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, 2001
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, 2002:
Common Stock, $1 par value - $245,555,942
The number of shares outstanding of the issuer's common stock as of March 15,
2002:
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, 2001 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 9, 2002 are incorporated by reference into Part III of this
Report.
Page 1 of 57
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' 1999 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 also sells firearms to the
law enforcement market. 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," nor does it
commercially-sell 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 lever action rifles introduced 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 2002, we will introduce several novel offerings including the
Ruger Gold Label Side-by-Side Double Shotgun, the first American-designed and
manufactured side-by-side shotgun in decades; the Ruger 77/17 Bolt Action Rifle
which fires the new .17 HMR cartridge; and the Ruger Vaquero and New Model
Single Six "Bird's Head" Grip Models which feature a distinctively-shaped grip.
The Company is also engaged in the manufacture of titanium and ferrous
investment castings for a wide variety of markets including sporting goods,
commercial, and military. The Company produces titanium golf club heads for
Karsten Manufacturing Corporation ("Ping") and other golf club manufacturers,
steel and titanium marine propellers, titanium hand tools, and various titanium
and steel castings for a number of customers. For 2002 and beyond, the Company
will continue to pursue other titanium and steel castings markets, as well as
other golf club casting business. In 1999, the Company's foremost investment
castings product was titanium golf club heads for Callaway Golf Company, Inc.
("Callaway Golf"). The Company made no shipments to Callaway Golf in 2000 or
2001.
2
ITEM 1 -- BUSINESS (CONTINUED)
For the years ended December 31, 2001, 2000, and 1999, net sales attributable to
the Company's firearms operations were approximately 85%, 82%, and 78%,
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 pages 20 and 21 of the Company's 2001 Annual Report to Stockholders.
PRODUCTS -- FIREARMS
The Company presently manufactures 30 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 fourteen different types of rifles: the M77 Mark
II, the M77 Mark II Express and Magnum, the 77/17, the 77/22, the 77/44, the
10/22, the Model 96/22, the Model 96/44, the Mini-14, the Mini Thirty, the Ruger
Carbine, the Deerfield Carbine (99/44), the No. 1 Single-Shot, and the 77/50
Muzzle Loader. Sales of rifles by the Company accounted for approximately $72.8
million, $73.2 million, and $89.8 million of revenues for the years 2001, 2000,
and 1999, 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, English Field,
All-Weather and engraved versions. In 2002, the Company began manufacturing a
side-by-side shotgun in 12 gauge. Sales of shotguns by the Company accounted for
approximately $6.1 million, $11.4 million, and $13.4 million of revenues for the
years 2001, 2000, and 1999, 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 $26.6 million, $43.2 million, and $47.3 million of revenues for
the years 2001, 2000, and 1999, 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 in a variety of
calibers, configurations, and finishes: 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 $37.9
million, $34.0 million, and $33.7 million of revenues for the years 2001, 2000,
and 1999, respectively.
The Company also manufactures and sells accessories and replacement parts for
its firearms. These sales accounted for approximately $4.2 million, $4.6
million, and $4.4 million of revenues for the years 2001, 2000, and 1999,
respectively.
3
ITEM 1 -- BUSINESS (CONTINUED)
PRODUCTS -- INVESTMENT CASTINGS
The investment castings products currently manufactured by the Company consist
of titanium, chrome-molybdenum, stainless steel, nickel, and cobalt alloys. The
Company produces titanium golf club heads for Karsten Manufacturing Corporation
("Ping"), steel marine propellers, steel and titanium hand tools, and various
other titanium and steel castings for a number of customers. Sales of golf club
heads to Callaway Golf approximated 58% of casting revenues for 1999. In 2000
and 2001, no shipments were made to Callaway Golf.
Ruger Investment Casting ("RIC"), which includes the Antelope Hills foundry, is
located in Prescott, Arizona and engineers and produces titanium and ferrous
castings.
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 sold the assets of its Uni-Cast Division, which was located in
Manchester, New Hampshire, on June 2, 2000. Uni-Cast's activity was immaterial
for the three years ended December 31, 2001. Currently, Uni-Cast is a third
party supplier of aluminum castings used in the manufacture of certain pistols.
Sales from the Company's investment casting operations (excluding intercompany
transactions) accounted for approximately $26.7 million, $36.2 million, and
$53.1 million, or 15%, 18%, and 22% of the Company's total net sales for 2001,
2000, and 1999, 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. One component part, an aluminum
casting used in the manufacture of certain models of pistols, is purchased from
only one third party and may not be readily available from other sources
immediately.
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.
4
ITEM 1 -- BUSINESS (CONTINUED)
INVESTMENT CASTINGS -- The Company manufactures all of its precision investment
castings products at one of its three investment casting foundries. 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.
All of the titanium investment castings and some of the ferrous investment
castings products are manufactured by the Company's RIC Division. This facility
is one of the largest investment castings facilities in the Southwest.
The Company's Pine Tree Castings Division manufactures ferrous investment
castings.
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 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. The resell to Federally-licensed retail gun dealers and
legally authorized end-users. All retail purchasers are subject to a
point-of-sale background check by law enforcement. 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, 20
distributors service the domestic commercial market, with an additional 12
servicing the domestic law enforcement market and two servicing the Canadian
market. Four of these distributors service both the domestic commercial market
and the domestic law enforcement market. AcuSport Corporation accounted for
approximately 21%, 20%, and 19% of net firearms sales and 17%, 16%, and 15% of
consolidated net sales in 2001, 2000, and 1999, respectively. Davidson's Supply
Company, accounted for approximately 14%, 14% and 13% of net firearms sales and
12%, 11% and 10% of consolidated net sales in 2001, 2000, and 1999,
respectively. Jerry's Sport Center, accounted for approximately 12%, and 14% of
the Company's net sales of firearms and 10% and 11% of consolidated net sales in
2000 and 1999, respectively. The Company employs six employees and one
independent contractor 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, but may have a material impact on the Company's financial
results for a particular period. 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, foreign governments, and a few
select commercial distributors. 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 2001, the Company received annual orders from its
distributors for the 2002 marketing year. As of March 1, 2002, unfilled firearms
orders were approximately $128 million as compared to approximately $113 million
at March 1, 2001.
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
5
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. The Company produces titanium golf
club heads for Karsten Manufacturing Corporation ("Ping"), steel marine
propellers, steel and titanium hand tools, and various other products for a
number of customers. For 2002 and beyond, the Company will continue to pursue
other titanium and steel castings markets, as well as other golf club casting
business. In 1999 one castings segment customer, Callaway Golf, accounted for
approximately 13% of consolidated net sales and 58% of casting segment sales,
respectively. No shipments were made to Callaway Golf in 2000 or 2001.
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
or steel) 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, 2002, the Company employed 1,537 full-time employees of which
approximately 45% 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 52-year
history and believes its employee relations are satisfactory.
6
ITEM 1 -- BUSINESS (CONTINUED)
RESEARCH AND DEVELOPMENT
In 2001, 2000, and 1999, the Company spent approximately $0.8 million, $1.0
million, and $1.2 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. As of
February 28, 2002, the Company had approximately 33 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.
Name Age Position With Company
---- --- ---------------------
William B. Ruger, Jr. 62 Chairman of the Board, Chief Executive Officer and Director
Erle G. Blanchard 55 Vice Chairman, President, Chief Operating Officer, Treasurer and
Director
Stephen L. Sanetti 52 Vice Chairman, Senior Executive Vice President, General Counsel
and Director
Leslie M. Gasper 48 Corporate Secretary
William B. Ruger, Jr. became Chairman of the Board and Chief Executive Officer
on October 24, 2000. Mr. Ruger had served as President and Chief Operating
Officer since March 1, 1998, Vice Chairman and Senior Executive Officer of the
Company since 1995 and 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.
7
ITEM 1 -- BUSINESS (CONTINUED)
Erle G. Blanchard was elected Vice Chairman, President, Chief Operating Officer,
Treasurer and Director on October 24, 2000. Mr. Blanchard had 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 Vice Chairman, Senior Executive Vice President and
General Counsel on October 24, 2000. Mr. Sanetti has been a Director since March
1, 1998. Prior to October 24, 2000, he had 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 three facilities. The
following table sets forth certain information regarding each of these
facilities:
Approximate
Aggregate Usable
Square Feet Status
----------- ------
Newport, New Hampshire 350,000 Owned
Prescott, Arizona 230,000 Leased
Prescott, Arizona 110,000 Owned
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, 2001, the Company is a defendant in approximately 37 lawsuits
involving its products and is aware of certain other such claims. These lawsuits
and claims fall into 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
8
ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
(ii) those brought by cities, municipalities, counties, individuals
(including certain putative class actions) and a state attorney general
against numerous firearms manufacturers, distributors and dealers
seeking to recover damages allegedly arising out of the misuse of
firearms by third parties in the commission of homicides, suicides and
other shootings involving juveniles and adults. The complaints by
municipalities seek damages, among other things, for the costs of
medical care, police and emergency services, public health services,
and the maintenance of courts, prisons, and other services. In certain
instances, the plaintiffs seek to recover for decreases in property
values and loss of business within the city due to criminal violence.
In addition, nuisance abatement and/or injunctive relief is sought to
change the design, manufacture, marketing and distribution practices of
the various defendants. These suits allege, among other claims, strict
liability or negligence in the design of products, public nuisance,
negligent entrustment, negligent distribution, deceptive or fraudulent
advertising, violation of consumer protection statutes and conspiracy
or concert of action theories. None of these cases allege a specific
injury to a specific individual as a result of the misuse or use of any
of the Company's products.
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 firearms by third parties or the
claimant, and that there should be no recovery against the Company. Defenses
further exist to the suits brought by cities, municipalities, counties, and a
state attorney general based, among other reasons, on established state law
precluding recovery by municipalities for essential government services, the
remoteness of the claims, the types of damages sought to be recovered, and
limitations on the extraterritorial authority which may be exerted by a city,
municipality, county or state under state and federal law, including State and
Federal Constitutions.
The only case against the Company alleging liability for criminal shootings by
third parties to ever be permitted to go before a jury, Hamilton, et. al. v.
Accu-tek, et. al., resulted in a defense verdict in favor of the Company on
February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. The Court upheld the verdict of the jury
and dismissed each case as to the Company in its later opinion. The three
defendants found liable filed a notice of appeal from the Court's decision. On
August 16, 2000, the U.S. 2nd Circuit Court of Appeals certified certain
questions involving the appeal to the Appellate Division of the New York State
Supreme Court for resolution. Oral argument on those certified questions was
heard in the New York Appellate Division on February 8, 2001. On April 26, 2001,
the Appellate Division of the New York State Supreme Court responded to the U.S.
2nd Circuit Court of Appeals' certified questions. The questions involved
whether firearms manufacturers have a legal duty to prevent criminal misuses of
their lawfully-sold products and whether any liability of the firearms
manufacturers should be apportioned by a market share theory. The New York State
Appellate Division answered both questions in the negative. On August 30, 2001,
the United States Court of Appeals for the 2nd Circuit vacated and remanded the
case with instructions for the trial court to enter a final judgment of
dismissal. The trial court finally dismissed the case on its merits on September
17, 2001.
9
ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
On October 7, 1999 a lawsuit brought against the Company and numerous firearms
manufacturers and distributors by the mayor of Cincinnati, City of Cincinnati v.
Beretta U.S.A. Corp., et. al., was dismissed. This was the first dismissal of
one of the lawsuits which have been filed by certain cities, municipalities and
counties. The Ohio Court of Appeals affirmed this decision on August 11, 2000.
Such lawsuits filed by the cities of Bridgeport (dismissal affirmed by the
Connecticut Supreme Court on October 1, 2001), Miami (dismissal affirmed by the
District Court of Appeal 3rd District on February 15, 2001, review denied by the
Florida Supreme Court on October 26, 2001), Chicago, Camden County (dismissal
affirmed by the Third Circuit Court of Appeals on November 16, 2001),
Philadelphia, and Gary, and that filed by the State of New York have been
completely dismissed, and those filed by the cities of Wilmington and Newark
have been partially dismissed. The Atlanta suit was dismissed on February 13,
2002. The Cleveland suit has withstood an initial motion to dismiss in the trial
court, and in New Orleans the Court declared legislation passed to prohibit such
suits unconstitutional. However, on April 3, 2001, the Louisiana Supreme Court
reversed this decision, finding the statute to be constitutional, and it
dismissed the case. The Detroit/Wayne County case was also partially dismissed,
and the Michigan legislature has also passed legislation precluding such suits,
as have at least twenty-seven other states. The Boston case and the California
cities (consolidated into one case) claims have been permitted to proceed into
the discovery phase. Appeals of all trial court decisions are pending or will be
filed when appropriate. Motions to dismiss other such lawsuits are pending or
will be filed when timely.
While it is not possible to forecast the outcome of litigation or the timing of
costs, in the opinion of management, after consultation with independent and
corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial
position of the Company, but may have a material impact on the Company's
financial results for a particular period.
Punitive damages, as well as compensatory damages, are demanded in many of the
lawsuits and claims. Aggregate claimed amounts presently exceed product
liability accruals and applicable insurance coverage. As of March 18, 1982,
compensatory and punitive damage insurance coverage is provided, in States where
permitted, for losses exceeding $1.0 million of loss per occurrence or an
aggregate maximum loss of $4.0 million. For claims which the Company has been
notified in writing between July 10, 1988 through July 10, 1989, coverage is
provided for losses exceeding $2.5 million per claim or an aggregate maximum
loss of $9.0 million. For claims made between July 10, 1989 and July 10, 1991,
the aggregate maximum loss is $7.5 million. For claims made after July 10, 1992,
coverage is provided for losses exceeding $2.25 million per claim, or an
aggregate maximum loss of $6.5 million. For claims made after July 10, 1994,
coverage is provided for losses exceeding $2.0 million per claim, or an
aggregate maximum loss of $6.0 million. For claims made after July 10, 1997,
coverage is provided for annual losses exceeding $2.0 million per claim, or an
aggregate maximum loss of $5.5 million annually. For claims made after July 10,
2000, coverage is provided for annual losses exceeding $5 million per claim, or
an aggregate maximum loss of $10 million annually, except for certain new claims
which might be brought by governments or municipalities after July 10, 2000,
which are excluded from coverage.
On March 17, 2000, Smith & Wesson announced that it had reached a settlement to
conclude some of the municipal lawsuits with various governmental entities. On
March 30, 2000, the Office of the Connecticut Attorney General began an
investigation of certain alleged "anticompetitive practices in the
10
ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
firearms industry." On April 17, 2000, the State of Maryland's Attorney General
also made similar inquiries as to the Company. On August 9, 2000, the U.S.
Federal Trade Commission also filed such a civil investigative demand regarding
the Smith & Wesson settlement. The Company has not engaged in any improper
conduct and has cooperated with these investigations.
The Company has reported all cases instituted against it through September 30,
2001 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, 2001, 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, 1998 and 1999, 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, June 30, 1996,
September 30, 1997, September 30, 1998 and March 31, June 30, and September 30,
1999, March 31, June 30 and September 30, 2000, and March 31 and September 30,
2001.
The following cases were instituted against the Company during the twelve months
ended December 31, 2001, which involved significant demands for compensatory
and/or punitive damages:
Larkins v. Company (MO), on February 7, 2001, in the U.S. District Court for the
Eastern District of Missouri. The complaint alleges that the plaintiff's Ruger
revolver accidentally discharged when it was dropped from a rig, resulting in
fatal injury to him. Plaintiff seeks compensatory and punitive damages, plus
other fees to be determined by the court.
Lawn v. Company, et. al., on September 10, 2001, in the Ontario (Canada)
Superior Court of Justice. The complaint alleges that the plaintiff was
participating in a Wild West Show when a Ruger revolver utilized with blank
cartridges "backfired," resulting in minor injuries to the plaintiff's arm and
hand. Plaintiff seeks compensatory damages.
Price v. Company, et. al. (MD), on September 27, 2001, in the Circuit Court for
Baltimore City. The complaint alleges that the plaintiffs' decedent was fatally
injured by a third-party who carelessly pulled the trigger of a Ruger pistol.
The gun owner is also a defendant in the lawsuit. The complaint also alleges
that the pistol lacks adequate safety devices and warnings. Plaintiffs seek
compensatory and punitive damages.
Wallace, et. al. v. Beretta U.S.A. Corp., et. al. (DC), on August 9, 2001, in
the Superior Court for the District of Columbia Civil Division. The complaint
alleges that the plaintiffs' decedents were shot by gang members with a pistol
of unknown manufacture and "an AK-47 type firearm." The plaintiffs' decedents
were both fatally injured. Plaintiffs seek general, special, and punitive
damages, plus injunctive relief.
11
ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
During the twelve months ending December 31, 2001, three previously reported
cases were settled:
Case Name Jurisdiction
--------- ------------
Martin Florida
Dibble Alaska
Bieber Montana
The settlement amounts were within the Company's limits of its self-insurance
coverage.
On January 9, 2001, in the previously-reported Mahoney (DC) case, the Company
was voluntarily dismissed without prejudice by the plaintiff.
On January 12, 2001, in the previously-reported City of Gary (IN) case, the
trial court dismissed the complaint in its entirety. Plaintiffs filed an amended
complaint that was also dismissed by the court on March 13, 2001. Plaintiffs
have filed an appeal.
On February 14, 2001, in the previously-reported Miami-Dade County (FL) case,
the Florida appellate court affirmed the trial court's dismissal of all claims.
Plaintiffs filed a request for a discretionary appeal with the Florida Supreme
Court, which was denied on October 26, 2001.
On April 3, 2001, in the previously-reported New Orleans (LA) case, the
Louisiana Supreme Court unanimously reversed the trial court's decision, finding
that legislation prohibiting the city's lawsuit was constitutional, and
dismissed the case. Plaintiffs filed a motion for rehearing which was denied on
April 24, 2001. The United States Supreme Court denied plaintiffs motion for
certiorari on October 4, 2001.
On April 25, 2001, in the previously-reported Halliday (MD) case, the Maryland
Court of Special Appeals affirmed en banc the trial court's dismissal of all
claims against the Company, holding that a firearms manufacturer has no legal
duty to manufacture "childproof" firearms. Plaintiffs have appealed this
decision to the Maryland Court of Appeals.
On June 4, 2001, in the previously-reported Binkley (MI) case, the Company was
dismissed with prejudice.
On August 10, 2001, in the previously-reported State of New York case, the trial
judge of the Supreme Court of the State of New York dismissed the lawsuit in its
entirety. The plaintiffs filed a notice of appeal to the New York State
Appellate Division on September 24, 2001.
On August 30, 2001, the United States Court of Appeals for the 2nd Circuit,
acting upon certification from the New York State Appellate Division, remanded
the previously-reported case of Hamilton, et. al. v. Accu-tek, et. al., with
instructions to the trial court to dismiss the case. The case was then dismissed
in its entirety on its merits by Judge Weinstein on September 17, 2001. The
Company had previously been dismissed from the case in March 1999, after the
jury found the Company's marketing practices not to be negligent.
12
ITEM 3 -- LEGAL PROCEEDINGS (CONTINUED)
On October 1, 2001, in the previously reported City of Bridgeport (CT) case, the
Connecticut Supreme Court unanimously affirmed the trial court's dismissal of
the complaint.
On November 16, 2001, the United States Court of Appeals for the Third Circuit
dismissed the city's appeal of the trial court's dismissal of the Camden County
(NJ) complaint.
On November 30, 2001, in the previously reported Ricchueto (NY) case, the
plaintiffs agreed to voluntarily dismiss the Company without payment of any
amount in damages.
On December 31, 2001, in the previously reported cases of Ceriale, Smith, and
Young (IL), the First Division of the Illinois Court of Appeals held that
plaintiffs lacked standing to maintain these "public nuisance" lawsuits against
the Company, as none of the Company's products were used in any of the criminal
assaults which formed the basis of these claims.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
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 2001 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 2001 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 5
through 8 of the Company's 2001 Annual Report to Stockholders.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in prevailing market interest rates affecting
the return on its investments but does not consider this interest rate market
risk exposure to be material to its financial condition or results of
operations. The Company invests primarily in United States Treasury instruments
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, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 2001
and the report dated February 8, 2002 of KPMG LLP, independent
auditors, are incorporated by reference from pages 12 through 22 of the
Company's 2001 Annual Report to Stockholders.
The report dated February 9, 2001 of Ernst & Young LLP, independent
auditors, is included as Exhibit 23.3.
(B) SUPPLEMENTARY DATA
Quarterly results of operations for 2001 and 2000 are incorporated by
reference from page 21 of the Company's 2001 Annual Report to
Stockholders.
14
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective August 27, 2001, the Audit Committee of Sturm, Ruger & Company, Inc.
("The Company") dismissed Ernst & Young LLP and appointed KPMG LLP as its
independent auditors.
Ernst & Young LLP's reports on the Company's financial statements for the past
two years did not contain an adverse opinion, disclaimer of opinion, or
qualification or modification as to uncertainty, audit scope, or accounting
principles.
During the two most recent fiscal years and the subsequent interim period
preceding August 27, 2001, there have been no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused it to make reference to the
subject matter of the disagreement in connection with its report.
The Company (or someone on its behalf) has not consulted KPMG LLP during the two
most recent fiscal years and the subsequent interim period preceding August 27,
2001 regarding the application of accounting principles to a specified
transaction or the type of audit opinion that might be rendered on the Company's
financial statements.
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 through 4 of the Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held May 9, 2002 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 9, 2002
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 9, 2002 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION, "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION," "EXECUTIVE COMPENSATION," "2001 OPTION GRANTS-1998
STOCK INCENTIVE PLAN," "AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES," "PENSION PLAN TABLE," "SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN TABLE," and "COMPANY STOCK PRICE PERFORMANCE" on pages
5 through 15.
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 9, 2002 under the captions "ELECTION OF DIRECTORS,"
"PRINCIPAL STOCKHOLDERS," and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2
through 4, 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 9, 2002 under the captions "DIRECTOR COMPENSATION
AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE
COMPENSATION," "2000 OPTION GRANTS-1998 STOCK INCENTIVE PLAN," AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES,"
and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on pages 5, 8 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, 2001 and 2000
Consolidated Statements of Income -- Years ended December 31,
2001, 2000, and 1999
Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows -- Years ended December
31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Report of KPMG LLP
This information is incorporated by reference from the Company's 2001
Annual Report to Stockholders as noted in Item 8.
(2) Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts
16
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, or the
required information is disclosed elsewhere, and therefore, have been
omitted.
(3) Listing of Exhibits:
Exhibit 3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibits 4.1 and 4.2 to the
Form S-3 Registration Statement previously filed by the
Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended (Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, SEC
File No. 0-4776).
Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the Bylaws of
the Company (Incorporated by reference to Exhibit 3.3 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, SEC File No. 0-4776).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988, as amended by Form 8 filed March 27,
1990, SEC File No. 0-4776).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986 Stock
Bonus Plan (Incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1991, SEC File No. 0-4776).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental Executive
Profit Sharing Retirement Plan (Incorporated by reference
to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, SEC File No.
0-4776).
Exhibit 10.4 Agreement and Assignment of Lease dated September 30,
1987 by and between Emerson Electric Co. and Sturm, Ruger
& Company, Inc. (Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No. 0-4776).
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).
17
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
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. 0-4776).
Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan for
Non-Employee Directors.
Exhibit 13.1 Annual Report to Stockholders of the Company for the
year ended December 31, 2000. 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 KPMG LLP.
Exhibit 23.2 Consent of Ernst & Young LLP.
Exhibit 23.3 Opinion of Ernst & Young LLP.
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 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended June 30,
1996, SEC File No. 1-10435, incorporated by reference in
Item 3 LEGAL PROCEEDINGS.
Exhibit 99.5 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.
18
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit 99.6 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 99.7 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 99.8 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.
Exhibit 99.9 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form
10-K of the Company for the year ended December 31, 1999,
SEC File No. 1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS.
Exhibit 99.10 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, 2000, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.11 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on
Form 10-Q of the Company for the quarters ended March 31
and September 30, 2001, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL PROCEEDINGS.
(b) Report on Form 8-K filed in the fourth quarter of 2001: None
19
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 20, 2001
-------------------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
S/WILLIAM B. RUGER 3/20/02 S/WILLIAM B. RUGER, JR. 3/20/02
-------------------------------------------------------------- ----------------------------------------------------
Chairman Emeritus and Director Chairman of the Board, Chief Executive
Officer and Director
(Principal Executive Officer)
S/ERLE G. BLANCHARD 3/20/02 S/STEPHEN L. SANETTI 3/20/02
-------------------------------------------------------------- ----------------------------------------------------
Erle G. Blanchard Stephen L. Sanetti
Vice Chairman, President, Chief Operating Vice Chairman, Senior Executive Vice
Officer, Treasurer and Director President, General Counsel and Director
(Principal Financial Officer)
S/JOHN M. KINGSLEY, JR. 3/20/02 S/STANLEY B. TERHUNE 3/20/02
-------------------------------------------------------------- ----------------------------------------------------
John M. Kingsley, Jr. Stanley B. Terhune
Director Director
S/RICHARD T. CUNNIFF 3/20/02 S/TOWNSEND HORNOR 3/20/02
-------------------------------------------------------------- ----------------------------------------------------
Richard T. Cunniff Townsend Hornor
Director Director
S/PAUL X. KELLEY 3/20/02 S/JAMES E. SERVICE 3/20/02
-------------------------------------------------------------- ----------------------------------------------------
Paul X. Kelley James E. Service
Director Director
20
EXHIBIT INDEX
Page No.
--------
Exhibit 3.1 Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibits 4.1
and 4.2 to the Form S-3 Registration Statement
previously filed by the Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended (Incorporated
by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, SEC File No. 0-4776).
Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the
Bylaws of the Company (Incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, SEC File
No. 0-4776).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus
Plan (Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1988, as amended by Form 8 filed
March 27, 1990, SEC File No. 0-4776).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986
Stock Bonus Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, SEC File
No. 0-4776).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental
Executive Profit Sharing Retirement Plan
(Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1991, SEC File No. 0-4776).
Exhibit 10.4 Agreement and Assignment of Lease dated
September 30, 1987 by and between Emerson Electric
Co. and Sturm, Ruger & Company, Inc. (Incorporated by
reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991, SEC File No. 0-4776).
Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental
Executive Retirement Plan (Incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, SEC
File No. 0-4776).
Exhibit 10.6 Operating Agreement of Antelope Hills, LLC, a
Delaware Limited Liability Company, dated as of
October 5, 1995 (Incorporated by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File No.
0-4776).
Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock
Incentive Plan. (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.
0-4776).
21
EXHIBIT INDEX (continued)
Page No.
--------
Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option
Plan for Non-Employee Directors.
Exhibit 13.1 Annual Report to Stockholders of the Company for
the year ended December 31, 2000. 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. 24
Exhibit 23.1 Consent of KPMG LLP 55
Exhibit 23.2 Consent of Ernst & Young LLP 56
Exhibit 23.3 Opinion of Ernst & Young LLP 57
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 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended June
30, 1996, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.5 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 99.6 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 99.7 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.
22
EXHIBIT INDEX (continued)
Exhibit 99.8 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.
Exhibit 99.9 Item 3 LEGAL PROCEEDINGS from the Annual Report on
Form 10-K of the Company for the year ended December
31, 1999, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.10 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, 2000, SEC File
No. 1-10435, incorporated by reference in Item 3
LEGAL PROCEEDINGS.
Exhibit 99.11 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports
on Form 10-Q of the Company for the quarters ended
March 31 and September 30, 2001, SEC File No.
1-10435, incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
23
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2001
STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES
SOUTHPORT, CONNECTICUT
ITEMS 14(a)(2) AND 14(d)
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
24
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)
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
----------- --------- -------- ---------- ---------- ---------
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 2001 $1,252 $191(a) $1,061
------ ------- ------
Year ended December 31, 2000 $1,392 $(125) $15(a) $1,252
------ ------ ------ ------
Year ended December 31, 1999 $1,299 $125 $32(a) $1,392
------ ---- ------ ------
Allowance for discounts:
Year ended December 31, 2001 $1,130 $4,346 $4,331(b) $1,145
------ ------ --------- ------
Year ended December 31, 2000 $1,749 $6,696 $7,315(b) $1,130
------ ------ --------- ------
Year ended December 31, 1999 $1,888 $5,634 $5,773(b) $1,749
------ ------ --------- ------
(a) Accounts written off
(b) Discounts taken
25
Selected Financial Data
(Dollars in thousands, except per share data)
Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
Net firearms sales ................. $147,622 $166,415 $188,564 $144,898 $141,863
Net castings sales ................. 26,708 36,239 53,100 66,682 67,520
---------------------------------------------------------------------------------------------------------------------------------
Total net sales .................... $174,330 $202,654 $241,664 $211,580 $209,383
=================================================================================================================================
Cost of products sold .............. $134,449 $144,503 $170,650 $157,048 $146,143
Gross profit ....................... 39,881 58,151 71,014 54,532 63,240
Income before income taxes ......... 22,199 44,474 55,483 39,372 46,639
Income taxes ....................... 8,702 17,434 21,749 15,946 18,889
Net income ......................... 13,497 27,040 33,734 23,426 27,750
Basic and diluted earnings per share 0.50 1.00 1.25 0.87 1.03
Cash dividends per share ........... $0.80 $0.80 $0.80 $0.80 $0.80
December 31,
---------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
Working capital .................... $115,275 $123,020 $118,593 $102,395 $97,551
Total assets ....................... 204,378 215,665 215,684 196,734 199,794
Total stockholders' equity ......... 164,340 172,358 166,826 154,564 152,920
Book value per share ............... $6.11 $6.40 $6.20 $5.74 $5.68
Return on stockholders' equity ..... 8.0% 15.9% 21.0% 15.2% 18.5%
Current ratio ...................... 5.3 to 1 5.8 to 1 5.2 to 1 5.1 to 1 4.5 to 1
Common shares outstanding .......... 26,910,700 26,910,700 26,910,700 26,910,700 26,922,800
Number of stockholders of record ... 2,064 2,011 2,046 1,974 1,971
Number of employees ................ 1,547 1,814 1,952 2,130 1,978
Selected Financial Data should be read in conjunction with the Consolidated
Financial Statements and accompanying notes and Management's Discussion &
Analysis of Financial Condition & Results of Operations.
Ruger Stock Performance vs the Standard & Poor's 500 Index
[PERFORMANCE GRAPH]
4
Management's Discussion &
Analysis of Financial Condition & Results of Operations
INTRODUCTION
The Company's sales are comprised of the sales of firearms and investment
castings. The Company is the only U.S. firearms manufacturer which offers
products in all four industry product categories - rifles, shotguns, pistols,
and revolvers. Investment castings manufactured are of titanium, steel, nickel
and cobalt alloys.
RESULTS OF OPERATIONS
Year ended December 31, 2001, as compared to year ended December 31, 2000:
Consolidated net sales of $174.3 million were achieved by the Company in
2001 representing a decrease of $28.4 million or 14.0% from net sales of $202.7
million in 2000.
Firearms segment net sales decreased by $18.8 million or 11.3% to $147.6
million in 2001 from $166.4 million in the prior year. Firearms unit shipments
for 2001 decreased 12.6% from 2000, as pistol, rifle and shotgun shipments
declined. The unit decrease reflected a decline in overall market demand during
the first six months of the year, partially offset by a resurgence in demand
during the latter half of the year. Pistol demand may have been enhanced by a
consumer-driven sales incentive program which was in effect from August through
December 2001. In 2001, the Company instituted a sales incentive program for its
distributors which allowed them to earn rebates of up to 5% if certain annual
overall sales targets were achieved. This program replaced a similar sales
incentive program in 2000.
Casting segment net sales decreased 26.3% to $26.7 million in 2001 from
$36.2 million in 2000 as a result of lower unit volume. The downturn in castings
sales was due to weakened demand for both steel and titanium castings. The
Company continues to actively pursue potential investment castings applications
and customers in a variety of titanium and steel markets.
Consolidated cost of products sold for 2001 was $134.4 million compared to
$144.5 million in 2000, representing a decrease of 7.0%. This decrease of $10.1
million was primarily attributable to decreased sales in both the firearms and
investment castings segments.
Gross profit as a percentage of net sales decreased to 22.9% in 2001 from
28.7% in 2000. This erosion is due to decreased sales in 2001, partially offset
by pricing increases for selected models effective December 1, 2000 and 2001.
Selling, general and administrative expenses increased 4.8% to $20.9
million in 2001 from $19.9 million in 2000 due to costs related to a voluntary
firearms lock exchange program that began during the first quarter of 2001 and
increased personnel-related expenses.
Other income-net decreased from $6.2 million in 2000 to $3.2 million in
2001 primarily reflecting a gain on the sale of non-manufacturing real estate in
the second quarter of 2000 and decreased earnings on short-term investments as a
result of declining interest rates in 2001.
The effective income tax rate remained consistent at 39.2% in 2001 and
2000.
As a result of the foregoing factors, consolidated net income in 2001
decreased to $13.5 million from $27.0 million in 2000, representing a decrease
of $13.5 million or 50.0%.
Year ended December 31, 2000, as compared to year ended December 31, 1999:
Consolidated net sales of $202.7 million were achieved by the Company in
2000 representing a decrease of $39.0 million or 16.1% from net sales of $241.7
million in 1999.
Firearms segment net sales decreased by $22.2 million or 11.8% to $166.4
million in 2000 from $188.6 million in the prior year. Firearms unit shipments
for 2000 decreased 18.8% from 1999. The unit decrease reflected weakened overall
market demand and the absence of the Company's Fiftieth Anniversary
commemorative models, which were available exclusively in 1999. In 2000,
shipments of all four major product categories, pistols, revolvers, shotguns,
and rifles, decreased from 1999.
Casting segment net sales decreased 31.8% to $36.2 million in 2000 from
$53.1 million in 1999 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. Shipments to Callaway
Golf in 2000 were minimal.
Consolidated cost of products sold for 2000 was $144.5 million compared to
$170.7 million in 1999, representing a decrease of 15.3%. This decrease of $26.2
million was primarily attributable to decreased sales in both the firearms and
investment castings segments and decreased product liability expenses.
Gross profit as a percentage of net sales decreased to
5
Management's Discussion &
Analysis of Financial Condition & Results of Operations
(Continued)
28.7% in 2000 from 29.4% in 1999. This erosion was due to decreased sales in
2000, partially offset by pricing increases for selected models effective
December 1, 2000 and reduced product liability costs compared to 1999.
Selling, general and administrative expenses increased slightly to $19.9
million in 2000 from $19.3 million in 1999 due to increased national advertising
initiatives incurred in the first half of 2000.
Other income-net increased from $3.8 million in 1999 to $6.2 million in
2000 primarily reflecting a gain on the sale of non-manufacturing real estate in
the second quarter of 2000.
The effective income tax rate remained consistent at 39.2% in 2000 and
1999.
As a result of the foregoing factors, consolidated net income in 2000
decreased to $27.0 million from $33.7 million in 1999, representing a decrease
of $6.7 million or 19.8%.
FINANCIAL CONDITION
At December 31, 2001, the Company had cash, cash equivalents and
short-term investments of $67.8 million, working capital of $115.3 million and a
current ratio of 5.3 to 1.
Cash provided by operating activities was $23.0 million, $17.4 million,
and $56.7 million in 2001, 2000, and 1999, respectively. The increase in cash
provided in 2001 is principally the result of a modest decrease in inventories
in 2001 compared to the increase in inventories of $13.8 million in 2000,
partially offset by lower net income in 2001.
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 must be made by April 30. Shipments made in subsequent months must be
paid for within approximately 90 days. Dating plan receivable balances were
$12.2 million and $10.7 million at December 31, 2001 and 2000, 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 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 2002, 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 2001 the Company paid dividends of $21.5 million. This amount reflects
the regular quarterly dividend of $.20 per share paid in March, June, September,
and December 2001. On January 24, 2002, the Company declared a regular quarterly
dividend of $.20 per share payable on March 15, 2002. Future dividends depend on
many factors, including internal estimates of future performance and the
Company's need for cash.
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 2002.
The sale, purchase, ownership, and use of firearms are subject to
thousands of 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
6
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 commercially-sold long guns were exempted by name as
"legitimate sporting firearms." The Company remains strongly opposed to laws
which would restrict the rights of law-abiding citizens to lawfully acquire
firearms. The Company believes that the lawful private ownership of firearms is
guaranteed by the Second Amendment to the United States Constitution (a position
adopted by the U.S. Court of Appeals for the Fifth Circuit in the case of U.S.
v. Emerson on October 16, 2001) 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, counties, and a state attorney general
based, among other reasons, on established state law precluding recovery by
municipalities for essential government services, the remoteness of the claims,
the types of damages sought to be recovered, and limitations on the
extraterritorial authority which may be exerted by a city, municipality, county
or state under state and federal law, including State and Federal Constitutions.
The only case against the Company alleging liability for criminal
shootings by third parties ever to be permitted to go before a jury, Hamilton
et. al. v. Accu-tek et. al., resulted in a defense verdict in favor of the
Company on February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. The Court upheld the verdict of the jury
and dismissed each case as to the Company in its later opinion. The three
defendants found liable filed a notice of appeal from the Court's decision. On
August 16, 2000, the U.S. Second Circuit Court of Appeals certified certain
questions involving the appeal to the Appellate Division of the New York State
Supreme Court for resolution. Oral argument on those certified questions was
heard in the New York Appellate Division on February 8, 2001. On April 26, 2001,
the Appellate Division of the New York State Supreme Court responded to the U.S.
Second Circuit Court of Appeals' certified questions. The questions involved
whether firearms manufacturers have a legal duty to prevent criminal misuses of
their lawfully-sold products and whether any liability of the firearms
manufacturers should be apportioned by a market share theory. The New York State
Appellate Division answered both questions in the negative. On August 30, 2001,
the United States Court of Appeals for the Second Circuit vacated and remanded
the case with instructions for the trial court to enter a final judgment of
dismissal. The trial court finally dismissed the case on its merits on September
17, 2001.
On October 7, 1999 a lawsuit brought against the Company and numerous
firearms manufacturers and distributors by the mayor of Cincinnati, City of
Cincinnati v. Beretta U.S.A. Corp. et. al., was dismissed. This was the first
dismissal of one of the lawsuits which have been filed by certain cities,
municipalities and counties. The Ohio Court of Appeals affirmed this decision on
August 11, 2000. Such lawsuits filed by the cities of Bridgeport (dismissal
affirmed by the Connecticut Supreme Court on October 1, 2001), Miami (dismissal
affirmed by the District Court of Appeal Third District on February 14, 2001,
review denied by the Florida Supreme Court on October 26, 2001), Chicago, Camden
County (dismissal affirmed by the U.S. Third Circuit
7
Management's Discussion &
Analysis of Financial Condition & Results of Operations
(Continued)
Court of Appeals on November 16, 2001), Philadelphia, (dismissal affirmed by the
U.S. Third Circuit Court of Appeals on January 11, 2002) and Gary, and that
filed by the State of New York have been completely dismissed, and those filed
by the cities of Wilmington and Newark have been partially dismissed. The
Atlanta suit was dismissed on February 13, 2002. The Cleveland suit has
withstood an initial motion to dismiss in the trial court, and in New Orleans
the Court declared legislation passed to prohibit such suits unconstitutional.
However, on April 3, 2001, the Louisiana Supreme Court reversed this decision,
finding the statute to be constitutional, and it dismissed the case. The
Detroit/Wayne County case was also partially dismissed, and the Michigan
legislature has also passed legislation precluding such suits, as have at least
twenty-seven other states. The Boston case and the California cities
(consolidated into one case) claims have been permitted to proceed into the
discovery phase. Appeals of all trial court decisions are pending or will be
filed when appropriate. Motions to dismiss other such lawsuits are pending or
will be filed when timely.
The Company's management reviews every lawsuit and claim at the outset and
is in contact with independent and corporate counsel on an ongoing basis. The
provision for product liability claims is based upon many factors, which vary
for each case. These factors include the type of claim, nature and extent of
injuries, historical settlement ranges, jurisdiction where filed, and advice of
counsel. An accrual is established for each lawsuit and claim, when appropriate,
based on the nature of each such lawsuit or claim.
Amounts are charged to product liability expense in the period in which
the Company becomes aware that a claim or, in some instances a threat of claim,
has been made when potential losses or costs of defense can be reasonably
estimated. Such amounts are determined based on the Company's experience in
defending similar claims. Occasionally, charges are made for claims made in
prior periods because the cumulative actual costs incurred for that claim, or
reasonably expected to be incurred in the future, exceed amounts already
provided. Likewise credits may be taken if cumulative actual costs incurred for
that claim, or reasonably expected to be incurred in the future, are less than
amounts previously provided.
While it is not possible to forecast the outcome of litigation or the
timing of costs, in the opinion of management, after consultation with
independent 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.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may, from time to time, make forward-looking statements and
projections concerning future expectations. Such statements are based on current
expectations and are subject to certain qualifying risks and uncertainties, such
as market demand, sales levels of firearms, anticipated castings sales and
earnings, the need for external financing for operations or capital
expenditures, the results of pending litigation against the Company including
lawsuits filed by mayors, attorneys general and other governmental entities and
membership organizations, and the impact of future firearms control and
environmental legislation, any one or more of which could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date made. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
such forward-looking statements are made or to reflect the occurrence of
subsequent unanticipated events.
8
Award Winning New Ruger Product
[PROFESSIONAL GUN RETAILERS ASSOCIATION 2001-2002 "AWARD FOR EXCELLENCE"]
The 2001-2002 "Award for Excellence" by The Professional Gun Retailers
Association in partnership with American Firearms magazine.
[GRAPHIC]
--------------------------------------------------------------------------------
OUR NEW RUGER SUPER REDHAWK IN
.480 CALIBER HAS RECEIVED WIDESPREAD ACCLAIM
FROM HUNTERS AND RECENTLY GARNERED PRAISE
FROM INFLUENTIAL SOURCES.
--------------------------------------------------------------------------------
[FIELD AND STREAM MAGAZINE'S "BEST OF THE BEST" AWARD]
Field and Stream magazine's annual "Best of the Best" award as the "Ultimate
Hunting Handgun" in December, 2001.
[SHOOTING INDUSTRY MAGAZINE'S "ACADEMY OF EXCELLENCE"]
Shooting Industry magazine's "Academy of Excellence" award for 2001's "Handgun
of the Year."
[NSSF LOGO]
"Best New Handgun Product of 2001" at a dealer poll at the National Shooting
Sports Foundation's Shooting, Hunting, and Outdoor Trade Show.
[GUNS & AMMO MAGAZINE'S "HANDGUN OF THE YEAR" AWARD]
Guns & Ammo Magazine's "Handgun of the Year" award for 2001 based upon a poll of
their readers.
9
New Products for 2002
THE RUGER GOLD LABEL SIDE-BY-SIDE SHOTGUN
The first American-designed and -manufactured side-by-side shotgun in decades is
by all accounts one of the best ever made. Its revolutionary "round action"
styling and slim barrels combine to give this 6 1/3-pound elegant masterpiece
unparalleled handling dynamics for the discriminating upland hunter.
[PHOTO OF RUGER GOLD LABEL SIDE-BY-SIDE SHOTGUN]
THE RUGER M77MKII SHORT MAGNUM RIFLE
The proven Ruger M77MKII rifle now features chamberings for both Winchester and
Remington's new "Short Magnum" cartridges, for magnum performance in shorter
actions. A natural choice when power, handiness and overall length are at a
premium, as when hunting big game in dense cover.
[PHOTO OF RUGER M77MKII SHORT MAGNUM RIFLE]
THE RUGER "ALL WEATHER" 10/22
This latest version of our "All Weather" series of rifles features a new "full
form" synthetic stock, stainless steel components, and a clear hard-coat
finished aircraft quality aluminum alloy receiver and trigger housing for
maximum corrosion resistance in harsh hunting environments.
[PHOTO OF RUGER "ALL WEATHER" 10/22]
THE RUGER 77/17
A completely new concept in rimfire magnum rifles, the new Ruger 77/17 bolt
action fires a flat-shooting .17 caliber, 17 grain bullet at an astonishing
2,500 feet per second. It will set the new standard for small game hunting
rifles.
[PHOTO OF RUGER 77/17]
[PHOTO OF .17HMR]
.17HMR
10
[STRUM RUGER LOGO]
THE RUGER NEW BEARCAT IN STAINLESS STEEL
Outdoorsmen have clamored for a rust-resistant stainless-steel version of this
lightweight .22 caliber single-action revolver since the 1960's. By popular
demand, we now proudly offer such an updated version of this "camper's gun",
with a patented Ruger transfer-bar safety mechanism, as a companion for treks
into the back country.
[PHOTO OF RUGER NEW BEARCAT]
THE RUGER NEW MODEL SUPER BLACKHAWK HUNTER
At the opposite end of the power spectrum from the Bearcat, the mighty Hunter is
a powerful .44 Magnum hunting revolver, the only single-action which comes
factory-equipped with scope bases permanently machined into an integral barrel
rib. For unfailing accuracy on big game, the Hunter is back.
[PHOTO OF RUGER NEW MODEL SUPER BLACKHAWK HUNTER]
THE RUGER VAQUERO "BIRD'S HEAD" GRIP MODELS
Single Action revolver shooters will appreciate the classic "Bird's Head" grips
on the Ruger Vaquero and New Model Single Six frames. They combine rakish
styling with a comfortable grip that allows the revolver to roll in the hand
during recoil, for increased shooting comfort.
[PHOTO OF RUGER VAQUERO "BIRD'S HEAD" GRIP MODELS]
THE RUGER P-97
A blued steel version of this reliable and popular .45 caliber pistol is now
available, featuring a mechanism which allows the user to decock the pistol by
pressing a lever without touching the hammer or trigger.
[PHOTO OF RUGER P-97]
[PHOTO OF RUGER GUN SAFE]
RUGER GUN SAFE
Ruger now offers a new gun safe to help our customers meet their responsibility
to store firearms safely. It has 23 cubic foot storage capacity, Class I fire
protection, and meets all current state requirements for firearms safes.
11
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 31, 2001 2000
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 3,838 $ 4,073
Short-term investments ................................. 63,957 65,875
Trade receivables, less allowances for doubtful accounts
($1,061 and $1,252) and discounts ($1,145 and $1,130) 15,121 14,354
Inventories:
Finished products .................................... 12,333 13,779
Materials and products in process .................... 37,460 37,585
-------------------------------------------------------------------------------------------
49,793 51,364
Deferred income taxes .................................. 7,922 7,061
Prepaid expenses and other current assets .............. 1,566 5,728
-------------------------------------------------------------------------------------------
Total Current Assets ................................... 142,197 148,455
Property, Plant, and Equipment
Land and improvements ................................ 3,606 3,276
Buildings and improvements ........................... 30,782 30,551
Machinery and equipment .............................. 93,478 93,043
Dies and tools ....................................... 25,448 24,661
-------------------------------------------------------------------------------------------
153,314 151,531
Allowances for depreciation .......................... (114,535) (108,206)
-------------------------------------------------------------------------------------------
38,779 43,325
Deferred income taxes .................................. 3,567 5,640
Other assets ........................................... 19,835 18,245
-------------------------------------------------------------------------------------------
Total Assets ........................................... $ 204,378 $ 215,665
===========================================================================================
See accompanying notes.
12
December 31, 2001 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and accrued expenses $ 6,893 $ 5,917
Product liability .......................... 4,000 3,000
Employee compensation and benefits ......... 10,705 10,170
Workers' compensation ...................... 4,620 4,836
Income taxes ............................... 704 1,512
-------------------------------------------------------------------------------
Total Current Liabilities .................. 26,922 25,435
Deferred income taxes ...................... 4,654 4,564
Product liability .......................... 8,462 13,308
Contingent liabilities (Note 5) ............ -- --
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 ................. 2,492 2,434
Retained earnings .......................... 135,093 143,125
Accumulated other comprehensive income ..... (156) (112)
-------------------------------------------------------------------------------
Total Stockholders' Equity ................. 164,340 172,358
-------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity . $ 204,378 $ 215,665
================================================================================
13
Consolidated Statements of Income
(In thousands, except per share data)
Year ended December 31, 2001 2000 1999
Net firearms sales ................. $147,622 $166,415 $188,564
Net castings sales ................. 26,708 36,239 53,100
------------------------------------------------------------------------------------
Total net sales .................... 174,330 202,654 241,664
Cost of products sold .............. 134,449 144,503 170,650
------------------------------------------------------------------------------------
Gross profit ....................... 39,881 58,151 71,014
Expenses:
Selling .......................... 14,473 14,021 13,367
General and administrative ....... 6,392 5,886 5,930
------------------------------------------------------------------------------------
20,865 19,907 19,297
------------------------------------------------------------------------------------
19,016 38,244 51,717
Other income-net ................... 3,183 6,230 3,766
------------------------------------------------------------------------------------
Income before income taxes ......... 22,199 44,474 55,483
Income taxes ....................... 8,702 17,434 21,749
------------------------------------------------------------------------------------
Net Income ......................... $ 13,497 $ 27,040 $ 33,734
====================================================================================
Basic and Diluted Earnings Per Share $ 0.50 $ 1.00 $ 1.25
====================================================================================
Cash Dividends Per Share ........... $ 0.80 $ 0.80 $ 0.80
====================================================================================
See accompanying notes.
Consolidated Statements of Stockholders' Equity
(In thousands)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
------------------------------------------------------------------------------------------------------------------------
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
Net income ......................... 27,040 27,040
Additional minimum pension liability 21 21
--------
Comprehensive income ............... 27,061
--------
Cash dividends ..................... (21,529) (21,529)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 ......... 26,911 2,434 143,125 (112) 172,358
Net income ......................... 13,497 13,497
Additional minimum pension liability (44) (44)
--------
Comprehensive income ............... 13,453
--------
Stock option compensation .......... 58 58
Cash dividends ..................... (21,529) (21,529)
------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 ......... $ 26,911 $ 2,492 $135,093 $(156) $164,340
========================================================================================================================
See accompanying notes.
14
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31, 2001 2000 1999
OPERATING ACTIVITIES
Net income ................................................ $ 13,497 $ 27,040 $ 33,734
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation .......................................... 8,151 8,751 8,734
Gain on sale of land .................................. -- (1,068) (169)
Gain on sale of Uni-Cast assets ....................... -- (626) --
Deferred income taxes ................................. 1,302 3,542 (280)
Changes in operating assets and liabilities:
Trade receivables ................................... (767) 5,916 2,776
Inventories ......................................... 1,571 (13,761) 9,567
Trade accounts payable and accrued expenses ......... 1,038 (304) 1,533
Product liability ................................... (3,846) (3,191) (451)
Prepaid expenses, other assets, and other liabilities 2,843 (7,541) 551
Income taxes ........................................ (808) (1,393) 728
------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities ................. 22,981 17,365 56,723
INVESTING ACTIVITIES
Property, plant, and equipment additions .................. (3,605) (7,023) (4,515)
Purchases of short-term investments ....................... (165,183) (156,700) (184,807)
Proceeds from sales or maturities of
short-term investments .................................. 167,101 161,436 157,443
Net proceeds from sale of land ............................ -- 1,978 169
Net proceeds from sale of Uni-Cast assets ................. -- 382 --
------------------------------------------------------------------------------------------------------------------
Cash provided (used) by investing activities .......... (1,687) 73 (31,710)
FINANCING ACTIVITIES
Dividends paid ............................................ (21,529) (21,529) (21,529)
------------------------------------------------------------------------------------------------------------------
Cash used by financing activities ..................... (21,529) (21,529) (21,529)
------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ............ (235) (4,091) 3,484
Cash and cash equivalents at beginning of year .............. 4,073 8,164 4,680
------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year .................... $ 3,838 $ 4,073 $ 8,164
==================================================================================================================
See accompanying notes.
15
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. Certain prior year balances have been
reclassified to conform with current year presentation.
REVENUE RECOGNITION
Revenue is recognized, net of any discounts, sales incentives, or rebates,
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 instruments, 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 $45.4 million and $42.6 million at December 31, 2001 and 2000,
respectively.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost.
Depreciation is computed by the straight-line and declining balance methods
predominately over 15, 10, and 3 years for buildings, machinery and equipment,
and tools and dies, respectively. Long-lived assets are reviewed for impairment
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable.
INCOME TAXES
Income taxes are accounted for using the asset and liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this 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 including estimated
legal costs to be incurred defending such 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, 2001, 2000, and 1999 were $2.1 million, $2.6
million, and $1.7 million, respectively.
SHIPPING COSTS
Costs incurred related to the shipment of products are included in selling
expense. Such costs totaled $1.6 million in 2001, 2000, and 1999.
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
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
2001, 2000, and 1999. Diluted earnings per share reflect the impact of options
outstanding using the treasury stock method. This results in diluted
weighted-average shares outstanding of 26,922,800 in 2001, and 26,910,700 in
2000 and 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" which modifies the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and associated asset retirement costs.
The Company will adopt this Statement effective January 1, 2002. The Company
does not expect the adoption of this standard to have a material impact on its
financial statements.
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 develops one accounting model
for long-lived assets that are to be disposed of by sale, and requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair market value less cost to sell. SFAS No. 144 is effective for
the Company's fiscal year beginning January 1, 2002. The Company does not expect
the adoption of this standard to have a material impact on its financial
statements.
2. INCOME TAXES
The Federal and state income tax provision (benefit) consisted of the
following (in thousands):
-------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
CURRENT DEFERRED Current Deferred Current Deferred
-------------------------------------------------------------------------------------------------------------------
Federal ...................... $6,009 $ 1,072 $11,621 $ 2,944 $ 18,421 $(234)
State ........................ 1,391 230 2,271 598 3,608 (46)
-------------------------------------------------------------------------------------------------------------------
$7,400 $ 1,302 $13,892 $ 3,542 $ 22,029 $(280)
===================================================================================================================
Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
December 31, 2001 2000
-------------------------------------------------------------------------------------------------
Deferred tax assets:
Product liability ............................................... $ 4,885 $ 6,393
Employee compensation and benefits .............................. 3,398 3,557
Allowances for doubtful accounts, discounts, and sales incentives 1,704 1,198
Inventories ..................................................... 1,111 1,553
Other ........................................................... 391 --
-------------------------------------------------------------------------------------------------
Total deferred tax assets ......................................... 11,489 12,701
-------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation .................................................... 1,584 1,936
Pension plans ................................................... 3,070 2,628
-------------------------------------------------------------------------------------------------
Total deferred tax liabilities .................................... 4,654 4,564
-------------------------------------------------------------------------------------------------
Net deferred tax assets ........................................... $ 6,835 $ 8,137
=================================================================================================
The effective income tax rate varied from the statutory Federal income tax
rate as follows:
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------------------------
Statutory Federal income tax rate ............ 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit 4.7 4.2 4.1
Other items .................................. (0.5) -- .1
-------------------------------------------------------------------------------------------------
Effective income tax rate .................... 39.2% 39.2% 39.2%
=================================================================================================
The Company made income tax payments of approximately $4.7 million, $18.9
million, and $22.0 million during 2001, 2000, and 1999, respectively.
The Company expects to realize its deferred tax assets through tax
deductions against future taxable income or carry back against taxes previously
paid.
17
Notes to Consolidated Financial Statements
(Continued)
3. 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 2001 2000
-------------------------------------------------------------------------
Benefit obligation
at January 1 ........................ $ 35,420 $ 33,052
Service cost .......................... 1,321 1,237
Interest cost ......................... 2,659 2,439
Actuarial loss (gain) ................. 3,570 134
Benefits paid ......................... (1,600) (1,442)
-------------------------------------------------------------------------
Benefit obligation
at December 31 ...................... 41,370 35,420
-------------------------------------------------------------------------
Change in Plan Assets
-------------------------------------------------------------------------
Fair value of plan assets
at January 1 ........................ 33,297 30,120
Actual return on plan assets .......... 1,984 1,650
Employer contributions ................ 3,042 2,969
Benefits paid ......................... (1,600) (1,442)
-------------------------------------------------------------------------
Fair value of plan assets
at December 31 ...................... 36,723 33,297
-------------------------------------------------------------------------
Funded status ......................... (4,647) (2,123)
Unrecognized net actuarial loss ....... 8,310 5,846
Unrecognized prior
service cost ........................ 3,110 1,652
Unrecognized transition
obligation .......................... (88) (209)
-------------------------------------------------------------------------
Net amount recognized ................. $ 6,685 $ 5,166
=========================================================================
Amounts Recognized on the Balance Sheet 2001 2000
-------------------------------------------------------------------------
Prepaid benefit cost .................. $ 9,563 $ 7,828
Accrued benefit liability ............. (3,820) (3,812)
Intangible asset ...................... 682 963
Accumulated other
comprehensive income ................ 156 112
Deferred tax asset .................... 104 75
-------------------------------------------------------------------------
$ 6,685 $ 5,166
-------------------------------------------------------------------------
Weighted-Average
Assumptions as of December 31,
-------------------------------------------------------------------------
Discount rate ......................... 7.00% 7.50%
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 .......................... $ 1,321 $ 1,237
Interest cost ......................... 2,659 2,439
Expected return
on assets ........................... (3,019) (2,734)
Amortization of unrecognized
transition asset .................... (121) (122)
Recognized gains ...................... 92 133
Prior service cost recognized ......... 591 451
-------------------------------------------------------------------------
Net periodic pension cost ............. $ 1,523 $ 1,404
=========================================================================
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 $11.8 million, $9.3 million, and $6.3 million,
respectively, as of December 31, 2001 and $10.8 million, $8.5 million, and $5.8
million, respectively, as of December 31, 2000.
The Company also sponsors two defined contribution plans which cover
substantially all of its hourly and salaried employees and a non-qualified
defined contribution plan which covers certain of its salaried employees.
Expenses related to the defined contribution plans were $1.5 million, $1.4
million, and $1.2 million in 2001, 2000, and 1999, respectively.
In 2001 the Company changed the weighted-average discount rates which
increased the projected benefit obligation by approximately $2.7 million.
In accordance with SFAS No. 87, "Employers' Accounting for Pension Costs",
the Company recorded an additional minimum pension liability which decreased
comprehensive income by $44,000 in 2001 and increased comprehensive income by
$21,000 and $57,000 in 2000 and 1999, respectively.
4. 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 Common Stock and stock
appreciation rights. The Company has reserved 2,000,000 shares for issuance
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.
On December 18, 2000 the Company adopted, and in May 2001 the shareholders
approved, the 2001 Stock Option Plan for Non-Employee Directors (the "2001
Plan") under which non-employee directors are granted options to purchase shares
of the Company's Common Stock. The Company has reserved 200,000 shares for
issuance under the 2001 Plan. Options granted under the 2001 Plan have an
exercise price equal to the fair market value of the shares of the Company at
the date of grant and expire ten years from the date of grant. Twenty-five
percent of the options vest immediately and the remaining options vest ratably
over three years.
18
The following table summarizes the activity of the Plans:
Weighted Average
Shares Exercise Price
-------------------------------------------------------------------------------------
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
Granted .................................. -- --
Exercised ................................ -- --
Canceled ................................. (50,000) 11.94
-------------------------------------------------------------------------------------
Outstanding at December 31, 2000 ........... 1,370,000 11.94
Granted .................................. 220,000 9.99
Exercised ................................ -- --
Canceled ................................. (100,000) 11.94
-------------------------------------------------------------------------------------
Outstanding at December 31, 2001 ........... 1,490,000 $11.65
-------------------------------------------------------------------------------------
There were 787,000 exercisable options at December 31, 2001, with a
weighted average exercise price of $11.87 and an average contractual life
remaining of 7.1 years. At December 31, 2001, an aggregate of 710,000 shares
remain available for grant under the Plans.
The Company accounts for employee stock options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Had compensation expense for the Plans been determined in
accordance with SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (in thousands, except
per share data):
2001 2000 1999
---------------------------------------------------------------------------------------------
Net Income:
As reported $13,497 $27,040 $33,734
Pro forma $13,131 $26,700 $33,394
Earnings per Share (Basic and Diluted):
As reported $0.50 $1.00 $1.25
Pro forma $0.49 $0.99 $1.24
---------------------------------------------------------------------------------------------
The weighted average fair value of options granted under the Plans was
estimated at $1.89 on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions in 1998 and 2001,
respectively: dividend yield of 6.7% and 8.0%, expected volatility of 30.3% and
34.3%, risk free rate of return of 5.5% and 2.0%, and expected lives of 5 years
and 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, 2001, 502,000 shares of Common Stock were reserved for
future awards.
5. CONTINGENT LIABILITIES
As of December 31, 2001 the Company was a defendant in approximately 37
lawsuits involving its products and is aware of certain other such claims. These
lawsuits and claims fall within two categories:
(i) Those that claim damages from the Company related to allegedly
defective product design which stem from a specific incident. These
lawsuits and claims are based principally on the theory of "strict
liability" but also may be based on negligence, breach of warranty,
and other legal theories, and
(ii) Those brought by cities, municipalities, counties, individuals
(including certain putative class actions) and a state attorney
general against numerous firearms manufacturers, distributors and
dealers seeking to recover damages allegedly arising out of the
misuse of firearms by third parties in the commission of homicides,
suicides and other shootings involving juveniles and adults. The
complaints by municipalities seek damages, among other things, for
the costs of medical care, police and emergency services, public
health services, and the maintenance of courts, prisons, and other
services. In certain instances, the plaintiffs seek to recover for
decreases in property values and loss of business within the city
due to criminal violence. In addition, nuisance abatement and/or
injunctive relief is sought to change the design, manufacture,
marketing and distribution practices of the various defendants.
These suits allege, among other claims, strict liability or
negligence in the design of products, public nuisance, negligent
entrustment, negligent distribution, deceptive or fraudulent
advertising, violation of consumer protection statutes and
conspiracy or concert of action theories. None of these cases allege
a specific injury to a specific individual as a result of the misuse
or use of any of the Company's products.
19
Notes to Consolidated Financial Statements
(Continued)
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 firearms by third
parties or the claimant, and that there should be no recovery against the
Company. Defenses further exist to the suits brought by cities, municipalities,
counties, and a state attorney general based, among other reasons, on
established state law precluding recovery by municipalities for essential
government services, the remoteness of the claims, the types of damages sought
to be recovered, and limitations on the extraterritorial authority which may be
exerted by a city, municipality, county or state under state and federal law,
including State and Federal Constitutions.
Provision is made for product liability claims based upon many factors
related to the severity of the alleged injury and potential liability exposure,
based upon prior claim experience. Because the Company's experience in defending
these lawsuits and claims is that unfavorable outcomes are typically not
probable or estimable, only in rare cases is an accrual established for such
costs. In most cases, an accrual is established only for estimated legal defense
costs. Product liability accruals are periodically reviewed to reflect
then-current estimates of possible liabilities and expenses incurred to date and
reasonably anticipated in the future. Threatened product liability claims are
reflected in the Company's product liability accrual on the same basis as actual
claims; i.e., an accrual is made for reasonably anticipated possible liability
and claims-handling expenses on an ongoing basis.
A range of reasonably possible loss relating to unfavorable outcomes
cannot be made. However, in the product liability cases in which a dollar amount
of damages is claimed, the amount of damages claimed, which totaled $865 million
and $867 million at December 31, 2001 and 2000, respectively, are set forth as
an indication of possible maximum liability that the Company might be required
to incur in these cases (regardless of the likelihood or reasonable probability
of any or all of this amount being awarded to claimants) as a result of adverse
judgments that are sustained on appeal.
Product liability claim payments are made when appropriate if, as, and
when claimants and the Company reach agreement upon an amount to finally resolve
all claims. Legal costs are paid as the lawsuits and claims develop, the timing
of which may vary greatly from case to case. A time schedule cannot be
determined in advance with any reliability concerning when payments will be made
in any given case.
While it is not possible to forecast the outcome of litigation or the
timing of costs, in the opinion of management, after consultation with
independent 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.
6. OPERATING SEGMENT INFORMATION
The Company has two reportable segments: firearms and investment castings.
The firearms segment manufactures and sells rifles, pistols, revolvers, and
shotguns principally to a select number of independent wholesale distributors
primarily located in the United States. The investment casting segment consists
of two operating divisions which manufacture and sell titanium and steel
investment castings.
The Company evaluates performance and allocates resources, in part, based
on profit or loss before taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies (see Note 1). Intersegment sales are recorded at the
Company's cost plus a fixed profit percentage.
The Company's assets are located entirely in the United States and export
sales are insignificant.
Revenues from two customers in the firearms segment totaled $30.4 million
and $20.1 million in 2001. Revenues from three customers in the firearms segment
totaled $33.3 million, $22.8 million, and $20.7 million, and $35.3 million,
$27.1 million, and $25.1 million in 2000 and 1999, respectively. Revenues from
one customer in the castings segment totaled $31.0 million in 1999.
20
Year ended December 31, (in thousands) 2001 2000 1999
-------------------------------------------------------------------------------------------
Net Sales
Firearms ........................... $ 147,622 $ 166,415 $ 188,564
Castings
Unaffiliated ..................... 26,708 36,239 53,100
Intersegment ..................... 27,282 31,645 24,604
-------------------------------------------------------------------------------------------
53,990 67,884 77,704
Eliminations ....................... (27,282) (31,645) (24,604)
-------------------------------------------------------------------------------------------
$ 174,330 $ 202,654 $ 241,664
===========================================================================================
Income Before Income Taxes
Firearms ........................... $ 22,800 $ 39,137 $ 48,404
Castings ........................... (3,473) 546 4,741
Corporate .......................... 2,872 4,791 2,338
-------------------------------------------------------------------------------------------
$ 22,199 $ 44,474 $ 55,483
===========================================================================================
Identifiable Assets
Firearms ........................... $ 78,774 $ 79,230 $ 71,756
Castings ........................... 27,351 33,043 35,753
Corporate .......................... 98,253 103,392 108,175
-------------------------------------------------------------------------------------------
$ 204,378 $ 215,665 $ 215,684
===========================================================================================
Depreciation
Firearms ........................... $ 3,395 $ 3,468 $ 3,733
Castings ........................... 4,756 5,283 5,001
-------------------------------------------------------------------------------------------
$ 8,151 $ 8,751 $ 8,734
===========================================================================================
Capital Expenditures
Firearms ........................... $ 2,073 $ 3,693 $ 3,165
Castings ........................... 1,532 3,330 1,350
-------------------------------------------------------------------------------------------
$ 3,605 $ 7,023 $ 4,515
===========================================================================================
7. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the two years ended December 31, 2001 (in thousands, except per
share data):
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
3/31/01 6/30/01 9/30/01 12/31/01
-------------------------------------------------------------------------------------------------------
NET SALES ............................ $43,864 $37,668 $41,138 $51,660
GROSS PROFIT ......................... 11,967 7,219 8,192 12,503
NET INCOME ........................... 4,134 1,805 2,684 4,874
BASIC AND DILUTED EARNINGS PER SHARE.. 0.15 0.07 0.10 0.18
Three Months Ended
-------------------------------------------------------------------------------------------------------
3/31/00 6/30/00 9/30/00 12/31/00
-------------------------------------------------------------------------------------------------------
Net sales .......................... $59,889 $48,935 $43,034 $50,795
Gross profit ....................... 18,452 12,559 11,085 16,055
Net income ......................... 9,026 5,925 4,599 7,490
Basic and diluted earnings per share 0.34 0.22 0.17 0.27
21
Report of Independent Auditors
[KPMG LOGO]
Stamford Square
3001 Summer Street
Stamford, CT 06905
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Sturm, Ruger & Company, Inc.:
We have audited the accompanying consolidated balance sheet of Sturm, Ruger &
Company, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying financial statements
of Sturm, Ruger & Company, Inc. as of December 31, 2000 and for the years ended
December 31, 2000 and 1999 were audited by other auditors whose report thereon
dated February 9, 2001, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing with auditing standards
generally accepted in the United States of America. 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
audit provides a reasonable basis for our opinion.
In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sturm, Ruger
& Company, Inc. and subsidiaries as of December 31, 2001, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
February 8, 2002
[GRAPHIC] KPMG LLP KPMG LLP, a U.S. limited liability partnership, is
a member of KPMG International, a Swiss association
22