $86.3 million, working capital of $122.8 million and a current
ratio of 4.4 to 1, compared to $78.8 million, $118.6 million, and 5.2 to 1,
respectively, at December 31, 1999.
Cash provided by operating activities was $14.3 million and $21.0 million
for the three months ended March 31, 2000 and 1999, respectively. This change in
cash flows is principally a result of a reduction in inventories in 1999 and a
corresponding increase in 2000.
The Company follows an industry-wide practice of offering a "dating plan"
to its firearms customers on selected products, which allows the purchasing
distributor to buy the products commencing in December, the start of the
Company's dating plan year, and pay for them on extended terms. Discounts are
offered for early payment. The dating plan provides a revolving payment plan
under which payments for all shipments made during the period December through
February have to be made by April 30. Generally, shipments made in subsequent
months have to be paid for within approximately 90 days. Dating plan receivable
balances were $11.2 million at March 31, 2000 and $7.9 million at March 31,
1999. The Company has reserved the right to discontinue the dating plan at any
time and has been able to finance this dating plan from internally generated
funds provided by operating activities.
Capital expenditures during the three months ended March 31, 2000 totaled
$1.4 million. For the past two years capital expenditures averaged approximately
$1.3 million per quarter. In 2000, the Company expects to spend approximately $8
million on capital expenditures to upgrade and modernize all of its divisions.
The Company finances, and intends to continue to finance, all of these
activities with funds provided by operations.
For the three months ended March 31, 2000 dividends paid totaled $5.4
million. This amount reflects the regular quarterly dividend of $.20 per share
paid on March 15, 2000. Future dividends will 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.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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 and counties based, among other reasons,
on established state law precluding the recovery by municipalities for the
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 or 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 be tried 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 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. Since that time, such lawsuits filed by the cities
of Bridgeport, Connecticut and Miami, Florida have been completely dismissed and
those filed by the cities of Chicago and Atlanta have 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. 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.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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.
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 and 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 (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 (including
lawsuits filed by the mayors or 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, and 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
unanticipated events.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
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,
Notes, and 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.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the legal proceedings against the Company is discussed at
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 December
31, 1999, 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 March 31, 2000, which involved significant demands for compensatory
and/or punitive damages:
District of Columbia, and Bryant Lawson v. Beretta U.S.A. Corp., et.
al. (DC) in the Superior Court for the District of Columbia. The complaint,
which was filed on January 21, 2000, alleges defendants have manufactured,
imported, and sold "assault weapons" that have been criminally brought into the
District of Columbia, and have failed to exercise reasonable marketing and
distribution of firearms, thereby creating a public nuisance to the District of
Columbia. The complaint also alleges that Lawson was shot near his home as he
was fleeing three armed men using an unspecified firearm. Compensatory,
exemplary, punitive damages, and injunctive relief are demanded.
Joan Knight v. Sturm, Ruger & Company, Inc. and James Scott (IL) in the
Circuit Court of Cook County, Illinois. The complaint, which was filed on
January 3, 2000, alleges that defendant has helped create a public nuisance to
the plaintiff and the City of Chicago by its marketing and distribution
practices. Plaintiff also alleges co-defendant James Scott, a gang member,
bought a pistol illegally and used it to murder John Knight, a Chicago Police
Officer, while he was on duty. Plaintiff seeks damages in excess of $50,000 in
an amount to be determined by the Court.
Christopher J. Dantin, et. al. v. Sturm, Ruger & Company, Inc., et. al.
(LA) in 17th Judicial District Court for the Parish of LaFourche, Louisiana. The
complaint, which was filed on January 24, alleges that the plaintiffs' son was
carrying a Ruger pistol when it allegedly discharged and fatally injured him.
Compensatory and general damages in an amount to be determined by the Court are
demanded.
During the three months ending March 31, 2000, no previously-reported
cases were settled.
The Company was voluntarily dismissed with prejudice from the
previously-reported case of Iris Prosper, et. al. v. Accu-tek, et. al. (NY) on
March 15, 2000, when it was determined that the Company did not manufacture the
type of pistol used to injure plaintiff.
The case of B. Smith v. Sturm, Ruger & Company, Inc. (TX), involving a
Ruger M77 rifle, was tried before a jury to a complete defense verdict of no
liability for the Company under either strict products liability or negligence
theories on January 7, 2000. Plaintiff filed a motion for a new trial, which was
denied on April 10, 2000.
16
<PAGE> 17
LEGAL PROCEEDINGS--CONTINUED
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." The Company has not engaged in any improper conduct and is
cooperating with this investigation.
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 March 31, 2000.
17
<PAGE> 18
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 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: May 5, 2000 S/ERLE G. BLANCHARD
--------------- ----------------------------
Erle G. Blanchard
Principal Financial and
Accounting Officer,
Vice President, Controller
18
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