-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NVfW7xiHWC59Bff63CD6Zjzr8oROepb+CoZpYi8JLlBwwj6MPB7wdG9OvN0XHBmM FFxGL7Z1uHeqnCJzw3lO1Q== 0000950123-05-003128.txt : 20050315 0000950123-05-003128.hdr.sgml : 20050315 20050315141302 ACCESSION NUMBER: 0000950123-05-003128 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050315 DATE AS OF CHANGE: 20050315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STURM RUGER & CO INC CENTRAL INDEX KEY: 0000095029 STANDARD INDUSTRIAL CLASSIFICATION: ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES) [3480] IRS NUMBER: 060633559 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10435 FILM NUMBER: 05681119 BUSINESS ADDRESS: STREET 1: 1 LACEY PLACE CITY: SOUTHPORT STATE: CT ZIP: 06490 BUSINESS PHONE: 2032597843 MAIL ADDRESS: STREET 2: 1 LACEY PLACE CITY: SOUTHPORT STATE: CT ZIP: 06490 10-K 1 y06776e10vk.txt STURM,RUGER & COMPANY, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 0-4776 STURM, RUGER & COMPANY, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 06-0633559 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
LACEY PLACE, SOUTHPORT, CONNECTICUT 06890 (Address of Principal Executive Offices) (Zip Code)
(203) 259-7843 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES X NO ----- ----- The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2004: Common Stock, $1 par value - $254,465,700 The number of shares outstanding of the registrant's common stock as of March 1, 2005: Common Stock, $1 par value - 26,910,720 shares DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Annual Report to Stockholders for the fiscal year ended December 31, 2004 are incorporated by reference into Parts I and II (Items 1 through 9A) of this Report. 1 Portions of the registrant's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 are incorporated by reference into Part III (Items 10 through 14) of this Report. 2 TABLE OF CONTENTS PART I Item 1. Business ...................................................... 4 Item 2. Properties .................................................... 11 Item 3. Legal Proceedings ............................................. 12 Item 4. Submission of Matters to a Vote of Security Holders ........... 16 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .......... 16 Item 6. Selected Financial Data ....................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .... 16 Item 8. Financial Statements and Supplementary Data ................... 17 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................................... 17 Item 9A. Controls and Procedures ....................................... 17 Item 9B. Other Information ............................................. 18 PART III Item 10. Directors and Executive Officers of the Registrant ............ 18 Item 11. Executive Compensation ........................................ 19 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................. 20 Item 13. Certain Relationships and Related Transactions ................ 20 Item 14. Principal Accountant Fees and Services ........................ 21 PART IV Item 15. Exhibits and Financial Statement Schedules..................... 21 Signatures................................................................ 24 Exhibit Index............................................................. 25 Financial Statement Schedule.............................................. 27 Exhibits.................................................................. 29
3 In this Annual Report on Form 10-K, Sturm, Ruger & Company (the "Company") makes forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company including lawsuits filed by mayors, attorneys general and other governmental entities and membership organizations, and the impact of future firearms control and environmental legislation, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events. PART I ITEM 1--BUSINESS COMPANY OVERVIEW The Company is principally engaged in the design, manufacture, and sale of firearms and precision investment castings. The Company's design and manufacturing operations are located in the United States. Substantially all sales are domestic and export sales are insignificant. The Company is the only U.S. firearms manufacturer which offers products in all four industry product categories: rifles, shotguns, pistols, and revolvers. The Company's firearms are sold through a select number of independent wholesale distributors principally to the commercial sporting market. Investment castings manufactured are of titanium and steel alloys. Investment castings are sold either directly to or through manufacturers' representatives to companies in a wide variety of industries. The Company believes that it is the largest U.S. firearms manufacturer, based on data reported in the Bureau of Alcohol, Tobacco and Firearms' 2001 Annual Firearms Manufacturing and Exportation Report ("BATF Data"). The Company, which has been profitable every year since 1950, believes it has a preeminent reputation among sportsmen, hunters, and gun collectors for technical innovation and quality construction, based on reports in industry and business publications. The Company has been in business since 1949 and was incorporated in its present form under the laws of Delaware in 1969. For the years ended December 31, 2004, 2003, and 2002, net sales attributable to the Company's firearms operations were approximately 86%, 88%, and 86%, respectively, of total net sales. The balance of the Company's net sales for the aforementioned periods was attributable to its investment castings operations. Further information regarding industry segment data is incorporated by reference to pages 23 and 24 of the Company's 2004 Annual Report to Stockholders. FIREARMS PRODUCTS The Company's firearms, which are sold under the "Ruger" name and trademark, consist of single-shot, autoloading, bolt-action, and lever action rifles in a broad range of hunting calibers; shotguns in three gauges; .22 caliber rimfire autoloading pistols and centerfire autoloading pistols in various calibers; and single-action, double-action, and muzzleloading revolvers in various calibers. The Company manufactures a wide range of high quality products and does not manufacture inexpensive concealable firearms, sometimes known as "Saturday Night Specials," nor does it commercially-sell any firearm included on the list of "assault weapons" which was part of anti-crime legislation enacted by Congress in 1994 and since expired. 4 ITEM 1--BUSINESS (CONTINUED) Many of the firearms introduced by the Company over the years have become "classics" which have retained their popularity for decades and are sought by collectors. These firearms include the single-action Single-Six, Blackhawk, and Bearcat revolvers; the double-action Redhawk revolvers; the 10/22 and Mini-14 autoloading, M-77 bolt-action, and Number One Single-Shot rifles; and the Red Label over-and-under shotguns. The Company has supplemented these "classics" with the introduction of new models and variations of existing models, including a line of centerfire autoloading pistols introduced in 1987, three lines of double action revolvers, the SP101, GP100, and Super Redhawk models, as well as a line of lever action rifles introduced in 1997. The Company's ongoing commitment to the development and introduction of new models of firearms in appropriate product categories continues to generate new offerings. In 2005, the Company plans to introduce several new offerings, including the Ruger 50th Anniversary Blackhawk single action revolver, a new smaller-framed Ruger Vaquero single action revolver, a new Mark III Hunter pistol, a new Ruger Ranch Rifle, new Ruger Frontier bolt-action rifles, and a new Ruger Super Redhawk Alaskan. The Company presently manufactures 34 different types of firearm products in four industry categories: rifles, shotguns, pistols, and revolvers. Most are available in several models based upon caliber, finish, barrel length, and other features. RIFLES--A rifle is a long gun with spiral grooves cut into the interior of the barrel to give the bullet a stabilizing spin after it leaves the barrel. The Company presently manufactures fifteen different types of rifles: the M77 Mark II, the M77 Mark II Magnum, the 77/17, the 77/22, the 77/44, the 10/22, the Model 96/22, the Model 96/44, the Model 96/17, the Mini-14 Ranch Rifle, the Mini Thirty Ranch Rifle, the Ruger Carbine, the Deerfield Carbine (99/44), and the No. 1 Single-Shot. Sales of rifles by the Company accounted for approximately $61.1 million, $61.3 million, and $69.1 million, of revenues for the years 2004, 2003 and 2002, respectively. SHOTGUNS--A shotgun is a long gun with a smooth barrel interior which fires lead or steel pellets. The Company presently manufactures two different types of shotguns: the Red Label over and under shotgun available in 12, 20, and 28 gauge and the Gold Label side-by-side shotgun in 12 gauge. Most of the Red Label models are available in special Sporting Clays, English Field, All-Weather and engraved versions. Sales of shotguns by the Company accounted for approximately $6.8 million, $5.1 million, and $6.0 million of revenues for the years 2004, 2003 and 2002, respectively. PISTOLS--A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip. The Company presently manufactures three different types of pistols: the Ruger Mark III .22 caliber in Standard, Competition, and Target models, the Ruger 22/45, and the P-Series centerfire autoloading pistols in various calibers, configurations, and finishes. Sales of pistols by the Company accounted for approximately $24.8 million, $26.4 million, and $25.8 million of revenues for the years 2004, 2003 and 2002, respectively. REVOLVERS--A revolver is a handgun which has a cylinder that holds the ammunition in a series of chambers which are successively aligned with the barrel of the gun during each firing cycle. There are two general types of revolvers, single-action and double-action. To fire a single-action revolver, the hammer is pulled back to cock the gun and align the cylinder before the trigger is pulled. To fire a double-action revolver, a single trigger pull advances the cylinder and cocks and releases the hammer. The Company presently manufactures ten different types of single-action revolvers in a variety of calibers, configurations, and finishes: the New Model Single-Six, the New Model ..32 Magnum Super Single-Six, the New Model Blackhawk, the New Model Super Blackhawk, the Vaquero, the Ruger Bisley, the Old Army Cap & Ball, the New Bearcat, the Bisley Vaquero, Single-Six, Super Blackhawk, and Bisley Hunter revolvers. The Company presently manufactures four different types of double-action 5 ITEM 1--BUSINESS (CONTINUED) revolvers: the SP101, the GP100, the Redhawk, and the Super Redhawk. Sales of revolvers by the Company accounted for approximately $27.2 million, $33.8 million, and $34.3 million of revenues for the years 2004, 2003, and 2002, respectively. The Company also manufactures and sells accessories and replacement parts for its firearms. These sales accounted for approximately $4.3 million, $4.0 million, and $4.6 million of revenues for the years 2004, 2003 and 2002, respectively. INVESTMENT CASTING PRODUCTS The Company is also engaged in the manufacture of titanium and ferrous investment castings for a wide variety of markets including sporting goods and commercial and military use. The investment castings products currently manufactured by the Company consist of titanium, chrome-molybdenum, stainless steel, nickel, and cobalt alloys. The Company produces steel marine propellers, titanium hand tools, and various other titanium and steel castings for a number of customers. The Company continues to evaluate the viability and profitability of the commercial castings market. The Ruger Investment Casting Division of the Company located in Prescott, Arizona ("RIC-Prescott Division") engineers and produces titanium and ferrous castings. The Ruger Investment Casting Division of the Company located in Newport, New Hampshire ("RIC-Newport Division") (formerly known as Pine Tree Castings) engineers and produces ferrous castings for a wide range of commercial customers. Net sales attributable to the Company's investment casting operations (excluding intercompany transactions) accounted for approximately $20.7 million, $17.4 million, and $21.8 million, or 14%, 12%, and 14% of the Company's total net sales for 2004, 2003, and 2002, respectively. MANUFACTURING FIREARMS--The Company produces most rifles, and all shotguns and revolvers at the Newport, New Hampshire facility. Some rifles and all pistols are produced at the Prescott, Arizona facility. Many of the basic metal component parts of the firearms manufactured by the Company are produced by the Company's castings facilities through a process known as precision investment casting. See "Manufacturing-Investment Castings" for a description of the investment casting process. The Company initiated the use of this process in the production of component parts for firearms in 1953 and believes that its widespread use of investment castings in the firearms manufacturing process is unique among firearms manufacturers. The Company believes that the investment casting process provides greater design flexibility and results in component parts which are generally close to their ultimate shape and, therefore, require less machining. Through the use of investment castings, the Company is able to produce durable and less costly component parts for its firearms. Third parties supply the Company with various raw materials for its firearms, such as fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle and shotgun stocks, various synthetic products and other component parts. These raw materials and component parts are readily available from multiple sources at competitive prices. However, if market conditions result in a significant and prolonged increase of certain prices, the Company believes that it could have a material long-term adverse effect on the Company and may have a material impact on the Company's financial results for a particular period. One component part, an aluminum casting used in the manufacture of certain models of pistols, is purchased from only one third party and may not be readily available from other sources immediately. 6 ITEM 1--BUSINESS (CONTINUED) All assembly, inspection, and testing of firearms manufactured by the Company is performed at the Company's manufacturing facilities. Every firearm, including every chamber of every revolver manufactured by the Company, is test-fired prior to shipment. INVESTMENT CASTINGS--The Company manufactures all of its precision investment castings products at one of its two operating investment casting foundries. To produce a product by the investment casting method, a wax model of the part is created and coated ("invested") with several layers of ceramic material. The shell is then heated to melt the interior wax which is poured off, leaving a hollow mold. To cast the desired part, molten metal is poured into the mold and allowed to cool and solidify. The mold is then broken off to reveal a near net shape cast metal part. All of the titanium investment castings and some of the ferrous investment castings products are manufactured by the Company's RIC-Prescott Division. This facility is one of the largest investment castings facilities in the Southwest. After a review of the castings business in the fourth quarter of 2002, it was determined that a portion of the casting production capacity at the RIC-Prescott Division will not be utilized in the short-term. Therefore, in 2002 a $3.3 million pre-tax charge to earnings was recorded to recognize an impairment loss on certain of the investment castings segment assets. A similar evaluation was undertaken by the Company in 2003 and in 2004, but no pre-tax charge to earnings was recorded in either 2003 or 2004 for any additional impairment loss. The Company continues to evaluate the viability and profitability of the commercial castings market. The Company's RIC-Newport Division manufactures ferrous investment castings. In 2004, the Company relocated two titanium furnaces from RIC-Prescott Division to a currently non-manufacturing facility in New Hampshire, with the plan of establishing an additional foundry in 2005. Raw materials including wax, ceramic material, and metal alloys necessary for the production of investment cast products are supplied to the Company through third parties. The Company believes that these raw materials are readily available from multiple sources at competitive prices. However, if market conditions result in a significant and prolonged increase of certain prices, the Company believes that it could have a material long-term adverse effect on the Company and may have a material impact on the Company's financial results for a particular period. MARKETING AND DISTRIBUTION FIREARMS--The Company's firearms are primarily marketed through a network of selected licensed independent wholesale distributors who purchase the products directly from the Company. They resell to Federally-licensed retail firearms dealers who in turn resell to legally authorized end-users. All retail purchasers are subject to a point-of-sale background check by law enforcement. These end-users include sportsmen, hunters, law enforcement and other governmental organizations, and gun collectors. Each distributor carries the entire line of firearms manufactured by the Company for the commercial market. Currently, 15 distributors service the domestic commercial market, with an additional 12 distributors servicing the domestic law enforcement market and two distributors servicing the Canadian market. Four of the Company's distributors service both the domestic commercial market and the domestic law enforcement market. AcuSport Corporation accounted for approximately 12%, 19%, and 17% of net firearms sales and 10%, 17%, and 15% of consolidated net sales in 2004, 2003, and 2002, respectively. Jerry's Sport Center accounted for approximately 13% and 12% of the Company's net sales of firearms and 11% and 11% of consolidated net sales in 2004 and 2003, respectively. Sports South Corporation accounted for approximately 13% of net firearms sales and 11% of consolidated net sales in 2004. 7 ITEM 1--BUSINESS (CONTINUED) The Company employs four employees and one independent contractor who service these distributors and call on dealers and law enforcement agencies. Because the ultimate demand for the Company's firearms comes from end-users, rather than from the Company's distributors, the Company believes that the loss of any distributor would not have a material long-term adverse effect on the Company, but may have a material impact on the Company's financial results for a particular period. The Company considers its relationships with its distributors to be satisfactory. The Company also exports its firearms through a network of selected commercial distributors and directly to certain foreign customers, consisting primarily of law enforcement agencies and foreign governments. Foreign sales were less than 10% of the Company's consolidated net sales for each of the past three fiscal years. No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of a government purchaser. In the fourth quarter of 2004, the Company received annual orders from its distributors for the 2005 marketing year. As of March 1, 2005, unfilled firearms orders were approximately $102 million as compared to approximately $104 million at March 1, 2004. Most of the firearms manufactured by the Company are sold on terms requiring payment in full within 30 days. However, certain products which are generally used during the Fall hunting season were sold pursuant to a "dating plan" which, in general, allowed the purchasing distributor to buy the products commencing in December, the usual start of the Company's dating plan year, and pay for them on extended terms. Discounts were offered for early payment. In December, 2004, the Company modified the payment terms on these selected products whereby payment is now due 45 days after shipment. Discounts were offered for early payment. The Company does not consider its overall firearms business to be predictably seasonal; however, sales of certain models of firearms are usually lower in the third quarter of the fiscal year. INVESTMENT CASTINGS--The investment casting segment's principal markets are commercial, sporting goods, and military. Sales are made directly to customers or through manufacturers' representatives. The Company produces steel marine propellers, steel and titanium hand tools, and various other products for a number of customers. Sales of titanium golf club heads to Karsten Manufacturing Corporation (the makers of "Ping" products) were $1.2 million and $8.2 in 2003 and 2002, respectively. There were no shipments to Karsten Manufacturing Corporation in 2004 and no future shipments expected to Karsten Manufacturing Corporation. The Company continues to evaluate the viability and profitability of the commercial castings market. COMPETITION FIREARMS--Competition in the firearms industry is intense and comes from both foreign and domestic manufacturers. While some of these competitors concentrate on a single industry product category, such as rifles or pistols, several foreign competitors manufacture products in all four industry categories (rifles, shotguns, pistols, and revolvers). Some of these competitors are subsidiaries of larger corporations than the Company with substantially greater financial resources than the Company, which could affect the Company's ability to compete with these competitors. The Company is the only domestic manufacturer which produces firearms in all four industry product categories and believes that it is the largest U.S. firearms manufacturer, according to BATF Data. The principal methods of competition in the industry are product innovation, quality, and price. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability, and performance of its products, and the competitiveness of its pricing. 8 ITEM 1--BUSINESS (CONTINUED) INVESTMENT CASTINGS--There are a large number of investment castings manufacturers, both domestic and foreign, with which the Company competes. Competition varies based on the type of investment castings products (titanium or steel) and the end-use of the product (commercial, sporting goods, or military). Many of these competitors are larger corporations than the Company with substantially greater financial resources than the Company, which could affect the Company's ability to compete with these competitors. The principal methods of competition in the industry are quality, price, and production lead time. The Company believes that it can compete effectively with its present domestic competitors. However, it is unknown at this time if the Company can compete with foreign competitors in the long-term. After a review of the castings business the Company recorded a $3.3 million pre-tax charge to earnings in the fourth quarter of 2002 to recognize an impairment loss on certain of the investment castings segment assets due to anticipated underutilization of casting production capacity. A similar evaluation was undertaken by the Company in 2003 and in 2004, but and no pre-tax charge to earnings was recorded in either 2003 and 2004 for any additional impairment loss. EMPLOYEES As of March 1, 2005, the Company employed 1,274 full-time employees of which approximately 60% had at least ten years of service with the Company. None of the Company's employees are subject to a collective bargaining agreement. The Company has never experienced a strike during its entire 55-year history and believes its employee relations are satisfactory. RESEARCH AND DEVELOPMENT In 2004, 2003, and 2002, the Company spent approximately $0.9 million, $0.9 million, and $0.7 million, respectively, on research activities relating to the development of new products and the improvement of existing products. As of February 28, 2005, the Company had approximately 33 employees engaged in research and development activities as part of their responsibilities. PATENTS AND TRADEMARKS The Company owns various United States and foreign patents and trademarks which have been secured over a period of years and which expire at various times. It is the policy of the Company to apply for patents and trademarks whenever new products or processes deemed commercially valuable are developed or marketed by the Company. However, none of these patents and trademarks are considered to be basic to any important product or manufacturing process of the Company and, although the Company deems its patents and trademarks to be of value, it does not consider its business materially dependent on patent or trademark protection. ENVIRONMENTAL MATTERS The Company is committed to achieving high standards of environmental quality and product safety, and strives to provide a safe and healthy workplace for its employees and others in the communities in which it operates. The Company has programs in place that monitor compliance with various environmental regulations. However, in the normal course of its manufacturing operations the Company is subject to occasional governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. These regulations are integrated into the Company's manufacturing, assembly, and testing processes. The Company believes that it is generally in compliance with applicable environmental regulations and the outcome of any environmental proceedings and orders will not have a material effect on its business. 9 ITEM 1--BUSINESS (CONTINUED) EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the names, ages, and positions of the executive officers of the Company. Officers serve at the pleasure of the Board of Directors of the Company.
Name Age Position With Company ---- --- --------------------- William B. Ruger, Jr. 65 Chairman of the Board of Directors and Chief Executive Officer Stephen L. Sanetti 55 Vice Chairman of the Board of Directors, President, Chief Operating Officer and General Counsel Leslie M. Gasper 51 Corporate Secretary Thomas A. Dineen 36 Treasurer and Chief Financial Officer
William B. Ruger, Jr. became Chairman of the Board and Chief Executive Officer on October 24, 2000. Mr. Ruger had served as President and Chief Operating Officer since March 1, 1998, Vice Chairman and Senior Executive Officer of the Company since 1995 and Director of the Company since 1970. Previously, he served as President of the Company from 1991 to 1995 and as Senior Vice President of the Company from 1970 to 1990. Stephen L. Sanetti became President and Chief Operating Officer on May 6, 2003. Mr. Sanetti has served as General Counsel since 1980. Prior to May 6, 2003, Mr. Sanetti had been Vice Chairman and Senior Executive Vice President since October 24, 2000. Mr. Sanetti has been a Director since March 1, 1998. Prior to October 24, 2000, he had been Vice President, General Counsel of the Company since 1993. Leslie M. Gasper has been Secretary of the Company since 1994. Prior to this, she was the Administrator of the Company's pension plans, a position she held for more than five years prior thereto. Thomas A. Dineen became Treasurer and Chief Financial Officer on May 6, 2003. Mr. Dineen had been Assistant Controller since 2001. Prior to that, Mr. Dineen had served as Manager, Corporate Accounting since 1997. WHERE YOU CAN FIND MORE INFORMATION The Company is a reporting company and is therefore subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and accordingly files its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K, and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, the Company's public filings are maintained on the SEC's Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. 10 ITEM 1--BUSINESS (CONTINUED) The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act accessible free of charge through the Company's Internet site after the Company has electronically filed such material with, or furnished it to, the SEC. The address of that website is http://www.ruger.com. However, such reports may not be accessible through the Company's website as promptly as they are accessible on the SEC's website. Additionally, the Company's corporate governance materials, including its Board Governance Guidelines; the charters of the Audit, Compensation, and Nominating and Corporate Governance committees, and the Code of Business Conduct and Ethics may also be found under the "Stockholder Relations" section of the Company's Internet site at www.ruger.com. A copy of the foregoing corporate governance materials are available upon written request of the Corporate Secretary at Sturm, Ruger & Company, Inc., Lacey Place, Southport, Connecticut 06890. ITEM 2--PROPERTIES The Company's manufacturing operations are carried out at two facilities. The following table sets forth certain information regarding each of these facilities:
Approximate Aggregate Usable Square Feet Status Segment ---------------- ------ ----------------- Newport, New Hampshire 350,000 Owned Firearms/Castings Prescott, Arizona 230,000 Leased Firearms/Castings
Each facility contains enclosed ranges for testing firearms and also contains modern tool room facilities. The lease of the Prescott facility provides for rental payments which approximate real property taxes. The Company has other materially important facilities that were not used in its manufacturing operations in 2004:
Approximate Aggregate Usable Square Feet Status Segment ---------------- ------ --------- Southport, Connecticut 25,000 Owned Corporate Newport, New Hampshire 300,000 Owned Unused
In 2004 the Company relocated two titanium furnaces from RIC-Prescott Division to the currently non-manufacturing facility in New Hampshire, with the plan of establishing an additional foundry in 2005. The Company also has other real estate holdings that are not used in its manufacturing operations and are not materially important to the business of the Company. There are no mortgages or any other major encumbrance on any of the real estate owned by the Company. 11 ITEM 3--LEGAL PROCEEDINGS As of December 31, 2004, the Company is a defendant in approximately 9 lawsuits involving its products and is aware of certain other such claims. These lawsuits and claims fall into two categories: (i) those that claim damages from the Company related to allegedly defective product design which stem from a specific incident. These lawsuits and claims are based principally on the theory of "strict liability" but also may be based on negligence, breach of warranty, and other legal theories, and (ii) those brought by cities, municipalities, counties, 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. 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 Company's products. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom were due to negligence or misuse of the firearms by third-parties or the claimant, and that there should be no recovery against the Company. Defenses further exist to the suits brought by cities, municipalities, and counties based, among other reasons, on established state law precluding recovery by municipalities for essential government services, the remoteness of the claims, the types of damages sought to be recovered, and limitations on the extraterritorial authority which may be exerted by a city, municipality, 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 manufacturer's 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 12 dismissal of New York Attorney General Eliot Spitzer's 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 or a state Attorney General, nineteen have been dismissed. Sixteen of those cases are 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 plaintiff's petition for leave to appeal the Intermediate Appellate Court's 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; and St. Louis - Missouri Supreme Court denied plaintiffs' motion to appeal Missouri Appellate Court's affirmance of dismissal. The dismissal of the Washington, D.C. 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 city's "strict liability" law. On October 19, 2004, the D.C. Court of Appeals vacated the court's judgment, which dismissed the city's claim against firearms manufacturers but let stand certain individuals' claims against the manufacturers of firearms allegedly used in criminal assaults against plaintiffs under the Washington, D.C. "Strict Liability Act," subject to proof of causation. A rehearing of the matter en banc by the full Court of Appeals was heard in early 2005, and a decision is pending. On March 7, 2003, the consolidated California Cities case involving nine cities and three counties was dismissed as to all manufacturer defendants, and plaintiffs appealed on June 9, 2003. The dismissal was affirmed by the California Appeals Court on February 10, 2005. On November 18, 2004, in the Chicago case, the Illinois Supreme Court affirmed the trial court's dismissal. The court held that plaintiffs failed to state a claim for public nuisance. At the same time the Chicago lawsuit was dismissed, the court also dismissed the previously reported Young lawsuit, in which plaintiffs sued under the same "public nuisance" theory. Plaintiffs in the Chicago lawsuit filed a motion for reconsideration on December 9, 2004, which was denied on January 24, 2005. 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. Cleveland and New York City are open cases and the New York City case is presently scheduled to begin trial in September, 2005. 13 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) In the NAACP case, on May 14, 2003, an advisory jury returned a verdict rejecting the NAACP's 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 NAACP's motion to dismiss the defendants' appeal of Judge Weinstein's order denying defendants' motion to strike his dicta made in his order dismissing the NAACP's 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, and similar federal legislation has been introduced in the U.S. Congress. It passed the House by a 2-to-1 bipartisan majority and had over 54 co-sponsors in the Senate. It was considered by the Senate in February 2004, but failed to gain final passage after it was encumbered with numerous non-germane amendments. It is uncertain when it may be reconsidered by the new session of Congress. The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company's financial results for a particular period. Punitive damages, as well as compensatory damages, are demanded in many of the lawsuits and claims. Aggregate claimed amounts presently exceed product liability accruals and applicable insurance coverage. For claims made after July 10, 1997, coverage is provided for annual losses exceeding $2.0 million per claim, or an aggregate maximum loss of $5.5 million annually. For claims made after July 10, 2000, coverage is provided for annual losses exceeding $5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage. The Company has reported all cases instituted against it through September 30, 2004 and the results of those cases, where terminated, to the S.E.C. on its previous Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, to which reference is hereby made. For a description of all pending lawsuits against the Company through September 30, 2004, reference is made to the discussion under the caption "Item 3. LEGAL PROCEEDINGS" of the Company's Annual Reports on Form 10-K for the year ended December 31, 1998, and to the discussion under caption "Item 1. LEGAL PROCEEDINGS" of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, and September 30, 1999, March 31 and September 30, 2000. 14 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) The nature of the legal proceedings against the Company is discussed at [Note 5] to this Annual Report on Form 10-K, which is incorporated herein by reference. One case was formally instituted against the Company during the three months ended December 31, 2004, which involved significant demands for compensatory and/or punitive damages and in which the Company has been served with process. Farwick v. Company, et al. (OR) in the Circuit Court of Oregon for the County of Clackamas. Plaintiff alleges that his Ruger No.1 rifle, which was loaded with ammunition manufactured by Weatherby, Inc., "exploded" upon firing. Plaintiff has filed a claim against Weatherby, Inc. and the claim against the Company is contingent upon a finding of no defect in the ammunition. Plaintiff seeks compensatory damages. During the three months ending December 31, 2004, one previously reported case was settled.
Case Name Jurisdiction - --------- ------------ Snyder Texas
The settlement amount was within the limits of its self-insurance coverage or self-insurance retention. On October 19, 2004, in the previously reported Washington, D.C. lawsuit, the D.C. Court of Appeals vacated the court's judgment of April 29, 2004, which dismissed the city's claim against firearms manufacturers but let stand certain individuals' claims against the manufacturers of firearms allegedly used in criminal assaults against plaintiffs under the Washington, D.C. "Strict Liability Act," subject to proof of causation. A rehearing of the matter en banc by the full Court of Appeals was heard on January 11, 2005, and a decision is pending. On November 18, 2004, in the previously reported Chicago (IL) case, the Illinois Supreme Court affirmed the trial court's dismissal. The court held that plaintiffs failed to state a claim for public nuisance. On December 9, 2004, plaintiffs filed a motion for reconsideration, which was denied on January 24, 2005. On November 18, 2004, the Illinois Supreme Court dismissed the previously reported Ceriale (IL), Smith (IL), and Young (IL) cases. Plaintiffs have not filed a petition for rehearing. In the previously reported Jersey City case, plaintiffs voluntarily dismissed the case in 2003 because they were unable to comply with discovery deadlines. More than one year has elapsed and plaintiffs have not re-filed their lawsuit. In the previously reported Lemongello (WV) case, no appeal of summary judgment granted in defendants' favor was filed. 15 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) In the previously reported St. Louis (MO) case, the Missouri Court of Appeals had affirmed the trial court's dismissal and plaintiffs filed a motion to appeal the affirmed dismissal directly to the Missouri Supreme Court. On October 26, 2004, the Missouri Supreme Court denied the motion. On December 30, 2004, plaintiffs in the previously reported Knight (IL) case voluntarily dismissed the lawsuit. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The information on the Company's common stock market prices, dividends, principal exchange on which the stock is traded and the number of stockholders of record required for this Item is incorporated by reference from page 27 of the Company's 2004 Annual Report to Stockholders. ITEM 6--SELECTED FINANCIAL DATA The selected financial data for fiscal years 2000 through 2004 required for this Item is incorporated by reference from page 8 of the Company's 2004 Annual Report to Stockholders. ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations required for this Item is incorporated by reference from pages 9 through 14 of the Company's 2004 Annual Report to Stockholders. ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changing interest rates on its investments, which consists primarily of United States Treasury instruments with short-term (less than one year) maturities and cash. The interest rate market risk implicit in the Company's investments at any given time is low, as the investments mature within short periods and the Company does not have significant exposure to changing interest rates on invested cash. The Company has not undertaken any actions to cover interest rate market risk and is not a party to any interest rate market risk management activities. 16 ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED) A hypothetical ten percent change in market interest rates over the next year would not materially impact the Company's earnings or cash flow. A hypothetical ten percent change in market interest rates would not have a material effect on the fair value of the Company's investments. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (A) FINANCIAL STATEMENTS The balance sheets of Sturm, Ruger & Company, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2004, and the notes to the financial statements and the report dated March 8, 2005 of KPMG LLP, independent registered public accounting firm, are incorporated by reference from pages 15 through 25 of the Company's 2004 Annual Report to Stockholders. (B) SUPPLEMENTARY DATA Quarterly results of operations for fiscal years 2004 and 2003 are incorporated by reference from page 24 of the Company's 2004 Annual Report to Stockholders. ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A--CONTROLS AND PROCEDURES (A) DISCLOSURE CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Treasurer and Chief Financial Officer, has evaluated the effectiveness of the Company's 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 end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Treasurer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. (B) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management's report on internal control over financial reporting required for this Item is incorporated by reference from page 26 of the Company's 2004 Annual Report to Stockholders. 17 ITEM 9A--CONTROLS AND PROCEDURES (CONTINUED) (C) ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM The Company's registered public accounting firm's attestation report on management's assessment of the Company's internal control over financial reporting is incorporated by reference from page 25 of the Company's 2004 Annual Report to Stockholders. (D) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B--OTHER INFORMATION None. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Company's directors, including the Company's separately designated standing audit committee, and on the Company's code of business conduct and ethics required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 under the captions "PROPOSAL NO. 1: ELECTION OF DIRECTORS" and "THE BOARD OF DIRECTORS AND ITS COMMITTEES" on pages 2 through 10 thereof. Information concerning the Company's executive officers required by this Item is set forth in Item 1 of this Annual Report on Form 10-K under the caption "Executive Officers of the Company." Information concerning beneficial ownership reporting compliance required by this Item is incorporated by reference from the section of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 under the caption "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 23 thereof. 18 ITEM 11--EXECUTIVE COMPENSATION Information concerning director and executive compensation required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 under the captions "THE BOARD OF DIRECTORS AND ITS COMMITTEES", "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE," "OPTION/SAR GRANTS IN LAST FISCAL YEAR," "AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES," "PENSION PLAN TABLE," "SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE," and "COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN on pages 5 through 19 thereof. 19 ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information concerning the security ownership of certain beneficial owners and management and related stockholder matters required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 under the captions "PROPOSAL NO. 1: ELECTION OF DIRECTORS," "PRINCIPAL STOCKHOLDERS," and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2 through 4 and 20 through 22 thereof. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table provides information regarding compensation plans under which equity securities of the Company are authorized for issuance as of December 31, 2004: EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A)) PLAN CATEGORY (A) (B) (C) ------------- ----------------------- -------------------- ------------------------ EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS 1998 Stock Incentive Plan 995,000 $11.7160 per share 1,005,000 2001 Stock Option Plan for Non-Employee Directors 80,000 $ 9.875 per share 120,000 EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS None. TOTAL 1,075,000 1,125,000
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerting certain relationships and related transactions required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 3, 2005 under the captions "THE BOARD OF DIRECTORS AND ITS COMMITTEES" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on pages 5 through 10 and 23 thereof. 20 ITEM 14--PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning the Company's principal accountant fees and services and the pre-approval policies and procedures of the audit committee of the board of directors required by this Item is incorporated by reference from the section of the Company's Proxy Statement relating to the Annual Meeting of the Stockholders to be held May 3, 2005 under the caption "PROPOSAL NO. 2: APPROVAL OF INDEPENDENT AUDITORS" on pages 25 and 26 thereof. PART IV ITEM 15--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: Balance Sheets--December 31, 2004 and 2003 Statements of Income--Years ended December 31, 2004, 2003, and 2002 Statements of Stockholders' Equity--Years ended December 31, 2004, 2003, and 2002 Statements of Cash Flows--Years ended December 31, 2004, 2003, and 2002 Notes to Financial Statements Independent Registered Public Accounting Firm's Report -- KPMG LLP This information is incorporated by reference from the Company's 2004 Annual Report to Stockholders as noted in Item 8. (2) Financial Statement Schedules: Schedule II-Valuation and Qualifying Accounts (3) Listing of Exhibits: Exhibit 3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibits 4.1 and 4.2 to the Form S-3 Registration Statement previously filed by the Company File No. 33-62702). Exhibit 3.2 Bylaws of the Company, as amended. Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan (Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, as amended by Form 8 filed March 27, 1990, SEC File No. 1-10435). 21 ITEM 15--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED) Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan (Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental Executive Profit Sharing Retirement Plan (Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.4 Agreement and Assignment of Lease dated September 30, 1987 by and between Emerson Electric Co. and Sturm, Ruger & Company, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-10435). Exhibit 10.6 [Intentionally omitted.] Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, SEC File No. 1-10435). Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan for Non-Employee Directors (Incorporated by reference to Exhibit 4 to the Form S-8 Registration Statement filed by the Company File No. 33-53234). Exhibit 13.1 Annual Report to Stockholders of the Company for the year ended December 31, 2004. Except for those portions of such Annual Report to Stockholders expressly incorporated by reference into the Report, such Annual Report to Stockholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "filed" document with the SEC. Exhibit 23.1 Consent and Report on Schedule of Independent Registered Public Accounting Firm. Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act. Exhibit 31.2 Certification of Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act. 22 ITEM 15--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED) Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification of the Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 1995, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.2 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 1996, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.3 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1998, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, June 30, and September 30, 1999 SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, and September 30, 2000, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STURM, RUGER & COMPANY, INC. (Registrant) /S/ THOMAS A. DINEEN ---------------------------------------- Thomas A. Dineen Treasurer and Chief Financial Officer (Principal Financial Officer) March 11, 2005 Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /S/ WILLIAM B. RUGER, JR. 3/11/05 - ---------------------------------------- William B. Ruger, Jr. Chairman of the Board, Chief Executive Officer (Principal Executive Officer) /S/ JOHN M. KINGSLEY, JR. 3/11/05 - ---------------------------------------- John M. Kingsley, Jr. Director /S/ TOWNSEND HORNOR 3/11/05 - ---------------------------------------- Townsend Hornor Director /S/ STEPHEN L. SANETTI 3/11/05 - ---------------------------------------- Stephen L. Sanetti Vice Chairman of the Board, President and Chief Operating Officer /S/ RICHARD T. CUNNIFF 3/11/05 - ---------------------------------------- Richard T. Cunniff Director /S/ JAMES E. SERVICE 3/11/05 - ---------------------------------------- James E. Service Director 24 EXHIBIT INDEX
Page No. -------- Exhibit 3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibits 4.1 and 4.2 to the Form S-3 Registration Statement previously filed by the Company File No. 33-62702). Exhibit 3.2 Bylaws of the Company, as amended. 29 Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan (Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, as amended by Form 8 filed March 27, 1990, SEC File No. 1-10435). Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan (Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental Executive Profit Sharing Retirement Plan (Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.4 Agreement and Assignment of Lease dated September 30, 1987 by and between Emerson Electric Co. and Sturm, Ruger & Company, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, SEC File No. 1-10435). Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-10435). Exhibit 10.6 [Intentionally omitted.] Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, SEC File No. 1-10435). Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan for Non-Employee Directors (Incorporated by reference to Exhibit 4 to the Form S-8 Registration Statement filed by the Company File No. 33-53234).
25 EXHIBIT INDEX (continued)
Page No. -------- Exhibit 13.1 Annual Report to Stockholders of the Company for the 51 year ended December 31, 2004. Except for those portions of such Annual Report to Stockholders expressly incorporated by reference into the Report, such Annual Report to Stockholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "filed" document. Exhibit 23.1 Consent and Report on Schedule of Independent Registered 75 Public Accounting Firm. Exhibit 31.1 Certification of Chief Executive Officer Pursuant to 76 Rule 13a-14(a) of the Exchange Act. Exhibit 31.2 Certification of Treasurer and Chief Financial Officer 78 Pursuant to Rule 13a-14(a) of the Exchange Act. Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 80 Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification of the Treasurer and Chief Financial 81 Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 1995, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.2 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 1996, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.3 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1998, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, June 30, and September 30, 1999, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, and September 30, 2000, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS.
26 YEAR ENDED DECEMBER 31, 2004 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES ITEMS 15(a)(2) AND 15(d) FINANCIAL STATEMENT SCHEDULE 27 Sturm, Ruger & Company, Inc. Item 15(a)(2) and Item 15(d)--Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts (In Thousands)
COL. A COL. B COL. C COL. D COL. E - ----------------------------------- ---------- ----------------------- ---------- --------- ADDITIONS ----------------------- (1) (2) Charged to Balance at Charged to Other Balance Beginning Costs and Accounts at End Description of Period Expenses -Describe Deductions of Period ----------- ---------- ---------- ---------- ---------- --------- Deductions from asset accounts: Allowance for doubtful accounts: Year ended December 31, 2004 $ 441 $ 68(a) $373 ------ ------ ---- Year ended December 31, 2003 $ 449 $ 8(a) $441 ------ ------ ------ ---- Year ended December 31, 2002 $1,061 $ 83 $ 695(a) $449 ------ ------ ------ ---- Allowance for discounts: Year ended December 31, 2004 $ 772 $3,957 $4,174(b) $555 ------ ------ ------ ---- Year ended December 31, 2003 $ 783 $3,965 $3,976(b) $772 ------ ------ ------ ---- Year ended December 31, 2002 $1,145 $4,111 $4,473(b) $783 ------ ------ ------ ----
(a) Accounts written off (b) Discounts taken 28 EX-3.2 2 y06776exv3w2.txt BYLAWS AS AMENDED EXHIBIT 3.2 BY-LAWS OF STURM, RUGER & COMPANY, INC. (A DELAWARE CORPORATION) BY-LAWS OF STURM, RUGER & COMPANY, INC. (A DELAWARE CORPORATION) ARTICLE 1: Offices. Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE 2: Shareholders. Section 1. Annual Meeting. An annual meeting of stockholders shall be held on such day and at such time as may be designated by the Board of Directors for the purpose of electing Directors and for the transaction of such other business as properly may come before such meeting. Any previously scheduled annual meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given on or prior to the date previously scheduled for such annual meeting of stockholders. If the election of Directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be." Section 2. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President or by the Board of Directors, and shall be called by the President at the request of the holders of not less than a majority of all the shares of the corporation issued and outstanding and entitled to vote at the meeting. Section 3. Place of Meetings. Meetings of the shareholders shall be held at the office of the corporation in Fairfield, Connecticut, or at such other suitable place within or without the State of Delaware as may be designated by the President or the Board of Directors of the corporation. Section 4. Notice of Meetings. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the President or Secretary to each shareholder of record entitled to vote at such meeting, by leaving such notice with him or at his residence or usual place of business, or by mailing a copy thereof addressed to him at his last known post-office address as last shown on the stock records of the corporation, postage prepaid, not less than ten nor more than sixty days before the date of such meeting. Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, in case of a meeting of the shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of the shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. 2 Section 6. Voting Lists. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least five days before each meeting of shareholders of which at least seven days' notice is given, a complete list or other equivalent record of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of, and the number and class of shares held by each. Such list or other equivalent record shall, for a period of five days prior to such meeting, be kept on file at the principal office of the corporation and shall be subject to inspection by any shareholder during usual business hours for any proper purpose in the interest of the shareholder as such or of the corporation and not for speculative or trading purposes, or for any purpose inimical to the interest of the corporation or of its shareholders. Such list or other equivalent record shall also be produced and kept open at the time and place of the meeting and shall be subject for any such proper purpose to such inspection during the whole time of the meeting. The original share transfer books shall be prima facie evidence as to who are the shareholders entitled to inspect such list or other equivalent record. 3 Section 7. Quorum. A majority of the outstanding shares of the corporation, entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless it specifies the length of time for which it is to continue in force or limits its use to a particular meeting not yet held. Section 9. Voting of Shares. Each outstanding share entitled to vote shall upon each matter submitted to a vote at a meeting of shareholders. Section 10. Voting of Shares By Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. 4 Shares standing in the name of a receiver may be voted by such receiver and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledges, and thereafter the pledge shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. At all shareholders' meetings, any vote, if so requested by any shareholder, shall be by ballot, and the name of each shareholder so voting shall be written upon each ballot with the number of shares held by him. Section 11. Order of Business. So far as consistent with the purposes of the meeting, the order of business at all shareholders' meetings shall be as follows: 1. Roll call of shareholders; 2. Reading of notice of meeting; 3. Minutes of preceding meeting and action thereon; 4. Reports of Directors, officers and committees; 5 5. Unfinished business; 6. New business; 7. Election of Directors, if an annual meeting. Section 12. Informal Action By Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE 3: Board of Directors. Section 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors. Section 2. Number, Tenure and Qualifications. The number of directors constituting the Board of Directors of the Company shall be six, unless the Certificate of Incorporation of the Company provides otherwise, and such number may be increased or decreased from time to time by resolution of the Board of Directors. No decrease in the number of Directors shall have the effect of shortening or terminating the term of office of any incumbent director. The Directors shall be elected at the Annual Meeting of Shareholders and each Director shall hold office until the next Annual Meeting of shareholders and until his successor shall have been elected and qualified. Directors need not be shareholders of the Company. In the event that the Whole Board (as hereinafter defined) is not elected at the Annual Meeting of the shareholders, an additional Director or additional Directors may be elected at any special meeting of the shareholders to hold office until the next annual meeting of the shareholders, or until a successor or successors shall be elected, and shall at no time exceed the Whole Board. 6 Election shall be by written ballot. As used herein, the term "Whole Board" shall mean the total number of directors authorized at the time. Section 3. Vacancies. Vacancies in the Board of Directors, because of death, resignation, or increase in the number of Directors by Board resolution or for any other reason, shall be filled by the remaining Directors. Section 4. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the President and shall be called on the written request of a majority of the Board. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them. Section 6. Notice. Notice of any special meeting of the Board of Directors shall be addressed to each Director at such Director's residence or business address and shall be sent to such Director by mail, electronic mail, telecopier, telegram or telex or telephoned or delivered to such Director personally. If such notice is sent by mail, it shall be sent not later than three days before the day on which the meeting is to be held. If such notice is sent by electronic mail, telecopier, telegram or telex, it shall be sent not later than twenty-four (24) hours before the time at which the meeting is to be held. If such notice is telephoned or delivered personally, it shall be received not later than twenty-four (24) hours before the time at which the meeting is to be held. Such notice shall state the time, place and purpose or purposes of the meeting." 7 Section 7. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. Section 8. Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 9. Compensation. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Section 10. Presumption of Assent. A Director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. 8 Section 11. Annual Reports. At the annual meeting of the shareholders, the Board of Directors shall submit a report on the condition of the corporation's business. Section 12. Committees of Directors. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate a nominating/corporate governance committee, a compensation committee, an audit committee or one or more additional committees, each committee to consist of two or more of the Directors of the Corporation and to be established and governed in accordance with a written charter adopted by a majority of the whole Board. Any nominating/corporate governance committee, compensation committee or audit committee of the Board of Directors shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, subject to any limitations provided by the applicable written charter and by law. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The term of office of the members of each committee shall be as fixed from time to time by the Board of Directors; provided, however, that any committee member who ceases to be a member of the Board of Directors shall automatically cease to be a committee member. At any meeting of a committee, the presence of one-third, but not less than two, of its members then in office shall constitute a quorum for the transaction of business; and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the committee; provided, however, that in the event that any member or members of the committee is or are in any way interested in or connected with any other party to a contract or transaction being approved at such meeting, or are themselves parties to such contract or transaction, the act of a majority of the members present who are not so interested or connected, or are not such parties, shall be the act of the committee. Each committee may provide for the holding of regular meetings, make provision for the calling of special meetings and, except as otherwise provided in these By-Laws or by resolution of the Board of Directors, make rules for the conduct of its business. 9 The committees shall keep minutes of their proceedings and report the same to the Board of Directors when required; but failure to keep such minutes shall not affect the validity of any acts of the committee or committees." ARTICLE 4: Officers. Section 1. Number. The officers of the corporation shall be a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. Section 2. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed as hereinafter provided. 10 Section 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 5. Chairman of the Board, Vice Chairman and President. The Chairman of the Board, if one is elected, shall be the Chief Executive Officer of the Corporation if so designated by the Board and shall preside at all meetings of the stockholders and directors. If he has been designated as Chief Executive Officer, he shall have general supervision and direction of the business of the Corporation and shall have all general powers and duties usually vested in the Chief Executive Officer of a corporation. He shall be a member and chairman of the Executive Committee and of all other committees appointed by the Board except as otherwise determined by the Board, and he shall have such powers and perform such other duties as may be prescribed from time to time by the Board. The Vice Chairman, if one or more is elected, shall be Senior Executive Officer(s) of the Corporation, shall preside at meetings of the stockholders and directors in the absence or disability of the Chairman of the Board, and shall have such other duties as may be prescribed from time to time by the Board. They shall be vested with all the powers and perform all the duties of the Chairman of the Board in the absence or disability of the Chairman of the Board. The President shall be the Chief Operating Officer of the Corporation. He shall see that all orders and resolutions of the Board are carried into effect and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board. As the Chief Operating Officer, he shall have general supervision and direction of the day-to-day operations of the Corporation subject to the Chief Executive Officer and Senior Executive Officers and shall have all the general powers and duties usually vested in the Chief Operating Officer of a corporation. He shall be vested with all the powers and perform all the duties of the Chairman of the Board in the absence or disability of both the Chairman of the Board and Vice Chairmen. 11 Section 6. The Vice Presidents. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 7. Secretary. The Secretary shall: (a) keep the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post-office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. 12 Section 8. Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of ARTICLE 5 of these By-Laws; and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 9. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the President or a Vice President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. Section 10. Delegation of Duties and Powers. In case of the absence or disability of any officer, or for any other reason that the Board may deem sufficient, the Board may delegate the powers and duties of such officer to any other officer, or to any Director, for the time being, PROVIDED a majority of the entire Board concurs therein. 13 Section 11. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation. ARTICLE 5: Indemnification. Section 1. Indemnification of Officers and Directors. Except to the extent prohibited by law, the corporation shall indemnify each person who was or is a party or is threatened to be made a party to, or is involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including without limitation, any action, suit or proceeding by or in the right of the corporation (a "Proceeding"), by reason of the fact that he or she (a) is or was a director or officer of the corporation, or (b) is or was a director or officer of the corporation and is or was serving at the request of the corporation any other corporation or any partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans) in any capacity, or (c) is or was an officer or director of any subsidiary of the corporation (except as set forth in Section 8 hereof), against all expenses, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such Proceeding. Except to the extent prohibited by law, the right of each officer and director to indemnification hereunder (x) shall pertain both as to action or omission to act in his or her official capacity and as to action or omission to act in another capacity while holding such office; (y) shall be a contract right and (z) shall include the right to be paid by the corporation the expenses incurred in any such Proceeding in advance of the final disposition of such Proceeding upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be ultimately determined that such director or officer is not entitled to indemnification hereunder or otherwise. 14 Section 2. Right of Claimant to Bring Suit. If the corporation receives a written claim under Section 1 or Section 5 which it has not paid in full within ninety days after it receives such claim, the claimant may at any time thereafter bring an action against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with (a) any Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation or (b) any Proceeding in which the claimant was successful on the merits or otherwise) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law (the "Act") for the corporation to indemnify the claimant for the amount claimed, but the burden of providing such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Act nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders ) that the claimant had not met such applicable standard of conduct shall be a defense to the action or create a presumption that the claimant had not met the applicable standard of conduct. 15 Section 3. Indemnification of Employees and Agents Except to the extent prohibited by law, the corporation may indemnify each person who was or is a party or is threatened to be made a party to, or is involved in, any Proceeding by reason of the fact that he or she (a) is or was an employee or agent of the corporation or (b) is or was an employee or agent of the corporation and is or was serving at the request of the corporation any other corporation or any partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans) in any capacity, or (c) is or was an employee or agent of any subsidiary of the corporation, against all expenses, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such Proceeding. The power of the corporation to indemnify each employee and agent hereunder (x) shall pertain both as to action in such person's official capacity and as to action in another capacity while holding such office and (y) shall include the power (but not the obligation) to pay the expenses incurred in any such Proceeding in advance of the final disposition of such Proceeding upon such terms and conditions, if any, as the Board of Directors of the corporation deems appropriate. Section 4. Procedure for Obtaining Indemnification Award. Except as set forth in Section 5, any indemnification under Sections 1 or 3 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she acted in good faith in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, and, in case of any Proceeding by or in the right of the corporation, that such person shall have not been adjudged to be liable to the corporation, and, in the case of any indemnification under Section 3, because the Board of Directors in its discretion deems such indemnification appropriate. The determination referred to in this Section shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such Proceeding or (b) if such a quorum is not obtainable or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (c) by the stockholders or (d) any court having jurisdiction. 16 Section 5. Indemnification of Expenses. To the extent that any person who is either (i) described in the first sentence of Section 1 hereof or (ii) an employee or agent of the corporation has been successful on the merits or otherwise in defense of any Proceeding, or in defense of any claim, issue or matter therein, he or she shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. Section 6. Non-Exclusivity of Rights. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 7. Insurance. The corporation may purchase and maintain insurance at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the corporation or of any subsidiary of the corporation, or is or was serving at the request of the corporation, any other corporation, or any partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans) in any capacity against any asserted loss, liability or expense, whether or not the corporation would be required, or permitted, to indemnify him or her against such loss, liability or expense under the provisions of the Act or this Article. 17 Section 8. Limitation of Indemnity with respect to Subsidiaries. The indemnity provided for in Section 1(c) in this Article for officers and directors of any subsidiary of the corporation is hereby expressly limited to actions or omissions to act from and after the later of the date the subsidiary becomes a wholly-owned subsidiary of the corporation or the date on which any person becomes an officer or director of such subsidiary. Section 9. Severability. Any invalidity, illegality or unenforceability of any provision of this Article in any jurisdiction shall not invalidate or render illegal or unenforceable the remaining provisions hereof in such jurisdiction and shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction. Section 10. Benefits of Article. The rights conferred on any person by this Article shall inure to the benefit of the heirs, executors, administrators and other legal representatives of such person. ARTICLE 6: Contracts, Loans, Checks and Deposits. Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. 18 Section 3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select. Section 5. Endorsements. No officer or agent of this corporation shall have power to endorse in the name of and on behalf of the corporation any note, bill of exchange, draft, check or other written instrument for the payment of money, other than notes issued for purposes of sale, save only for the purpose of collection of said instrument, except upon the express authority of the Board of Directors. ARTICLE 7: Certificates for Shares and Their Transfer. Section 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except and in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. 19 Section 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE 8: Fiscal Year. The fiscal year of the corporation shall begin on the first day of January and end on the thirty-first day of December in each year. ARTICLE 9: Dividends. The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE 10: Seal. The corporation shall have a common seal which shall include the words "STURM, RUGER & CO., INC." in a circle within which are the words and figures "Corporate Seal 1969 Delaware." ARTICLE 11: Waiver of Notice. Whenever any notice is required to be given to any shareholder or Director of the corporation under the provisions of these By-Laws or under the provisions of the Delaware Corporation Law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE 12: Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors provided that notice of the proposed action is contained in the written notice of such meeting, and by the shareholders at a meeting duly called and properly noticed for that purpose. 20 By-Laws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors provided that notice of the proposed action is contained in the written notice of such meeting, and by the shareholders at a meeting duly called and properly noticed for that purpose. 21 EX-13.1 3 y06776exv13w1.txt ANNUAL REPORT TO STOCKHOLDERS 9 EXHIBIT 13.1 Management's 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 precision investment castings. The Company's design and manufacturing operations are located in the United States. Substantially all sales are domestic. The Company is the only U.S. firearms manufacturer which offers products in all four industry product categories - rifles, shotguns, pistols, and revolvers. The Company's firearms are sold through a select number of independent wholesale distributors principally to the commercial sporting market. Investment castings manufactured are of titanium and steel alloys. Investment castings are sold either directly to or through manufacturers' representatives to companies in a wide variety of industries. Because many of the Company's 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 does not consider its overall firearms business to be predictably seasonal; however, sales of certain models of firearms are usually lower in the third quarter of the year. RESULTS OF OPERATIONS Year ended December 31, 2004, as compared to year ended December 31, 2003 Net sales of $145.6 million were achieved by the Company in 2004 representing a decrease of $2.3 million or 1.6% from net sales of $147.9 million in 2003. Firearms segment net sales decreased by $5.7 million or 4.4% to $124.9 million in 2004 from $130.6 million in the prior year. Firearms unit shipments for 2004 decreased 8.0% from 2003, as shipments of revolvers and pistols declined sharply. Shipments during the latter half of 2003, especially the fourth quarter, improved due in large part to the introduction of several new product offerings. A modest price increase and a change in mix from lower priced products to higher priced products resulted in the lesser decline in sales versus unit shipments. In 2003, revolver shipments benefited from the popularity of the new Single Six revolver in the .17 HMR caliber and the 50th Anniversary Ruger New Model Single Six revolver, which was available only in 2003. Similarly, pistol shipments in 2003 reflected strong demand for the MK4NRA, a ..22 caliber pistol commemorating William B. Ruger, the Company's founder. In 2004, the Company offered a sales incentive program for its distributors which allowed them to earn rebates of up to 1.5% if certain annual overall sales targets were achieved. This program replaced a similar sales incentive program in 2003. Casting segment net sales increased 19.0% to $20.7 million in 2004 from $17.4 million in 2003 as a result of higher unit volume. Increased sales were generated from existing customers as well as several new customers in 2004, in a variety of industries. Much of the increase in sales relates to investment castings sold to other firearms manufacturers. Cost of products sold for 2004 was $116.6 million compared to $113.2 million in 2003, representing an increase of 3.0%. This increase of $3.4 million was primarily attributable to increased production costs in the castings segment, increased unitary overhead expenses resulting from a reduction in production volume, and a charge related to certain firearms inventory, partially offset by decreased product liability costs. The Company incurred an expense of $1.9 million for the relocation of two titanium furnaces from its Arizona foundry to New Hampshire. The furnace relocation is nearly complete. In addition, the Company will incur further costs for the development of an additional foundry in New Hampshire in 2005. Gross profit as a percentage of net sales decreased to 19.9% in 2004 from 23.5% in 2003. This deterioration was caused by less efficient firearms production due to increased unitary overhead expenses resulting from lower rates of production, discounts offered on discontinued firearm models, increased production costs in the castings segment, and the aforementioned relocation expenses related to the two titanium furnaces, partially offset by decreased product liability expenses. Selling, general and administrative expenses increased 9.0% to $22.9 million in 2004 from $21.0 million in 2003 due primarily to additional firearms promotional and advertising expenses as well as increased personnel related expenses. Total other income decreased from $6.9 million in 2003 to $1.0 million in 2004. Included in total other income in 2003 was the pretax gain of $5.9 million from the sale of certain non-manufacturing real estate in Arizona, known as the Single Six Ranch. Included in total other income in 2004 was a $0.9 million gain from the sale of the property and building that housed the Company's Uni-Cast division prior to its sale in 2000, offset by non-manufacturing costs related to a New Hampshire facility acquired in 2003. The effective income tax rate of 40.1 % remained consistent in 2004 and 2003. As a result of the foregoing factors, consolidated net income in 2004 decreased to $4.3 million from $12.4 million in 2003, representing a decrease of $8.1 million or 65.3%. (STURM, RUGER & COMPANY, INC. LOGO) Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS Year ended December 31, 2003, as compared to year ended December 31, 2002 Net sales of $147.9 million were achieved by the Company in 2003 representing a decrease of $13.7 million or 8.5% from net sales of $161.6 million in 2002. Firearms segment net sales decreased by $9.2 million or 6.6% to $130.6 million in 2003 from $139.8 million in the prior year. Firearms unit shipments for 2003 decreased 2.4% from 2002, as shipments of all product families declined significantly in the first half of the year. Shipments during the latter half of 2003, especially the fourth quarter, improved due in large part to the introduction of several new product offerings. Revolver shipments benefited from the popularity of the new Single Six revolver in the .17 HMR caliber and the 50th Anniversary Ruger New Model Single Six revolver. Pistol shipments reflected strong demand for the MK4NRA, a .22 caliber pistol commemorating William B. Ruger, the Company's founder, and rifle shipments benefited from the popularity of the Ruger 40th Anniversary 10/22 Carbine. However, a change in mix from higher priced products to lower priced products resulted in the further decline in sales versus unit shipments. In 2003, the Company instituted a sales incentive program for its distributors which allowed them to earn rebates of up to 1.5% if certain annual overall sales targets were achieved. This program replaced a similar sales incentive program in 2002. From May 1, 2003 to September 30, 2003, the Company offered a consumer-driven sales incentive program for certain centerfire pistols. From August 1, 2002 through November 30, 2002, the Company conducted a similar consumer-driven sales incentive program for certain hunting rifles and revolvers. Casting segment net sales decreased 20.5% to $17.4 million in 2003 from $21.8 million in 2002 as a result of lower unit volume. Shipments of titanium golf clubheads to Karsten Manufacturing Corporation decreased $7.4 million in 2003 compared to 2002. Cost of products sold for 2003 was $113.2 million compared to $125.4 million in 2002, representing a decrease of 9.7%. This decrease of $12.2 million was primarily attributable to decreased sales in both the firearms and investment castings segments and decreased product liability expenses, partially offset by a charge related to certain obsolete firearms inventory. Gross profit as a percentage of net sales increased to 23.5% in 2003 from 22.4% in 2002. This improvement is due to improved margins in the castings segment compared to 2002 and decreased product liability costs partially offset by decreased sales in both segments and an unfavorable adjustment in the firearms segment for a charge related to certain obsolete firearms inventory. Selling, general and administrative expenses increased 1.7% to $21.0 million in 2003 from $20.7 million in 2002 due primarily to royalties paid to the NRA Foundation related to shipments of the MK4NRA commemorative pistol, as well as increased national advertising expenditures. In 2002, the Company recognized asset impairment charges of $3.3 million related to certain assets in the investment castings segment. Total other income increased from $1.9 million in 2002 to $6.9 million in 2003 primarily due to the pretax gain of $5.9 million from the sale of certain non-manufacturing real estate in Arizona, known as the Single Six Ranch. The Company's earnings on short-term investments declined in 2003 as a result of declining interest rates. The effective income tax rate of 40.1 % remained consistent in 2003 and 2002. As a result of the foregoing factors, net income in 2003 increased to $12.4 million from $8.5 million in 2002, representing an increase of $3.9 million or 46.0%. FINANCIAL CONDITION Operations At December 31, 2004, the Company had cash, cash equivalents and short-term investments of $33.3 million, working capital of $90.4 million and a current ratio of 5.7 to 1. Cash provided by operating activities was $1.3 million, $14.7 million, and $9.9 million in 2004, 2003, and 2002, respectively. The decrease in cash provided in 2004 is principally the result of a reduction in net income and increases in trade receivables, prepaid expenses and other assets, and inventories compared with reductions in trade receivables, prepaid expenses and other assets, and inventories in 2003. The fluctuations in prepaid and other assets reflects a prepaid income tax asset at December 31, 2004, and the increase in trade receivables in 2004 is attributable to anticipated timing of certain customer payments, and the increase in inventories in 2004 resulted from decreased firearm sales. Until November 30, 2004, the Company followed a common industry practice of offering a "dating plan" to its firearms customers on selected products, which allowed the customer to buy the products commencing in December, the start of the Company's marketing year, and pay for them on extended terms. Discounts were offered for early payment. The dating plan provided a revolving payment plan under which payments for all shipments made during the period December through February were made by April 30. Shipments made in subsequent months were paid for within a maximum of 120 days. On December 1, 2004, the Company modified the payment terms on these selected products whereby payment is now due 45 days after shipment. Discounts are offered for early payment. Dating plan receivable balances were $6.3 million and $8.8 million at December 31, 2004 and 2003, respectively. 11 The Company has reserved the right to discontinue the dating plan at any time and has been able to finance this plan from internally generated funds provided by operating activities. The Company purchases its various raw materials from a number of suppliers. There is, however, a limited supply of these materials in the marketplace at any given time which can cause the purchase prices to vary based upon numerous market factors. The Company believes that it has adequate quantities of raw materials in inventory to provide ample time to locate and obtain additional items at a reasonable cost without interruption of its manufacturing operations. However, if market conditions result in a significant prolonged inflation of certain prices, the Company's results could be adversely affected. In conjunction with the sale of its Uni-Cast division in June 2000, the Company extended credit to the purchaser in the form of a note and a line of credit, both of which are collateralized by certain of the assets of Uni-Cast. In July 2002, the Company established an additional collateralized line of credit for the purchaser and, as of December 31, 2004, the total amount due from the purchaser was $1.4 million, which is scheduled to be paid in 2005. The Company purchases aluminum castings used in the manufacture of certain models of pistols exclusively from Uni-Cast. Investing and Financing Capital expenditures during the past three years averaged $4.7 million per year. In 2005, the Company expects to spend approximately $8 million on capital expenditures to continue to upgrade and modernize equipment at each of its manufacturing facilities. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash and short-term investments. In 2004 the Company paid dividends of $16.1 million. This amount reflects a quarterly dividend of $.20 per share paid in March and June 2004, and a quarterly dividend of $0.10 per share paid in September and December 2004. On January 24, 2005, the Company declared a quarterly dividend of $.10 per share payable on March 15, 2005. Future dividends depend on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company's need for funds. Historically, the Company has not required external financing. Based on its cash flow and unencumbered assets, the Company believes it has the ability to raise substantial amounts of short-term or long-term debt. The Company does not anticipate a need for significant external financing in 2005. CONTRACTUAL OBLIGATIONS The following table summarizes the Company's significant contractual obligations at December 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on the Company's balance sheet as current liabilities at December 31, 2004. "Purchase Obligations" as used in the below table includes all agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Certain of the Company's purchase orders or contracts for the purchase of raw materials and other goods and services that may not necessarily be enforceable or legally binding on the Company, are also
PAYMENT DUE BY PERIOD (IN THOUSANDS) ---------------------------------------------------------------------- CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN 5 YEARS - ----------------------- ------- ---------------- --------- --------- ----------------- Long-Term Debt Obligations -- -- -- -- -- Capital Lease Obligations -- -- -- -- -- Operating Lease Obligations -- -- -- -- -- Purchase Obligations $18,627 $18,299 $328 -- -- Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP -- -- -- -- -- ------- ------- ---- --- --- TOTAL $18,627 $18,299 $328 -- -- ======= ======= ==== === ===
(STURM, RUGER & COMPANY, INC. LOGO) Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) included in "Purchase Obligations" in the table. Certain of the Company's purchase orders or contracts therefore included in the table may represent authorizations to purchase rather than legally binding agreements. The Company expects to fund all of these commitments with cash flows from operations and current cash and short-term investments. The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. 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" has not had a significant effect on the Company's sales of firearms, nor does it anticipate any impact on sales in the future. The "Crime Bill" took effect on September 13, 1994, but none of the Company's products were banned as so-called "assault weapons." To the contrary, all the Company's then-manufactured commercially-sold long guns were exempted by name as "legitimate sporting firearms." 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 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 Company is a defendant in numerous lawsuits involving its products and is aware of certain other such claims. The Company has expended significant amounts of financial resources and management time in connection with product liability litigation. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom were due to negligence or misuse of the firearms by third-parties or the claimant, and that there should be no recovery against the Company. Defenses further exist to the suits brought by cities, municipalities, counties, and a state attorney general based, among other reasons, on established state law precluding recovery by municipalities for essential government services, the remoteness of the claims, the types of damages sought to be recovered, and limitations on the extraterritorial authority which may be exerted by a city, municipality, county or state under state and federal law, including State and Federal Constitutions. The only case against the Company alleging liability for criminal shootings by third-parties to ever be permitted to go before a 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 manufacturer's 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 Spitzer's 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. 13 Of the lawsuits brought by municipalities or a state Attorney General, nineteen have been dismissed. Sixteen of those cases are 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 plaintiff's petition for leave to appeal the Intermediate Appellate Court's 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; and St. Louis - Missouri Supreme Court denied plaintiff's motion to appeal Missouri Appellate Court's affirmance of dismissal. The dismissal of the Washington, D.C. 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 city's "strict liability" law. On October 19, 2004, the D.C. Court of Appeals vacated the court's judgment, which dismissed the city's claim against firearms manufacturers but let stand certain individuals' claims against the manufacturers of firearms allegedly used in criminal assaults against plaintiffs under the Washington, D.C. "Strict Liability Act," subject to proof of causation. The court scheduled a rehearing of the matter en banc by the full Court of Appeals to be heard in 2005. On March 7, 2003, the consolidated California Cities case involving nine cities and three counties was dismissed as to all manufacturer defendants, and plaintiffs appealed on June 9, 2003. The dismissal was affirmed by the California Appeals Court on February 10, 2005. On November 18, 2004, in the Chicago case, the Illinois Supreme Court affirmed the trial court's dismissal. The court held that plaintiffs failed to state a claim for public nuisance. At the same time the Chicago lawsuit was dismissed, the court also dismissed the previously reported Young lawsuit, in which plaintiffs sued under the same "public nuisance" theory. Plaintiffs in the Chicago lawsuit filed a motion for reconsideration on December 9, 2004, which was denied on January 24, 2005. 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. Cleveland and New York City are open cases and the New York City case is presently scheduled to begin trial in September, 2005. In the NAACP case, on May 14, 2003, an advisory jury returned a verdict rejecting the NAACP's 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 NAACP's motion to dismiss the defendants' appeal of Judge Weinstein's order denying defendants' motion to strike his dicta made in his order dismissing the NAACP's 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, and similar federal legislation has been introduced in the U.S. Congress. It passed the House by a 2-to-1 bipartisan majority and had over 54 co-sponsors in the Senate. It was considered by the Senate in February, 2004, but failed to gain final passage after it was encumbered with numerous non-germane amendments. It is uncertain when it may be reconsidered by the new session in Congress. 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 such proceedings and orders will not have a material adverse effect on its business. The valuation of the future defined benefit pension obligations at December 31, 2004 indicated that these plans were underfunded. While this estimation has no bearing on the actual funded status of the pension plans, it results in the recognition of a cumulative other comprehensive loss of $10.3 million and $8.6 million at December 31, 2004 and 2003, respectively. The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carry back against taxes previously paid. Inflation's effect on the Company's operations is most immediately felt in cost of products sold because the Company values inventory on the LIFO basis. (STURM, RUGER & COMPANY, INC. LOGO) Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Generally under this method, the cost of products sold reported in the financial statements approximates current costs, and thus, reduces distortion in reported income. The use of historical cost depreciation has a beneficial effect on cost of products sold. The Company has been affected by inflation in line with the general economy. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses recognized and incurred during the reporting period then ended. The Company bases our estimates on prior experience, facts and circumstances and other assumptions, including those reviewed with actuarial consultants and independent counsel, when applicable, that are believed to be reasonable. However, actual results may differ from these estimates. The Company believes the determination of our product liability accrual is a critical accounting policy. The Company's management reviews every lawsuit and claim at the outset and is in contact with independent and corporate counsel on an ongoing basis. The provision for product liability claims is based upon many factors, which vary for each case. These factors include the type of claim, nature and extent of injuries, historical settlement ranges, jurisdiction where filed, and advice of counsel. An accrual is established for each lawsuit and claim, when appropriate, based on the nature of each such lawsuit or claim. Amounts are charged to product liability expense in the period in which the Company becomes aware that a claim or, in some instances a threat of claim, has been made when potential losses or costs of defense can be reasonably estimated. Such amounts are determined based on the Company's experience in defending similar claims. Occasionally, charges are made for claims made in prior periods because the cumulative actual costs incurred for that claim, or reasonably expected to be incurred in the future, exceed amounts already provided. Likewise credits may be taken if cumulative actual costs incurred for that claim, or reasonably expected to be incurred in the future, are less than amounts previously provided. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with independent and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company's financial results for a particular period. RECENT ACCOUNTING PRONOUNCEMENTS In November, 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs -- an amendment of ARB No. 43, Chapter 4" which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS 151 requires that these costs be recognized as current period charges regardless of whether they are abnormal. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company has not completed its evaluation of the impact that the adoption of this statement will have on its financial position or results of operations. In December, 2004, the FASB issued SFAS No. 123R, "Share-Based Payment", which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS 123R is effective for interim or annual reporting periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material effect on its financial position or results of operations. 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 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. 15 Balance Sheets (Dollars in thousands, except per share data)
December 31, 2004 2003 - ------------ --------- --------- ASSETS Current Assets Cash and cash equivalents .............................. $ 4,841 $ 3446 Short-term investments ................................. 28,430 50,026 Trade receivables, less allowances for doubtful accounts ($373 and $441) and discounts ($555 and $772) ....... 16,082 12,814 Inventories: Finished products ................................... 13,289 15,243 Materials and products in process ................... 36,230 33,286 --------- --------- 49,519 48,529 Deferred income taxes .................................. 6,445 7,284 Prepaid expenses and other current assets .............. 4,383 2,455 --------- --------- Total Current Assets ................................... 109,700 124,554 Property, Plant, and Equipment Land and improvements ............................... 1,652 1,801 Buildings and improvements .......................... 31,329 32,094 Machinery and equipment ............................. 99,220 94,787 Dies and tools ...................................... 28,233 27,007 --------- --------- 160,434 155,689 Allowances for depreciation ......................... (132,860) (128,525) --------- --------- 27,574 27,164 Deferred income taxes .................................. 1,178 1,108 Other assets ........................................... 8,489 10,047 --------- --------- Total Assets ........................................... $ 146,941 $ 162,873 ========= =========
December 31, 2004 2003 - ------------ -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable and accrued expenses ............. $ 5,281 $ 4,386 Product liability ....................................... 1,968 4,000 Employee compensation and benefits ...................... 5,868 6,177 Workers' compensation ................................... 5,387 6,057 Income taxes ............................................ 768 1,219 -------- -------- Total Current Liabilities ............................... 19,272 21,839 Accrued pension liability ............................... 6,337 4,729 Product liability ....................................... 1,164 2,665 Contingent liabilities (Note 5) ......................... -- -- Stockholders' Equity Common stock, non-voting, par value $1: Authorized shares - 50,000; none issued .............. -- -- Common stock, par value $1: Authorized shares - 40,000,000 Issued and outstanding shares-26,910,700 ............. 26,911 26,911 Additional paid-in capital .............................. 2,508 2,508 Retained earnings ....................................... 101,024 112,866 Accumulated other comprehensive income (loss) ........... (10,275) (8,645) -------- -------- Total Stockholders' Equity .............................. 120,168 133,640 -------- -------- Total Liabilities and Stockholders' Equity .............. $146,941 $162,873 ======== ========
See accompanying notes to financial statements (STURM, RUGER & COMPANY, INC. LOGO) Statements of Income (In thousands, except per share data)
Year ended December 31, 2004 2003 2002 - ----------------------- -------- -------- -------- Net firearms sales ............................ $124,924 $130,558 $139,762 Net castings sales ............................ 20,700 17,359 21,825 -------- -------- -------- Total net sales ............................... 145,624 147,917 161,587 Cost of products sold ......................... 116,591 113,189 125,376 -------- -------- -------- Gross profit .................................. 29,033 34,728 36,211 Expenses: Selling .................................... 16,700 15,189 14,777 General and administrative ................. 6,175 5,827 5,885 Impairment of long-lived assets ............ -- -- 3,311 -------- -------- -------- 22,875 21,016 23,973 -------- -------- -------- Operating profit .............................. 6,158 13,712 12,238 Gain on sale of real estate ................... 874 5,922 -- Other income-net .............................. 153 1,007 1,897 -------- -------- -------- Total other income ............................ 1,027 6,929 1,897 -------- -------- -------- Income before income taxes .................... $ 7,185 $ 20,641 14,135 Income taxes .................................. $ 2,881 $ 8,277 $ 5,668 -------- -------- -------- Net Income .................................... $ 4,304 $ 12,364 $ 8,467 ======== ======== ======== Basic and Diluted Earnings Per Share .......... $ 0.16 $ 0.46 $ 0.31 ======== ======== ======== Cash Dividends Per Share ...................... $ 0.60 $ 0.80 $ 0.80 ======== ======== ========
See accompanying notes to financial statements. Statements of Stockholders' Equity (Dollars in thousands)
Accumulated Additional Other Common Paid-in Retained Comprehensive Stock Capital Earnings Income (loss) Total ------- ---------- -------- ------------- -------- Balance at December 31, 2001 ............. $26,911 $2,492 $135,093 $ (156) $164,340 Net income ............................ 8,467 8,467 Additional minimum pension liability, net of deferred taxes of $5,287 .... (7,929) (7,929) -------- Comprehensive income .................. 538 -------- Stock options compensation ............ 16 16 Cash dividends declared and paid ...... (21,529) (21,529) Unpaid dividends declared ............. (5,382) (5,382) ------- ------ -------- -------- -------- Balance at December 31, 2002 ............. 26,911 2,508 116,649 (8,085) 137,983 Net income ............................ 12,364 12,364 Additional minimum pension liability, net of deferred taxes of $373 ...... (560) (560) -------- Comprehensive income .................. 11,804 -------- Cash dividends declared and paid ...... (16,147) (16,147) ------- ------ -------- -------- -------- Balance at December 31, 2003 ............. 26,911 2,508 112,866 (8,645) 133,640 Net income ............................ 4,304 4,304 Additional minimum pension liability, net of deferred taxes of $1,086 .... (1,630) (1,630) -------- Comprehensive income .................. 2,674 -------- Cash dividends declared and paid ...... (16,146) (16,146) ------- ------ -------- -------- -------- BALANCE AT DECEMBER 31, 2004 ............. $26,911 $2,508 $101,024 $(10,275) $120,168 ======= ====== ======== ======== ========
See accompanying notes to financial statements. 17 Statements of Cash Flows (In thousands)
Year ended December 31, 2004 2003 2002 - ----------------------- --------- --------- --------- OPERATING ACTIVITIES Net income ........................................... $ 4,304 $ 12,364 $ 8,467 Adjustments to reconcile net income to cash provided by operating activities: Depreciation ...................................... 5,827 5,923 7,490 Impairment of long-lived assets ................... -- -- 3,311 Gain on sale of real estate ....................... (874) (5,922) (209) Deferred income taxes ............................. 1,855 2,674 1,533 Changes in operating assets and liabilities: Trade receivables .............................. (3,268) 742 1,095 Inventories .................................... (990) 3,099 (1,835) Trade accounts payable and other liabilities ... (80) (549) (1,443) Product liability .............................. (3,533) (3,568) (2,229) Prepaid expenses and other assets .............. (1,479) (386) (6,418) Income taxes ................................... (451) 337 178 --------- --------- --------- Cash provided by operating activities ............. 1,311 14,714 9,940 INVESTING ACTIVITIES Property, plant, and equipment additions ............. (6,945) (3,996) (3,155) Purchases of short-term investments .................. (123,098) (148,620) (145,392) Proceeds from sales or maturities of short-term investments ............................ 144,693 148,370 159,574 Net proceeds from sale of real estate ................ 1,580 10,909 322 --------- --------- --------- Cash provided by investing activities ............. 16,230 6,663 11,349 FINANCING ACTIVITIES Dividends paid ....................................... (16,146) (21,529) (21,529) --------- --------- --------- Cash used by financing activities ................. (16,146) (21,529) (21,529) --------- --------- --------- Increase (Decrease) in cash and cash equivalents ........ 1,395 (152) (240) Cash and cash equivalents at beginning of year .......... 3,446 3,598 3,838 --------- --------- --------- Cash and Cash Equivalents at End of Year ................ $ 4,841 $ 3,446 $ 3,598 ========= ========= =========
See accompanying notes to financial statements. (STURM, RUGER & COMPANY, INC. LOGO) Notes to Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the design, manufacture, and sale of firearms and precision investment castings. The Company's design and manufacturing operations are located in the United States. Substantially all sales are domestic. The Company's firearms are sold through a select number of independent wholesale distributors to the sporting and law enforcement markets. Investment castings are sold either directly to or through manufacturers' representatives to companies in a wide variety of industries. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The financial statements have been prepared from the Company's books and records and include all of the Company's accounts. All significant intercompany accounts and transactions have been eliminated. During 2003, two subsidiaries of the Company were merged into the Company. Certain prior year balances may have been reclassified to conform with current year presentation. REVENUE RECOGNITION Revenue is recognized, net of any estimated discounts, sales incentives, or rebates, when product is shipped and the customer takes ownership and assumes risk of loss. CASH EQUIVALENTS The Company considers interest-bearing deposits with financial institutions with remaining maturities of three months or less at the time of acquisition to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments are recorded at cost plus accrued interest, which approximates market, and are principally United States Treasury instruments, all maturing within one year. The income from short-term investments is included in other income - net. The Company intends to hold these investments until maturity. INVENTORIES Inventories are stated at the lower of cost, principally determined by the last-in, first-out (LIFO) method, or market. If inventories had been valued using the first-in, first-out method, inventory values would have been higher by approximately $54.5 million and $49.4 million at December 31, 2004 and 2003, respectively. During 2003, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases, the effect of which decreased costs of products sold by approximately $0.2 million. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated on the basis of cost. Depreciation is computed using the straight-line and declining balance methods predominately over 15, 10, and 3 years for buildings, machinery and equipment, and tools and dies, respectively. Long-lived assets are reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144. In performing this review, the carrying value of the assets is compared to the projected undiscounted cash flows to be generated from the assets. If the sum of the undiscounted expected future cash flows is less than the carrying value of the assets, the assets are considered to be impaired. Impairment losses are measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. When fair value estimates are not available, the Company estimates fair value using the estimated future cash flows discounted at a rate commensurate with the risks associated with the recovery of the assets. INCOME TAXES Income taxes are accounted for using the asset and liability method in accordance with SFAS No. 109. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of the Company's assets and liabilities. PRODUCT LIABILITY The Company provides for product liability claims including estimated legal costs to be incurred defending such claims. The provision for product liability claims is charged to cost of products sold. 19 ADVERTISING COSTS The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 2004, 2003, and 2002, were $2.5 million, $2.3 million, and $2.2 million, respectively. SHIPPING COSTS Costs incurred related to the shipment of products are included in selling expense. Such costs totaled $1.7 million, $1.7 million, and $1.6 million in 2004, 2003, and 2002, respectively. STOCK OPTIONS The Company accounts for employee stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Had compensation expense for the Plans been determined in accordance with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share data):
2004 2003 2002 ------ ------- ------ Net Income As Reported.................................................. $4,304 $12,364 $8,467 Add: Recognized stock-based employee compensation, net of tax... -- -- 10 Deduct: Employee compensation expense determined under fair value method, net tax................................... (28) (387) (387) ------ ------- ------ Pro forma $4,276 $11,977 $8,090 ------ ------- ------ Earnings per share (Basic and Diluted): As Reported..................................................... $ 0.16 $ 0.46 $ 0.31 Pro forma....................................................... $ 0.16 $ 0.44 $ 0.30 ------ ------- ------
EARNINGS PER SHARE Basic earnings per share is based upon the weighted-average number of shares of Common Stock outstanding during the year, which was 26,910,700 in 2004, 2003, and 2002. Diluted earnings per share reflect the impact of options outstanding using the treasury stock method. This results in diluted weighted-average shares outstanding of 26,930,000 in 2004, 26,919,400 in 2003, and 27,002,200 in 2002. RECENT ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs -- an amendment of ARB No. 43, Chapter 4" which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS 151 requires that these costs be recognized as current period charges regardless of whether they are abnormal. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company has not completed its evaluation of the impact that the adoption of this statement will have on its financial position or results of operations. In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment", which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS 123R is effective for interim or annual reporting periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material effect on its financial position or results of operations. 2. INCOME TAXES The Federal and state income tax provision consisted of the following (in thousands):
Year ended December 31, 2004 2003 2002 - ----------------------- ------------------ ------------------ ------------------ CURRENT DEFERRED Current Deferred Current Deferred ------- -------- ------- -------- ------- -------- Federal...................... $ 646 $1,556 $4,286 $2,286 $3,190 $1,303 State........................ 380 299 1,317 388 945 230 ------ ------ ------ ------ ------ ------ $1,026 $1,855 $5,603 $2,674 $4,135 $1,533 ------ ------ ------ ------ ------ ------
(STURM, RUGER & COMPANY, INC. LOGO) Notes to Financial Statements (Continued) Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31, 2004 2003 - ------------ ------- ------- Deferred tax assets: Product liability ....................................... $ 1,256 $ 2,673 Employee compensation and benefits ...................... 3,788 4,025 Allowances for doubtful accounts and discounts .......... 507 677 Inventories ............................................. 1,571 1,248 Additional minimum pension liability .................... 6,850 5,764 Other ................................................... 1,511 1,145 ------- ------- Total deferred tax assets .................................. 15,483 15,532 ======= ======= Deferred tax liabilities: Depreciation ............................................ 1,475 1,416 Pension plans ........................................... 6,080 5,724 Other ................................................... 305 -- ------- ------- Total deferred tax liabilities ............................. 7,860 7,140 ------- ------- Net deferred tax assets .................................... $ 7,623 $ 8,392 ======= =======
In accordance with the provisions of SFAS No. 87, "Employers' Accounting for Pension Plan Costs," changes in deferred tax assets relating to the additional minimum pension liability are not charged to expense and are therefore not included in the deferred tax provision, instead they are charged to accumulated other comprehensive income (loss). The effective income tax rate varied from the statutory Federal income tax rate as follows:
Year ended December 31, 2004 2003 2002 - ----------------------- ---- ---- ---- Statutory Federal income tax rate ......................... 35.0% 35.0% 35.0% State income taxes, net of Federal tax benefit ............ 6.2 5.4 5.4 Other items ............................................... (1.1) (O.3) (0.3) ---- ---- ---- Effective income tax rate ................................. 40.1% 40.1% 40.1% ==== ==== ====
The Company made income tax payments of approximately $2.6 million, $2.8 million, and $6.4 million, during 2004, 2003, and 2002, respectively. The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carry back against taxes previously paid. 3. PENSION PLANS The Company and its subsidiaries sponsor two defined benefit pension plans which cover substantially all employees. A third defined benefit pension plan is non-qualified and covers certain executive officers of the Company. The cost of these defined benefit plans and the balances of plan assets and obligations are as follows (in thousands):
Change in Benefit Obligation 2003 2004 - ---------------------------- ------- ------- Benefit obligation at January 1 ............................ $53,598 $47,788 Service cost ............................................... 1,563 1,507 Interest cost .............................................. 3,187 3,011 Actuarial loss ............................................. 2,560 3,033 Benefits paid .............................................. (1,794) (1,741) ------- ------- Benefit obligation at December 31 .......................... 59,114 53,598 ======= ======= Change in Plan Assets Fair value of plan assets at January 1 ..................... 46,440 38,806 Actual return on plan assets ............................... 2,565 4,549 Employer contributions ..................................... 3,132 4,826 Benefits paid .............................................. (1,794) (1,741) ------- ------- Fair value of plan assets at December 31 ................... 50,343 46,440 ------- ------- Funded status .............................................. (8,771) (7,158) Unrecognized net actuarial loss ............................ 19,548 16,679 Unrecognized prior service cost ............................ 1,741 2,063 Unrecognized transition obligation (asset) ................. 11 22 ------- ------- Net amount recognized ...................................... $12,529 $11,606 ======= =======
Weighted Average Assumptions for the years ended December 31, 2004 2003 - ------------------------------------ ------- ------- Discount rate .............................................. 6.0% 6.5% Expected long-term return on plan assets ................... 8.0% 8.0% Rate of compensation increases ............................. 5.0% 5.0% Components of Net Periodic Pension Cost Service cost ............................................... $ 1,563 $ 1,507 Interest cost .............................................. 3,187 3,011 Expected return on assets .................................. (3,743) (3,231) Amortization of unrecognized transition asset .............. 11 11 Recognized gains ........................................... 870 770 Prior service cost recognized .............................. 320 566 ------- ------- Net periodic pension cost .................................. $ 2,208 $ 2,634 ======= =======
21
Amounts Recognized on the Balance Sheet 2004 2003 - --------------------------------------- ------- ------- Accrued benefit liability .................................. $(6,337) $(4,729) Intangible asset ........................................... 1,741 1,926 Accumulated other comprehensive income, net of tax ......... 10,275 8,645 Deferred tax asset ......................................... 6,850 5,764 ------- ------- $12,529 $11,606 ======= ======= Weighted Average Assumptions as of December 31, Discount rate .............................................. 5.75% 6.00% Rate of compensation increases ............................. 5.00% 5.00%
Information for Pension Plans with an Accumulated Benefit Obligation in excess of plan assets 2004 2003 - ------------------------------------------------------- ------- ------- Projected benefit obligation ............................... $59,114 $53,598 Accumulated benefit obligation ............................. $56,680 $51,169 Fair value of plan assets .................................. $50,343 $46,440 Pension Weighted Average Asset Allocations as of December 31, Debt securities ............................................ 66% 70% Equity securities .......................................... 28% 27% Money market funds ......................................... 6% 3% ------- ------- 100% 100% ======= =======
The estimated future benefit payments for the defined benefit plans, which reflect future service as appropriate, for each of the next five years and the total amount for years six through ten, are as follows: 2005-$2.1 million, 2006-$2.2 million, 2007-$2.3 million, 2008-$2.6 million, 2009-$2.9 million and for the five year period ending 2014-$18.3 million. The accumulated benefit obligation for all the defined benefit pension plans was $56.7 million and $51.2 million as of December 31,2004 and 2003, respectively. Intangible assets are included in other assets in the balance sheet. The measurement dates of the assets and liabilities of all plans presented for 2004 and 2003 were December 31,2004 and December 31, 2003, respectively. The Company expects to contribute $2.7 million in the form of cash payments to its pension plans in 2005. None of this contribution is required by funding regulations or laws. The investment objective is to produce income and long-term appreciation through a target asset allocation of 75% debt securities and other fixed income investments including cash and short-term instruments, and 25% of equity investments, to provide for the current and future benefit payments of the plans. The pension plans are not invested in the common stock of the Company. The Company determines the expected return on plan assets based on the target asset allocations. In addition, the historical returns of the plan assets are also considered in arriving at the expected rate of return. The Company also sponsors two defined contribution plans which cover substantially all of its hourly and salaried employees and a non-qualified defined contribution plan which covers certain of its salaried employees. Expenses related to the defined contribution plans were $0.7 million, $1.5 million, and $1.6 million in 2004, 2003, and 2002, respectively. In accordance with SFAS No. 87, "Employers' Accounting for Pension Costs," the Company recorded an additional minimum pension liability, net of tax which decreased comprehensive income by $1.6 million, $0.6 million, and $7.9 million in 2004, 2003, and 2002, respectively. 4. STOCK INCENTIVE AND BONUS PLANS In 1998, the Company adopted, and in May 1999 the shareholders approved, the 1998 Stock Incentive Plan (the "1998 Plan") under which employees may be granted options to purchase shares of the Company's Common Stock and stock appreciation rights. The Company has reserved 2,000,000 shares for issuance under the 1998 Plan. These options have an exercise price equal to the fair market value of the shares of the Company at the date of grant, become vested ratably over five years, and expire ten years from the date of grant. To date, no stock appreciation rights have been granted. On December 18, 2000, the Company adopted, and in May 2001 the shareholders approved, the 2001 Stock Option Plan for Non-Employee Directors (the "2001 Plan") under which non-employee directors are granted options to purchase shares of the Company's authorized but unissued stock. The Company has reserved 200,000 shares for issuance under the 2001 Plan. Options granted under the 2001 Plan have an exercise price equal to the fair market value of the shares of the Company at the date of grant and expire ten years from the date of grant. Twenty-five percent of the options vest immediately and the remaining options vest ratably over three years. (STURM, RUGER & COMPANY, INC. LOGO) Notes to Financial Statements (Continued) The following table summarizes the activity of the Plans:
Weighted Average Shares Exercise Price --------- ---------------- Outstanding at December 31, 2001 ................ 1,490,000 $11.65 Granted....................................... -- -- Exercised..................................... -- -- Canceled...................................... (160,000) 11.94 --------- ------ Outstanding at December 31, 2002................. 1,330,000 11.62 Granted....................................... -- -- Exercised..................................... -- -- Canceled...................................... (235,000) 11.94 --------- ------ Outstanding at December 31 2003.................. 1,095,000 11.55 Granted....................................... -- -- Exercised..................................... -- -- Canceled...................................... (20,000) 9.88 --------- ------ Outstanding at December 31, 2004................. 1,075,000 $11.58 ========= ======
There were 1,027,000 exercisable options at December 31, 2004, with a weighted average exercise price of $11.65 and an average contractual life remaining of 4.3 years. At December 31, 2004, an aggregate of 1,125,000 shares remain available for grant under the Plans. The weighted average fair value of options granted under the Plans was estimated at $1.87 on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions in 2001: dividend yield of 8.0%, expected volatility of 34.3%, risk free rate of return of 2.0%, and expected lives of 5 years. The estimated fair value of options granted is subject to the assumptions made and if the assumptions changed, the estimated fair value amounts could be significantly different. The Company's Stock Bonus Plan, as amended, covers its key employees excluding members of the Ruger family. Pursuant to the Plan, awards are made of Common Stock and a cash bonus approximating the estimated income tax on the awards. At December 31, 2004, 502,000 shares of Common Stock were reserved for future awards. 5. CONTINGENT LIABILITIES As of December 31, 2004, the Company is a defendant in approximately 9 lawsuits involving its products and is aware of certain other such claims. These lawsuits and claims fall into two categories: (i) Those that claim damages from the Company related to allegedly defective product design which stem from a specific incident. These lawsuits and claims are based principally on the theory of "strict liability" but also may be based on negligence, breach of warranty, and other legal theories, and (ii) Those brought by cities, municipalities, counties, associations, individuals and one state Attorney General 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. 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 Company's products. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom were due to negligence or misuse of the firearms by third-parties or the claimant, and that there should be no recovery against the Company. Defenses further exist to the suits brought by cities, municipalities, counties, and the Attorney General based, among other reasons, on established state law precluding recovery by municipalities for essential government services, the remoteness of the claims, the types of damages sought to be recovered, and limitations on the extraterritorial authority which may be exerted by a city, municipality, county or state under state and federal law, including State and Federal Constitutions. 23 Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience. Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs. In most cases, an accrual is established only for estimated legal defense costs. Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future. Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims; i.e., an accrual is made for reasonably anticipated possible liability and claims-handling expenses on an ongoing basis. A range of reasonably possible loss relating to unfavorable outcomes cannot be made. However, in the product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $435 million and $436 million at December 31, 2004 and 2003, respectively, are set forth as an indication of possible maximum liability that the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal. Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims. Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case. A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with independent and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company's financial results for a particular period. 6. ASSET IMPAIRMENT CHARGES In 2002 the Company recognized asset impairment charges of $3.3 million related to certain assets in the investment castings segment. As a result of the significant reduction in sales and substantial losses incurred by this segment, in 2002 the Company evaluated the recoverability of certain assets and wrote off $1.0 million of a building and $2.3 million of machinery and equipment. The Company was required to reduce the carrying value of the assets to fair value and recognized asset impairment charges, because the carrying value of the affected assets exceeded the projected future undiscounted cash flows. The fair value of the building was based on available market data and the fair value of the machinery and equipment was based on estimated discounted cash flows from the assets. A similar evaluation of the recoverability of other certain assets in the investment castings segment was performed in 2003 and 2004. These evaluations did not result in the recognition of an additional asset impairment charge. 7. RELATED PARTY TRANSACTIONS In 2004, 2003, and 2002, the Company paid Newport Mills, of which William B. Ruger, Jr., Chairman and Chief Executive Officer of the Company, is the sole proprietor, $243,000, $243,000, and $222,750, respectively, for storage rental and office space. On July 17, 2003, the Company sold two automobiles to Mr. Ruger, Jr. for $60,000. 8. OPERATING SEGMENT INFORMATION The Company has two reportable operating segments: firearms and investment castings. The firearms segment manufactures and sells rifles, pistols, revolvers, and shotguns principally to a select number of licensed independent wholesale distributors primarily located in the United States. The investment castings segment consists of two operating divisions which manufacture and sell titanium and steel investment castings. Corporate segment income relates to interest income on short-term investments, the sale of non-operating assets, and other non-operating activities. Corporate segment assets consist of cash and short-term investments and other non-operating assets. The Company evaluates performance and allocates resources, in part, based on profit or loss before taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1). Intersegment sales are recorded at the Company's cost plus a fixed profit percentage. The $3.3 million asset impairment charges recorded in 2002 are included in the investment castings segment. The Company's assets are located entirely in the United States and export sales are insignificant. Revenues from one customer in the firearms segment totaled $16.0 million in 2004. Revenues from another customer in the firearms segment totaled $15.7 million and $15.5 million in 2004 and 2003, respectively. Revenues from a third customer in the firearms segment totaled $15.1 million, $24.8 million, and $24.0 million in 2004, 2003, and 2002, respectively. (STURM, RUGER & COMPANY, INC. LOGO) Notes to Financial Statements (Continued)
Year ended December 31, (in thousands) 2004 2003 2002 - -------------------------------------- -------- -------- --------- Net Sales Firearms ........................... $124,924 $130,558 $139,762 Castings Unaffiliated ..................... 20,700 17,359 21,825 Intersegment .............................. 14,363 15,653 17,679 -------- -------- -------- 35,063 33,012 39,504 Eliminations .............................. (14,363) (15,653) (17,679) -------- -------- -------- $145,624 $147,917 $161,587 -------- -------- -------- Income (Loss) Before Income Taxes Firearms .................................. $ 10,027 $ 18,392 $ 23,673 Castings .................................. (4,019) (4,439) (11,230) Corporate ................................. 1,177 6,688 1,692 -------- -------- -------- $ 7,185 $ 20,641 $ 14,135 -------- -------- -------- Identifiable Assets Firearms .................................. $ 77,049 $ 72,600 $ 79,301 Castings .................................. 19,581 17,939 19,394 Corporate ................................. 50,311 72,334 85,263 -------- -------- -------- $146,941 $162,873 $183,958 -------- -------- -------- Depreciation Firearms .................................. $ 3,220 3,301 3,448 Castings .................................. 2,607 2,622 4,042 -------- -------- -------- $ 5,827 $ 5,923 $ 7,490 -------- -------- -------- Capital Expenditures Firearms .................................. $ 4,403 $ 3,215 $ 2,767 Castings .................................. 2,542 781 388 -------- -------- -------- $ 6,945 $ 3,996 $ 3,155 -------- -------- --------
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 2004 (in thousands, except per share data):
THREE MONTHS ENDED -------------------------------------- 3/31/04 6/30/04 9/30/04 12/31/04 ------- ------- ------- -------- NET SALES ....................................... $40,237 $32,713 $35,380 $37,295 GROSS PROFIT .................................... 12,211 4,762 4,998 7,062 NET INCOME (LOSS) ............................... 3,879 (461) (20) 906 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ..... 0.14 (0.02) -- 0.03
Three Months Ended -------------------------------------- 3/31/03 6/30/03 9/30/03 12/31/03 ------- ------- ------- -------- Net sales........................................ $41,132 $31,801 $36,820 $38,164 Gross profit..................................... 12,437 6,507 5,718 10,066 Net income....................................... 4,527 1,035 3,852 2,950 Basic and diluted earnings per share............. 0.17 0.04 0.14 0.11
25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Sturm, Ruger & Company, Inc: We have audited the accompanying balance sheets of Sturm, Ruger & Company, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004. We also have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Sturm, Ruger & Company, Inc. (or the Company) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements, an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sturm, Ruger & Company, Inc. as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, management's assessment that Sturm, Ruger & Company, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, Sturm, Ruger & Company, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). KPMG LLP Stamford, Connecticut March 8, 2005 (STURM, RUGER & COMPANY, INC. LOGO) Report of Management MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The Board of Directors and Stockholders Sturm, Ruger & Company, Inc: The management of Sturm, Ruger & Company, Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 ("internal control over financial reporting"). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. Management based this assessment on criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of December 31, 2004, the Company maintained effective internal control over financial reporting. KPMG LLP, the independent registered public accounting firm that audited and reported on the financial statements of the Company included in this Annual Report, has issued an attestation report on management's assessment of internal control over financial reporting. - -------------------------------------------------------------------------------- MANAGEMENT CERTIFICATIONS The Chief Executive Officer of the Company has certified to the New York Stock Exchange that he is not aware of any violation by the Company of the New York Stock Exchange corporate governance listing standards. In addition, the Chief Executive Officer and the Chief Financial Officer of the Company have provided the certification required by Section 302 of the Sarbanes-Oxley Act of 2002 as an exhibit to the Form 10-K of the Company for the fiscal year ended December 31, 2004. - -------------------------------------------------------------------------------- 27 Stockholder Information (GRAPHIC) COMMON STOCK DATA The Company's Common Stock is traded on the New York Stock Exchange under the symbol "RGR." At February 1, 2005, the Company had 1,973 stockholders of record. The following table sets forth, for the periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange and dividends paid on Common Stock.
DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 2004: FIRST QUARTER ................................. $13.26 $10.98 $.20 SECOND QUARTER ................................ 13.43 10.50 .20 THIRD QUARTER ................................. 11.63 8.12 .10 FOURTH QUARTER ................................ 9.55 8.35 .10 2003: First Quarter ................................. $11.20 $ 8.76 $.20 Second Quarter ................................ 10.29 8.24 .20 Third Quarter ................................. 11.97 10.06 .20 Fourth Quarter ................................ 11.75 10.40 .20
- -------------------------------------------------------------------------------- CORPORATE GOVERNANCE INFORMATION Our Corporate Code of Business Conduct and Ethics, Corporate Board Governance Guidelines, and charters for our Nominating and Corporate Governance, Audit, and Compensation Committees are posted on our Stockholder Relations section of our corporate website at WWW.RUGER.COM. Simply click on "Corporate Governance Documents." Written copies may also be obtained by telephoning our Corporate Secretary's office at 203-259-7843, or by written request to the Corporate Headquarters at One Lacey Place, Southport, CT 06890. Shareholders, employees, or other persons wishing to anonymously report to the Board of Directors' Audit Committee any suspected accounting irregularities, auditing fraud, violations of our corporate Compliance Program, or violations of the Company's Code of Business Conduct and Ethics, may do so by telephoning 1-800-826-6762. This service is independently monitored 24 hours a day, 7 days a week. - -------------------------------------------------------------------------------- ANNUAL MEETING The Annual Meeting of Stockholders will be held on May 3, 2005 at the Lake Sunapee Country Club, New London, New Hampshire, at 10:30 am. PRINCIPAL BANKS Bank of America, Southport, Connecticut Lake Sunapee Savings Bank, Newport, New Hampshire Sugar River Savings Bank, Newport, New Hampshire Bank One, Arizona, NA, Prescott, Arizona TRANSFER AGENT Computershare Investor Services, L.L.C. Attention: Shareholder Communications 2 North LaSalle Street P.O. Box A3504 Chicago, IL 60690-5190 www.computershare.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP, Stamford, Connecticut CORPORATE ADDRESS To correspond with the Company or to request a copy of the Annual Report on Form 10-K for 2004 free of charge, please visit our website www.ruger.com or write to: CORPORATE SECRETARY STURM, RUGER & COMPANY, INC. ONE LACEY PLACE SOUTHPORT, CONNECTICUT 06890 TELEPHONE: 203-259-7843 FAX: 203-256-3367 FACILITIES All Ruger firearms and investment castings are proudly designed and manufactured by American workers at Ruger facilities in Newport, New Hampshire and Prescott, Arizona. Corporate Headquarters is located in Southport, Connecticut U.S.A. DIRECTORS WILLIAM B. RUGER, JR. Chairman STEPHEN L. SANETTI Vice Chairman RICHARD T. CUNNIFF* Vice Chairman, Ruane, Cunniff & Co., Inc. TOWNSEND HORNOR* Corporate Director JOHN M. KINGSLEY, JR.* Corporate Director JAMES E. SERVICE* Consultant Director OFFICERS WILLIAM B. RUGER, JR. Chief Executive Officer STEPHEN L. SANETTI President and Chief Operating Officer THOMAS A. DINEEN Treasurer and Chief Financial Officer LESLIE M. GASPER Corporate Secretary * Audit Committee Member, Compensation Committee Member, and Nominating and Corporate Governance Committee Member EX-23.1 4 y06776exv23w1.txt CONSENT AND REPORT ON SCHEDULE OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23.1 Report and Consent of Independent Registered Public Accounting Firm The Board of Directors Sturm, Ruger & Company, Inc.: The audits referred to in our report dated March 8, 2005, with respect to the financial statements of Sturm, Ruger & Company, Inc., included the related financial statement schedule as of December 31, 2004, and for each of the years in the three-year period ended December 31, 2004, included in the Sturm, Ruger & Company, Inc. 2004 Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports with respect to the financial statements and the related financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting included herein and incorporated by reference in the Registration Statements of Sturm, Ruger & Company, Inc. on Form S-8 (Nos. 333-84677 and 333-53234) relating to the balance sheets of Sturm, Ruger & Company, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders' equity, and cash flows and related financial statement schedule for each of the years in the three-year period ended December 31, 2004, which reports appear in the Sturm, Ruger & Company, Inc. 2004 Annual Report on Form 10-K. KPMG LLP Stamford, Connecticut March 11, 2005 75 EX-31.1 5 y06776exv31w1.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, William B. Ruger, Jr., Chief Executive Officer of Sturm, Ruger & Company, Inc., certify that: 1. I have reviewed this annual report on Form 10-K (the "Report") of Sturm, Ruger & Company, Inc. (the "Registrant"); 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and d) Disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. 76 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 11, 2005 /S/ WILLIAM B. RUGER, JR. - ------------------------------------- William B. Ruger, Jr. Chief Executive Officer 77 EX-31.2 6 y06776exv31w2.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, Thomas A. Dineen, Treasurer and Chief Financial Officer of Sturm, Ruger & Company, Inc., certify that: 1. I have reviewed this annual report on Form 10-K (the "Report") of Sturm, Ruger & Company, Inc. (the "Registrant"); 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and d) Disclosed in this Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. 78 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 11, 2005 /S/ THOMAS A. DINEEN - ------------------------------------- Thomas A. Dineen Treasurer and Chief Financial Officer 79 EX-32.1 7 y06776exv32w1.txt CERTIFICATION EXHIBIT 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of Sturm, Ruger & Company, Inc. (the "Company") for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William B. Ruger, Jr., Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. Date: March 11, 2005 /S/ WILLIAM B. RUGER, JR. ---------------------------------------- William B. Ruger, Jr. Chief Executive Officer A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 80 EX-32.2 8 y06776exv32w2.txt CERTIFICATION EXHIBIT 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of Sturm, Ruger & Company, Inc. (the "Company") for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas A. Dineen, Treasurer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. Date: March 11, 2005 /S/ THOMAS A. DINEEN ---------------------------------------- Thomas A. Dineen Treasurer and Chief Financial Officer A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 81 -----END PRIVACY-ENHANCED MESSAGE-----