<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, 1999
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, 2000:
Common Stock, $1 par value - $182,985,090
The number of shares outstanding of the issuer's common stock as of March 14,
2000:
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, 1999 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 11, 2000 are incorporated by reference into Part III of this
Report.
Page 1 of 54
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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' 1998 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, including
a line of centerfire autoloading pistols introduced in 1987, three lines of
double action revolvers, the SP101, GP100, and Super Redhawk models as well as a
line of muzzleloading rifles introduced in 1997. The Company also introduced a
line of lever action rifles in 1997.
The Company's ongoing commitment to the development and introduction of new
models of firearms in appropriate product categories continues to generate new
offerings. In 1999, new product introductions included the Ruger 10/22 Magnum
rifle, the Ruger Super Redhawk revolver chambered in .454 Casull, the 50th
Anniversary Mark II pistol, several new "All-Weather" models in our existing
rifle and shotgun lines, and a new P97 centerfire pistol chambered for .45 ACP
caliber.
New for 2000, the Ruger Trap Model single-barrel shotgun features a fully
adjustable rib for pattern position and a cut-checkered walnut stock, which is
adjustable for length of pull. The target trigger is adjustable for weight of
pull and the barrel is manufactured with "controlled pattern" straight grooves
running the full length of the barrel to minimize shot dispersion. The Ruger No.
1 Stainless Steel Single-Shot Rifle with black laminated hardwood stock is
available in a wide range of calibers from .22-250 through the .300 Winchester
Magnum. An engraved series of Ruger Red Label over-and-under shotguns is
available with scroll engraving and finished with a Ruger 24-karat gold eagle,
precision engraved on the bottom of the receiver.
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 1999, 1998, and 1997, the Company's foremost
investment castings product was titanium golf club heads for Callaway Golf
Company, Inc. ("Callaway Golf"). Historically, the Company had obtained purchase
orders from Callaway Golf that covered periods in excess of one year. However, a
long-term contract with Callaway Golf was substantially completed during the
fourth quarter of 1999 with no additional long-term supply
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ITEM 1 -- BUSINESS (CONTINUED)
contract anticipated. As a result, the level of future golf club head shipments
is expected to continue to decline. In 1998, the Company began production of
titanium golf club heads for Karsten Manufacturing Corporation ("Ping") and
other golf club manufacturers, as well as beginning production of a line of
titanium hand tools for a number of customers. For 2000 and beyond, the Company
will continue to pursue other titanium and steel castings markets, as well as
other golf club casting business.
For the years ended December 31, 1999, 1998, and 1997, net sales attributable to
the Company's firearms operations were approximately 78%, 68%, and 68%,
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 20 of the Company's 1999 Annual Report to Stockholders.
PRODUCTS -- FIREARMS
The Company presently manufactures 29 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
$89.8 million, $71.6 million, and $67.7 million, of revenues for the years 1999,
1998, and 1997, respectively.
SHOTGUNS -- A shotgun is a long gun with a smooth barrel interior which fires
lead or steel pellets. The Company presently manufactures three different types
of over-and-under shotguns: the Red Label available in 12, 20, and 28 gauge, the
Woodside available in 12 gauge, and the Trap Model 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
$13.4 million, $10.4 million, and $9.3 million of revenues for the years 1999,
1998, and 1997, 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 $47.3 million, $33.5 million, and $33.6 million of revenues for
the years 1999, 1998, and 1997, respectively.
REVOLVERS -- A revolver is a handgun which has a cylinder that holds the
ammunition in a series of chambers which are successively aligned with the
barrel of the gun during each firing cycle. There are two general types of
revolvers, single-action and double-action. To fire a single-action revolver,
the hammer is pulled back to cock the gun and align the cylinder before the
trigger is pulled. To fire a double-action revolver, a single trigger pull
advances the cylinder and cocks and releases the hammer. The Company presently
manufactures eight different types of single-action revolvers: the New Model
Super Single-Six, the New Model .32 Magnum Super Single-Six, the New Model
Blackhawk, the New Model Super Blackhawk, the Vaquero, the Ruger Bisley, the Old
Army Cap & Ball, and the New Bearcat. The Company presently manufactures four
different types of double-action revolvers: the SP101, the GP100, the Redhawk,
and the Super Redhawk. Sales of revolvers by the Company accounted for
approximately $33.7 million, $26.0 million, and $28.5 million, of revenues for
the years 1999, 1998, and 1997, respectively.
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ITEM 1 -- BUSINESS (CONTINUED)
The Company also manufactures and sells accessories and replacement parts for
its firearms. These sales accounted for approximately $4.4 million, $3.4
million, and $2.8 million of revenues for the years 1999, 1998, and 1997,
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 58%, 63%, and 76% of casting
revenues for the years 1999, 1998, and 1997, 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 and ferrous
castings. This facility's manufacturing activity during 1999, 1998, and 1997 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 $31.0 million, $41.9 million, and $51.6 million of revenues during
1999, 1998, and 1997, 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.
Sales from the Company's investment casting operations (excluding intercompany
transactions) accounted for approximately $53.1 million, $66.7 million, and
$67.5 million, or 22%, 32%, and 32% of the Company's total net sales for 1999,
1998, and 1997, 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 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, beech, 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.
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ITEM 1 -- BUSINESS (CONTINUED)
INVESTMENT CASTINGS -- The Company manufactures all of its precision investment
castings products at one of its three investment casting 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 are readily
available from multiple sources at competitive prices.
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. Each of these distributors
carries the entire line of firearms manufactured by the Company for the
commercial market. Currently, 21 distributors service the domestic commercial
market, with an additional 16 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 1999,
1998, and 1997, one distributor, Jerry's Sport Center, accounted for
approximately 14%, 15%, and 16% of the Company's net sales of firearms and 11%,
10%, and 11%, of consolidated net sales, respectively. In 1999, another
distributor, Davidson's Supply Company, accounted for approximately 13% of net
firearms sales and 10% of consolidated net sales. 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 1999, the Company received annual orders from its
distributors for the 2000 marketing year. These orders may be adjusted in the
second quarter by the distributors to allow for market fluctuations. As of March
1, 2000, unfilled firearms orders were approximately $135 million as compared to
approximately $128 million at March 1, 1999.
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
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ITEM 1 -- BUSINESS (CONTINUED)
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 casting segment's principal markets are
sporting goods, commercial, and military. Sales are made directly to customers
or through manufacturers' representatives. In 1999, 1998, and 1997, one castings
segment customer, Callaway Golf, accounted for approximately 13%, 20%, and 25%
of consolidated net sales and 58%, 63%, and 76% of casting segment sales,
respectively. Historically, the Company had obtained purchase orders from
Callaway Golf that covered periods in excess of one year. However, a long-term
contract with Callaway Golf was substantially completed during the fourth
quarter of 1999 with no additional long-term supply contract anticipated. As a
result, the level of future golf club head shipments is expected to continue to
decline. In 1998, the Company began production of titanium golf club heads for
Karsten Manufacturing Corporation ("Ping") and other golf club manufacturers, as
well as beginning production of a line of titanium hand tools for a number of
customers. For 2000 and beyond, the Company will continue to pursue other
titanium and steel castings markets, as well as other golf club casting
business.
COMPETITION
FIREARMS -- Competition in the firearms industry is intense and comes from both
foreign and domestic manufacturers. While some of these competitors concentrate
on a single industry product category, such as rifles or pistols, several
foreign competitors manufacture products in all four industry categories
(rifles, shotguns, pistols, and revolvers). Some of these competitors are
subsidiaries of large corporations with substantially greater financial
resources than the Company. The Company is the only domestic manufacturer which
produces firearms in all four industry product categories and believes that it
is the largest U.S. firearms manufacturer, according to BATF Data. The principal
methods of competition in the industry are product quality and price. The
Company believes that it can compete effectively with all of its present
competitors based upon the high quality, reliability and performance of its
products, and the competitiveness of its pricing.
INVESTMENT CASTINGS -- There are a large number of investment castings
manufacturers, both domestic and foreign, with which the Company competes.
Competition varies based on the type of investment castings products (titanium,
ferrous, or aluminum) and the end use of the product (sporting goods,
commercial, or military). Many of these competitors are larger than the Company
and may have greater resources. The principal methods of competition in the
industry are quality, production lead time, and price. The Company believes that
it can compete effectively with all of its present competitors and has expended
significant amounts of resources on both expanding and modernizing its
investment casting facilities during the last several years.
EMPLOYEES
As of March 1, 2000, the Company employed 1,952 full-time employees of which
approximately 33% 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 50-year
history and believes its employee relations are satisfactory.
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ITEM 1 -- BUSINESS (CONTINUED)
RESEARCH AND DEVELOPMENT
In 1999, 1998, and 1997, the Company spent approximately $1.2 million, $1.1
million, and $1.3 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. As of
February 28, 2000, the Company had approximately 49 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.
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 83 Chairman of the Board, Chief Executive Officer, Treasurer, and
Director
William B. Ruger, Jr. 60 Vice Chairman, Senior Executive Officer, President, Chief
Operating Officer, and Director
Stephen L. Sanetti 50 Vice President, General Counsel, and Director
Erle G. Blanchard 53 Vice President, Controller
Leslie M. Gasper 46 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.
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ITEM 1 -- BUSINESS (CONTINUED)
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>
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, 1999 the Company is a defendant in approximately 40 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
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ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
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,
manufacturing, 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, assault, 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.
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.
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,
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.
For a description of all pending lawsuits against the Company through September
30, 1999, reference is made to the discussion under the caption "Item 3. LEGAL
PROCEEDINGS" of the Company's Annual Reports on Form 10-K for the years ended
December 31, 1995 and 1998, 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, September 30, 1998 and March 31, June 30, and
September 30, 1999.
The following cases were instituted against the Company during the three months
ended December 31, 1999, which involved significant demands for compensatory
and/or punitive damages:
Mayor James H. Sills, Jr., et. al. v. Smith & Wesson Corp., et. al. in the
Superior Court of the State of Delaware in and for New Castle County (DE). The
complaint, which was served on the Company on October 5, 1999, alleges that
defendants have allegedly caused harm to the plaintiffs and the city of
Wilmington due to the manufacture, marketing, promotion, negligent distribution
and sale of firearms. Complaint also alleges dangerous design, lack of safety
features, and inadequate warnings which allegedly make handguns dangerous
because they can be fired by unauthorized users. Compensatory and punitive
damages, plus other fees and costs to be determined by the Court are demanded.
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ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
National Association for the Advancement of Colored People, et. al. v. AcuSport
Corporation, et. al. in the District Court for the Eastern District of New York.
The complaint was served on the Company on October 13, 1999. The complaint
alleges that defendants have allegedly failed to regulate, supervise, and
control marketing, distribution, and sales practices of handguns, which has
allegedly resulted in a disproportionate number of injuries and deaths of
members of the NAACP. The complaint also alleges that defendants allegedly fail
to incorporate safety devices to prevent or reduce improper use. Injunctive
relief only is sought; no monetary damages are claimed.
Amber Lee Dibble v. Company in the Superior Court of the State of Alaska. The
complaint was served on the Company on November 2, 1999. The complaint alleges
that plaintiff was handling a Ruger revolver and it discharged, resulting in
injuries to her leg. General and special damages in excess of $100,000.00 are
demanded.
During the three months ending December 31, 1999, no previously-reported cases
were settled.
The previously-reported case of City of Cincinnati (OH) v. Company was dismissed
on October 7, 1999. The plaintiffs have appealed this dismissal.
The previously-reported case of Mayor Joseph P. Ganim and the City of Bridgeport
(CT) v. Company was dismissed on December 10, 1999. The plaintiffs have appealed
this dismissal.
The previously-reported case of Alexander Penelas, Mayor of Miami-Dade County
(FL), et. al. v. Company was dismissed on December 13, 1999. The plaintiffs have
appealed this dismissal.
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 4
and 23 of the Company's 1999 Annual Report to Stockholders.
ITEM 6 -- SELECTED FINANCIAL DATA
The information required for this Item is incorporated by reference from page 4
of the Company's 1999 Annual Report to Stockholders.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required for this Item is incorporated by reference from pages 6
through 9 of the Company's 1999 Annual Report to Stockholders.
10
<PAGE> 11
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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999 and the
report dated February 11, 2000 of Ernst & Young LLP, independent
auditors, are incorporated by reference from pages 12 through 22 of the
Company's 1999 Annual Report to Stockholders.
(B) SUPPLEMENTARY DATA
Quarterly results of operations for 1999 and 1998 are incorporated by
reference from page 21 of the Company's 1999 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 11, 2000 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 11, 2000
is incorporated by reference into this Report. The information as to executive
officers of the Company is included in Part I hereof under the caption
"Executive Officers of the Company" in reliance upon General Instruction G to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11 -- EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 11, 2000 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE
COMPENSATION," "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION,"
11
<PAGE> 12
ITEM 11 -- EXECUTIVE COMPENSATION (CONTINUED)
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "1998 STOCK
INCENTIVE PLAN," "1999 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 11, 2000 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 11, 2000 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE
COMPENSATION," "1998 STOCK INCENTIVE PLAN," "1999 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, 1999 and 1998
Consolidated Statements of Income -- Years ended December 31,
1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -- Years ended December
31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
12
<PAGE> 13
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (CONTINUED)
This information is incorporated by reference from the Company's 1999
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:
<TABLE>
<CAPTION>
<S> <C>
Exhibit 3.1 Certificate of Incorporation of the Company,
as amended (Incorporated by reference to
Exhibits 4.1 and 4.2 to the Form S-3
Registration Statement previously filed by the
Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended (Incorporated
by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995, SEC File No. 0-4776).
Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the
Bylaws of the Company (Incorporated by reference
to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996,
SEC File No. 0-4776).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus
Plan (Incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, as amended by
Form 8 filed March 27, 1990, SEC File No.
0-4776).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986
Stock Bonus Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991,
SEC File No. 0-4776).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental
Executive Profit Sharing Retirement Plan
(Incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No.
0-4776).
Exhibit 10.4 Agreement and Assignment of Lease dated
September 30, 1987 by and between Emerson
Electric Co. and Sturm, Ruger & Company, Inc.
(Incorporated by reference to Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No.
0-4776).
</TABLE>
13
<PAGE> 14
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
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. (Incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998,
SEC File No. 1-10435).
Exhibit 13.1 Annual Report to Stockholders of the Company for
the year ended December 31, 1999. 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 Item 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
</TABLE>
14
<PAGE> 15
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Exhibit 99.6 Item 1 LEGAL PROCEEDINGS from the Quarterly
Report 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.
Exhibit 99.8 Item 3 LEGAL PROCEEDINGS from the Annual Report
on Form 10-K of the Company for the year ended
December 31, 1998, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.9 Item 1 LEGAL PROCEEDINGS from the Quarterly
Reports on Form 10-Q of the Company for the
quarters ended March 31, June 30, and September
30, 1999 SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS
</TABLE>
(b) Report on Form 8-K filed in the fourth quarter of 1999: 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 15, 2000
-----------------------------------
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/S/WILLIAM B. RUGER 3/15/00 /S/WILLIAM B. RUGER, JR. 3/15/00
- -------------------------------------------------------------- ----------------------------------------------------
William B. Ruger William B. Ruger, Jr.
Chairman of the Board, Chief Executive Officer, Vice Chairman, Senior Executive Officer,
Treasurer, Director President, Chief Operating Officer,
(Principal Executive Officer) Director
/S/JOHN M. KINGSLEY, JR. 3/15/00 /S/STANLEY B. TERHUNE 3/15/00
- -------------------------------------------------------------- ----------------------------------------------------
John M. Kingsley, Jr. Stanley B. Terhune
Director Director
/S/RICHARD T. CUNNIFF 3/15/00 /S/TOWNSEND HORNOR 3/15/00
- -------------------------------------------------------------- ----------------------------------------------------
Richard T. Cunniff Townsend Hornor
Director Director
/S/PAUL X. KELLEY 3/15/00 /S/JAMES E. SERVICE 3/15/00
- -------------------------------------------------------------- ----------------------------------------------------
Paul X. Kelley James E. Service
Director Director
/S/STEPHEN L. SANETTI 3/15/00 /S/ERLE G. BLANCHARD 3/15/00
- -------------------------------------------------------------- ----------------------------------------------------
Stephen L. Sanetti Erle G. Blanchard
Vice President, General Counsel, Director Vice President, Controller
(Principal Financial Officer)
</TABLE>
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Exhibit 3.1 Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibits 4.1
and 4.2 to the Form S-3 Registration Statement
previously filed by the Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended (Incorporated by
reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, SEC File No. 0-4776).
Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the
Bylaws of the Company (Incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, SEC File
No. 0-4776).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988, as amended by Form 8 filed
March 27, 1990, SEC File No. 0-4776).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986 Stock
Bonus Plan (Incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No. 0-4776).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental Executive
Profit Sharing Retirement Plan (Incorporated by
reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991, SEC File No. 0-4776).
Exhibit 10.4 Agreement and Assignment of Lease dated September 30,
1987 by and between Emerson Electric Co. and Sturm,
Ruger & Company, Inc. (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, SEC File
No. 0-4776).
Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental Executive
Retirement Plan (Incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File No.
0-4776).
Exhibit 10.6 Operating Agreement of Antelope Hills, LLC, a
Delaware Limited Liability Company, dated as of
October 5, 1995 (Incorporated by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File No.
0-4776).
Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, SEC File No. 1-10435).
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Exhibit 13.1 Annual Report to Stockholders of the Company for the
year ended December 31, 1999. 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. 22
Exhibit 23.1 Consent of Independent Auditors. 51
Exhibit 27.1 Financial Data Schedule. 52
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 Item 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 Report 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.
Exhibit 99.8 Item 3 LEGAL PROCEEDINGS from the Annual Report on
Form 10-K of the Company for the year ended December
31, 1998, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
</TABLE>
18
<PAGE> 19
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
<S> <C>
Exhibit 99.9 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports
on Form 10-Q of the Company for the quarters ended
March 31, June 30, and September 30, 1999, SEC File
No. 1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS
</TABLE>
19
<PAGE> 20
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
SOUTHPORT, CONNECTICUT
ITEMS 14(a)(2) AND 14(d)
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
20
<PAGE> 21
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)
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts at End
Description of Period Expenses - Describe Deductions of Period
----------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 1999 $1,299 $ 125 $ 32(a) $1,392
------ ------ ----------- ------
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
------ ------ --------- ----------- ------
Allowance for discounts:
Year ended December 31, 1999 $1,888 $5,634 $ 5,773(b) $1,749
------ ------ ---------- ------
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
------ ------ --------- ---------- ------
Product safety modifications accrual:
Year ended December 31, 1999 $ 752 $ 154(c) $ 598
------ ---------- ------
Year ended December 31, 1998 $ 870 $ 118(c) $ 752
------ ----------- ------
Year ended December 31, 1997 $1,302 $(300)(d) $ 132(c) $ 870
------ --------- ---------- ------
</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
21
<PAGE> 1
[LOGO]
[GRAPHIC]
Sturm, Ruger & Company, Inc. 1999 Annual Report
<PAGE> 2
[LOGO] ARMS MAKERS FOR
Front Cover:
The illustration depicted on the cover is the Currier &
Ives print "Camping Out, 'Some of the Right Sort' "by
Louis Mauer, ca. 1856.
Currier & Ives print courtesy of
The Adirondack Museum
<PAGE> 3
[GRAPHIC]
Ruger Advanced Materials Group is a major producer of high quality titanium,
ferrous (both chrome-molybdenum and stainless steel), and aluminum precision
investment castings. With over 700 employees spread across four facilities, the
Advanced Materials Group provides a wide variety of castings for both Ruger
firearms plants and numerous commercial and industrial customers. In addition,
these facilities also house the continuing research efforts endeavoring to
produce technologically superior products for use in a number of recreational,
industrial, and commercial applications.
<PAGE> 4
A Father's Advice
If a sportsman true you'd be Listen carefully to me...
Never, never let your gun Pointed be at anyone. That it may unloaded be Matters
not the least to me.
When a hedge or fence you cross Though of time it cause a loss From your gun the
cartridge take For the greater safety's sake.
If twixt you and neighboring gun Bird shall fly or beast may run Let this maxim
ere be thine "Follow not across the line."
Stops and beaters oft unseen Lurk behind some leafy screen. Calm and steady
always be "Never shoot where you can't see."
You may kill or you may miss But at all times think of this: "All the pheasants
ever bred Won't repay for one man dead."
Written by Mark Beaufoy of Coombe House, Shaftsbury, Dorset, England, in 1902,
on presenting his eldest, Henry Mark, with his first gun. Reproduction here by
permission of the author's granddaughter, Mrs. P.M. Guild.
[LOGO]
8 Arms Makers for Responsible Citizens
Sturm, Ruger & Company, Inc., Lacey Place, Southport, CT 06490.
www.ruger-firearms.com Instruction manuals for all Ruger firearms are available
free upon request. Please specify model.
<PAGE> 5
[GRAPHIC]
RESPONSIBLE CITIZENS
2-3 - To Our Stockholders
o
4 - Selected Financial Data
o
5 - New Ruger Firearms for 2000
o
6-9 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
o
10-11 - Timeline for 1999
o
12-13 - Consolidated Balance Sheets
o
14 - Consolidated Statements of Income and Stockholders' Equity
o
15 - Consolidated Statements of Cash Flows
o
16-21 - Notes to Consolidated Financial Statements
o
22 - Report of Independent Auditors
o
23 - Stockholder Information
o
24 - Directors and Officers
o
Inside Back Cover - Ruger Advanced Materials Group
<PAGE> 6
TO OUR STOCKHOLDERS
On January 11, 1999, the Company officially completed 50 years of business
in the manufacture and sale of high quality sporting firearms for responsible
citizens. In addition to this significant milestone, it is important to note
that we have also completed nearly 40 years in the investment casting business.
In that context, we are pleased to report that 1999 brought record sales in
dollars, which in turn resulted in near record earnings for the period. As you
read through this report, you will see not only improvements in sales and
income, but significant improvements in our overall financial health as a result
of this record year. These accomplishments have been the result of carefully
planned steps providing long-term growth and improved stockholder value.
You may recall about five years ago we increased capital expenditures to
expand our manufacturing facilities in an effort to generate internal growth
opportunities for the future. Those investments are now paying off, and during
1999 we again approached full capacity at our firearms manufacturing facilities.
We must point out that while sales volume from our investment casting segment
decreased for the year, our efforts at margin improvements actually resulted in
increased earnings over those levels achieved during 1998.
More specifically, results for 1999 include sales of $241.7 million, net
income of $33.7 million, earnings per share of $1.25, and dividends of $0.80.
Comparable 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.
A basic tenet of our planning process includes an on going commitment to
research and development activity, which continues to lead to the introduction
of new products in the Ruger firearms line. 1999 was no exception, and we are
pleased to have introduced several new items at both the National Association of
Sporting Goods Wholesalers Show in November and at the Shooting, Hunting and
Outdoor Trade ("SHOT") Show in Las Vegas, Nevada in January 2000. These new
product introductions include our single-barrel Trap Model clay target shotgun,
the Ruger No.1 Single-Shot Rifle in stainless steel, and an engraved series of
Red Label Over-and-Under Shotguns. As in previous years, our new product ideas
were enthusiastically received, and we expect they will result in significant
future business. These products are more fully described below and are featured
in other sections of this report and our product catalog.
o The Ruger Trap Model single-barrel shotgun features a fully adjustable rib
for pattern position and a cut-checkered walnut stock, which is adjustable
for length of pull, drop at the comb and cast. The target trigger is
adjustable for weight of pull and the barrel is manufactured with
"controlled pattern" straight grooves running the full length of the
barrel to minimize shot dispersion when shooting long-range clay targets
that are typical in the sport of trap shooting. The chrome molybdenum
monoblock is mated to a stainless steel receiver, and a 34 inch stainless
steel barrel is standard.
o The new Ruger No. 1 Stainless Steel Single-Shot Rifle with black laminated
hardwood stock is resistant to both corrosion and wet-weather warpage,
which may cause shifting points of impact and can otherwise degrade
accuracy. The action was designed with the extra strength needed to handle
the most powerful factory cartridges, and this new stainless steel version
is available in a wide range of calibers from .22-250 through the .300
Winchester Magnum.
o During Ruger's 50th Anniversary year, limited quantities of engraved Ruger
Over-and-Under Shotgun Anniversary Models were produced. These Anniversary
Models proved to be such a success that this year we are offering an
Engraved Series of Ruger Red Label over-and-under shotguns bearing
different engraving than that used on the unique 50th Anniversary Models.
These classic arms are now available with special new scroll engraving and
finished with a Ruger 24-karat gold eagle, precision engraved on the
bottom of the receiver.
o Also for our Over-and-Under Shotgun line, .410 Gauge tube inserts are now
available so that owners of larger-bore Ruger shotguns can utilize
smaller, lighter recoiling .410 gauge ammunition for practice and
competitive skeet shooting. Ruger shotguns are now available in 12, 20, 28
and .410 gauge (utilizing these new tubes).
While our steel investment casting facilities are working at near
capacity, there appear to be new opportunities for some of the available
capacity in our titanium foundry. Our goal to expand our titanium investment
casting sales may come both in new applications not previously seen as
appropriate for this specialty metal, and in new ideas for increasing the market
share of existing titanium products. We
2
<PAGE> 7
expect to increase the applications for titanium usage and to make our expertise
in the casting process widely known and available for a variety of potential
customers in 2000.
We cannot fail to mention a very significant and disturbing phenomenon
which occurred during 1999. We write of the completely misguided and misdirected
lawsuits against the legitimate firearms industry filed by certain mayors,
threatened by politically ambitious state attorneys general, and even proposed
by this Administration's Department of Housing and Urban Development.
Everyone with knowledge of this Company knows that we have always taken
our responsibility as a manufacturer of high-quality sporting and law
enforcement firearms most seriously. We scrupulously conform our conduct and
business practices to all aspects of the many Federal, State and local laws and
regulations that govern our conduct. Both violent crime and firearms accidents
have been steadily and dramatically dropping to record lows during the last half
of the 1990's, even as our firearms sales have increased. We have been an
industry leader with regard to safety precautions taken for the benefit of our
customers and the law-abiding citizens of this nation.
Yet we have been forced to expend an inordinate amount of resources
fighting legally and factually baseless municipal lawsuits. They are legally
baseless in that courts across the nation have consistently rejected the legal
underpinnings of such spurious claims of wrongdoing on our part. They are
factually baseless even to the extent that in the only case of its kind to go to
trial, a Brooklyn jury in the 1999 case of Hamilton, et. al. v. Accu-Tek, et.
al. found the Company's sales and marketing practices to be appropriate and
non-negligent. In fact, none of our products manufactured during the last 25
years has ever been found by any court or jury to be "defective," "unreasonably
dangerous," or to lack any required safety device or warnings. All our products
come with appropriate locking devices, a practice which we ourselves pioneered
in 1987.
However, for political ends, certain politicians wrongly seek to portray
us as an enemy. Capitalizing on the government's power to coerce and prodded by
agenda-driven special interest groups, they waste taxpayer money on trial
lawyers in vain attempts to bludgeon a small industry into conformance with
their own social agenda. One attorney general has referred to the power of
governments to force this industry to unilaterally accede to his gun-control
demands without legislative or regulatory authority to do so as "a meat axe." Is
this the depth to which the political processes practiced by these governmental
usurpers has sunk? They willfully ignore the law, the Constitution, due process,
and separation of powers to regulate by litigation, even when elected
legislatures reject such lawsuits. It is interesting to note that the public
also overwhelmingly rejects misusing the court system to sue law-abiding
firearms manufacturers for criminal misuse of non-defective firearms, often
exceeding 80% rejection of this notion in public opinion surveys.
We must, and will, fight such intrusive governmental violation of our
democratic legislative process, while continually supporting efforts to
prosecute illegal gun sellers and misusers, and promulgating truly effective
safety efforts to decrease the accidental misuse of our products even further.
Such claims remain at historic low levels. Already in January 2000, the design
of our M-77 rifle was unanimously found to be non-defective and non-negligent in
the case of Smith v. Sturm, Ruger by a jury which deliberated for only 15
minutes to reach this correct conclusion.
We would like to take this opportunity to again express our appreciation
to our 2,000 loyal employees whose talents and efforts helped to make this a
record year. They, as always, take advantage of each opportunity to help the
Company meet and exceed our goals, and for this we are profoundly grateful.
As requested by several stockholders, we are again holding our annual
meeting in New London, New Hampshire, and hope you will join us there on May 11,
2000.
/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 11, 2000
3
<PAGE> 8
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net firearms sales ................................. $188,564 $144,898 $141,863 $148,829 $155,622
Net castings sales ................................. 53,100 66,682 67,520 74,466 36,847
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales .................................... $241,664 $211,580 $209,383 $223,295 $192,469
===================================================================================================================================
Cost of products sold .............................. $170,650 $157,048 $146,143 $150,200 $134,930
Gross profit ....................................... 71,014 54,532 63,240 73,095 57,539
Income before income taxes ......................... 55,483 39,372 46,639 56,835 43,846
Income taxes ....................................... 21,749 15,946 18,889 22,450 17,670
Net income ......................................... 33,734 23,426 27,750 34,385 26,176
Basic and diluted earnings per share ............... 1.25 0.87 1.03 1.28 0.97
Cash dividends per share ........................... 0.80 0.80 0.80 0.80 0.70
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital .................................... $118,593 $102,395 $ 97,551 $ 95,217 $ 91,942
Total assets ....................................... 211,585 196,734 199,794 189,890 178,552
Total stockholders' equity ......................... 166,826 154,564 152,920 146,727 133,735
Book value per share ............................... 6.20 5.74 5.68 5.45 4.97
Return on stockholders' equity ..................... 21.0% 15.2% 18.5% 24.5% 20.1%
Current ratio ...................................... 5.2 to 1 5.1 to 1 4.5 to 1 5.0 to 1 4.6 to 1
Common shares outstanding .......................... 26,910,700 26,910,700 26,922,800 26,916,800 26,910,800
Number of stockholders of record ................... 2,046 1,974 1,971 1,899 1,678
Number of employees ................................ 1,952 2,130 1,978 2,094 1,937
</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.
Return on
Stockholder's Earnings
Net Sales Net Income Equity Per Share
Millions of dollars Millions of dollars Percent Dollars
[LINE CHART] [LINE CHART] [LINE CHART] [LINE CHART]
4
<PAGE> 9
NEW RUGER FIREARMS FOR 2000
================================================================================
Ruger Trap Model Shotgun
[GRAPHIC]
The new Ruger Trap Model shotgun redefines the field. It joins our popular
Sporting Clays models on the clay target fields. Demanding trap shooters will
appreciate its adjustable rib, butt plate, and stock comb; and its revolutionary
"controlled pattern" grooved barrel helps ensure target-breaking pattern density
at longer ranges.
Ruger No. 1 Stainless Steel Single-Shot Rifle
[GRAPHIC]
Since the "Golden Age" of American Rifle shooting at Creedmoor more than 120
years ago, the single-shot rifle has fit the philosophy of those sportsmen
demanding the best. The new stable laminated wood stocks on this model help
ensure shot-to-shot accuracy, combined with a tasteful brushed-finish stainless
steel barrel and receiver.
Engraved Red Label Stainless All Weather Shotgun
[GRAPHIC]
The Ruger Red Label shotgun has been a favorite in upland game fields since
1979. Now, waterfowlers and others hunting in adverse environmental conditions
can use their prized shotgun without fear of corrosion or stock warpage, due to
this new model's all-stainless construction and synthetic stock, which will
endure the elements. A tastefully engraved receiver inspires true pride of
ownership.
5
<PAGE> 10
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION &
RESULTS OF OPERATIONS
Introduction
The Company's sales are comprised of the sales of fire- arms 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, 1999, as compared to year ended December 31, 1998:
Consolidated net sales of $241.7 million were achieved by the Company in
1999 representing an increase of $30.1 million or 14.2% from net sales of $211.6
million in 1998.
Firearms segment net sales increased by $43.7 million or 30.2% to $188.6
million in 1999 from $144.9 million in the prior year. Firearms unit shipments
for 1999 increased 23.9% from 1998. The unit increase reflects continued strong
overall market demand. In 1999, shipments of all major industry product
categories, pistols, revolvers, shotguns, and rifles, increased from 1998. A
heightened level of demand for most existing products and the introduction of
the Company's Fiftieth Anniversary commemorative models, which were available
exclusively in 1999, contributed to the overall increase in firearms unit sales.
The Fiftieth Anniversary models had the greatest impact on pistols which
achieved a unit growth of 46.6%. In order to maintain the overall level of
shipments in 2000, the quantity of Fiftieth Anniversary models shipped in 1999,
which will not be available for sale in 2000, must be replaced by other models.
In 1999, the Company instituted a new sales incentive program for its
distributors that allowed them to earn rebates of up to 15% if certain annual
overall sales targets were achieved. This program replaced four programs offered
in 1998. Firearms segment sales were favorably impacted by pricing increases on
selected models which went into effect on December 1, 1998, July 1, 1999, and
December 1, 1999.
Casting segment net sales decreased $13.6 million or 20.4% to $53.1
million in 1999 from $66.7 million in 1998 as a result of lower unit volume.
This was primarily attributable to a decrease in the shipment of titanium golf
club heads. A long-term contract with Callaway Golf Company, Inc. ("Callaway
Golf") was substantially completed during the fourth quarter of 1999 with no
additional long-term supply contract anticipated from Callaway Golf. As a
result, the level of future titanium golf club head shipments is expected to
continue to decline somewhat, but this may be offset to some extent by
anticipated increasing golf club head business from Karsten Manufacturing
Corporation. The Company continues to actively pursue other titanium and steel
markets as well as other golf club casting business, and has had some success in
this regard, most notably as sole supplier of stainless steel propellers for
Outboard Marine Corporation.
Consolidated cost of products sold for 1999 was $170.7 million compared to
$157.0 million in 1998, representing an increase of 8.7%. This increase of $13.7
million was primarily attributable to significantly increased sales by the
firearms segment and increased product liability expenses, partially offset by a
reduction in investment casting segment sales.
Gross profit as a percentage of net sales increased to 29.4% in 1999 from
25.8% in 1998. The improvement is due to the increased volume of firearms sales
in 1999, the aforementioned pricing increases for selected models, and the
absence in 1999 of significant additional start-up costs associated with
potential customers in the investment casting segment, as had been the case in
1998. These improvements were partially offset by increased product liability
costs in 1999.
Selling, general and administrative expenses remained constant at $19.3
million and $19.2 million in 1999 and 1998, respectively.
Other income-net decreased slightly from $4.0 million in 1998 to $3.8
million in 1999, reflecting a gain on the sale of non-manufacturing real estate
in the second quarter of 1998, though this decrease was partially offset by
increased interest income earned on short-term investments in 1999.
The effective income tax rate decreased from 40.5% in 1998 to 39.2% in
1999, reflecting lower effective state tax rates.
As a result of the foregoing factors, consolidated net income in 1999
increased to $33.7 million from $23.4 million
6
<PAGE> 11
in 1998, representing an increase of $10.3 million or 44.0%.
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. Rifle growth reflects an increase of
18.6% in shipments of M-77 models, and 11.2% for 10/22 models, over 1997.
Firearms segment sales were favorably impacted by a price increase on selected
models which went into effect on July 1, 1998.
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.
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 was
primarily attributable to significant additional start-up costs associated with
new investment casting segment customers and products and increased sales by the
firearms segment, partially offset by a 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 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, a
former joint venture between the Company and Callaway Golf, 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%.
Financial Condition
At December 31, 1999, the Company had cash, cash equivalents and
short-term investments of $78.8 million, working capital of $118.6 million and a
current ratio of 5.2 to 1.
Cash provided by operating activities was $56.7 million, $24.6 million,
and $49.1 million in 1999, 1998, and 1997, respectively. The increase in cash
provided in 1999 is principally the result of higher net income and the $9.6
million reduction in inventories in 1999 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 $16.3 million and $15.7 million at December 31, 1999 and 1998,
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 its various raw materials from a number of
suppliers. There is, however, a limited supply of these materials in the
marketplace at any given time which
7
<PAGE> 12
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION &
RESULTS OF OPERATIONS
(Continued)
can cause the purchase prices to vary based upon numerous market factors. The
Company believes that it has adequate quantities of raw materials in inventory
to provide ample time to locate and obtain additional items at a reasonable cost
without interruption of its manufacturing operations. However, if market
conditions result in a significant prolonged inflation of certain prices, the
Company's results could be adversely affected.
Capital expenditures during the past three years averaged $5.0 million per
year. In 2000, the Company expects to spend approximately $8 million on capital
expenditures to 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 1999 the Company paid dividends of $21.5 million. This amount reflects
the regular quarterly dividend of $0.20 per share paid in March, June,
September, and December 1999. On January 17, 2000, the Company declared a
regular quarterly dividend of $0.20 per share payable on March 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 in 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 numerous 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
8
<PAGE> 13
and Federal law, including State and Federal Constitutions.
On October 7, 1999, a lawsuit brought against the Company and numerous
firearms manufacturers and distributors by the mayor of Cincinnati, Ohio, City
of Cincinnati v. Beretta U.S.A. Corp., et. al., was dismissed. In December 1999,
similar lawsuits brought by the cities of Bridgeport, Connecticut, and Miami,
Florida, were also dismissed. 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. 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 originally written using two
digits rather than four to define the applicable year. As a result, those
computer programs may have had time-sensitive software that recognized a date
using "00" as the year 1900 rather than the year 2000. This could have caused 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 was commonly referred to as the "Year 2000"
issue.
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 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.
9
<PAGE> 14
TIMELINE FOR 1999
JANUARY
[GRAPHIC]
The Ruger MK4-50 "50th Year" commemorative pistol, evocative of the first Ruger
.22 pistol introduced in 1949, is introduced at the SHOT Show in Atlanta,
Georgia.
FEBRUARY
[GRAPHIC]
The Company is fully exonerated by a jury in Brooklyn, New York of any charges
of marketing negligence in the closely-watched case of Hamilton, et. al. v.
Accutek, et. al.
On February 14, "60 Minutes" airs an interview of Ruger Vice President & General
Counsel Stephen L. Sanetti by Mike Wallace, CBS News, in which Mr. Sanetti
effectively asserts the Company's position that the lawsuits filed by several
cities are baseless, misdirected, and an abuse of the legal system.
MARCH
[GRAPHIC]
Charlton Heston, legendary film star and current President of the NRA, meets
with William B. Ruger in beautiful Prescott, Arizona.
APRIL
[GRAPHIC]
Ruger 10/22 target rifles again take the spotlight as the rifle of choice in the
11th NSSF/Chevy Truck Sportsman's Team Challenge in Ft. Lauderdale, Florida, and
broadcast on ESPN.
MAY
[GRAPHIC]
Company President William B. Ruger, Jr. presides over the Company's annual
shareholders' meeting in New London, New Hampshire.
JUNE
JULY
[GRAPHIC]
An editorial entitled "Our Daily Dose of Death" by Chairman William B. Ruger
appears in The Washington Post. It is highly critical of gratuitous media
violence and its desensitizing impact upon children, and exhorts the media to
begin acting responsibly in their portrayals of firearms use.
10
<PAGE> 15
AUGUST
[GRAPHIC]
A celebration honoring Walter P. Sych, the Company's sixth employee, and marking
his 50th year of service to the Company, is held at Southport, Connecticut
Headquarters.
SEPTEMBER
[GRAPHIC]
The William B. Ruger Firearms Gallery of the National Firearms Museum in
Alexandria, Virginia continues its special exhibition of "Guns of the Gold Rush
of 1849."
Special "50th Year" engraved commemorative Ruger #1 rifles and "Red Label"
Over-and-Under shotguns are announced by the Company.
OCTOBER
[GRAPHIC]
"Firing Blanks" and "Ohio Judge Throws Out Cincinnati's Lawsuit Against Gun
Industry" read the headlines as the first city lawsuit against the Company is
dismissed.
NOVEMBER
[GRAPHIC]
In conjunction with the New Hampshire Firearms Safety Coalition and Injury
Prevention Center at Dartmouth Medical School, a firearms safety videotape for
young people entitled "Staying Safe Around Guns. What You Don't Know Can Hurt
You" is released. Major funding is provided by the Company.
[GRAPHIC]
The Ruger Trap Model clay target shotgun is first publicly shown at the National
Association of Sporting Goods Wholesalers Show in Phoenix, Arizona to
enthusiastic reviews.
DECEMBER
[GRAPHIC]
"Court Rejects
Gun Litigation"
Bridgeport, CT
Besides the December dismissals of the Bridgeport and Miami lawsuits, the year
ends with predictions of a banner sales year confirmed. At the same time, the
Bureau of Justice Statistics and the National Safety Council report that both
firearms crime and gun accidents have dropped dramatically to 25 year-lows.
The Ruger 10/22 Magnum rifle is awarded the "Shooting Industry Academy of
Excellence Award" as Rifle of the Year.
11
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, 1999 1998
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents .............................. $ 8,164 $ 4,680
Short-term investments ................................. 70,611 43,247
Trade receivables, less allowances for doubtful accounts
($1,392 and $1,299) and discounts ($1,749 and $1,888) 20,270 23,046
Inventories:
Finished products .................................... 9,467 13,402
Materials and products in process .................... 28,518 34,150
- ---------------------------------------------------------------------------------------------------
37,985 47,552
Deferred income taxes .................................. 8,700 7,999
Prepaid expenses and other assets ...................... 1,123 1,091
- ---------------------------------------------------------------------------------------------------
Total Current Assets ................................... 146,853 127,615
Property, Plant, and Equipment
Land and improvements ................................ 3,567 3,495
Buildings and improvements ........................... 30,831 30,370
Machinery and equipment .............................. 91,213 88,067
Dies and tools ....................................... 23,822 22,986
- ---------------------------------------------------------------------------------------------------
149,433 144,918
Allowances for depreciation .......................... (102,567) (93,833)
- ---------------------------------------------------------------------------------------------------
46,866 51,085
Deferred income taxes .................................. 2,979 3,400
Other assets ........................................... 14,887 14,634
- ---------------------------------------------------------------------------------------------------
Total Assets ........................................... $ 211,585 $ 196,734
===================================================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 17
<TABLE>
<CAPTION>
December 31, 1999 1998
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable and accrued expenses $ 5,623 $ 3,936
Product safety modifications ............... 598 752
Product liability .......................... 3,000 3,000
Employee compensation and benefits ......... 11,158 11,181
Workers' compensation ...................... 4,975 4,173
Income taxes ............................... 2,906 2,178
- ---------------------------------------------------------------------------------------
Total Current Liabilities .................. 28,260 25,220
Product Liability Accrual .................. 16,499 16,950
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 26,911 26,911
Additional paid-in capital ................. 2,434 2,434
Retained earnings .......................... 137,614 125,409
Accumulated other comprehensive income ..... (133) (190)
- ---------------------------------------------------------------------------------------
Total Stockholders' Equity ................. 166,826 154,564
- ---------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity . $ 211,585 $ 196,734
=======================================================================================
</TABLE>
13
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Net firearms sales ................. $188,564 $144,898 $141,863
Net castings sales ................. 53,100 66,682 67,520
- ------------------------------------------------------------------------------------------------
Total net sales .................... 241,664 211,580 209,383
Cost of products sold .............. 170,650 157,048 146,143
- ------------------------------------------------------------------------------------------------
Gross profit ....................... 71,014 54,532 63,240
Expenses:
Selling .......................... 13,367 13,515 12,412
General and administrative ....... 5,930 5,655 5,453
- ------------------------------------------------------------------------------------------------
19,297 19,170 17,865
- ------------------------------------------------------------------------------------------------
51,717 35,362 45,375
Other income-net ................... 3,766 4,010 1,264
- ------------------------------------------------------------------------------------------------
Income before income taxes ......... 55,483 39,372 46,639
Income taxes ....................... 21,749 15,946 18,889
- ------------------------------------------------------------------------------------------------
Net Income ......................... $ 33,734 $ 23,426 $ 27,750
================================================================================================
Basic and Diluted Earnings Per Share $ 1.25 $ 0.87 $ 1.03
================================================================================================
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, 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
Net income ............................................. 33,734 33,734
Additional minimum pension liability ................... 57 57
--------
Comprehensive income ................................... 33,791
--------
Cash dividends ......................................... (21,529) (21,529)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 ............................. $26,911 $2,434 $137,614 $(133) $166,826
===================================================================================================================================
</TABLE>
See accompanying notes.
14
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income ................................................ $ 33,734 $ 23,426 $ 27,750
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation .......................................... 8,734 10,295 9,208
Gain on sale of land .................................. (169) (825) --
Issuance of Common Stock .............................. -- -- 124
Net provision for product safety modifications ........ (154) (118) (432)
Deferred income taxes ................................. (280) 526 696
Changes in operating assets and liabilities:
Trade receivables ................................... 2,776 (1,928) (44)
Inventories ......................................... 9,567 (2,003) 9,534
Trade accounts payable and accrued expenses ......... 1,687 (692) (3)
Prepaid expenses, other assets, and other liabilities 551 (215) (910)
Product liability ................................... (451) (2,268) --
Income taxes ........................................ 728 (1,614) 3,197
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities ................. 56,723 24,584 49,120
Investing Activities
Property, plant, and equipment additions .................. (4,515) (5,969) (4,511)
Purchases of short-term investments ....................... (184,807) (131,521) (160,757)
Proceeds from sales or maturities of
short-term investments .................................. 157,443 133,758 145,925
Net proceeds from sale of land ............................ 169 1,077 --
Investment in joint venture ............................... -- -- 518
Purchase of Callaway Golf's interest in joint venture ..... -- -- (7,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash used by investing activities ..................... (31,710) (2,655) (25,825)
Financing Activities
Dividends paid ............................................ (21,529) (21,527) (21,536)
Repurchase of Common Stock ................................ -- (210) --
- ------------------------------------------------------------------------------------------------------------------------------
Cash used by financing activities ..................... (21,529) (21,737) (21,536)
- ------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents ....................... 3,484 192 1,759
Cash and cash equivalents at beginning of year .............. 4,680 4,488 2,729
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year .................... $ 8,164 $ 4,680 $ 4,488
==============================================================================================================================
</TABLE>
See accompanying notes.
15
<PAGE> 20
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. 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 $40.1 million and $38.7 million at December 31, 1999 and 1998,
respectively. During 1999, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the current cost of purchases, the
effect of which decreased cost of products sold by approximately $0.5 million.
Property, Plant, and Equipment
Property, plant, and equipment are stated on the basis of cost.
Depreciation is computed by the straight-line and declining balance methods.
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, 1999, 1998, and 1997 were $1.7 million, $3.1
million, and $2.3 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."
16
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Earnings Per Share
Basic earnings per share is based upon the weighted-average number of
shares of Common Stock outstanding during the year, which was 26,910,700 in
1999, 26,911,700 in 1998, and 26,918,800 in 1997. Diluted earnings per share for
1999 and 1998 reflect the impact of options outstanding using the treasury stock
method. This results in diluted weighted-average shares outstanding of
26,910,700 in 1999 and 26,912,900 in 1998.
2. Income Taxes
The Federal and state income tax provision (benefit) consisted of the
following (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal ........................ $ 18,421 $ (234) $ 13,593 $ 464 $ 15,865 $ 607
State .......................... 3,608 (46) 1,827 62 2,328 89
- ---------------------------------------------------------------------------------------------------------------------------------
$ 22,029 $ (280) $ 15,420 $ 526 $ 18,193 $ 696
=================================================================================================================================
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product liability ............................ $ 7,644 $ 8,080
Employee compensation and benefits ........... 3,828 2,167
Product safety modifications ................. 234 305
Allowances for doubtful accounts and discounts 1,794 1,652
Inventories .................................. 1,694 948
Other ........................................ 513 2,682
- --------------------------------------------------------------------------------------
Total deferred tax assets ...................... 15,707 15,834
- --------------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid insurance ............................ 295 313
Depreciation ................................. 1,631 2,287
Pension plans ................................ 2,102 1,835
- --------------------------------------------------------------------------------------
Total deferred tax liabilities ................. 4,028 4,435
- --------------------------------------------------------------------------------------
Net deferred tax assets ........................ $11,679 $11,399
======================================================================================
</TABLE>
The effective income tax rate varied from the statutory Federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate ............ 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit 4.1 4.7 5.0
Other items .................................. .1 .8 .5
- ------------------------------------------------------------------------------------------------
Effective income tax rate .................... 39.2% 40.5% 40.5%
================================================================================================
</TABLE>
The Company made income tax payments of approximately $22.0 million, $17.0
million, and $15.0 million, during 1999, 1998, and 1997, 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. On June 25, 1997, the Company purchased Callaway Golf's
interest in Antelope Hills for $7 million. As a result, Antelope Hills is now a
wholly owned subsidiary of the Company and is consolidated in the accompanying
financial statements.
17
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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).
Change in Benefit Obligation 1999 1998
- -------------------------------------------------------------------------------
Benefit obligation
at January 1 ......................... $ 34,250 $ 30,738
Service cost ........................... 1,405 1,252
Interest cost .......................... 2,290 2,114
Actuarial loss (gain) .................. (3,492) 1,386
Benefits paid .......................... (1,401) (1,240)
- -------------------------------------------------------------------------------
Benefit obligation
at December 31 ....................... 33,052 34,250
- -------------------------------------------------------------------------------
Change in Plan Assets
- -------------------------------------------------------------------------------
Fair value of plan assets
at January 1 ......................... 29,325 26,016
Actual return on plan assets ........... 453 2,783
Employer contributions ................. 1,743 1,766
Benefits paid .......................... (1,401) (1,240)
- -------------------------------------------------------------------------------
Fair value of plan assets
at December 31 ....................... 30,120 29,325
- -------------------------------------------------------------------------------
Funded status .......................... (2,932) (4,925)
Unrecognized net actuarial loss ........ 4,760 6,272
Unrecognized prior
service cost ......................... 2,103 2,555
Unrecognized transition
obligation ........................... (331) (452)
- -------------------------------------------------------------------------------
Net amount recognized .................. $ 3,600 $ 3,450
===============================================================================
Amounts Recognized on the Balance Sheet 1999 1998
- ------------------------------------------------------------------------------
Prepaid benefit cost ....................... $ 6,061 $ 5,369
Accrued benefit liability .................. (3,929) (3,767)
Intangible asset ........................... 1,246 1,528
Accumulated other
comprehensive income ..................... 133 190
Deferred tax asset ......................... 89 130
- ------------------------------------------------------------------------------
$ 3,600 $ 3,450
- ------------------------------------------------------------------------------
Weighted-Average
Assumptions as of December 31,
- ------------------------------------------------------------------------------
Discount rate .............................. 7.50% 6.75%
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 ............................... $ 1,405 $ 1,252
Interest cost .............................. 2,290 2,114
Expected return
on assets ................................ (2,663) (2,336)
Amortization of unrecognized
transition asset ......................... (121) (122)
Recognized gains ........................... 229 171
Prior service cost recognized .............. 452 452
- ------------------------------------------------------------------------------
Net periodic pension cost .................. $ 1,592 $ 1,531
==============================================================================
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with projected benefit obligations in
excess of plan assets were $10.1 million, $8.1 million, and $5.2 million,
respectively, as of December 31, 1999 and $10.3 million, $8.1 million, and $5.1
million, respectively, as of December 31, 1998.
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 $1.2 million, $1.1 million, and
$1.1 million, in 1999, 1998, and 1997, respectively.
In 1999 and 1998, the Company changed the weighted-average discount rates
which decreased the projected benefit obligation by approximately $3.6 million
in 1999 and increased the projected benefit obligation by approximately $1.2
million in 1998.
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. In
1999, the additional minimum pension liability was adjusted and comprehensive
income increased by $57,000.
5. Stock Incentive and Bonus Plans
In 1998, the Company adopted, and in May 1999 the shareholders approved,
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.
18
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the activity of the 1998 Plan:
Shares Exercise Price
- --------------------------------------------------------------------------------
Outstanding at January 1, 1998 ...... -- --
Granted ........................... 1,470,000 $11.94
Exercised ......................... -- --
Canceled .......................... -- --
- --------------------------------------------------------------------------------
Outstanding at December 31, 1998 .... 1,470,000 11.94
Granted ........................... -- --
Exercised ......................... -- --
Canceled .......................... (50,000) 11.94
- --------------------------------------------------------------------------------
Outstanding at December 31, 1999 .... 1,420,000 $11.94
- --------------------------------------------------------------------------------
There were 284,000 exercisable options at December 31, 1999. At December
31, 1999, an aggregate of 580,000 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. Had compensation expense for the plans been determined in
accordance with SFAS No. 123, the Company's 1999 and 1998 net income and
earnings per share would have been reduced to the following pro forma amounts
(in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net Income:
As reported ......................... $ 33,734 $ 23,426
Pro forma ........................... $ 33,394 $ 23,426
Earnings per Share (Basic and Diluted):
As reported ......................... $ 1.25 $ 0.87
Pro forma ........................... $ 1.24 $ 0.87
- -----------------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted under the 1998 Plan was
estimated at $1.99 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.
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, 1999, 502,000 shares of Common Stock were reserved for
future awards.
6. Contingent Liabilities
The Company is a defendant in approximately 40 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, manufacturing, 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, assault, negligent distribu-
19
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
tion, 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.
In many of these cases punitive damages, as well as compensatory damages,
are demanded. Aggregate claimed amounts presently exceed product liability
accruals and if applicable, insurance coverage. Management believes that, in
every case, the allegations are unfounded, and that the 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
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.
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.
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 distributors primarily located in the
United States. The investment casting 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.
In 1999, revenues from two customers in the firearms segment totaled $27.1
million and $25.1 million, respectively. Revenues from one customer in the
firearms segment totaled $22.2 million and $23.8 million in 1998 and 1997,
respectively. Revenues from one customer in the casting segment totaled $31.0
million, $41.9 million, and $51.6 million in 1999, 1998, and 1997, respectively.
<TABLE>
<CAPTION>
Year ended December 31, (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Firearms ........................... $ 188,564 $ 144,898 $ 141,863
Castings
Unaffiliated ..................... 53,100 66,682 67,520
Intersegment ..................... 24,604 25,322 20,698
- -------------------------------------------------------------------------------------------------------
77,704 92,004 88,218
Eliminations ....................... (24,604) (25,322) (20,698)
- -------------------------------------------------------------------------------------------------------
$ 241,664 $ 211,580 $ 209,383
=======================================================================================================
Income Before Income Taxes
Firearms ........................... $ 48,404 $ 33,166 $ 31,811
Castings ........................... 4,741 4,320 13,663
Corporate .......................... 2,338 1,886 1,165
- -------------------------------------------------------------------------------------------------------
$ 55,483 $ 39,372 $ 46,639
- -------------------------------------------------------------------------------------------------------
Identifiable Assets
Firearms ........................... $ 71,756 $ 79,633 $ 75,024
Castings ........................... 35,753 43,760 50,097
Corporate .......................... 104,076 73,341 74,673
- -------------------------------------------------------------------------------------------------------
$ 211,585 $ 196,734 $ 199,794
=======================================================================================================
Depreciation
Firearms ........................... $ 3,733 $ 4,774 $ 4,413
Castings ........................... 5,001 5,521 4,795
- -------------------------------------------------------------------------------------------------------
$ 8,734 $ 10,295 $ 9,208
=======================================================================================================
Capital Expenditures
Firearms ........................... $ 3,165 $ 3,011 $ 1,350
Castings ........................... 1,350 2,958 3,161
- -------------------------------------------------------------------------------------------------------
$ 4,515 $ 5,969 $ 4,511
=======================================================================================================
</TABLE>
20
<PAGE> 25
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, 1999 (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
3/31/99 6/30/99 9/30/99 12/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ................................................................ $ 62,891 $ 63,018 $ 55,444 $ 60,311
Gross profit ............................................................. 18,274 16,437 15,618 20,685
Net income ............................................................... 8,383 7,537 6,981 10,833
Basic and diluted earnings per share ..................................... 0.31 0.28 0.26 0.40
<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
</TABLE>
During the fourth quarter of 1999, the effective tax rate for the year was
reduced to 39.2% due to a favorable change in effective state tax rates. As a
result, the effective tax rate for the fourth quarter of 1999 was reduced to
36.3%.
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.
21
<PAGE> 26
[LETTERHEAD OF ERNST & YOUNG LLP]
REPORT OF INDEPENDENT AUDITORS
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, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
February 11, 2000
22
<PAGE> 27
STOCKHOLDER INFORMATION
Common Stock Data
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "RGR." At February 15, 2000 the Company had 2,042 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>
1999:
First Quarter .................................................................. $12.94 $ 8.50 $ .20
Second Quarter ................................................................. 11.94 9.56 .20
Third Quarter .................................................................. 10.94 8.44 .20
Fourth Quarter ................................................................. 9.94 8.25 .20
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
</TABLE>
Items of Interest to Stockholders
Annual Meeting
The Annual Meeting of Stockholders will be held on May 11, 2000 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 1999 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
23
<PAGE> 28
DIRECTORS AND OFFICERS
[PHOTOS]
Directors
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
**Vice Chairman, 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
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
Erle G. Blanchard
Vice President, Controller
Leslie M. Gasper
Corporate Secretary
*Audit Committee Member
**Compensation Committee Member
24
<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 11, 2000, included
in the 1999 Annual Report to Stockholders of Sturm, Ruger & Company, Inc.
Our audits also included the financial statement schedule of Sturm, Ruger &
Company, Inc. 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 financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333- 84677) pertaining to the Sturm, Ruger & Company, Inc. 1998
Stock Incentive Plan of our report dated February 11, 2000, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Sturm, Ruger &
Company, Inc.
ERNST & YOUNG LLP
Stamford, Connecticut
March 17, 2000
51
<PAGE> 2
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)
----------------------------------------
Leslie M. Gasper
Corporate Secretary
----------------------------------------
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.
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------- ----------------------------------------
William B. Ruger William B. Ruger, Jr.
Chairman of the Board, Chief Executive Officer, Vice Chairman, Senior Executive Officer,
Treasurer, Director President, Chief Operating Officer,
(Principal Executive Officer) Director
- ----------------------------------------------- ----------------------------------------
John M. Kingsley, Jr. Stanley B. Terhune
Director Director
- ----------------------------------------------- ----------------------------------------
Richard T. Cunniff Townsend Hornor
Director Director
- ----------------------------------------------- ----------------------------------------
Paul X. Kelley James E. Service
Director Director
- ----------------------------------------------- ----------------------------------------
Stephen L. Sanetti Erle G. Blanchard
Vice President, General Counsel, Director Vice President, Controller
(Principal Financial Officer)
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