FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10435
STURM, RUGER & COMPANY, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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06-0633559 |
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(State or other jurisdiction of
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(I.R.S. employer |
incorporation or organization)
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identification no.) |
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Lacey Place, Southport, Connecticut
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06890 |
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(Address of principal executive offices)
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(Zip code) |
(203) 259-7843
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the issuers common stock as of June 30, 2007: Common
Stock, $1 par value 22,679,585.
Page 1 of 27
INDEX
STURM, RUGER & COMPANY, INC.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
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June 30, |
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December 31, |
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2007 |
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2006 |
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(Note) |
Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
6,448 |
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$ |
7,316 |
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Short-term investments |
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64,122 |
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22,026 |
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Trade receivables, net |
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13,459 |
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18,007 |
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Gross inventories |
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60,861 |
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87,477 |
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Less LIFO reserve |
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(45,287 |
) |
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(57,555 |
) |
Less excess and obsolescence reserve |
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(4,004 |
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(5,516 |
) |
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Net inventories |
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11,570 |
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24,406 |
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Deferred income taxes |
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7,331 |
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8,347 |
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Prepaid expenses and other current assets |
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971 |
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1,683 |
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Total current assets |
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103,901 |
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81,785 |
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Property, plant and equipment |
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124,124 |
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128,042 |
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Less allowances for depreciation |
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(101,924 |
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(105,081 |
) |
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Net property, plant and equipment |
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22,200 |
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22,961 |
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Deferred income taxes |
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2,766 |
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3,630 |
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Other assets |
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3,947 |
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8,690 |
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Total Assets |
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$ |
132,814 |
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$ |
117,066 |
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See notes to condensed financial statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
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June 30, |
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December 31, |
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2007 |
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2006 |
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(Note) |
Liabilities and Stockholders Equity |
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Current Liabilities |
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Trade accounts payable and accrued expenses |
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$ |
4,836 |
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$ |
6,342 |
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Product liability |
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1,335 |
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904 |
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Employee compensation and benefits |
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6,227 |
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6,416 |
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Workers compensation |
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6,500 |
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6,547 |
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Income taxes payable |
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4,270 |
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1,054 |
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Total current liabilities |
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23,168 |
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21,263 |
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Accrued pension liability |
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7,618 |
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7,640 |
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Product liability accrual |
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778 |
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837 |
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Contingent liabilities Note 8 |
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Stockholders Equity |
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Common Stock, non-voting, par value $1: |
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Authorized shares 50,000; none issued |
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Common Stock, par value $1: Authorized shares -
40,000,000; issued and outstanding 22,679,585
and 22,638,700 |
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22,680 |
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22,639 |
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Additional paid-in capital |
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3,307 |
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2,615 |
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Retained earnings |
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87,696 |
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74,505 |
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Accumulated other comprehensive income (loss) |
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(12,433 |
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(12,433 |
) |
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Total Stockholders Equity |
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101,250 |
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87,326 |
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Total Liabilities and Stockholders Equity |
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$ |
132,814 |
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$ |
117,066 |
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Note:
The balance sheet at December 31, 2006 has been derived from the audited financial statements at
that date but does not include all the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements.
See notes to condensed financial statements.
4
STURM, RUGER & COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Net firearms sales |
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$ |
39,567 |
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$ |
29,222 |
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$ |
83,237 |
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$ |
70,047 |
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Net castings sales |
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2,540 |
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6,054 |
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7,327 |
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12,656 |
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Total net sales |
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42,107 |
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35,276 |
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90,564 |
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82,703 |
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Cost of products sold |
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28,979 |
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26,891 |
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61,872 |
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64,175 |
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Gross profit |
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13,128 |
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8,385 |
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28,692 |
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18,528 |
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Expenses: |
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Selling |
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3,557 |
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3,815 |
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6,894 |
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7,834 |
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General and administrative |
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3,523 |
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2,791 |
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7,835 |
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6,619 |
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7,080 |
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6,606 |
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14,729 |
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14,453 |
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Operating profit |
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6,048 |
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1,779 |
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13,963 |
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4,075 |
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Gain on sale of
non-manufacturing assets
(Notes 9 and 11) |
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1,883 |
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7,085 |
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Other income-net |
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635 |
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639 |
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975 |
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712 |
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Total other income |
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2,518 |
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639 |
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8,060 |
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712 |
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Income before income taxes |
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8,566 |
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2,418 |
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22,023 |
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4,787 |
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Income taxes |
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3,435 |
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970 |
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8,831 |
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1,919 |
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Net income |
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$ |
5,131 |
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$ |
1,448 |
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$ |
13,192 |
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$ |
2,868 |
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Earnings per share |
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Basic |
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$ |
0.23 |
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$ |
0.06 |
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$ |
0.58 |
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$ |
0.11 |
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Diluted |
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$ |
0.22 |
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$ |
0.06 |
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$ |
0.57 |
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$ |
0.11 |
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Average shares outstanding |
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Basic |
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22,658 |
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26,911 |
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22,649 |
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26,911 |
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Diluted |
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23,068 |
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26,912 |
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22,951 |
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26,912 |
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See notes to condensed financial statements.
5
STURM, RUGER & COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
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Six Months Ended June 30, |
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2007 |
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2006 |
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Operating Activities |
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Net income |
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$ |
13,192 |
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$ |
2,868 |
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Adjustments to reconcile net income to cash
provided by (used in) operating activities: |
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Depreciation |
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2,108 |
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2,345 |
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Gain on sale of non-manufacturing assets |
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(7,085 |
) |
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Deferred income taxes |
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1,880 |
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(340 |
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Changes in operating assets and liabilities: |
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Trade receivables |
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4,548 |
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(351 |
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Inventories |
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12,836 |
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(1,677 |
) |
Trade accounts payable and other liabilities |
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(1,899 |
) |
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|
509 |
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Product liability |
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372 |
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(296 |
) |
Prepaid expenses and other assets |
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|
879 |
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|
3,998 |
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Income taxes |
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3,216 |
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|
257 |
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Cash Provided by Operating Activities |
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30,047 |
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|
7,313 |
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Investing Activities |
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Property, plant and equipment additions |
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(1,304 |
) |
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(1,648 |
) |
Proceeds from the sale of non-manufacturing assets |
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12,485 |
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Purchases of short-term investments |
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(44,096 |
) |
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(63,465 |
) |
Proceeds from maturities of short-term investments |
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2,000 |
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|
57,057 |
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Cash used for investing activities |
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(30,915 |
) |
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(8,056 |
) |
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(Decrease) in cash and cash equivalents |
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(868 |
) |
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(743 |
) |
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Cash and cash equivalents at beginning of period |
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7,316 |
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4,057 |
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Cash and cash equivalents at end of period |
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$ |
6,448 |
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$ |
3,314 |
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See notes to condensed financial statements.
6
STURM, RUGER & COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2007
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, the accompanying unaudited condensed financial statements
include all adjustments, consisting of normal recurring accruals, considered necessary for a fair
presentation of the results of the interim periods. Operating results for the six months ended
June 30, 2007 are not indicative of the results to be expected for the full year ending December
31, 2007. These financial statements have been prepared on a basis that is substantially
consistent with the accounting principles applied in our Annual Report on Form 10-K for the year
ended December 31, 2006.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Organization:
Sturm, Ruger & Company, Inc. (Company) is principally engaged in the design, manufacture,
and sale of firearms and investment castings. The Companys design and manufacturing operations
are located in the United States. Sales for the three and six months ended June 30, 2007 were 95%
domestic and 5% export. The Companys firearms are sold through a select number of independent
wholesale distributors principally to the commercial sporting market. Investment castings are sold
either directly or through manufacturers representatives to companies in a wide variety of
industries.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications:
Certain prior year balances may have been reclassified to conform with current year
presentation.
Recent Accounting Pronouncements:
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (FIN 48). This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on derecognition, classification, interest and
7
penalties, accounting in interim periods, disclosure, and transition. The Company adopted the
provisions of FIN 48 on January 1, 2007. The impact of FIN 48 on the Companys financial position
is discussed in Note 4 to the condensed financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, (FAS 157) and No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, (FAS 159). These Standards define fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and expands disclosures about
fair value measurements. FAS 157 and FAS 159 are effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The
adoption of FAS 157 and FAS 159 are not expected to have a material impact on the Companys
financial position, results of operations and cash flows.
NOTE 3 INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of
inventory under the LIFO method can be made only at the end of each year based on the inventory
levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be
based on managements estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond managements control, interim results are subject to the final
year-end LIFO inventory valuation.
During the three and six month periods ended June 30, 2007, inventory quantities were reduced.
This reduction in inventory levels is expected to continue through year-end. This reduction will
result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior
years as compared with the current cost of purchases. Although the effect of such a liquidation
cannot be precisely quantified at the present time, management believes that if a LIFO liquidation
continues to occur in 2007, the impact may be material to the Companys results of operations for
the period but will not have a material impact on the financial position of the Company. The
Company estimates that the impact of this liquidation on the results of operations for the three
and six month periods ended June 30, 2007 was to reduce cost of products sold by $6.5 and $16.2
million, respectively.
8
Inventories consist of the following (in thousands):
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June 30, |
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|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Inventory at FIFO |
|
|
|
|
|
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|
|
Finished products |
|
$ |
7,670 |
|
|
$ |
13,117 |
|
Materials and work in process |
|
|
53,191 |
|
|
|
74,360 |
|
|
Gross inventory |
|
|
60,861 |
|
|
|
87,477 |
|
Less: LIFO reserve |
|
|
(45,287 |
) |
|
|
(57,555 |
) |
Less: excess and obsolescence reserve |
|
|
(4,004 |
) |
|
|
(5,516 |
) |
|
Net inventories |
|
$ |
11,570 |
|
|
$ |
24,406 |
|
|
In addition to the aforementioned liquidation, the LIFO reserve was further reduced by $1.7 million
as a result of the sale of excess titanium inventory in 2007. This sale did not have an impact on
the statement of income.
The LIFO impact on FIFO inventory increased from 66% at December 31, 2006 to 74% at June 30, 2007.
The excess and obsolescence reserve decreased as a result of this increase.
NOTE 4 INCOME TAXES
The Companys 2007 and 2006 effective tax rate differs from the statutory tax rate due
principally to state income taxes. Income tax payments totaled $3.0 million and $3.7 million for
the three and six months ended June 30, 2007, respectively. No income tax payments were made in the
three and six months ended June 30, 2006.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, on January 1, 2007.
The Company files income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state
income tax examinations by tax authorities for years before 2003. In the first quarter of 2007, the
Internal Revenue Service (IRS) commenced an examination of the Companys Federal income tax return
for 2005. The Company anticipates that the IRS will complete this examination by the end of 2007.
The Company does not anticipate that adjustments resulting from this examination, if any, would
result in a material change to its financial position or results of operations.
Upon the adoption of FIN 48, the Company commenced a review of all open tax years in all
jurisdictions. The Company does not believe it has included any uncertain tax positions in its
Federal income tax return or any of the state income tax returns it is currently filing. The
Company has made an evaluation of the potential impact of additional state taxes being assessed by
jurisdictions in which the Company does not currently consider itself liable. The Company does not
anticipate that such additional taxes, if any, would result in a material change to its financial
position. However, the Company anticipates that it is more likely than not that additional state
tax liabilities in the range of $0.5 to $1.0 million exist. The Company had previously recorded
$0.7 million relating to these additional state income taxes, including approximately $0.2 million
for the payment of interest and penalties. This amount is included in income taxes payable at June
30, 2007. In connection with the adoption of FIN 48, the Company will include interest and
penalties related to uncertain tax positions as a component of its provision for taxes.
NOTE 5 PENSION PLANS
The Company sponsors two defined benefit pension plans which cover substantially all
employees. A third defined benefit plan is non-qualified and covers one current and two retired
executive officers of the Company.
9
The estimated cost of these plans is summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Service cost |
|
|
399 |
|
|
$ |
406 |
|
|
|
751 |
|
|
$ |
811 |
|
Interest cost |
|
|
822 |
|
|
|
821 |
|
|
|
1,549 |
|
|
|
1,642 |
|
Expected return on plan assets |
|
|
(1,011 |
) |
|
|
(993 |
) |
|
|
(1,904 |
) |
|
|
(1,986 |
) |
Amortization of prior service cost |
|
|
38 |
|
|
|
65 |
|
|
|
72 |
|
|
|
131 |
|
Recognized actuarial gains |
|
|
297 |
|
|
|
256 |
|
|
|
559 |
|
|
|
512 |
|
|
Net periodic pension cost |
|
$ |
545 |
|
|
$ |
555 |
|
|
$ |
1,027 |
|
|
$ |
1,110 |
|
|
The Company made contributions totaling $0.5 million and $1.0 million related to its defined
benefit pension plans in the three and six months ended June 30, 2007. The Company expects its
contributions for its defined benefit pension plans for the balance of 2007 to be approximately
$1.0 million.
NOTE 6 SHARE BASED PAYMENTS
On February 23, 2007 the Company adopted and on April 24, 2007 shareholders approved The
Sturm, Ruger & Company, Inc. 2007 Stock Incentive Plan (the Plan). The Plan replaces both the
Companys 1998 Stock Incentive Plan and its 2001 Stock Option Plan for Non-Employee Directors in
advance of their expiration and becomes the sole plan for providing stock-based incentive
compensation. All directors (including non-employee directors), officers, employees and independent
contractors of the Company are eligible to participate in the Plan. The Plan provides for the
issuance of up to 2,550,000 shares of the Companys common stock over the ten-year term of the
Plan.
The Plan provides for the granting of non-qualified stock options to purchase up to 2,350,000
shares of the Companys common stock at a price not less than 100% of the fair market value of the
stock as of the date of the grant. Incentive stock options are only available to employee
participants. Each non-employee director will be granted options to purchase 20,000 shares of stock
upon becoming a director. Options are exercisable for a period of up to ten years. The Plan also
provides for restricted stock awards available to all eligible participants. Each non-employee
director will be granted an annual award of restricted stock equal to $25,000 on the date of grant.
The Plan also provides for the granting of deferred stock awards and share appreciation rights to
all eligible participants.
A summary of changes in options outstanding under the 1998 Stock Incentive Plan and 2001 Stock
Option Plan for Non-Employee Directors is summarized below:
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Shares |
|
Exercise Price |
|
Outstanding at December 31, 2006 |
|
1,325,000 |
|
$9.46 |
Granted |
|
|
|
|
Exercised |
|
|
|
|
Expired |
|
|
|
|
|
Outstanding June 30, 2007 |
|
1,325,000 |
|
$9.46 |
|
The aggregate intrinsic value (mean market price at June 30, 2007 less the weighted average
exercise price) of options outstanding under the 1998 Stock Incentive Plan and 2001 Stock Option
Plan for Non-Employee Directors was approximately $8.1 million.
A summary of changes in options outstanding under the 2007 Stock Incentive Plan is summarized
below:
10
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Shares |
|
Exercise Price |
|
Outstanding at December 31, 2006 |
|
|
|
|
Granted |
|
286,250 |
|
$13.39 |
Exercised |
|
|
|
|
Expired |
|
|
|
|
|
Outstanding June 30, 2007 |
|
286,250 |
|
$13.39 |
|
The aggregate intrinsic value (mean market price at June 30, 2007 less the weighted average
exercise price) of options outstanding under the 2007 Stock Incentive Plan was approximately $0.6
million.
The aggregate compensation expense for options granted in April 2007, calculated using the
Black-Scholes option-pricing model, was $0.7 million. This expense, which is a non-cash item, is
being amortized in the Companys Statement of Income over the
vesting periods. 171,000 of the options granted to employees vest
upon the Company's attainment of certain performance objectives if
achieved within three years from the date of grant. 115,000 of the
options granted to employees vest over five years. Compensation costs related to share-based payments granted under all three
plans recognized in the Condensed Statements of Income aggregated $105,000 and $181,000 for the
three and six months ended June 30, 2007, respectively. For the three and six months ended June 30,
2006, compensation costs related to share-based payments recognized in the Condensed Statements of
Income were $10,000 and $18,000, respectively.
In addition to the above options granted in the period ended June 30, 2007 under the 2007
Stock Incentive Plan, deferred stock awards totaling 29,945 shares with a fair value of $438,000 were
granted to certain executives of the Company and restricted stock shares totaling 10,920 with a
fair value of $150,000 were issued to non-employee directors of the Company in partial payment of
directors fees. The deferred shares granted to employees
vested thirty days from the date of grant. The restricted shares issued to non-employee directors vest on the date of the 2008
annual meeting of stockholders. As a result of granting these awards, the Companys income before
taxes and net income for both the three and six months ended June 30, 2007 were $438,000 and
$262,000 lower, respectively.
The
Company has adopted a policy to pay 25% of the annual incentive
compensation in deferred stock which vests over three years. This
policy applies to all officers of the Company and commences with the
2007 fiscal year and any annual incentive compensation earned for
that period.
NOTE 8 BASIC AND DILUTED EARNINGS PER SHARE
Shares outstanding as of June 30, 2007 and 2006 were 22,679,585 and 26,910,720, respectively.
Diluted earnings per share reflect the impact of options outstanding using the treasury stock
method, when applicable. This resulted in diluted weighted-average shares outstanding for the
three and six months ended June 30, 2007 of 23,068,100 and 22,951,100 shares, respectively. Diluted
weighted average of shares outstanding for both the three and six months ended June 30, 2006 were
26,912,000.
NOTE 8 CONTINGENT LIABILITIES
(The
following disclosures within Note 8-Contingent Liabilities are identical to the disclosures
within Firearms Litigation in Item 2-Managements Discussion and Analysis of Financial Condition
and Results of Operations.)
As of June 30, 2007, the Company is a defendant in approximately 5 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. Pending 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 |
11
|
(ii) |
|
those brought by cities or other governmental entities, and individuals against
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. There are three such lawsuits
presently pending: Gary, Indiana; Washington, D.C.; and New York City, all discussed
further below. 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. Most of these cases do not allege a specific
injury to a specific individual as a result of the misuse or use of any of the Companys
products. |
The Company has expended significant amounts of financial resources and management time in
connection with product liability litigation. Management believes that, in every case involving
firearms, 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 governmental
entities based, among other reasons, on established state law precluding recovery 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 constitutional 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. In subsequent proceedings involving other defendants, the New York Court of
Appeals as a matter of law confirmed that 1) no legal duty existed under the circumstances to
prevent or investigate criminal misuses of a manufacturers lawfully made products; and 2)
liability of firearms manufacturers could not be apportioned under a market share theory. More
recently, the New York Court of Appeals on October 21, 2003 declined to hear the appeal from the
decision of the New York Supreme Court, Appellate Division, affirming the dismissal of New York
Attorney General Eliot Spitzers public nuisance suit against the Company and other manufacturers
and distributors of firearms. In its decision, the Appellate Division relied heavily on
Hamilton in concluding that it was legally inappropriate, impractical, unrealistic
and unfair to attempt to hold firearms manufacturers responsible under theories of public
nuisance for the criminal acts of others.
Of the lawsuits brought by municipalities, counties or a state Attorney General, twenty have
been concluded: Atlanta dismissal by intermediate Appellate Court, no further appeal;
Bridgeport dismissal affirmed by Connecticut Supreme Court; County of Camden
dismissal affirmed by U.S. Third Circuit Court of Appeals; Miami dismissal affirmed by
intermediate appellate court, Florida Supreme Court declined review; New Orleans
dismissed by Louisiana Supreme Court, United States Supreme Court declined review;
Philadelphia U.S. Third Circuit Court of Appeals affirmed dismissal, no further appeal;
Wilmington dismissed by trial court, no appeal; Boston voluntary dismissal with
prejudice by the City at the close of fact discovery; Cincinnati voluntarily withdrawn
after a unanimous vote of the city council; Detroit dismissed by Michigan Court of
Appeals, no appeal; Wayne County dismissed by Michigan Court of Appeals, no appeal;
New York State Court of Appeals denied plaintiffs petition for leave to appeal the
Intermediate Appellate Courts dismissal, no further appeal; Newark Superior Court of New
Jersey Law Division for Essex County dismissed the case with prejudice; City of Camden
dismissed on July 7, 2003, not reopened; Jersey City voluntarily dismissed and not
re-filed; St. Louis Missouri Supreme Court denied plaintiffs motion to appeal Missouri
Appellate Courts affirmance of
dismissal; Chicago
12
Illinois Supreme Court affirmed trial courts dismissal; and Los
Angeles City, Los Angeles County, San Francisco Appellate Court affirmed
summary judgment in favor of defendants, no further appeal; and Cleveland dismissed on
January 24, 2006 for lack of prosecution.
The dismissal of the Washington, D.C. municipal lawsuit was sustained on appeal, but
individual plaintiffs were permitted to proceed to discovery and attempt to identify the
manufacturers of the firearms used in their shootings as machine guns under the citys strict
liability law. On April 21, 2005, the D.C. Court of Appeals, in an en banc hearing, unanimously
dismissed all negligence and public nuisance claims, but let stand individual claims based upon a
Washington, D.C. act imposing strict liability for manufacturers of machine guns. Based on
present information, none of the Companys products has been identified with any of the criminal
assaults which form the basis of the individual claims. The writ of certiorari to the United
States Supreme Court regarding the constitutionality of the Washington, D.C. act was denied and the
case was remanded to the trial court for further proceedings. The defendants subsequently moved to
dismiss the case based upon the Protection of Lawful Commerce in Arms Act, which motion was granted
on May 22, 2006. The individual plaintiffs and the District of Columbia, which has subrogation
claims in regard to the individual plaintiffs, have appealed.
The Indiana Court of Appeals affirmed the dismissal of the Gary case by the trial
court, but the Indiana Supreme Court reversed this dismissal and remanded the case for discovery
proceedings on December 23, 2003. Gary is scheduled to begin trial in 2009. The
defendants filed a motion to dismiss pursuant to the Protection of Lawful Commerce in Arms Act
(PLCAA). The state court judge held the PLCAA unconstitutional and the defendants filed a motion
with the Indiana Court of Appeals asking it to accept interlocutory appeal on the issue, which
appeal was accepted on February 5, 2007.
In the previously reported New York City municipal case, the defendants moved to
dismiss the suit pursuant to the Protection of Lawful Commerce in Arms Act. The trial judge found
the Act to be constitutional but denied the defendants motion to dismiss the case, stating that
the Act was not applicable to the suit. The defendants were given leave to appeal and in fact have
appealed the decision to the U.S. Court of Appeals for the Second Circuit. That appeal remains
pending.
In the NAACP case, on May 14, 2003, an advisory jury returned a verdict rejecting the
NAACPs claims. On July 21, 2003, Judge Jack B. Weinstein entered an order dismissing the
NAACP lawsuit, but this order contained lengthy dicta which defendants believe are contrary
to law and fact. Appeals by both sides were filed, but plaintiffs withdrew their appeal. On
August 3, 2004, the United States Court of Appeals for the Second Circuit granted the NAACPs
motion to dismiss the defendants appeal of Judge Weinsteins order denying defendants motion to
strike his dicta made in his order dismissing the NAACPs case, and the defendants motion for
summary disposition was denied as moot. The ruling of the Second Circuit effectively confirmed the
decision in favor of defendants and brought this matter to a conclusion.
Legislation has been passed in approximately 34 states precluding suits of the type brought by
the municipalities mentioned above. On the Federal level, the Protection of Lawful Commerce in
Arms Act was signed by President Bush on October 26, 2005. The Act requires dismissal of suits
against manufacturers arising out of the lawful sale of their products for harm resulting from the
criminal or unlawful misuse of a firearm by a third party. The Company is pursuing dismissal of
each action involving such claims, including the municipal cases described above. The Company was
voluntarily dismissed with prejudice on March 23, 2007 from the previously reported Arnold case.
The matter was thus concluded with no payment by the Company.
Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and
claims. Aggregate claimed amounts presently exceed product liability accruals and applicable
insurance coverage. For claims made after July 10, 2000, coverage is provided on an annual basis
for 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.
13
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.
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
our 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 our 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.
Currently, there are no product liability cases in which a dollar amount of damages is claimed. If
there were cases with claimed damages, the amount of damages claimed would be 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.
The Company management monitors the status of known claims and the product liability accrual,
which includes amounts for asserted and unasserted claims. While it is not possible to forecast
the outcome of litigation or the timing of costs, in the opinion of management, after consultation
with special and corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial position of the
Company, but may have a material impact on the Companys financial results for a particular period.
The Company has reported all cases instituted against it through March 31, 2007 and the
results of those cases, where terminated, to the S.E.C. on its previous Form 10-K and 10-Q reports,
to which reference is hereby made.
NOTE 9 RELATED PARTY TRANSACTIONS
On March 8, 2007, the Company sold 42 parcels of non-manufacturing real property for $7.3
million to William B. Ruger, Jr., the Companys former Chief Executive Officer and Chairman of the
Board. The sales price was based upon an independent appraisal. The sale included substantially all
of the Companys non-manufacturing real property assets in New Hampshire. The Company recognized a
gain of $5.2 million on the sale. Also in 2007, the Company sold several pieces of artwork to
members of the Ruger family for $0.2 million and recognized insignificant gains from these sales.
NOTE 10 OPERATING SEGMENT INFORMATION
The Company has two reportable segments: firearms and investment castings. The firearms
segment manufactures and sells rifles, pistols, revolvers, and shotguns principally to a select
number of independent wholesale distributors primarily located in the United States. The
investment castings segment consists of one operating division that manufactures and sells steel
investment castings. In July 2006, the Company announced the cessation of titanium castings
operations. Production of titanium castings was completed in the first quarter of 2007. Sales of
titanium castings for the remainder of 2007 will be insignificant. The Company continues to
manufacture and sell steel investment castings. Selected operating segment financial information
follows (in thousands):
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firearms |
|
$ |
39,567 |
|
|
$ |
29,222 |
|
|
$ |
83,237 |
|
|
$ |
70,047 |
|
Castings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated |
|
|
2,540 |
|
|
|
6,054 |
|
|
|
7,327 |
|
|
|
12,656 |
|
Intersegment |
|
|
2,051 |
|
|
|
3,406 |
|
|
|
4,080 |
|
|
|
8,056 |
|
|
|
|
|
4,591 |
|
|
|
9,460 |
|
|
|
11,407 |
|
|
|
20,712 |
|
Eliminations |
|
|
(2,051 |
) |
|
|
(3,406 |
) |
|
|
(4,080 |
) |
|
|
(8,056 |
) |
|
|
|
$ |
42,107 |
|
|
$ |
35,276 |
|
|
|
90,564 |
|
|
$ |
82,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firearms |
|
$ |
6,348 |
|
|
$ |
1,596 |
|
|
$ |
16,724 |
|
|
$ |
5,012 |
|
Castings |
|
|
(565 |
) |
|
|
(18 |
) |
|
|
(1,653 |
) |
|
|
(1,257 |
) |
Corporate |
|
|
2,783 |
|
|
|
840 |
|
|
|
6,952 |
|
|
|
1,032 |
|
|
|
|
$ |
8,566 |
|
|
$ |
2,418 |
|
|
$ |
22,023 |
|
|
$ |
4,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
December 31, 2006 |
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firearms |
|
|
|
|
|
|
|
|
|
$ |
40,712 |
|
|
$ |
71,908 |
|
Castings |
|
|
|
|
|
|
|
|
|
|
10,077 |
|
|
|
18,945 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
82,875 |
|
|
|
52,189 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
132,664 |
|
|
$ |
143,042 |
|
|
NOTE 11 NON-RECURRING EVENT
On April 16, 2007, the Company sold a non-manufacturing facility in Arizona for $5.0 million.
This facility had not been used in the Companys operations for several years. The Company
realized a gain of approximately $1.5 million from this sale in the second quarter of 2007.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
Sturm, Ruger & Company, Inc. (the Company) is principally engaged in the design,
manufacture, and sale of firearms and investment castings. The Companys design and manufacturing
operations are located in the United States. Sales for the six months ended June 30, 2007 were 95%
domestic and 5% export. The Companys firearms are sold through a select number of independent
wholesale distributors principally to the commercial sporting market.
Investment castings are manufactured from titanium and steel alloys. Investment castings
are sold either directly to or through manufacturers representatives to companies in a wide
variety of industries. In July 2006, the Company announced the cessation of titanium castings
operations. Production of these items was completed in the first quarter of 2007. Sales of
titanium castings for the remainder of 2007 will be insignificant. The Company consolidated its
casting operations in its New Hampshire foundry during the first half of 2007. There were no
significant costs associated with this consolidation. The Company continues to manufacture and sell
steel investment castings.
15
Because many of the Companys competitors are not subject to public filing requirements
and industry-wide data is generally not available in a timely manner, the Company is unable to
compare its performance to other companies or specific current industry trends. Instead, the
Company measures itself against its own historical results.
The Company experiences differing seasonality in various firearms product lines, typically
related to their end-use applications, with the overall net effect being moderately lower firearms
demand in the third quarter of the year.
Results of Operations
Orders Received and Backlog
In prior years, the Company received one cancelable annual firearms order in December from
each of its distributors. Effective December 1, 2006, the Company changed the manner in which
distributors order firearms, and began receiving firm, non-cancelable purchase orders on a frequent
basis, with most orders for immediate delivery. The gross value of orders received and ending
backlog for the periods ending June 30, 2007 and March 31, 2007 are as follows (in millions,
including Federal Excise Tax):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
Orders Received |
|
$ |
39.1 |
|
|
$ |
58.9 |
|
Ending Backlog |
|
$ |
23.3 |
|
|
$ |
27.9 |
|
Because of the aforementioned change in the manner in which distributors now order firearms,
comparable data for the three and six months ended June 30, 2006 is not meaningful.
Sales
Consolidated net sales were $42.1 million for the three months ended June 30, 2007. This
represents an increase of $6.8 million or 19.4% from consolidated net sales of $35.3 million in the
comparable prior year period.
For the six months ended June 30, 2007, consolidated net sales were $90.6 million, an increase
of $7.9 million or 9.5% over sales of $82.7 million in the comparable 2006 period.
Firearms segment net sales were $39.6 million for the three months ended June 30, 2007. This
represents an increase of $10.3 million or 35.4% from firearm net sales of $29.2 million in the
comparable prior year period.
For the six months ended June 30, 2007, firearms segment net sales were $83.2 million. This
represents an increase of $13.2 million or 18.8% from 2006 firearm net sales of $70.0 million in
the comparable 2006 period.
Firearms unit shipments increased 31.8% for the three months ended June 30, 2007 when compared
to the second quarter of 2006. Rifle shipments increased 49.3% from the comparable prior year
period due to strong demand and product availability. Revolver shipments increased 19.8% from the
comparable prior year period. Pistol shipments increased 18.8% from the comparable prior year
period. Shotgun shipments increased 35.8% from the comparable prior year period.
For the six months ended June 30, 2007 firearms unit shipments increased 13.6% from the
comparable 2006 period. Rifle shipments increased 25.7% from the comparable prior year period.
Revolver shipments increased slightly from the 2006 period despite the 2006 shipment of 5,000 units
of a discontinued single-action revolver. Eliminating the effect of this 2006 shipment, revolver
sales would have increased 11.5% compared to the comparable
16
prior year period. Shotgun shipments
increased 18.5% and pistol shipments increased 9.4% from the comparable prior year period.
Production of many models has not increased as quickly as demand and safety stock levels of
finished goods inventory of those models has been depleted during the six-month period ending June
30, 2007. As a result, increased firearm shipments in future periods will be dependent on the
ability to increase firearm production of those models.
Casting segment net sales were $2.5 million for the three months ended June 30, 2007. This
represents a decrease of $3.6 million or 58.0% from casting sales of $6.1 million in the comparable
prior year period.
For the six months ended June 30, 2007 casting segment net sales were $7.3 million. This
represents a decrease of $5.4 million or 42.1% from casting sales of $12.7 million in the
comparable prior year period.
The casting sales decrease in both the three and six months ended June 30, 2007 reflects the
cessation of titanium casting operations, as previously announced by the Company in July 2006.
Titanium casting sales accounted for $0.2 million or 9.3% of casting sales for the three months
ended June 30, 2007 and $2.4 million or 39.3% of total casting sales in the comparable prior year
period. For the six months ended June 30, 2007 titanium casting sales were $2.7 million or 36.8%
of total casting sales compared to $5.5 million or 43.4% in the comparable 2006 period. The Company
continues to manufacture and sell steel investment castings.
Cost of Products Sold and Gross Margin
Consolidated cost of products sold was $29.0 million for the three months ended June 30, 2007.
This represents an increase of $2.1 million or 7.8% from consolidated cost of products sold of
$26.9 million in the comparable prior year period.
For the six months ended June 30, 2007, consolidated cost of products sold was $61.9 million.
This represents a decrease of $2.3 million or 3.6% from consolidated cost of products sold of $64.2
million in the comparable prior year period.
Gross margin as a percent of sales was 31.2% and 31.7% for the three and six months ended June
30, 2007, respectively. This represents increases from the gross margin of 23.8% and 22.4% in the
comparable prior year periods as illustrated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
2007 |
|
2006 |
|
Net sales |
|
$ |
42,107 |
|
|
|
100.0 |
% |
|
$ |
35,276 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of products
sold, before LIFO and
overhead rate adjustments
to inventory and product
liability |
|
|
(31,479 |
) |
|
|
(74.8 |
)% |
|
|
(23,316 |
) |
|
|
(66.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance gross margin * |
|
|
10,628 |
|
|
|
25.2 |
% |
|
|
11,960 |
|
|
|
33.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO income (expense) |
|
|
6,144 |
|
|
|
14.6 |
% |
|
|
(1,686 |
) |
|
|
(4.8 |
)% |
Overhead rate
adjustments to inventory |
|
|
(2,827 |
) |
|
|
(6.7 |
)% |
|
|
(1,066 |
) |
|
|
(3.0 |
)% |
Product liability |
|
|
(817 |
) |
|
|
(1.9 |
)% |
|
|
(823 |
) |
|
|
(2.3 |
)% |
|
|
Gross margin |
|
$ |
13,128 |
|
|
|
31.2 |
% |
|
$ |
8,385 |
|
|
|
23.8 |
% |
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2007 |
|
2006 |
|
Net sales |
|
$ |
90,564 |
|
|
|
100.0 |
% |
|
$ |
82,703 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of products sold, before
LIFO and overhead rate adjustments
to inventory and product liability |
|
|
(67,039 |
) |
|
|
(74.0 |
)% |
|
|
(58,794 |
) |
|
|
(71.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance gross margin* |
|
|
23,525 |
|
|
|
26.0 |
% |
|
|
23,909 |
|
|
|
28.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO income (expense) |
|
|
10,566 |
|
|
|
11.7 |
% |
|
|
(2,667 |
) |
|
|
(3.2 |
)% |
Overhead rate adjustments to
inventory |
|
|
(4,226 |
) |
|
|
(4.7 |
)% |
|
|
(1,234 |
) |
|
|
(1.5 |
)% |
Product liability |
|
|
(1,173 |
) |
|
|
(1.3 |
)% |
|
|
(1,480 |
) |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
28,692 |
|
|
|
31.7 |
% |
|
$ |
18,528 |
|
|
|
22.4 |
% |
|
* |
|
Performance Gross Margin is Gross Margin excluding the impact of LIFO and overhead rate
adjustments to inventory and product liability |
Performance Gross Margin During the three and six months ended June 30, 2007 performance
gross margin declined from the comparable prior year periods. The primary reasons were the
significant inventory reduction experienced in 2007, resulting in the recognition of less efficient
overhead incurred in prior periods, temporarily running certain production assets at lower rates
than in prior periods to achieve the inventory reduction, and the expense associated with
conversion of manufacturing processes (going lean). This inventory reduction effect is
exacerbated in the year-over-year comparison due to the absorption of overhead during the
comparable periods in 2006. The Company believes that short-term erosion in gross margin is common
to companies experiencing similar significant reductions in inventory while they convert to lean
manufacturing.
LIFODuring the three and six months ended June 30, 2007 gross inventories were reduced by
$10.1 million and $26.6 million, respectively, compared to a increases in gross inventories of $7.2
million and $4.3 million in the comparable prior year periods. Inventories are not expected to
increase above the June 30 levels during the remainder of 2007. The 2007 reduction resulted in
LIFO income and decreased cost of products sold of $6.1 million and $10.6 million for the three and
six months ended June 30, 2007, respectively. LIFO expense of $1.7 million and $2.7 million
resulted in an increase in cost of products sold in the comparable prior year periods.
Overhead Rate ChangeThe change in inventory value as a result of a change in the overhead
rate used to absorb overhead expenses into inventory remaining on the balance sheet for the three
and six months ended June 30, 2007 were reductions of $2.8 million and $4.2, respectively, which
recognized the continued progress made in lowering overhead rates. These reductions in inventory
value resulted in increases to cost of products sold.
The change in inventory value as a result of a change in the overhead rate used to absorb overhead
expenses into inventory remaining on the balance sheet in the three and six months ended June 30,
2006 were decreases of $1.1 million and $1.2 million, respectively. These reductions in inventory
value resulted in increases to cost of products sold.
Product LiabilityDuring the three and six months ended June 30, 2007 and 2006, the Company
incurred product liability expense of $0.8 million and $1.2 million, respectively, which includes
the cost of outside legal fees, insurance, and other expenses incurred in the management and
defense of product liability matters. For the comparable 2006 periods, product liability expenses
totaled $0.8 million and $1.5 million, respectively.
Selling, General and Administrative Expenses
18
Selling, general and administrative expenses were $7.1 million and $14.7 million for the three
and six months ended June 30, 2007, respectively. This represents increases of $0.5 million and
$0.2 million from selling, general and administrative expenses of $6.6 million and $14.5 million in
the comparable prior year periods. The increase for the three months ended June 30, 2007 reflects
increased personnel related costs, partially offset by reductions in sales promotion expenses. The
increase for the six months ended June 30, 2007 reflects increased personnel-related costs,
partially offset by reductions in advertising and sales promotion expenses. The increased
personnel costs for the six months ended June 30, 2007 includes $1.1 million of severance costs
incurred in the first quarter of 2007 related to the previously announced reduction-in-force
program, offset by the $0.7 million expense incurred in the first quarter of 2006 related to the
retirement of the Companys former Chairman and Chief Executive Officer.
Other Income
Other income-net for the three and six months ended June 30, 2007 was $2.5 million and $8.1
million, respectively. This represents an increase from other income-net of $0.6 million and $0.7
million, respectively, in the comparable prior year periods. The increases are primarily
attributable to a $5.2 million gain on the sale of non-manufacturing real property in March 2007
and a $1.5 million gain on the sale of non-manufacturing real property in April 2007 and increased
income from short-term investments as a result of increased principal invested at higher interest
rates.
Income Taxes and Net Income
The effective income tax rate of 40.1% in the three and six months ended June 30, 2007
remained consistent with the income tax rate in 2006.
As a result of the foregoing factors, net income was $5.1 million and $13.2 million for the
three and six months ended June 30, 2007, respectively. This represents increases of $3.7 million
and $10.3 million from net income of $1.4 million and $2.9 million in the comparable
prior year periods.
Financial Condition
Operations
At June 30, 2007, the Company had cash, cash equivalents and short-term investments of $70.6
million. The Companys pre-LIFO working capital of $126.0 million, less the LIFO reserve of $45.3
million, results in working capital of $80.7 million and a current ratio of 4.5 to 1.
Cash provided by operating activities was $30.0 million and $7.3 million for the six months
ended June 30, 2007 and 2006, respectively. The increase in cash provided is principally a result
of a decrease in inventory, improved net income and various fluctuations in operating asset and
liability accounts during the first six months of 2007 compared to the first six months of 2006.
Third parties supply the Company with various raw materials for its firearms and castings,
such as fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle and
shotgun stocks, wax, ceramic material, metal alloys, various synthetic products and other component
parts. There is a limited supply of these materials in the marketplace at any given time that 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 then-current market cost without interruption of its manufacturing
operations. However, if market conditions result in a significant prolonged inflation of certain
prices or if adequate quantities of raw materials can not be obtained, the Companys manufacturing
processes could be interrupted and the Companys financial condition or results of operations could
be materially adversely affected.
19
Investing and Financing
Capital expenditures for the six months ended June 30, 2007 totaled $1.3 million. For the
past two years capital expenditures averaged approximately $1.1 million per quarter. The Company
expects to spend approximately $2.7 million on capital expenditures during the remainder of 2007 to
purchase tooling for new product introductions and to upgrade and modernize manufacturing
equipment, primarily at the Newport Firearms and Pine Tree Castings Divisions. The Company
finances, and intends to continue to finance, these activities with funds provided by operations
and current cash and short-term investments.
On January 26, 2007, the Company announced that its Board of Directors authorized a stock
repurchase program. The program allows the Company to repurchase up to $20 million of its common
stock from time to time in the open market or through privately negotiated transactions. No shares
were repurchased during the six months ended June 30, 2007.
On March 8, 2007, the Company sold 42 parcels of non-manufacturing real property for $7.3
million to William B. Ruger, Jr., the Companys former Chief Executive Officer and Chairman of the
Board. The sale included substantially all of the Companys non-manufacturing real property assets
in New Hampshire. The sales price was based upon an independent appraisal, and the Company
recognized a gain of $5.2 million on the sale.
On April 16, 2007, the Company sold a non-manufacturing facility in Arizona for $5.0
million. This facility had not been used in the Companys operations for several years. The
Company realized a gain of approximately $1.5 million and net cash of $4.6 million from this sale.
There were no dividends paid for the six months ended June 30, 2007. The payment of future
dividends depends on many factors, including consistent quarterly operating earnings, internal
estimates of future performance, then-current cash and short-term investments and the Companys
need for funds. The Company does not expect to pay dividends in the near term, but will reconsider
a dividend from time to time.
Historically, the Company has not required external financing. Based on its unencumbered
assets, the Company believes it has the ability to raise substantial amounts of cash through the
issuance of short-term or long-term debt.
Firearms Legislation
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 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 and the National Instant Check System have not had a significant effect on the Companys
sales of firearms, nor does it anticipate any impact on sales in the future. On September 13,
1994, the Crime Bill banned so-called assault weapons. All the Companys then-manufactured
commercially-sold long guns were exempted by name as legitimate sporting firearms. This ban
expired by operation of law on September 13, 2004. 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
20
United States Constitution and that the widespread private ownership of firearms in the United
States will continue. However, there can be no assurance that the regulation of firearms will not
become more restrictive in the future and that any such restriction would not have a material
adverse effect on the business of the Company.
Firearms Litigation
(The following disclosures within Firearms Litigation are identical to the disclosures within
Note 8-Contingent Liabilities.)
As of June 30, 2007, the Company is a defendant in approximately 5 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. Pending 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 or other governmental entities, and individuals against
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. There are three such lawsuits
presently pending: Gary, Indiana; Washington, D.C.; and New York City, all discussed
further below. 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. Most of these cases do not allege a specific
injury to a specific individual as a result of the misuse or use of any of the Companys
products. |
The Company has expended significant amounts of financial resources and management time in
connection with product liability litigation. Management believes that, in every case involving
firearms, 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 governmental
entities based, among other reasons, on established state law precluding recovery 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 constitutional 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. In
subsequent proceedings involving other defendants, the New York Court of Appeals as a matter of law
confirmed that 1) no legal duty existed under the circumstances to prevent or investigate criminal
misuses of a manufacturers lawfully made products; and 2) liability of firearms manufacturers
could not be apportioned under a market share theory. More recently, the New York Court of Appeals
on October 21, 2003 declined to hear the appeal from the decision of the New York Supreme Court,
Appellate Division, affirming the dismissal of New York Attorney General Eliot Spitzers public
nuisance suit against the Company and other
21
manufacturers and distributors of firearms. In its
decision, the Appellate Division relied heavily on Hamilton in concluding that it was
legally inappropriate, impractical, unrealistic and unfair to attempt to hold firearms
manufacturers responsible under theories of public nuisance for the criminal acts of others.
Of the lawsuits brought by municipalities, counties or a state Attorney General, twenty have
been concluded: Atlanta dismissal by intermediate Appellate Court, no further appeal;
Bridgeport dismissal affirmed by Connecticut Supreme Court; County of Camden
dismissal affirmed by U.S. Third Circuit Court of Appeals; Miami dismissal affirmed by
intermediate appellate court, Florida Supreme Court declined review; New Orleans
dismissed by Louisiana Supreme Court, United States Supreme Court declined review;
Philadelphia U.S. Third Circuit Court of Appeals affirmed dismissal, no further appeal;
Wilmington dismissed by trial court, no appeal; Boston voluntary dismissal with
prejudice by the City at the close of fact discovery; Cincinnati voluntarily withdrawn
after a unanimous vote of the city council; Detroit dismissed by Michigan Court of
Appeals, no appeal; Wayne County dismissed by Michigan Court of Appeals, no appeal;
New York State Court of Appeals denied plaintiffs petition for leave to appeal the
Intermediate Appellate Courts dismissal, no further appeal; Newark Superior Court of New
Jersey Law Division for Essex County dismissed the case with prejudice; City of Camden
dismissed on July 7, 2003, not reopened; Jersey City voluntarily dismissed and not
re-filed; St. Louis Missouri Supreme Court denied plaintiffs motion to appeal Missouri
Appellate Courts affirmance of dismissal; Chicago Illinois Supreme Court affirmed trial
courts dismissal; and Los Angeles City, Los Angeles County, San Francisco
Appellate Court affirmed summary judgment in favor of defendants, no further appeal; and
Cleveland dismissed on January 24, 2006 for lack of prosecution.
The dismissal of the Washington, D.C. municipal lawsuit was sustained on appeal, but
individual plaintiffs were permitted to proceed to discovery and attempt to identify the
manufacturers of the firearms used in their shootings as machine guns under the citys strict
liability law. On April 21, 2005, the D.C. Court of Appeals, in an en banc hearing, unanimously
dismissed all negligence and public nuisance claims, but let stand individual claims based upon a
Washington, D.C. act imposing strict liability for manufacturers of machine guns. Based on
present information, none of the Companys products has been identified with any of the criminal
assaults which form the basis of the individual claims. The writ of certiorari to the United
States Supreme Court regarding the constitutionality of the Washington, D.C. act was denied and the
case was remanded to the trial court for further proceedings. The defendants subsequently moved to
dismiss the case based upon the Protection of Lawful Commerce in Arms Act, which motion was granted
on May 22, 2006. The individual plaintiffs and the District of Columbia, which has subrogation
claims in regard to the individual plaintiffs, have appealed.
The Indiana Court of Appeals affirmed the dismissal of the Gary case by the trial
court, but the Indiana Supreme Court reversed this dismissal and remanded the case for discovery
proceedings on December 23, 2003. Gary is scheduled to begin trial in 2009. The
defendants filed a motion to dismiss pursuant to the Protection of Lawful Commerce in Arms Act
(PLCAA). The state court judge held the PLCAA unconstitutional and the defendants filed a motion
with the Indiana Court of Appeals asking it to accept interlocutory appeal on the issue, which
appeal was accepted on February 5, 2007.
In the previously reported New York City municipal case, the defendants moved to
dismiss the suit pursuant to the Protection of Lawful Commerce in Arms Act. The trial judge found
the Act to be constitutional but denied the defendants motion to dismiss the case, stating that
the Act was not applicable to the suit. The defendants were given leave to appeal and in fact have
appealed the decision to the U.S. Court of Appeals for the Second Circuit. That appeal remains
pending.
In the NAACP case, on May 14, 2003, an advisory jury returned a verdict rejecting the
NAACPs claims. On July 21, 2003, Judge Jack B. Weinstein entered an order dismissing the
NAACP lawsuit, but this order contained lengthy dicta which defendants believe are contrary
to law and fact. Appeals by both sides were filed, but plaintiffs withdrew their appeal. On
August 3, 2004, the United States Court of Appeals for the Second Circuit granted the NAACPs
motion to dismiss the defendants appeal of Judge Weinsteins order denying defendants motion to
strike his dicta made in his order dismissing the NAACPs case, and the defendants motion for
summary
22
disposition was denied as moot. The ruling of the Second Circuit effectively confirmed the
decision in favor of defendants and brought this matter to a conclusion.
Legislation has been passed in approximately 34 states precluding suits of the type brought by
the municipalities mentioned above. On the Federal level, the Protection of Lawful Commerce in
Arms Act was signed by President Bush on October 26, 2005. The Act requires dismissal of suits
against manufacturers arising out of the lawful sale of their products for harm resulting from the
criminal or unlawful misuse of a firearm by a third party. The Company is pursuing dismissal of
each action involving such claims, including the municipal cases described above. The Company was
voluntarily dismissed with prejudice on March 23, 2007 from the previously reported Arnold case.
The matter was thus concluded with no payment by the Company.
Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and
claims. Aggregate claimed amounts presently exceed product liability accruals and applicable
insurance coverage. For claims made after July 10, 2000, coverage is provided on an annual basis
for 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.
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.
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
our 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 our 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.
Currently, there are no product liability cases in which a dollar amount of damages is claimed. If
there were cases with claimed damages, the amount of damages claimed would be 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.
The Company management monitors the status of known claims and the product liability accrual,
which includes amounts for asserted and unasserted claims. While it is not possible to forecast
the outcome of litigation or the timing of costs, in the opinion of management, after consultation
with special and corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial position of the
Company, but may have a material impact on the Companys financial results for a particular period.
The Company has reported all cases instituted against it through March 31, 2007 and the
results of those cases, where terminated, to the S.E.C. on its previous Form 10K and 10Q reports,
to which reference is hereby made.
Other Operational Matters
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
23
such proceedings and orders will not have a
material adverse effect on the financial position or results of operations of the Company.
The Company self-insures a significant amount of its product liability, workers compensation,
medical, and other insurance. It also carries significant deductible amounts on various insurance
policies.
The valuation of the future defined benefit pension obligations at December 31, 2006 indicated
that these plans were under funded by $7.6 million and resulted in a cumulative other comprehensive
loss of $12.4 million on the Companys balance sheet at December 31, 2006.
The Company expects to realize its deferred tax assets through tax deductions against future
taxable income.
Inflations effect on the Companys 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 that would result from the slower recognition of increased costs when
other methods are used. In the three and six months ended June 30, 2007, however, a significant
reduction in inventories resulted in a liquidation of LIFO inventory quantities carried at lower
costs prevailing in prior years as compared with the current cost of purchases. This resulted in
LIFO income and decreased cost of products sold of $6.5 million and $16.2 million for the three and
six months ended June 30, 2007, respectively.
Adjustments to Critical Accounting Policies
The Company has not made any adjustments to its critical accounting estimates and assumptions
described in the Companys 2006 Annual Report on Form 10-K filed on March 5, 2007, or the judgments
affecting the application of those estimates and assumptions.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (FIN 48). This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company adopted the provisions of FIN 48 on
January 1, 2007. The impact of FIN 48 on the Companys financial position is discussed in Note
4 to the condensed financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, (FAS 157) and No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, (FAS 159). These Standards define fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and expands disclosures about
fair value measurements. FAS 157 and FAS 159 are effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The
adoption of FAS 157 and FAS 159 are not expected to have a material impact on the Companys
financial position, results of operations and cash flows.
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, state 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
24
could
cause actual results to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publish revised forward-looking statements to reflect events or
circumstances after the date such forward-looking statements are made or to reflect the occurrence
of subsequent unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in prevailing market interest rates affecting the return on
its investments but does not consider this interest rate market risk exposure to be material to its
financial condition or results of operations. The Company invests primarily in a bank-managed
money market fund that invests principally in United States Treasury instruments, all maturing
within one year. 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 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer and
Treasurer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure
controls and procedures (the Disclosure Controls and Procedures), as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act), as of the June 30, 2007.
Based on the evaluation, the Companys Chief Executive Officer and Treasurer and Chief
Financial Officer have concluded that, as of June 30, 2007, such disclosure controls and procedures
are effective to ensure that information required to be disclosed in the Companys periodic reports
filed under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commissions rules and forms.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
our most recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the legal proceedings against the Company is discussed at Note 8 to this Form
10-Q report, which is incorporated herein by reference.
The Company has reported all cases instituted against it through March 31, 2007, and the
results of those cases, where terminated, to the S.E.C. on its previous Form 10-Q and 10-K reports,
to which reference is hereby made.
Two cases were formally instituted against the Company during the three months ending June 30,
2007:
Pearce v. Company, et al (MA) in the U.S. District Court for the District of
Massachusetts. The plaintiff was allegedly injured when the fork on his bicycle failed, resulting
in unspecified permanent injuries and property damage. The complaint alleges that either the Pine
Tree Castings Division of the Company or Wyman-Gordon
25
Investment Castings manufactured the casting
from which the fork crown, the part that allegedly failed, was manufactured. Compensatory damages
and costs are demanded.
Watkins v. Company, et al (PA) in the Court of Common Pleas, Philadelphia County. The
Writ alleges that a minor pointed a handgun at the minor decedent. The minor pulled the trigger
and shot the decedent, resulting in his death. A Form Writ of Summons has been filed, but other
details and the damages demanded are not set out.
During the three months ending June 30, 2007, no previously reported cases were settled.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from the information provided in Item 1A.
Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2007 Annual Meeting of Stockholders of the Company was held on April 24, 2007. The
table below sets forth the results of the votes taken on the 2007 Annual Meeting:
|
|
|
|
|
|
|
|
|
Election of Directors |
|
Votes For |
|
|
Votes Withheld |
|
Michael O. Fifer |
|
|
20,139,485 |
|
|
|
446,008 |
|
Stephen L. Sanetti |
|
|
20,191,666 |
|
|
|
393,827 |
|
James E. Service |
|
|
19,530,913 |
|
|
|
1,054,580 |
|
John A. Cosentino, Jr. |
|
|
20,165,373 |
|
|
|
420,120 |
|
C. Michael Jacobi |
|
|
20,236,993 |
|
|
|
348,500 |
|
John M. Kingsley, Jr. |
|
|
19,192,632 |
|
|
|
1,392,861 |
|
Stephen T. Merkel |
|
|
20,136,227 |
|
|
|
449,266 |
|
Ronald C. Whitaker |
|
|
20,243,271 |
|
|
|
342,222 |
|
|
|
|
|
|
|
|
|
|
Ratification of McGladrey & Pullen, LLP
as Auditors for 2007 |
|
Votes For |
|
Votes Against |
|
|
Abstain |
|
20,417,757 |
|
|
103,406 |
|
|
|
64,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruger 2007 Stock Incentive Plan |
|
Votes For |
|
Votes Against |
|
|
Abstain |
|
|
Non Votes |
|
7,619,564 |
|
|
5,206,756 |
|
|
|
107,441 |
|
|
|
7,651,732 |
|
26
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
|
31.1 |
|
Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
|
Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
27
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
STURM, RUGER & COMPANY, INC. |
|
|
|
|
|
|
|
|
|
|
|
|
Date: July 23, 2007
|
|
S/THOMAS A. DINEEN |
|
|
|
|
|
|
|
|
|
Thomas A. Dineen |
|
|
|
|
Principal Financial Officer, |
|
|
|
|
Vice President, Treasurer and Chief Financial Officer |
|
|
28