-----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, GzwAUyU5WO4uTPVIA0bgHf8wuDbZwR/jURT7K56rGFH5X3BoBxUZNpEnBkxW9MNo cT5xj6vE2L9X+wtbFychlQ== 0000950123-96-001510.txt : 19960402 0000950123-96-001510.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950123-96-001510 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10435 FILM NUMBER: 96542938 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-K405 1 STURM RUGER & CO. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - -----EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - -----EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO ------------ ----------- COMMISSION FILE NUMBER 0-4776 STURM, RUGER & COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-0633559 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) LACEY PLACE, SOUTHPORT, CONNECTICUT 06490 (Address of principal executive offices) (Zip Code) (203) 259-7843 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K /X/. The aggregate market value of the voting stock held by nonaffiliates of the registrant as of January 31, 1996: Common Stock, $1 par value - $ 296,119,451 The number of shares outstanding of the issuer's common stock as of January 31, 1996: Common Stock, $1 par value - 13,455,400 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts I, II and IV of this Report. Portions of the Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 are incorporated by reference into Part III of this Report. Index to exhibits at pages 16 and 17. Page 1 of 119 2 PART I ITEM 1--BUSINESS The Company is principally engaged in the design, manufacture, and sale of firearms. The Company is the only U.S. firearms manufacturer which offers products in all four industry categories (pistols, revolvers, rifles, and shotguns) and believes that it is the largest U.S. firearms manufacturer, based on data reported in the Bureau of Alcohol, Tobacco and Firearms' 1994 Annual Firearms Manufacturing and Exportation Report ("BATF Data"). The Company, which has been profitable every year since 1950, believes it has a preeminent reputation among sportsmen, hunters, and gun collectors for technical innovation and quality construction, based on reports in industry and business publications. The Company has been in business since 1949 and was incorporated in its present form under the laws of Delaware in 1969. The Company's firearms, which are sold under the "Ruger" name and trademark, consist of .22 caliber rimfire autoloading pistols; centerfire autoloading pistols in various calibers; single-action and double-action revolvers in various calibers; single-shot, autoloading, bolt action and lever action rifles in a broad range of hunting calibers; and shotguns in three gauges. The Company manufactures a wide range of high quality products and does not manufacture inexpensive cancelable firearms, sometimes known as "Saturday Night Specials," or any firearm included on the list of "assault weapons" which was part of anti-crime legislation enacted by Congress in 1994. Many of the firearms introduced by the Company over the years have become "classics" which have retained their popularity for decades and are sought by collectors. These firearms include the single-action Single-Six, Blackhawk, and Bearcat revolvers, the double-action Redhawk revolvers, the 10/22, M77, 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. In 1987, the Company introduced the P85, a 9mm centerfire autoloading pistol, and the GP100 and Super Redhawk revolvers. In 1988 and 1989, it introduced a new line of small frame double-action revolvers, the SP101. The Company augmented its line of centerfire autoloading pistols in 1990, 1991, and 1992 by offering new versions of the 9mm model and two new calibers, .40 S&W and .45 ACP. In 1992 and 1993, the Company introduced the Ruger 22/45 pistol, the Vaquero single-action revolver, the 77/22 Varmint bolt-action rifle, the P89, P90, and P93 centerfire autoloading pistols, and the Spurless SP101 double-action revolver. New variations of several of the Company's most popular models were introduced in 1994 and 1995 including the P94 centerfire autoloading pistol in 9mm and .40 S&W calibers which further strengthened the Company's P-Series pistol line, the 77/22 bolt-action rifle in .22 Hornet caliber, and a Woodside model of the Company's over-and-under shotgun. All of these products have exhibited strong sales and consumer interest since their introduction. In 1996, the Company plans to introduce new products or new variations of existing models in two of the four industry categories including the P95 pistol with an Isoplast polymer grip frame, the MK-4B .22 caliber target pistol, the Model 96 Lever Action rifle, and the 10/22 T Target rifle. The Company is also engaged in the manufacture of titanium, ferrous, and aluminum investment castings for a wide variety of markets including sporting goods, commercial, and military. In 1995, the Company's foremost investment casting product was the titanium "Great Big Bertha" golf club head for Callaway Golf Company, Inc. ("Callaway"). For the years ended December 31, 1995, 1994, and 1993, net sales attributable to the Company's firearm operations were approximately 80.9%, 91.7%, and 90.7%, respectively, of total net sales. The balance of the Company's net sales for such periods was attributable to its investment casting operations. Further information regarding industry segment data is incorporated by reference to pages 20 and 21 of the Company's 1995 Annual Report to Stockholders. -2- 3 ITEM 1--BUSINESS (CONTINUED) PRODUCTS--FIREARMS The Company presently manufactures 25 different types of firearm products in four industry categories: pistols, revolvers, rifles, and shotguns. Most are available in several models based upon caliber, finish, barrel length, and other features. PISTOLS--A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip. The Company presently manufactures three different types of pistols, the Ruger Mark II .22 caliber in Standard, Competition, and Target models, the Ruger 22/45, and the P-series centerfire autoloading pistols in various calibers, configurations, and finishes. Sales of pistols by the Company accounted for approximately $37.0 million, $70.6 million, and $67.4 million of revenues for the years 1995, 1994, and 1993, 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 must be pulled back to cock the gun and align the cylinder before the trigger is pulled. To fire a double-action revolver, a single trigger pull advances the cylinder and cocks and releases the hammer. The Company presently manufactures eight different types of single-action revolvers: the New Model Super Single-Six, the New Model .32 magnum Super Single-Six, the New Model Blackhawk, the New Model Super Blackhawk, the Vaquero, the Bisley, the Old Army Cap & Ball, and the New Bearcat. The Company presently manufactures four different types of double-action revolvers: the SP101, the GP100, the Redhawk, and the Super Redhawk. Sales of revolvers by the Company accounted for approximately $34.8 million, $32.9 million, and $36.9 million of revenues for the years 1995, 1994, and 1993, respectively. 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 eight different types of rifles: the M77 Mark II, the M77 Mark II Magnum, the 77/22, the 10/22, the Model 96, the Mini-14, the Mini Thirty, and the No. 1 Single-Shot. Sales of rifles by the Company accounted for approximately $76.5 million, $68.6 million, and $63.l million of revenues for the years 1995, 1994, and 1993, 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 over-and-under shotguns: the Red Label available in 12, 20, and 28 gauge, and the Woodside available in 12 gauge. Most of the Red Label models are available in special Sporting Clays and English Field versions. Sales of shotguns by the Company accounted for approximately $4.7 million, $5.1 million, and $6.4 million of revenues for the years 1995, 1994, and 1993, respectively. The Company also manufactures and sells accessories and replacement parts for its firearms. These sales accounted for approximately $2.6 million, $2.9 million, and $2.4 million of revenues for the years 1995, 1994, and 1993, respectively. PRODUCTS--INVESTMENT CASTINGS The investment casting products currently manufactured by the Company and sold to unrelated third parties consist of titanium, ferrous (both chrome-moly and stainless), and aluminum parts for a wide variety of industries including sporting goods, commercial, and military. The Company's newest casting facility, Ruger Investment Casting, located in Prescott, Arizona, engineers and produces titanium, ferrous, and aluminum castings. This facility's manufacturing activity during 1995 for outside customers consisted primarily of producing titanium "Great Big Bertha" golf club heads for Callaway. Sales of golf club heads to Callaway accounted for approximately $23.1 million of revenues during 1995. No sales were made to Callaway during 1994 and 1993. -3- 4 ITEM 1--BUSINESS (CONTINUED) The Pine Tree Castings division of the Company, located in Newport, New Hampshire, engineers and produces ferrous castings for a wide range of commercial customers. The Company's Uni-Cast division, located in Manchester, New Hampshire, engineers and produces primarily large complicated aluminum castings for a number of prime defense contractors. Sales from the Company's investment casting operations (excluding intercompany transactions) accounted for approximately $36.8 million, $16.4 million, and $18.0 million or 19.1%, 8.3%, and 9.3% of the Company's total net sales for 1995, 1994, and 1993, respectively. MANUFACTURING FIREARMS--The Company produces its revolvers, rifles, and shotguns at the Newport, New Hampshire facility and its pistols 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 casting 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 casting in the firearms manufacturing process is unique among firearms manufacturers. The investment casting process provides greater design flexibility and results in component parts which are generally close to their ultimate shape and, therefore, require less machining. Through the use of investment casting, 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 and birch lumber for rifle and shotgun stocks and other component parts. These raw materials and component parts are readily available from multiple sources at competitive prices. All assembly, inspection, and testing of firearms manufactured by the Company is performed at the Company's manufacturing facilities. Every firearm and 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 casting products at one of its three investment casting facilities. To produce a product by the investment casting method, a wax model of the product is created and coated 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 product, molten metal is poured into the mold and allowed to cool and solidify. Titanium investment casting products are manufactured by the Company's Ruger Investment Casting division located in Prescott, Arizona. This is the Company's newest investment casting facility and also has the capabilities of producing ferrous and aluminum investment casting products. In the latter part of 1994 and throughout 1995, the Company significantly added to the production capacity of Ruger Investment Casting and believes that this facility is one of the largest investment casting facilities in the Southwest. The Company and Callaway entered into a joint venture agreement in June 1995 to plan, develop, build, and operate a foundry for the production of golf club heads investment cast in titanium. The joint venture, named Antelope Hills, LLC, is owned 50% by the Company and 50% by Callaway. This facility is expected to be completed in the third quarter of 1996 and have production capacity for titanium products similar to that of Ruger Investment Casting. -4- 5 ITEM 1--BUSINESS (CONTINUED) The Company's Pine Tree Castings division manufactures primarily all of the ferrous investment castings produced by the Company. Aluminum investment casting products are primarily manufactured by the Company's Uni-Cast division located in Manchester, New Hampshire. For 1996 the Company has budgeted $2.8 million in capital expenditures for the Uni-Cast division to both modernize and outfit the facility to produce castings made of inorganic composites such as ceramic reinforced aluminum alloys. Raw materials including wax, ceramic material, and metal alloys necessary for the production of investment cast products are supplied to the Company through third parties. The Company believes that all these raw materials, with the exception of certain titanium alloys, are readily available from multiple sources at competitive prices. Presently the Company buys all of its titanium metal alloys under a short- term (approximately one year) purchasing arrangement from one supplier. Although there are a limited number of companies that produce titanium metal alloys, management believes that other suppliers could provide the Company with the required titanium metal alloys and that adequate quantities of titanium metal alloys in inventory would provide enough time to locate another supplier without interruption of manufacturing operations. MARKETING AND DISTRIBUTION FIREARMS--The Company's firearms are primarily marketed through a network of selected independent distributors who purchase the products directly from the Company for resale to gun dealers and end-users. These end-users include sportsmen, hunters, law enforcement and other governmental organizations, and gun collectors. In late 1987, the Company reduced by more than one-half the number of domestic commercial distributors of its firearms in order to encourage its remaining distributors to focus their efforts on the Company's products. Each of these distributors carries the entire line of firearms manufactured by the Company for the commercial market. Management believes that the increase in sales since 1988 is due in part to this strategy. Currently, 32 distributors service the domestic commercial market, with an additional 64 servicing the domestic law enforcement market and 2 servicing the Canadian market. Five of these distributors service both the domestic commercial market and the domestic law enforcement market. Currently, 5 distributors account for approximately 45.0% of the Company's sales of firearms, with the largest distributor, Jerry's Sport Center (Forest City, Pennsylvania), accounting for approximately 12.4% of consolidated net sales. The Company employs 5 employees and 2 independent contractors who service these distributors and call on dealers and law enforcement agencies. Because the ultimate demand for the Company's firearms comes from end-users, rather than from the Company's distributors, the Company believes that the loss of any distributor would not have a material adverse effect on the Company. The Company considers its relationships with its distributors to be satisfactory. In addition, the Company markets its firearms directly to foreign customers, consisting primarily of law enforcement agencies and foreign governments. Foreign sales were less than 10% of the Company's consolidated net sales for each of the past three years. No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of a government purchaser. In the fourth quarter of each year, the Company receives annual orders from its distributors, which are designated as firm by the distributors, although the Company generally permits adjustments in outstanding unfilled orders. As of January 31, 1996, unfilled firearms orders amounted to approximately $205.0 million as compared to approximately $349.5 million as of January 31, 1995, which represents a 41.3% decrease. The Company feels that the major reasons for this decrease are an overall slowdown in the United States firearms market, especially in the industry product category of pistols, and believes that firearm segment orders at January 31, 1995 may have been over inflated by distributors to obtain certain models of the Company's products that were in short supply due to production constraints during 1994 and most of 1995. The impact of the Company's recently introduced firearm models on unfilled orders as of January 31, 1996 is not readily determinable at this time. It is anticipated that demand for these new models will be strong. -5- 6 ITEM 1--BUSINESS (CONTINUED) Most of the firearms manufactured by the Company are sold on terms requiring payment in full within 30 days. However, certain products which are generally used during the fall hunting season are sold pursuant to a "dating plan" which allows the purchasing distributor to buy the products commencing in December, the start of the Company's dating plan year, and pay for them on extended terms. Discounts are offered for early payment. Management believes that this dating plan serves to level out the demand for these seasonal products throughout the entire year and facilitates an efficient manufacturing schedule. The Company does not consider its overall firearms business to be seasonal. INVESTMENT CASTINGS--The investment casting segment's principal markets are sporting goods, commercial, and military customers. Sales are made directly to customers or through manufacturer's representatives. The Company's largest casting segment customer in 1995, Callaway Golf Company, Inc. (Carlsbad, California) which accounted for approximately 12% of consolidated net sales and 62% of casting segment sales. One customer in 1994 and 1993 represented 23% and 12% of casting segment sales, respectively. 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 pistols or rifles, several foreign competitors manufacture products in all four industry categories (pistols, revolvers, rifles, and shotguns). Some of these competitors are subsidiaries of large corporations with substantially greater financial resources than the Company. The Company is the only domestic manufacturer which produces products in all four industry product categories and believes that it is the largest U.S. firearms manufacturer, according to BATF Data. The principal methods of competition in the industry are product quality and price. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability and performance of its products, and the competitiveness of its pricing. INVESTMENT CASTINGS--There are a large number of other investment casting manufacturers, both domestic and foreign, that the Company competes with. Competition varies based on the type of investment casting products (titanium, ferrous or aluminum) and the end use of the product (sporting goods, commercial or military). Many of these competition are larger than the Company and may have greater resources. The principal method of competition in the industry are quality, production lead time, and price. The Company believes that it can compete effectively with all of its present competitors and has expended significant amounts of resources on both expanding and modernizing its investment casting facilities in 1994 and 1995. EMPLOYEES As of January 31, 1996, the Company employed 1,936 full-time employees of which approximately 30% 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 46-year history and believes its employee relations are satisfactory. RESEARCH AND DEVELOPMENT In 1995, 1994 and 1993, the Company spent approximately $1.7 million, $1.9 million and $1.7 million, respectively, on research activities relating to the development of new products and the improvement of existing products. As of January 31, 1996, the Company had approximately 44 employees engaged in research and development activities as part of their responsibilities. -6- 7 ITEM 1--BUSINESS (CONTINUED) PATENTS AND TRADEMARKS The Company owns various United States and foreign patents and trademarks which have been secured over a period of years and which expire at various times. It is the policy of the Company to apply for patents and trademarks whenever new products or processes deemed commercially valuable are developed or marketed by the Company. However, none of these patents and trademarks are considered to be basic to any important product or manufacturing process of the Company and, although the Company deems its patents and trademarks to be of value, it does not consider its business materially dependent on patent or trademark protection. ENVIRONMENTAL MATTERS The Company has programs in place that monitor compliance with various environmental regulations. However, in the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. The Company believes that it is generally in compliance with applicable environmental regulations and the outcome of such proceedings and orders will not have a material effect on its business. EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the names, ages, and positions of the executive officers of the Company. Officers serve at the pleasure of the Board of Directors of the Company.
Name Age Position With Company - ------------------------------------------------------------------------------------------------------------- William B. Ruger 79 Chairman of the Board, Chief Executive Officer, Treasurer, and Director William B. Ruger, Jr. 56 Vice Chairman, Senior Executive Officer, and Director Gerald W. Bersett 55 President and Chief Operating Officer John M. Kingsley, Jr. 64 Executive Vice President and Director Ste phen L. Sanetti 46 Vice President, General Counsel Leslie M. Gasper 42 Secretary
William B. Ruger has been the Chairman of the Board, Chief Executive Officer, and Treasurer of the Company since 1949. He is the father of William B. Ruger, Jr. William B. Ruger, Jr. became Vice Chairman and Senior Executive Officer of the Company in 1995 and has been a Director of the Company since 1970. Previously, he served as President of the Company from 1991 to 1995 and as Senior Vice President of the Company from 1970 to 1990. Gerald W. Bersett became President and Chief Operating Officer of the Company in August 1995. Previously, he was the President of the Winchester Division of the Olin Corporation since 1988 and Vice President of the Olin Corporation since 1993. John M. Kingsley, Jr. has been Executive Vice President of the Company since 1971 and a Director of the Company since 1972. Stephen L. Sanetti became Vice President, General Counsel of the Company in 1993. Prior to this, he served as General Counsel since 1980. Leslie M. Gasper became Secretary of the Company in 1994. Prior to this, she served as the Administrator of the Company's pension plans which position she held for more than five years prior thereto. -7- 8 ITEM 2--PROPERTIES The Company's manufacturing operations are carried out at three facilities. The following table sets forth certain information regarding each of these facilities:
Approximate Aggregate Usable Square Feet Status ---------------------------------- Newport, New Hampshire 350,000 Owned Prescott, Arizona 219,000 Leased Manchester, New Hampshire 35,000 Owned
In 1995, the Company completed building additions to the Newport, New Hampshire facility of approximately 65,000 square feet and the Prescott, Arizona facility of approximately 17,000 square feet. These additions are being used for manufacturing operations. The Company plans to construct a 15,000 square foot addition to the Manchester, New Hampshire facility in 1996 to be used for manufacturing operations. Site preparation for the joint venture facility, Antelope Hills Foundry, began in October 1995. Plans call for construction of a 118,000 square foot building on a ten acre site contiguous to the Company's present Prescott Arizona facility. It is planned that production from this new facility will begin sometime in the third quarter of 1996. The Newport and Prescott facilities each contain enclosed ranges for testing firearms and also contain modern tool room facilities. The lease of the Prescott facility provides for rental payments which approximate real property taxes. The Company's headquarters and related operations are in Southport, Connecticut. Manufacturing operations at this location were moved in 1991 to the Company's Newport and Prescott facilities. There are no mortgages or liens on any of the real estate owned by the Company. ITEM 3--LEGAL PROCEEDINGS The Company is a defendant in approximately 22 lawsuits involving product liability claims and is aware of other product liability claims which allege defective product design. 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. In many of the lawsuits, punitive damages, as well as compensatory damages, are demanded. Aggregate claimed amounts presently exceed product liability accruals and, if applicable, insurance coverage. Management believes that, in every case, the allegations of defective product design are unfounded, and that the accident and any results therefrom were due to negligence or misuse of the firearm by the claimant or a third party and that there should be no recovery against the Company. The Company's management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. The number of lawsuits and claims that were tried, dismissed, settled, or otherwise resolved and average settlement payments (excluding legal fees) were as follows: 1995-18 and $46,000, 1994-24 and $55,000. While it is difficult to forecast the outcome of these claims, in the opinion of management, after consultation with special and corporate counsel, the outcome of these claims will not have a material adverse effect on the results of operations or financial condition of the Company. -8- 9 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) For a description of all pending lawsuits against the Company through September 30, 1995, reference is made to the discussion under the caption "Item 3. LEGAL PROCEEDINGS" of the Company's Annual Reports on Form 10-K for the years ended December 31, 1988 and 1994 and to the discussion under caption "Item 1. LEGAL PROCEEDINGS" of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1987, September 30, 1990, and September 30, 1993, March 31, June 30, and September 30, 1994, and March 31, June 30, and September 30, 1995. Four lawsuits were instituted against the Company during the three months ended December 31, 1995, which involved significant demands for compensatory and/or punitive damages: Anne Cargill, Administratrix of the Goods Chattels and Credits of David Cargill, Deceased, and Anne Cargill, Individually; Maria Santana, Administratrix of the Goods Chattels and Credits of Roberto Robles, Deceased; Maria Santana, Individually v. American Shooting Sports Council, Inc. et. al., in the United States District Court, Eastern District of New York. The complaint alleges that on or about May 5, 1991, one plaintiff's decedent (Cargill) was fatally injured when an unknown firearm was intentionally discharged by Lenin Supulveda, and the other plaintiff's decedent (Robles) was fatally injured when a Cobray Mac 11 (not manufactured by the Company) was intentionally discharged by a minor. Plaintiffs are seeking compensatory, consequential and punitive damages in excess of the minimum jurisdictional amount of the Court from each of the 61 defendants, alleging illegal concert of action, negligence, and misrepresentation in their sale of firearms. Koici Sunada, Representative of the Estate of Kei Sunada, and Koici Sunada, Individually v. American Shooting Sports Council, Inc., in the United States District Court, Eastern District of New York. The complaint alleges that the plaintiff's decedent was fatally injured by an unknown firearm. The plaintiff is seeking compensatory, consequential and punitive damages in excess of the minimum jurisdictional amount of the Court from each of the 61 defendants. This is a companion case to Cargill, supra. Don Haws v. Sturm, Ruger & Co., Inc. et. al., in the United States District Court of Oklahoma. The complaint alleges that on or about February 19, 1994, the plaintiff suffered injuries to his abdomen when his .357 caliber revolver discharged when it was allegedly dropped. Actual and punitive damages in excess of $100,000 are demanded. Bruce and Teresa Smith & Austin Smith, a Minor v. Sturm, Ruger & Co., Inc., Darrel Abke and Myron Moody, in the District Court of Maverick County, Texas 365th Judicial District. The complaint alleges that on or about November 4, 1994, the plaintiff suffered injuries to his right thigh when a 7mm rifle allegedly discharged unexpectedly and without cause. Actual and exemplary damages in an amount in excess of the minimum jurisdictional limits of the Court are demanded. The 1993 jury verdict in favor of the Company in the case of Connolly v. Sturm, Ruger & Co., Inc. (CA) was affirmed on October 19, 1995, by the California Court of Appeals, and the California Supreme Court declined plaintiff's further appeal. The case of McCarthy v. Sturm, Ruger & Co., Inc. (NY), which involved the intentional criminal shooting and homicide of Long Island Railroad passengers on December 7, 1993 by Colin Ferguson using a Ruger pistol, was dismissed with prejudice on October 17, 1995. -9- 10 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) The previously reported case of Bochene v. Company (CA) was settled on December 26, 1995. This case was settled for an amount within the insurance limits and/or self-insured retention of the Company. The Company is contesting a subpoena from Occupational Safety and Health Administration (OSHA) in which that agency seeks information from the Company in order to develop undefined "ergonomic standards" for the workplace. The Company believes that OSHA has no statutory authority to require such information, and the matter is before the United States First Circuit Court of Appeals. While the Company is confident that its position is legally correct, there can be no assurance that it will ultimately prevail. However, management believes that compliance with OSHA's subpoena (if compelled) should not have a material adverse effect upon the Company's business (United States v. Sturm, Ruger & Company, Inc., CA No. 95-1918). ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5--MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required for this Item is incorporated by reference to pages 5 and 23 of the Company's 1995 Annual Report to Stockholders. ITEM 6--SELECTED FINANCIAL DATA The information required for this Item is incorporated by reference to page 5 of the Company's 1995 Annual Report to Stockholders. ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required for this Item is incorporated by reference to pages 6 through 8 of the Company's 1995 Annual Report to Stockholders. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (A) FINANCIAL STATEMENTS The consolidated balance sheets of Sturm, Ruger & Company, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995 and the report dated February 23, 1996 of Ernst & Young LLP, independent auditors, are incorporated by reference to pages 12 through 22 of the Company's 1995 Annual Report to Stockholders. (B) SUPPLEMENTARY DATA Quarterly results of operations for 1995 and 1994 are incorporated by reference to page 21 of the Company's 1995 Annual Report to Stockholders. -10- 11 ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information as to the directors of the Company under the caption "ELECTION OF DIRECTORS" on pages 2 and 3 of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 is incorporated by reference into this Report. The information set forth under the caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" on page 12 of the Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 is incorporated by reference into this Report. The information as to executive officers of the Company is included in Part I hereof under the caption "Executive Officers of the Company" in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. ITEM 11--EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 under the captions "DIRECTOR COMPENSATION AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES," "EXECUTIVE COMPENSATION," "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "COMPANY STOCK PRICE PERFORMANCE", "PENSION PLAN TABLE" and "SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE" on pages 4 through 10. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 under the captions "ELECTION OF DIRECTORS," "PRINCIPAL STOCKHOLDERS" and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2, 3, 10, and 11. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held April 25, 1996 under the caption "DIRECTOR COMPENSATION AND INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES" and "EXECUTIVE COMPENSATION" on pages 4 and 5. -11- 12 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Form 10-K. (1) Financial Statements: Consolidated Balance Sheets--December 31, 1995 and 1994 Consolidated Statements of Income--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1994, and 1993 Notes to Consolidated Financial Statements Report of Independent Auditors This information is incorporated by reference to the Company's 1995 Annual Report to Stockholders as noted in Item 8. (2) Financial Statement Schedules: Schedule II-Valuation and Qualifying Accounts-Page 15 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the required information is disclosed elsewhere, and therefore, have been omitted. (3) Listing of Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. See "INDEX TO EXHIBITS" on pages 16 and 17 of this report. (b) Report on Form 8-K filed in the fourth quarter of 1995: None -12- 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STURM, RUGER & COMPANY, INC. ---------------------------- (Registrant) S/LESLIE M. GASPER ---------------------------- Leslie M. Gasper Secretary March 15, 1996 ---------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. S/WILLIAM B. RUGER 3/18/96 S/WILLIAM B. RUGER, JR. 3/23/96 - -------------------------------------------------------------- --------------------------------------------------- William B. Ruger William B. Ruger, Jr. Principal Executive Officer, Chairman, Vice Chairman, Senior Executive Officer, Chief Executive Officer, Treasurer, Director Director S/JOHN M. KINGSLEY, JR. 3/18/96 S/STANLEY B. TERHUNE 3/18/96 - -------------------------------------------------------------- --------------------------------------------------- John M. Kingsley, Jr. Stanley B. Terhune Principal Financial and Accounting Officer, Director Executive Vice President, Director S/RICHARD T. CUNNIFF 3/18/96 S/TOWNSEND HORNOR 3/21/96 - -------------------------------------------------------------- --------------------------------------------------- Richard T. Cunniff Townsend Hornor Director Director S/PAUL X. KELLEY 3/18/96 S/NILS ANDERSON, JR. 3/18/96 - -------------------------------------------------------------- --------------------------------------------------- Paul X. Kelley Nils Anderson, Jr. Director Director S/JAMES E. SERVICE 3/18/96 - -------------------------------------------------------------- James E. Service Director
-13- 14 Sturm, Ruger & Company, Inc. and Subsidiaries Item 14(a)(2) and Item 14(d)--Financial Statement Schedules 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, 1995 $ 900 $ 200 $ 119 (a) $ 981 ------- ------- ----------- ------- Year ended December 31, 1994 $ 922 $ 50 $ 72 (a) $ 900 ------- ------- ----------- ------- Year ended December 31, 1993 $ 724 $ 434 $ 236 (a) $ 922 ------- ------- ----------- ------- Allowance for discounts: Year ended December 31, 1995 $ 650 $7,451 $7,230 (b) $ 871 ------- ------ ---------- ------- Year ended December 31, 1994 $ 919 $4,202 $4,471 (b) $ 650 ------- ------ ---------- ------- Year ended December 31, 1993 $ 875 $4,468 $4,424 (b) $ 919 ------- ------ ---------- ------- Product safety modifications accrual: Year ended December 31, 1995 $1,548 $ 109 (c) $1,439 ------ ---------- ------ Year ended December 31, 1994 $1,705 $ 157 (c) $1,548 ------ ---------- ------ Year ended December 31, 1993 $1,797 $ 92 (c) $1,705 ------ ---------- ------
(a) Accounts written off (b) Discounts taken (c) Costs incurred -15- 15 INDEX TO EXHIBITS
Exhibit Description Page No. - ------------------------------------------------------------------------------------------------------------------------------------ 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). 3.2 Bylaws of the Company, as amended. 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). 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). 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). 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). 10.5 Sturm, Ruger & Company, Inc. Supplemental Executive Retirement Plan. 10.6 Operating Agreement of Antelope Hills, LLC, a Delaware Limited Liability Company, dated as of October 5, 1995. 13.1 Annual Report to Stockholders of the Company for the year ended December 31, 1995. 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. 23.1 Consent of Independent Auditors. 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 1987, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS 99.2 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1988, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS 99.3 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 1990, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS
-16- 16 INDEX TO EXHIBITS (continued)
Exhibit Description Page No. - -------------------------------------------------------------------------------------------------------------------- 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 1993, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, June 30, and September 30, 1994, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS 99.6 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1994, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS 99.7 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, 1995, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS
-17- EX-3.2 2 BY-LAWS 1 BY-LAWS OF STURM, RUGER & COMPANY, INC. (A Delaware Corporation) ARTICLE 1. Offices. Setion 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. The annual meeting of the shareholders shall be held on the fourth Tuesday of April of each year, for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Connecticut, such meeting shall be held on the next succeeding business day. 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 2 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 fifty 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, fifty 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 fifty days and, in case of a 3 3 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 termination 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. 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. 4 4 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 be entitled to one vote 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 my 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 5 5 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. 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 pledgee, and thereafter the pledgee 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 thereof; 4. Reports of Directors, officers and committees; 5. Unfinished business; 6. New business; 7. Election of Directors, if an annual meeting.
6 6 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 Qualification. The number of directors constituting the Board of Directors of the Company shall be eight, 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 not time exceed the Whole Board. Election shall be by written ballot. As used herein, the term "Whole Board" shall mean the total number of directors authorized at the time. 7 7 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 shall be given at least two days prior thereto by written notice delivered personally or mailed to each Director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. 8 8 The notice shall give the time and place of the meeting, and in the case of a special meeting, the objects thereof. 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. 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. 9 9 Section 12. Executive Committee. The Board of Directors may elect from its membership an executive committee having such number of members as may be prescribed from time to time by the Board of Directors, which members of the executive committee may be elected for such terms as may be prescribed by the Board of Directors provided, however, that the term of office of any member of the executive committee shall not extend beyond the term for which such member is elected a Director of the corporation. The Board of Directors may fill any vacancy in the executive committee. During the intervals between the meetings of the Board of Directors, the executive committee shall possess and may exercise all the powers of the Board of Directors in the management and direction of the affairs of the corporation in all matters in which specific directions shall not be given by the Board of Directors. All action by the executive committee shall be reported to the Board of Directors at the next meeting succeeding such action, and shall be subject to review and alteration by the Board of Directors, provided that no rights of third parties shall be affected by such review or alteration. Regular minutes of the proceedings of the executive committee shall be kept in a book provided for that purpose. The executive committee shall determine and fix its rules with respect to meetings and of procedure, and the number required for a quorum, and shall meet and conduct business as provided by such rules. 10 10 ARTICLE 4. Officers. Section 1. Number. The officers of the corporation shall be a President, ore 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. 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 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 11 11 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 the general powers and duties usually vested in the chief executive officers of a corporation. He shall be a member and chairman of the Executive Committee and of all other committees appointed by the Board, and he shall have such other powers and perform such other duties as may be prescribed from time to time by the Board. The President shall be the chief executive officers of the corporation unless the Chairman of the Board has been so designated by the Board, in which case 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. If he is the chief executive officer, he shall have general supervision and direction of the business of the corporation and shall have all the general powers and duties usually vested in the chief executive officer of a corporation. If he is 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 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 the Chairman of the Board. 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. 12 12 Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for share 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 of the office of Secretary and such other duties as from time to time may be assigned to him by the President of by the Board of Directors. 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 depositaries 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 13 13 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. 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 14 14 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, (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, judgment, 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 and 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. 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 15 15 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 proving 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 standards of conduct shall be a defense to the action or create a presumption that the claimant had not met the applicable standard of conduct. 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, judgment, 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 16 16 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 of 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 be 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. 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 17 17 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, officers, 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. Section 8. Limitation of Indemnity With Respect to Subsidiaries. The indemnity provided for in Section 1(c) of 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 or jurisdiction. 18 18 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. 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 bank, trust companies or other depositaries 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. 19 19 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 issue, 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. 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. 20 20 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. 21 STURM, RUGER & COMPANY, INC. AMENDMENT TO ARTICLE 3.2 OF THE BY-LAWS JULY 10, 1992 NUMBER OF DIRECTORS INCREASED TO NINE RESOLVED: that, effective as of July 10, 1992, pursuant to Article 3, Section 2 of the By-Laws of the Corporation, the number of Directors constituting the Board of Directors of the Corporation shall be increased to nine (9) until such time the number is increased or decreased by resolution of the Board of Directors. 22 STURM, RUGER & COMPANY, INC. AMENDMENT TO ARTICLE 3.5 OF THE BY-LAWS JULY 18, 1995 RESOLUTION: Upon motion, it was resolved that pursuant to Article 3, Section 5 of the By-Laws, of the Company, be amended and restated in its entirety as follows: "SECTION 5. Chairman of the Board, Vice President 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 the 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, and he shall have such other powers and perform such other duties as may be prescribed from time to time by the Board. The Vice Chairman, if one is elected, shall be Senior Executive Officer 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. 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 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 Officer 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 the Vice Chairman." EX-10.5 3 SUPPLEMENTAL EXECUTIVE RETIREMENT FUND 1 STURM, RUGER & COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AS OF JANUARY 1, 1996 2 STURM, RUGER & COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS
PAGE ---- Article I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Article II. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Article III. NORMAL RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Article IV. EARLY RETIREMENT BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Article V. DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Article VI. DISABILITY BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Article VII. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Article VIII. VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Article IX. PARTICIPANTS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Article X. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Article XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3 STURM, RUGER & COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN This Plan is hereby adopted for the benefit of eligible employees of Sturm, Ruger & Company, Inc. (the "Employer") effective January 1, 1996. 4 2 ARTICLE I. DEFINITIONS 1.1 "Annual Pay" means the compensation of a Participant from the Employer including bonuses and any other incentive compensation and special payments provided, however, that in no event shall "Annual Pay" be deemed to exceed $400,000 for purposes of this Plan.. 1.2 "Change of Control Date" means the effective date of one of the following events: (i) sale or exchange of substantially all of the capital stock of the Employer; (ii) sale of substantially all of the assets of the Employer; (iii) sale of substantially all of the capital stock of the Employer owned of record and beneficially by William B. Ruger and members of his family; or (iv) the merger or consolidation of the Employer with or into one or more other corporations; and, in each of such four cases, the sale of stock or assets is to, or the exchange of stock is with, or the merger or consolidation is with or into one or more persons, firms or corporations, which, as of January 1, 1996, do not own at least ten (10%) percent of the capital stock of the Employer. 1.3 "Committee" means the committee composed of employees of the Employer and such other individuals who may be appointed and removed by the Board of Directors of the Employer to administer the Plan. Members of the Committee shall receive no fees or compensation for serving on the Committee. 1.4 "Disability" means a physical or mental condition that renders the Participant incapacitated as defined under the Sturm, Ruger & Company, Inc. Profit-Sharing Plan. 1.5 "Early Retirement Date" means any date on which a Participant terminates employment with the Employer on or after both attaining age 60 and having completed at least 5 3 ten complete years of service with the Employer (measured from the first date of employment) and prior to the date on which the Participant attains his Normal Retirement Date. 1.6 "Effective Date" means January 1, 1996. 1.7 "Final Average Annual Pay" means the Participant's average Annual Pay as annualized for the 36 consecutive months of the Participant's participation in the Plan during which such Annual Pay is the highest or, in the event the Participant has not participated in the Plan for at least 36 months, such shorter period during which he has so participated. 1.8 "Normal Retirement Date" means any date on which the Participant terminates employment after both having attained age 65 and having completed at least ten complete years of service with the Employer (measured from the first date of employment). 1.9 "Participant" means any Employee who is selected by the Committee to participate in this Plan; provided, however, that to be eligible under this Plan, the Participant must be an officer who has attained the level of at least Vice President. 1.10 "Plan Benefit" means the benefit described in Section 4.1 of the Sturm, Ruger & Company, Inc. Supplemental Executive Profit-Sharing Plan. 1.11 "Salaried Employees Retirement Income Plan Offset" means the annual amount of benefit payable to the Participant under the Sturm, Ruger & Company, Inc. Salaried Employees Retirement Income Plan (the "Retirement Plan") in the form of a single life annuity if the Participant is not married or in the form of a joint and 50% survivor annuity (with spouse coannuitant) if the Participant is married. For purposes of computing this offset, the amount of such Retirement Plan benefit shall be based on the assumption that the Participant had opted for 6 4 benefit commencement as of his normal retirement date (as defined in the Retirement Plan). The computed amount of such Retirement Plan offset shall also reflect the Participant's average annual compensation, covered compensation and benefit accrual period of service (all as defined in the Retirement Plan) at the time he ceases his participation in such Retirement Plan as an active salaried employee. 1.12 "Social Security PIA Offset" means the estimated annual amount of U.S. Social Security benefit (primary insurance amount only) payable to the Participant commencing at age 65. For purposes of estimating such Social Security benefit, the applicable conventional tables of such estimated Social Security PIA amounts shall be used, which tables incorporate the assumptions (a) that the Participant had a typical working career in the U.S. work force prior to the time of such Social Security benefit estimate at prior annual wages discounted from the estimation year by the change in average wages determined by the U.S. Social Security Administration, and (b) that the Participant will not receive any further wages covered under U.S. Social Security in any year subsequent to the estimation year. The provisions of the U.S. Social Security Law in effect at the time the Participant ceases his participation in this Supplemental Plan as an active salaried employee shall apply for purposes of determining his "Social Security PIA Offset." 1.13 "Supplemental Benefits" means benefits payable under the terms of this Plan. 7 5 ARTICLE II. ELIGIBILITY 2.1 The Committee shall select those key executives of the Employer to be eligible to participate in the Plan based on such individuals' responsibilities and contributions to the Employer's operations and profits. Eligible employees shall include only those employees of the Employer who are officers and have attained the level of at least Vice President. The Committee shall review eligibility for participation from time to time and may discontinue participation by any particular employee at any time. Those individuals who are selected to participate in the Plan shall be so notified by the Committee. The Committee may, in its sole discretion, establish a retroactive date of participation for any individual who is selected to participate in the Plan. 8 6 ARTICLE III. NORMAL RETIREMENT BENEFITS 3.1 If a Participant (including for this purpose a former Participant) continues rendering services to the Employer until his Normal Retirement Date, he shall be entitled to receive the annual Supplemental Benefits set forth in this Article III. 3.2 Computation of annual Supplemental Benefits: 3.2.1 A Participant attaining his Normal Retirement Date with 25 or more years of service with the Employer shall be entitled to annual Supplemental Benefits equal to 50% of his Final Average Annual Pay less (i) his Salaried Employees Retirement Income Plan Offset, less (ii) his Social Security PIA Offset. 3.2.2 A Participant attaining his Normal Retirement Date with at least 10 but less than 25 years of service with the Employer shall be entitled to annual Supplemental Benefits equal to two percent (2%) of the Participant's Final Average Annual Pay for each complete credited year of service with the employer up to a maximum of 50% of such Final Average Annual Pay less (i) his Salaried Employees Retirement Income Plan Offset, less (ii) his Social Security PIA Offset. 3.2.3 A former Participant attaining his Normal Retirement Date with at least 10 years of service with the Employer shall be entitled to annual Supplemental Benefits equal to two percent (2%) of the 9 7 Participant's Final Average Annual Pay for each complete credited year of service with the Employer, until such former Participant ceased his eligibility under the Plan, up to a maximum of 50% of such Final Average Annual Pay less (i) his Salaried Employees Retirement Income Plan Offset, less (ii) his Social Security PIA Offset. 3.2.4 Payment of annual Supplemental Benefits under Article III shall commence on the first day of the month coincident with or next following the date on which the individual attains age 65. Section 3.3 In the event a Participant who has attained his Normal Retirement Date dies after termination of employment and has a spouse on the date of his death, such spouse shall be entitled to receive for the remainder of the spouse's lifetime a benefit equal to 50% of the benefit that had been payable to the Participant pursuant to Section 3.2. In the event that the Participant's spouse who is to receive the benefits pursuant to this Section 3.3 was not the Participant's spouse when the Participant attained his Normal Retirement Date, the above 50% spousal benefit percentage shall be reduced by one percent for each year by which the spouse's year of birth exceeds the Participant's year of birth. In the event that such Participant dies without leaving a surviving spouse or if a surviving spouse dies, in each case, leaving natural or adopted children under the age of 21 years surviving ("Minor Children"), the annual Supplemental Benefit otherwise payable to the Participant's spouse shall be divided by the number of Minor Children 10 8 and the amount so determined shall be payable to each Minor Child until such child reaches age 21 years when such payment to such child shall cease. 11 9 ARTICLE IV. EARLY RETIREMENT BENEFIT 4.1 If a Participant (including for this purpose a former Participant) attains his Early Retirement Date while employed by the Employer but fails to attain his Normal Retirement Date, he shall be entitled to receive the annual Supplemental Benefits set forth in this Article IV. Such annual Supplemental Benefits shall commence on the first day of the month coincident with or next following the date on which the individual attains age 65. 4.2 The annual Supplemental Benefits shall be equal to two percent (2%) of the Participant's Final Average Annual Pay for each complete credited year of service with the Employer, until such Participant or former Participant ceased his eligibility under the Plan, up to a maximum of 50% of such Final Average Annual Pay less (i) his Salaried Employees Retirement Income Plan Offset, less (ii) his Social Security PIA Offset. 4.3 In the event a Participant who has attained his Early Retirement Date dies after termination of employment or a former Participant dies while still employed and has a spouse on the date of his death, such spouse shall be entitled to receive, commencing on the first day of the month coincident with or next following the date on which the Participant or former Participant would have attained age 65 and continuing for the remainder of the spouse's lifetime, a benefit equal to 50% of the benefit payable under Section 4.2. In the event that the Participant's spouse who is to receive the benefits pursuant to this Section 4.3 was not the Participant's spouse when the Participant attained his Normal Retirement Date, the above 50% spousal benefit percentage shall be reduced by one percent for each year by which the spouse's year of birth exceeds the Participant's year of birth. In the event that such individual dies without leaving a 12 10 surviving spouse or if a surviving spouse dies, in each case, leaving Minor Children, the annual Supplemental Benefit otherwise payable to the individual's spouse shall be divided by the number of Minor Children and the amount so determined shall be payable to each Minor Child until such child reaches age 21 years when such payment to such child shall cease. 13 11 ARTICLE V. DEATH BENEFIT 5.1 If a Participant dies while still employed and has a surviving spouse on the date of his death, annual Supplemental Benefits shall be payable to such spouse commencing on the first day of the month coincident with or next following the date of the Participant's death. The amount of the annual Supplemental Benefits shall be equal to 50% of the benefit that the Participant would have received pursuant to Section 3.2 but based on his Final Average Annual Pay at the date of his death. For purposes of this Section 5.1, in computing the annual Supplemental Benefits payable under this Plan, the Participant will be deemed to have 25 years of service with the Employer. In the event that such individual dies without leaving a surviving spouse or if a surviving spouse dies, in each case, leaving Minor Children, the annual Supplemental Benefit otherwise payable to the Participant's spouse shall be divided by the number of Minor Children and the amount so determined shall be payable to each Minor Child until such child reaches age 21 years when such payment to such child shall cease. 14 12 ARTICLE VI. DISABILITY BENEFITS 6.1 In the event of a Participant's Disability, he shall be entitled to annual Supplemental Benefits commencing on the first day of the month following the date on which he attains age 65 equal to the benefit that he would have received under Section 3.2 had he remained in the employment of the Employer until age 65 provided, however, that the benefit shall be based on his Final Average Annual Pay on the date his disability commenced. 6.2 In the event of a Participant's death after termination of his employment due to Disability and at any time he still has such Disability, a benefit shall be paid to his surviving spouse and/or dependent children in the same amount and in the same manner as specified in Section 3.3. 15 13 ARTICLE VII. PAYMENT OF BENEFITS 7.1 The amount of Supplemental Benefits shall be calculated as an annual amount. However, once so calculated, the annual Supplemental Benefits shall be paid on the first day of each month following the date on which eligibility for any such benefit is determined in an amount equal to 1/12 of the annual benefit. Such annual Supplemental Benefits shall be payable until the first of the month preceding the date that the recipient dies or becomes ineligible for such benefit. 7.2 Effective January 1, 1998 and biennually thereafter, a cost-of-living increase shall be payable to Plan Participants (including for this purpose former Participants), or if applicable, the spouse of the Participant, or the Minor Children of the Participant. The Employer will undertake a review of the increase in the Consumer Price Index that has occurred since the end of the last CPI measuring period (with the first measuring period commencing January 1, 1997). Once the increase has been determined, the Employer will adjust each monthly Supplemental Benefit payment in the year of determination as soon as practicable to reflect 50% of such increase. In cases where such sum is de minimis, the Employer may provide a flat minimum increase. For purposes of this cost-of-living increase, Consumer Price Index shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers - U.S. City Average (or, if publication of the Index is terminated, any substantially equivalent successor thereto) as published by the Bureau of Labor Statistics of the United States Department of Labor. The adjustment described in this section 7.2 shall be paid with the monthly payments under the Plan and become an integral part of the Plan. The adjustment to the monthly Supplemental Benefit 16 14 payment to the spouse of the Participant, or the Minor Children of the Participant shall become effective with the monthly payments payable as of any designated implementation date and shall be payable monthly thereafter for the remaining lifetime of the Participant's spouse or to each Minor Child until such child reaches age 21. 17 15 ARTICLE VIII. VESTING 8.1 Unless a Participant or his spouse or dependents are entitled to a benefit pursuant to Articles III through VI of this Plan, no benefit shall be payable pursuant to this Plan. 8.2 Change in Control: 8.2.1 Upon the Change of Control Date, all Participants (or former Participants) in the Plan shall be fully vested which means that all Participants shall be entitled to Supplemental Benefits and no Participant on the Change of Control Date can be removed from the Plan, nor can his benefits be terminated, modified, reduced or eliminated, except as provided in this Section 8.2. 8.2.2 Notwithstanding the provisions of Section 8.1, a lump sum, as defined in Section 8.2.4, shall be payable forthwith to any Participant (or former Participant) who, on, as of or within three years after the Change of Control Date is, without his consent, either (i) terminated by the Employer from employment for any reason other than fraud, theft, deceit, bribery, breach of contract or conduct which would constitute a criminal offense under the laws of Connecticut or of the United States; (ii) demoted to a position of reduced duties and responsibilities with a commensurate reduction in total compensation; or (iii) required as a condition of employment to move his principal place of employment more than 18 16 50 miles from his principal place of employment on the Change of Control Date; and provided that (a) such Participant promptly protests such move in writing; or (b) such required move is not temporary in nature, which is defined as for one year or less. Notwithstanding the above, any Participant or former Participant who is presently receiving Supplemental Benefits at the time of a Change of Control shall automatically receive a lump-sum as described in Section 8.2.4 below, as soon as practicable after the Change of Control. 8.2.3 The payment of the lump sum to a Participant (or former Participant) as provided by this Section 8.2 shall be in full payment and satisfaction of all rights and benefits otherwise payable under this Plan to such Participant. Consent by a Participant to a demotion or change of place of employment shall constitute a waiver of any rights or benefits under this Section 8.2 as a result of any subsequent demotion or change of place of employment. The giving of such consent by a Participant may be made a condition of continued employment of such Participant by the Employer. 8.2.4 The amount of the lump sum payment shall be equal to the present value of the Participant's (or former Participant's) Supplemental Benefits payable at the Participant's Normal Retirement Date 19 17 calculated under Section 3.2 as if the Participant were a former Participant on the date of the lump sum payment and based on the Participant's Final Average Annual Pay and years of service with the Employer on such date (provided, however, that in no event shall the Participant's years of service with the Employer for this purpose be deemed to be less than ten). Present value shall be determined by using the interest rate equal to the Moody's Seasoned AAA Corporate Bond Rate as published by the Federal Reserve on the first Monday of the year in which the present value is being determined and by using the 1983 Group Annuity Mortality Table. For those Participants and former Participants in pay status, their lump sum will be determined based upon (a) their age at the date of Change of Control and (b) the actuarial present value of their future Supplemental Benefits utilizing the interest and mortality bases specified above. 8.2.5 To the extent that the amount of the lump-sum payment to be made under section 8.2 triggers the tax imposed pursuant to Section 4999 of the Internal Revenue Code ("Excise Tax"), the Employer agrees to reimburse Participant ("Gross-Up Payment") in an amount such that the lump-sum amount specified in Section 8.2.4 above, after deduction of any Excise Tax on the lump-sum payment and any 20 18 federal, state and local income tax upon the Gross-Up Payment, shall be equal to the lump-sum payment specified in Section 8.2.4 above, provided it is understood that the Participant or former Participant shall be responsible for the payment of any federal, state and local income tax on the lump-sum payment determined without regard to the additional Gross-Up Payment. 21 19 ARTICLE XI. PARTICIPANTS' RIGHTS 9.1 The Employer shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Plan. Any Participant and any successor in interest to him shall be and remain only a general, unsecured creditor of the Employer with respect to the Supplemental Benefits payable under this Plan in the same manner as any other creditor who has a general claim for an unpaid liability. 9.2 Neither the Participant nor any successor in interest to him shall have the power to transfer, assign, anticipate, modify, or otherwise encumber in advance any of the payments that may become due hereunder; nor shall any such payments be subject to attachment, garnishment or execution or be transferrable by operation of law in the event of bankruptcy, insolvency or otherwise of any Participant or successor in interest. 22 20 ARTICLE X. AMENDMENT 10.1 This Plan may be amended, suspended or terminated, in whole or in part, by the Employer at any time without the consent of any employee, participant or beneficiary. The Committee may adopt any amendment which may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto, provided any such amendment does not have a material effect on the currently estimated cost to the Employer of maintaining the Plan. No amendment to the Plan shall reduce any Supplemental Benefits that any Participant has presently accrued under Articles III, IV, V and VI of this Plan on the date of amendment where the participant would have a right to payment if his employment then terminated. Subject to the provisions of Article VIII, on the termination of the Plan, any Supplemental Benefits that have accrued shall be payable only upon the actual date of termination of employment of a Participant and would have a right to payment if his employment then terminated. 23 21 ARTICLE XI. MISCELLANEOUS 11.1 The Committee shall have the power and authority to interpret, construe and administer this Plan. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. 11.2 Nothing contained herein shall be construed as conferring upon any Participant the right to continue in the employ of the Employer as an executive or in any other capacity. 11.3 If the Committee shall find that any person to whom any payment is payable under the Plan is unable to care for his affairs because of illness or accident or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent or a brother or sister or to any person deemed by the Committee to have incurred expense for such person otherwise entitled to payment in such manner and proportions as the Committee may determine. Any such payment shall be a complete discharge of the liabilities of the Employer under this Plan. 11.4 This Agreement shall be binding upon and inure to the benefit of the Employer, its successors and assigns and the Participant and his heirs, executors, administrators and legal representatives. 11.5 The masculine gender shall include the feminine, and the singular shall include the plural unless the context clearly indicates otherwise. 24 22 11.6 This Plan shall be construed in accordance with and governed by the laws of the State of Connecticut. EX-10.6 4 OPERATING AGREEMENT 1 OPERATING AGREEMENT OF ANTELOPE HILLS, LLC, A DELAWARE LIMITED LIABILITY COMPANY Dated as of October 5, 1995 THE MEMBER INTEREST(S) REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ANY SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION MUST BE MADE IN ACCORDANCE WITH THE ACT AND APPLICABLE PROVISIONS OF THIS AGREEMENT. 2 OPERATING AGREEMENT OF ANTELOPE HILLS, LLC, A DELAWARE LIMITED LIABILITY COMPANY THIS OPERATING AGREEMENT OF ANTELOPE HILLS, LLC (the "Company) is made and entered into as of the 5th day of October, 1995, by and between Sturm, Ruger & Company, Inc., a Delaware corporation ("Ruger"), and Callaway Golf Company, Inc., a California corporation ("Callaway Golf"). Ruger and Callaway Golf are sometimes hereinafter referred to collectively as the "Members". ARTICLE I DEFINITIONS The following definitions shall be applicable to the terms set forth below as used in this Agreement: 1.1 "Adjusted Capital Account Balance" - With respect to any Member and as of any date of reference, the dollar balance in such Member's Capital Account as adjusted in accordance with the provisions of Section 4.2. 1.2 "Agreement" - This Operating Agreement, as the same may be amended from time to time. 1.3 "Business Plan" - The business plan that the Members have agreed upon as the initial operating plan for the business of the Company (subject to such changes as are appropriately made in accordance with this Agreement) and future business plans as approved by the Member Committee. 1.4 "Capital Account" - The Capital Account maintained by the Company with respect to each Member in accordance with the capital accounting rules described in Section 4.2. 1.5 "Certificate of Formation" - The initial Certificate of Formation of the Company as filed with the Delaware Secretary of State, as such certificate may be amended or restated from time to time. 1.6 "Code" - The Internal Revenue Code of 1986, as amended. All references in this Agreement to provisions of the Code shall be deemed to refer to successor statutory provisions to the extent appropriate in light of the context herein in which such Code references are used. 1.7 "Company Confidential Information" - as defined in Section 13.14. 1.8 "Distributable Cash" - As of the end of any period of reference (a "determination period"), the Company's cash on hand, less reserves that are reasonably adequate 3 (taking into account available credit lines) to cover the Company's obligations as they become due and to operate the Company's business. 1.9 "DLLCA" - The Delaware Limited Liability Company Act (Delaware Code Annotated, Title 6, Chapter 118, Section 18-101 et seq.), and any amendments and successors thereto. 1.10 "Foundry" - as defined in Section 4.1(a). 1.11 "Manager" - shall mean Ruger and any successor manager of the Company appointed in accordance with the terms of this Agreement. 1.12 "Member Committee" - The committee established pursuant to Section 6.5 hereof. 1.13 "Member Percentage" - The percentage interest of each Member in the Company. Unless and until modified pursuant to the terms of this Agreement, the percentage interest of the Member shall be as follows: Ruger: 50% Callaway Golf: 50% 1.14 "Net Profits" and "Net Losses" - The net income and net losses, respectively, of the Company determined in accordance with the principles of Section 1.704-1(b)(2)(iv) of the Regulations; provided, however, that the following items shall be excluded from the computation of Net Profits and Net Losses: (a) any items of income, gain, deduction or loss specially allocated under Section 5.2(c) or Section 5.2(d) hereof; (b) any Nonrecourse Deductions (as defined in Section 5.2(e) hereof); and (c) any Member Nonrecourse Deductions (as defined in Section 5.2(e) hereof). For purposes of computing Net Profits and Net Losses, the "book" value of an asset shall be substituted for its adjusted tax basis if the two differ (in accordance with the principles of Section 1.704 l(b)(2)(iv) of the Regulations), but otherwise Net Profits and Net Losses shall be determined in accordance with Federal income tax principles. 1.15 "Purchase Notice" - A notice as defined in Section 7.4. 1.16 "Purchasing Member" - as defined in Section 7.5. 1.17 "Regulations" - The Federal income tax regulations as promulgated under the Code by the U.S. Treasury Department, as such regulations may be in effect from time to time. All references in this Agreement to provisions of the Regulations shall be deemed to refer to successor regulatory provisions to the extent appropriate in light of the context herein in which such Regulations references are used. 2 4 1.18 "Representatives" - as defined in Section 6.5. 1.19 "Terminating Interest" - The interest as defined in Section 7.3. 1.20 "TMM" - the Tax Matters Member, as defined in Section 10.5. 1.21 "Transfer" - as defined in Section 9.1. 1.22 "1933 Act" - The Securities Act of 1933, as amended. 1.23 "1934 Act" - The Securities Exchange Act of 1934, as amended. In addition to the foregoing, other capitalized terms used in this Agreement shall have the meaning ascribed thereto in the text of this Agreement. ARTICLE II FORMATION OF COMPANY 2.1 Formation of Company. On October 2, 1995, Ruger organized a Delaware limited liability company on behalf of the Members by executing and delivering the Certificate of Formation with the Delaware Secretary of State in accordance with the DLLCA. 2.2 Company Name. The Company's name shall be Antelope Hills, LLC. The name of the Company may be changed at any time and from time to time as determined by the Member Committee subject to compliance with the DLLCA. 2.3 Principal Place of Business. The principal place of business of the Company shall be located at Prescott, Arizona, or at such other place or places as the Manager (with the approval of the Member Committee) may hereafter determine. In addition to said principal place of business, the Manager may also establish (with the approval of the Member Committee) such other place(s) of business as it deems appropriate for the conduct of the Company's business affairs. 2.4 Business Purpose. The Company's principal purpose shall be to plan, develop, build, operate and maintain a foundry for the production of golf club heads cast in steel or titanium. To the extent consistent with its principal purpose, the Company may cast or manufacture items other than golf clubs, provided that such activities do not adversely impact the ability of the Company to supply golf club heads to Callaway Golf. In furtherance of the foregoing, the Company's business purposes shall include engaging in and entering into any and all activities, contracts and agreements related or incident to the operation of such business. 2.5 Powers. In furtherance of the business purposes set forth in Section 2.4, the Company shall have the power to have and to exercise all the powers conferred by the laws of Delaware upon limited liability companies formed under the DLLCA. 3 5 2.6 Term. The term of the Company shall commence on the date of filing the Certificate of Formulation in the office of the Secretary of State of the State of Delaware as required under DLLCA and, unless extended by agreement of all of the Members or terminated earlier pursuant to this Agreement, shall continue until December 31, 2025. ARTICLE III MEMBERS, TRANSFEREES AND OWNERSHIP INTERESTS 3.1 Members. There shall be one class of Members of the Company, and, subject to Article VI hereof, all Members shall have the same relative rights, powers and duties. ARTICLE IV COMPANY CAPITAL AND CAPITAL ACCOUNTS; MEMBER LOANS 4.1 Initial Capital Contributions. (a) Ruger and Callaway Golf shall make equal capital contributions to the Company, up to a maximum obligation of $7,000,000 per Member, as necessary, in the reasonable determination of the Manager, to develop, design, equip and bring into operation the foundry contemplated by the Formation Agreement dated June 7, 1995 (the "Foundry"). Except as set forth in Section 4. l(b) or (c) below, capital contributions will be made in cash within seven (7) business days after a written notice requiring such contributions has been issued by the Manager. (b) It is understood and agreed that, from time to time during construction of the Foundry, a Member may use its own funds to procure equipment for the Company or otherwise make out-of-pocket expenditures on behalf of the Company. In such cases, the Member incurring such expenses shall receive credit in its capital account (and against its capital contribution obligation), subject to documentation and proof reasonably satisfactory to the other Member (as approved by the Representatives of such other Member). (c) It is also understood and agreed that Ruger shall contribute to the Company as a capital contribution the approximately ten acre site currently owned by Ruger and adjacent to the existing foundry owned and operated by Ruger. Ruger shall receive a credit to its capital account (and against its capital contribution obligation) equal to the fair market value of the property, which the parties agree is equal to the actual cost of such property to Ruger, which Ruger represents to be $500,291. Such real property shall be transferred to the Company pursuant to documentation to be approved by Callaway Golf, which documentation shall include without limitation a full indemnity from Ruger in favor of the Company and Callaway Golf with respect to environmental and similar liabilities attributable to acts or omissions occurring prior to the real property transfer date. 4 6 (d) If upon the completion of the Foundry the capital contributions of the parties are unequal, the party who has made the smaller capital contribution shall contribute cash to the Company, and the Company shall make an equal return of capital distribution to the other party, such that the capital accounts of the parties will be equal. (e) The respective obligations of the Members to make contributions under this Section 4.1 shall terminate on June 30, 1996. 4.2 Capital Accounts. A Capital Account shall be established for each Member and shall be determined and maintained in accordance with the provisions of Section 1.704-l(b)(2)(iv) of the Regulations. Except as otherwise provided in Section 1.704-l(b)(2)(v) of the Regulations, each Member's Capital Account shall consist of the amount of such Member's capital contributions pursuant to Section 4.1 hereof plus any additional properly authorized capital contributions made by such Member to the Company, (a) increased by the amount of any Company Net Profits (or other line item amounts of income or gain) allocated to such Member (including income or gain exempt from tax), and (b) decreased by the amount of any money distributed to such Member by the Company, the fair market value of any property distributed to such Member by the Company (net of any liabilities secured by such distributed property that such Member is considered to assume or take subject to under Code Section 752), the amount of any Company Net Losses (or other line item amounts of loss or deduction) allocated to such Member, and such Member's allocable share of expenditures of the Company that are not deductible in computing its taxable income and not properly chargeable to the capital account of the Company. In addition to the foregoing adjustments, the Capital Account of each Member shall be subject to such further adjustments which are consistent with the requirements of Regulations Section 1.704-l(b)(2)(iv) and which the Member Committee deems necessary or appropriate in order to enable the allocation provisions of this Agreement to be recognized for income tax purposes. Each Member's Capital Account shall be adjusted to reflect any adjustments in items of income, gain, loss or deduction that result from amended returns filed by the Company or pursuant to an agreement with the Internal Revenue Service or a final court decision. As of any date of reference, each Member's "Adjusted Capital Account Balance" shall equal the dollar balance of his Capital Account as adjusted as of such reference date to reflect the foregoing provisions of this Section 4.2. A person or entity who acquires the interest of a Member from such Member shall be deemed to have made the capital contributions attributable to that interest and shall succeed to the Capital Account of its transferor to the extent of the interest it is acquiring. However, if the transfer of an interest causes a termination of the Company under Section 708(b)(1)(B) of the Code, the Capital Account that carries over to the transferee Member shall be adjusted in accordance with Sections 1.704-l(b)(2)(iv)(d) and (e) of the Regulations. 4.3 Capital Contributions in General. Except as otherwise expressly provided in this Agreement or as may otherwise be agreed to in writing by all of the Members, (a) no part of the capital contributions of any Member may be withdrawn by such Member, (b) no Member shall be entitled to interest on its capital contributions to the Company; (c) no Member shall have the right 5 7 to demand or receive property other than cash in return for its capital contributions; and (d) no Member shall be required or entitled to make additional capital contributions to the Company. 4.4 Member Loans Generally. With the prior approval of the Member Committee, any Member may make a loan or advance money or property to or on behalf of the Company, on such terms as are approved by the Member Committee. Such loan or advance shall not increase the lending Member's Capital Account, entitle the lending Member to any greater share of Company distributions (except that such Member shall be entitled to the repayment of such loan and interest prior to any further distributions to the Members), or subject such lending Member to any greater proportion of Company losses. The amount of such loans or advances shall be a debt owed by the Company to the lending Member, and any interest paid to the lending Member shall be charged as any other expense against income of the Company. The lending Member shall be entitled to enforce its rights as a creditor of the Company pursuant to the terms of such loan and the exercise of any remedies legally available to such lending Member shall not constitute a breach of any duties the lending Member may have by virtue of being a Member. ARTICLE V ALLOCATIONS, DISTRIBUTIONS AND REIMBURSEMENTS 5.1 Allocation of Net Profits and Net Losses. (a) After giving effect to the special allocations, limitations and restrictions set forth in Section 5.2 hereof, the Net Profits of the Company for any taxable year shall be allocated in the following order and priority: (i) First, among the Members in proportion to, and to the extent of, the amount by which, with respect to each Member, the aggregate Net Losses previously allocated to such Member under Section 5. l(b) exceed the aggregate Net Profits previously allocated to such Member under this Section 5. l(a)(i); and (ii) Thereafter, to the Members in accordance with their respective Member Percentages. (b) After giving effect to the special allocations, limitations and restrictions set forth in Section 5.2 hereof, the Net Losses of the Company for any taxable year shall be allocated in the following order and priority: (i) First, among the Members in proportion to, and to the extent of, the amount by which, with respect to each Member, the aggregate Net Profits previously allocated to such Member under Section 5. l(a) exceed the 6 8 aggregate Net Losses previously allocated to such Member under this Section 5. l(b)(i); and (ii) Thereafter, to the Members in accordance with their respective Member Percentages. 5.2 Limitations on Losses and Exceptions Related to Nonrecourse Debt. (a) Notwithstanding anything to the contrary contained in this Agreement, for each fiscal year or other period of the Company for which allocations are made, all Nonrecourse Deductions (as defined in Section 5.2(e) hereof) shall be allocated to the Members in proportion to their respective Member Percentages. (b) Notwithstanding anything to the contrary contained in this Agreement, any and all Member Nonrecourse Deductions (as defined in Section 5.2(e) hereof) shall be allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt (as defined in Section 5.2(e) hereof) to which such Member Nonrecourse Deductions are attributable, as determined in accordance with Section 1.704-2(i) of the Regulations. (c) If there is a net decrease in Company Minimum Gain (as defined in Section 5.2(e) hereof) during a Company taxable year, each Member shall be allocated items of Company income and gain for such year in accordance with Section 1.704-2(f) of the Regulations and its requirements for a "minimum gain chargeback." (d) If there is a net decrease in Member Nonrecourse Debt Minimum Gain (as defined in Section 5.2(e) hereof) during a Company taxable year, each Member who has a share of such Member Nonrecourse Debt Minimum Gain, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specifically allocated items of income and gain for such year (and, if necessary, subsequent years) in accordance with Section 1.704-2(i)(4) of the Regulations. (e) For purposes of this Agreement (i) "Member Nonrecourse Debt Minimum Gain,"(ii) "Nonrecourse Deductions," (iii) "Member Nonrecourse Deductions," (iv) "Member Nonrecourse Debt," and (v) "Company Minimum Gain" shall have the meanings set forth in Section 1.704-2 of the Regulations as are applicable to Partner Nonrecourse Debt Minimum Gain, Nonrecourse Deductions, Partner Nonrecourse Deductions, Partner Nonrecourse Debt and Partnership Minimum Gain, respectively. 5.3 Members' Interests in Company Profits for Purposes of Section 752. The Members hereby specify that for purposes of determining their respective shares of the Nonrecourse Liabilities of the Company under Section 752 of the Code, their interests in the profits of the Company shall be equal to their respective Member Percentages. As used herein, "Nonrecourse Liability" shall have the meaning set forth in Section 1.752-l(a)(2) of the Regulations. 7 9 5.4 Relationship to Book Values. To the extent permitted by Section 1.704 l(b)(4)(i) of the Regulations, all items of income, gain, loss, and deduction for Federal and state income tax purposes shall be allocated in accordance with the corresponding "book" items; provided, however, that solely for tax purposes, in determining each Member's allocable taxable income or loss of the Company, depreciation, depletion, amortization and gain or loss with respect to any contributed property, or with respect to revalued property where the Company's property is revalued pursuant to Section 1.704-l(b)(2)(iv)(f) of the Regulations, shall be allocated to the Members in the manner (as to revaluations, in the same manner as) provided in Section 704(c) of the Code and the applicable Regulations thereunder. The allocation shall take into account, to the full extent required or permitted by the Code and applicable Regulations, the difference between the adjusted basis of the property to the Member contributing it (or, with respect to property which has been revalued, the adjusted basis of the property to the Company) and the fair market value of the property determined by the Members at the time of its contribution or revaluation, as the case may be. 5.5 Company Interest Transfer and Adjustment. In the event of a change in any Member's interest in the Company at any time other than at the end of the Company's fiscal year (whether by reason of a transfer of all or any portion of an interest in the Company, the admission of a new Member or otherwise), the profits, gains, losses, deductions and credits of the Company for such fiscal year shall be allocated between or among each person whose interest in the Company during such taxable year is affected by such change in such manner as may be determined by the Member Committee, in its discretion, to be consistent with the provisions of Section 706(d) of the Code. 5.6 Distributions of Distributable Cash. Distributable Cash shall be distributed to the Members in accordance with their respective Member Percentages as soon as reasonably practicable following the end of each fiscal year of the Company (or at such other times as may be determined by the Member Committee). 5.7 Certain Interim Distributions. The Members agree that, unless otherwise determined by the Member Committee, interim quarterly distributions of Distributable Cash shall to the extent available be made to the Members in such amounts and on such dates so as to reasonably coincide with the Members' respective quarterly estimated tax payment obligations. Such distributions will be considered as advances on the annual distributions to be made pursuant to Section 5.6. Once the actual distribution amounts pursuant to Section 5.6 have been determined following the close of a fiscal year, any Member who has received aggregate advances pursuant to this Section 5.7 in excess of the actual distribution to be made pursuant to Section 5.6 shall promptly refund to the Company such excess amount. 5.8 Computations. The Manager may rely upon, and shall have no liability to the Members of the Company if it relies in good faith upon, the opinion of any independent public accountants retained by the Company from time to time with respect to all matters (including disputes with respect thereto) relating to computations and determinations required to be made under this Article V. In making the computations required hereunder, all items of estimated Company income, 8 10 gain, loss, deduction and credit shall be credited or charged, as the case may be, to each Member's Capital Account at least on an annual basis, subject to adjustment in connection with any annual audit. 5.9 Company Expenses. It is anticipated that Company expenses ordinarily shall be billed directly to and paid by the Company. Except as specifically provided in this Agreement or as may otherwise be approved by the Member Committee neither of the Members nor any of their respective employees, agents or affiliates shall receive from the Company any salary, fees, commissions, overhead payments or other compensation or reimbursement of expenses in connection with the Company. 5.10 In-Kind Distributions. Assets of the Company (other than cash) shall not be distributed in-kind to the Members without the prior approval of the Member Committee. If any assets of the Company are distributed to the Members in-kind, for purposes of this Agreement such assets shall be valued on the basis of the fair market value thereof as determined by the Member Committee on the date of distribution. ARTICLE VI POWERS AND RESPONSIBILITIES OF THE MANAGER AND THE MEMBER COMMITTEE 6.1 Management of Company Business. The business and affairs of the Company shall be managed by the Manager. Except for situations in which the approval of the Members or the Member Committee is expressly required by this Agreement, the Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's business. 6.2 Power and Authority of the Manager. Subject to the provisions of Section 6.4 of this Agreement, the Manager shall have, in addition to any other rights and powers it may possess, the right, power and authority, on behalf of and at the expense of the Company, and in its name, to do all of the following: (a) To acquire, purchase, construct, improve, sell, maintain and operate any property, real or personal, in connection with the operation of the Company's business, and to enter into contracts or agreements with others with respect to such matters. Without limiting the generality of the foregoing, the Manager shall have full responsibility for the design, construction and operation of the Foundry; (b) To incur indebtedness for borrowed money on behalf of the Company required for the business of the Company and to secure the repayment of such borrowing by executing mortgages or deeds of trust, or otherwise encumbering or subjecting to security interests, all or any part of the assets of the Company, and to refund, refinance, increase, modify, consolidate 9 11 or extend the maturity of any indebtedness created by such borrowing, or any such mortgage, deed of trust, pledge, encumbrance or other security device; (c) To perform all the obligations of the Company and enforce all of the rights of the Company under the terms and conditions of all contracts and agreements entered into by the Company; (d) To employ and dismiss from employment any and all employees, managers, agents, independent contractors, brokers, attorneys and accountants of the Company; (e) To purchase from others, at the expense of the Company, contracts of liability, casualty and other insurance for the protection of the assets or affairs of the Company or for any purpose convenient or beneficial to the Company; (f) To pay and advance for the account of the Company any and all organizational expenses incurred in connection with the creation of the Company including but not limited to legal and accounting fees and expenses; and (g) To do such other acts as the Manager deems necessary, desirable or appropriate for the furtherance of the Company and that are not prohibited by this Agreement or applicable law. 6.3 Duties of the Manager. The Manager shall conduct the business and affairs of the Company in compliance with applicable laws and regulations, and in a manner consistent with the terms of this Agreement, the Business Plan in effect from time to time and sound business practices. The Manager shall direct, manage and control the business of the Company to the best of its ability and in connection therewith shall act honestly, in good faith, and exercise reasonable and informed business judgment. 6.4 Replacement of Manager. In the event of the Manager's resignation or refusal or inability to act (any of which shall constitute a breach of this Agreement in accordance with Section 6.7 hereof), a successor Manager shall be appointed by unanimous vote of all Members. If for a period of thirty (30) days there is no person acting as Manager of the Company, then effective upon written notice to all Members given by any Member, unless during such period the Members shall agree upon a Manager, at the end of such period the Company shall be dissolved, and, in such case, the holders of a majority of the Member Interests in the Company shall act as Manager solely for the purpose of orderly liquidation and winding up of the Company in accordance with this Agreement. 6.5 Member Committee. (a) The Members hereby establish a committee (the Member Committee") of the four individuals set forth on Exhibit A hereto (the Representatives), two of whom have been 10 12 designated as Ruger representatives and two of whom have been designated as Callaway Golf representatives (as specified on such Exhibit A). Meetings of the Member Committee may be called by any Representative upon written notice to all other Representatives not less than two days prior to the meeting. Any notice required for any meeting may be waived in writing by all Representatives. Presence at any meeting by a Representative shall also constitute a waver by such Representative. The Member Committee may act by unanimous written consent in lieu of a meeting. Representatives may attend any meeting telephonically. The Representatives shall appoint a secretary who shall keep minutes of each meeting and forward a written copy thereof to each Representative. (b) Ruger and Callaway Golf shall each have the continuing right to designate two of the four Representatives. Any Member may change its designated Representative(s) upon written notice to the other Member. (c) The presence of three or more of the Representatives shall constitute a quorum. The approval of at least three of the Representatives participating in any meeting is required to constitute approval by the Member Committee of any matter before it. (d) Prior approval of the Member Committee must be obtained before any of the following actions may be taken, or agreed to be taken, by the Manager on behalf of the Company: (i) the acceptance of any capital contribution except pursuant to Section 4.1; (ii) any material expenditures or investments that are not covered by the Business Plan then in effect; (iii) any material modification of the Business Plan or adoption of a new Business Plan; (iv) the admission of any additional Member; (v) the incurrence of any indebtedness for borrowed money in excess of $500,000 in principal amount or guarantees thereof; (vi) the sale or other disposition of any material assets of the Company except inventory sold in the ordinary course of business; (vii) any other transaction of material significance to the business of the Company that is not consistent with the Business Plan or otherwise outside of the ordinary course of business of the Company; (viii) any change in the name of the Company; 11 13 (ix) the selection of independent accountants for the Company; (x) the merger or consolidation of the Company with or into any other entity; (xi) any other action that, pursuant to an express provision of any other section of this Agreement, requires the approval or consent of the Member Committee. 6.6 Outside Activities. Nothing in this Agreement shall be construed so as to limit any right, privilege or option of any of the Members to participate in any manner in any other business, corporation, partnership, venture or investment, including those that may be similar to or in competition with the business of the Company. No Member shall be obligated to present or offer to any other Member or the Company any business opportunity; provided, however, that each Member agrees that any significant business opportunity that is brought to the attention of one Member by a third party specifically for the Company will be presented to the other Member for discussion by the Member Committee to the extent it is reasonably related to the business of the Company. Nothing in this Section 6.6 or elsewhere in this Agreement shall affect or limit the rights and obligations of Ruger, Callaway Golf, the Company or any of their respective affiliates under any separate agreements between or among such entities. 6.7 No Right to Withdrawal. The Manager does not have the right to withdraw as manager without the consent of all other Members, and any attempt to so withdraw without such consent shall be a material breach of this Agreement by the Manager. ARTICLE VII ADMISSION OF NEW MEMBERS 7.1 Admission of Additional Members. Except as otherwise provided in Section 7.3, no additional Members shall be admitted to the Company, whether by permitted transfer or by new issuance, without the written consent of all Members. Any such new Member shall, as a condition to admission, execute and acknowledge such instruments and provide such opinion of counsel as the Members may deem necessary or advisable, including without limitation, the written acceptance and adoption by such person or entity of the provisions of this Agreement. 7.2 Bankruptcy or Dissolution of Member. Subject to Section 7.3, the Company shall be dissolved and terminated as set forth in Article XI of this Agreement upon the occurrence of an event of dissolution under Section 18-801(4) of the DLLCA. 7.3 Continuation by the Members. Notwithstanding the provisions of Section 7.2 above, and in addition to any other rights or remedies arising from such event, the Members may, within ninety (90) days following the occurrence of an event calling for the dissolution of the 12 14 Company pursuant to Section 7.2 of this Agreement, by the vote or approval of all of the Members other than the Member whose interest is terminated pursuant to Section 18-304 of the DLLCA, continue the Company on the same terms and conditions as are contained in this Agreement. A new Manager shall be selected by the remaining Members if the terminating Member is the Manager. In the event the Members so elect to continue the Company, the interest of the terminating Member (the "Terminating Interest") shall be subject to purchase pursuant to Section 7.4. If, under such circumstances, the remaining Members do not elect to continue the Company, the Company shall be wound up and terminated pursuant to the provisions of Article XI of this Agreement. 7.4 Purchase of Company Interest. If the Members elect to continue the Company pursuant to Section 7.3 after an event calling for dissolution pursuant to Section 7.2, any remaining Member may elect to purchase some or all of the Terminating Interest by delivering to the other Members and the legal representative of the terminating Member a written notice of election to purchase (a "Purchase Notice"), specifying in such notice the percentage of the Terminating Interest that such remaining Member desires to purchase within thirty (30) days following the decision of the Members to continue the Company. If Purchase Notices aggregating 100% of the Terminating Interest are not delivered within such thirty (30) day period, the Company shall be wound up and terminated pursuant to the provisions of Article XI of this Agreement. In the event the remaining Members desire to acquire in excess of one hundred percent (100%) of the Terminating Interest, then each remaining Member shall be entitled and obligated to acquire a fraction of the Terminating Interest, the numerator of which is the percentage of the Terminating Interest that the Member desires to acquire, the denominator of which is the sum of the percentages of the Terminating Interest that all remaining Members desire to acquire. 7.5 Purchase Price for Terminating Interest. If, pursuant to the provisions of Section 7.4, the remaining Members elect to purchase all the Terminating Interest, the purchase price shall be (i) agreed upon by the legal representative of the terminating Member and the Members who elect to purchase the Terminating Interest (such purchasing Members, collectively the "Purchasing Member), or (ii) if the legal representative of the terminating Member and the Purchasing Member are unable to agree, based upon the appraised value of the Company as set forth below: If the legal representative of the terminating Member and the Purchasing Member cannot agree upon a purchase price to be paid to the terminating Member within ten (10) days after the Purchase Notice is received, the Purchasing Member and the legal representative of the terminating Member shall appoint a mutually acceptable appraiser experienced at evaluating businesses to appraise the value of the Terminating Interest. The fees and expenses of such appraiser shall be divided equally and borne half by the terminating Member and half by the Purchasing Member. If the legal representative of the terminating Member and the Purchasing Member are unable to agree upon a mutually acceptable appraiser, the legal representative of the terminating Member, at the expense of the terminating Member, shall appoint an appraiser and the Purchasing Member, at its own expense, shall also appoint an appraiser. The two appointed appraisers shall then appoint a third appraiser with the requisite qualifications as set forth above, and if they are unable to agree within ten (10) days, then the appointment of such third appraiser shall be determined by the 13 15 American Arbitration Association in accordance with its rules. The fees and expenses of the third appraiser shall be divided equally and borne half by the terminating Member and half by the Purchasing Member. The mutually agreed upon appraiser, or the group of three appointed appraisers, as the case may be, shall then determine the fair market value of the Company. In the case of three appraisers, the panel shall reach its decision by averaging the two closest valuations. The purchase price to be paid to the terminating Member shall be the amount which the terminating Member would have received under the terms of Article XI hereof if the Company were dissolved immediately following a cash sale of all of the assets of the Company at such appraised fair market value. The purchase price for the Terminating Interest shall be paid in full by an unsecured promissory note from the Purchasing Member, providing for interest from the date of the closing of the sale of the Terminating Interest, to accrue at the prime lending rate published by Bank of America until paid. Such note shall become payable out of and to the extent of the share of distributions which would have been attributable to the Terminating Interest so purchased if the purchase had not occurred. ARTICLE VIII RIGHTS AND LIMITATIONS OF MEMBERS 8.1 Limited Liability. No Member shall have any liability whatsoever to the creditors of the Company for the debts, obligations or liabilities of the Company. 8.2 Indemnification. Without limiting Section 8.1 or otherwise imposing any liability whatsoever on any Member, the Company shall indemnify, defend and hold harmless each Member and each Member's officers, directors and affiliates from and against any liabilities or claims asserted against any such indemnified party arising out of any acts or omissions of the Company to the fullest extent permitted by the DLLCA. Any claims against the Manager by a Member based on failure or alleged failure by the Manager to fulfill the duties of the Manager in accordance with the terms of this Agreement shall be excluded from the coverage of the indemnification provided for in this Section 8.2. ARTICLE IX RESTRICTION ON TRANSFER OF MEMBERS' INTERESTS; BUYOUT RIGHT; SECURITIES MATTERS 9.1 Restriction on Transfer. Other than as set forth in Section 9.2, no Member shall voluntarily, involuntarily or by operation of law, give, sell, assign, transfer, mortgage, hypothecate, encumber, bequeath or devise its interest in the Company (any such disposition is hereinafter referred to as a Transfer"), or any part thereof, without the consent of all of the Members, any of which may withhold its consent in its sole discretion. Any purported transfer of all or a part 14 16 of a Member's interest in the Company without compliance with the provisions of this Agreement shall be void and of no effect against the Company or any other Member. 9.2 Ruger Buyout Right. Ruger shall have the right at any time when it is not in breach of this Agreement to purchase Callaway Golf's entire Member Percentage for a cash purchase price equal to Callaway Golf's total capital contributions (without reduction for distributions and other items reducing Callaway Golf's Capital Account) plus an annual rate of return of 10% Ruger shall provide Callaway Golf with not less than ninety (90) days notice of its intent to exercise its purchase right hereunder. Upon receipt of such notice, Ruger and Callaway Golf shall negotiate in good faith a mutually satisfactory purchase agreement containing representations, warranties, covenants and indemnities commonly contained in purchase agreements of similar scope and nature. 9.3 Securities Law. All Members acknowledge that their Company interests have not been registered under the 1933 Act in reliance on the exemption afforded by Section 4(2) of the 1933 Act. Each Member represents (i) that it is acquiring its member interest for its own account for investment purposes and not with a view to the distribution thereof to others and (ii) that by reason of the Member's business or financial experience it could be reasonably assumed to have the capacity to protect its own interests in connection with the Member's transactions relating to the Company. ARTICLE X BOOKS OF ACCOUNT, RECORDS, REPORTS AND TAX MATTERS 10.1 Books and Records. Proper and complete records and books of account shall e kept by the Manager in which shall be entered fully and accurately all transactions and other matters relative to the Company's business as are usually entered into records and books of account maintained by businesses of like character. The Company will be on the accrual method for both tax and accounting purposes. The Company hereby designates Ernst & Young as the independent accountants for the Company. Such firm shall conduct an annual audit, prepare audited financial statements annually, and distribute same to the Members. If the Member Committee determines that it is in the best interest of the Company to designate a new outside accountant, it may direct the Manager to do so and to terminate the services of the then existing firm. 10.2 Information Rights of Members. (a) Each Member shall have the right to inspect and copy during normal business hours any of the Company records. (b) The Manager shall send to each Member, on a timely basis, such information as is necessary to complete federal and state income tax or information returns, and copies of the Company's federal, state, and local income tax or information returns. 10.3 Fiscal Year. The fiscal year of the Company shall be the calendar year. 15 17 10.4 Income Tax Elections. The Manager, with the approval of the Member Committee, shall have the right to make such elections under the tax laws of the United States, the several states and other relevant jurisdictions as to the treatment of items of Company income, gain, loss, deduction and credit and as to all other relevant matters as it believes necessary, appropriate or desirable. 10.5 Tax Controversies. For the purposes of receiving notices from the Internal Revenue Service on behalf of the Members, keeping each Member informed of all administrative and judicial proceedings relating to adjustment of Company items at the Company level, Ruger is hereby designated the Tax Matters Member (the "TMM"), with all of the rights, duties, powers, and obligations provided for in Sections 6221 through 6232, inclusive, of the Code. 10.6 Allocation of Costs. In connection with the Manager's activities in the discharge of its duties under this Agreement, only direct operating costs (including a reasonable allocation of overhead and other expenses fairly attributable to the Company) reasonably incurred by the Manager in connection with the operations of the Company shall be allocated to the Company, without any mark-up, management fee or similar charge. Ruger agrees to maintain books and records with respect to such allocations in sufficient detail and format to allow Callaway Golf to review and audit the same. Callaway Golf shall have the right to review and audit such books and records at any time. ARTICLE XI DISSOLUTION AND TERMINATION OF THE COMPANY 11.1 Dissolution. Subject to the provisions of Section 7.3 of this Agreement, the Company shall be dissolved upon the happening of any of the following events: (a) The occurrence of an event calling for the dissolution of the Company pursuant to Section 7.2 of this Agreement; or (b) The expiration of the term of the Company as provided in Article II of this Agreement, unless all Members agree to extend the term of the Company past the date set forth in Article ; or (c) The sale or other disposition by the Company of all or substantially all of its assets; or (d) The written agreement of 100% of the Members specifically calling for a dissolution of the Company; or (e) The entry of a decree of judicial dissolution pursuant to Section 18-802 of the DLLCA. 16 18 11.2 Winding Up and Liquidation. (a) Subject to the provisions of Section 11.2(c), upon the dissolution of the Company the Manager shall, in accordance with a plan of liquidation approved by the Member Committee, cause the Company assets to be sold in such manner as it, in its sole discretion, determines to be appropriate. Unless all of the Members (other than a terminating Member) agree otherwise, the person(s) winding up the Company affairs shall not be entitled to any special compensation for such activities. (b) Subject to the provisions of Section 11.2(c), upon the winding up and termination of the business and affairs of the Company, its assets (other than cash) shall be sold, its liabilities and obligations to creditors and all expenses incurred in its liquidation shall be paid, and all resulting items of Net Profit or Net Loss (including any "deemed" gain or loss under the rules of Section 11.2(c) below) shall be credited or charged to the Capital Accounts of the Members in the manner and priority indicated in Section 5.1. Thereafter, the net proceeds from liquidation of the Company shall be distributed among the Members in the following order and priority: (i) First, to the payment and discharge of all of the Company's debts and liabilities, including loans from and other liabilities to Members to the extent permitted by law, except the claims of secured creditors whose obligations will be assumed or otherwise transferred upon liquidation of the Company's assets; (ii) Second, to establish any reserves that the Member Committee (or other liquidating party) may deem necessary, appropriate or desirable for any future, contingent or unforeseen liabilities, obligations, or debts of the Company which are not yet payable or have not yet been paid. Such reserves may, but are not obligated to, be paid over by the Member Committee to an independent escrow holder, designated by the Member Committee, to be held by it for the purpose of disbursing such reserves in payment of any of such liabilities, obligations and debts and, one (1) year after the creation of such reserves, unless the Member Committee shall deem some other period to be necessary, advisable or desirable, to distribute the balance thereafter remaining in the manner provided below; (iii) Third, to the Members in accordance with their respective Adjusted Capital Account Balances. (c) Notwithstanding the foregoing, the Member Committee may make liquidation distributions of Company assets in kind rather than in cash, subject to the priority rules of Section 11.2(b). If the distributions to be made pursuant to Section 11.2(b) consist in whole or part of non-cash assets or properties, the following rules shall be applied: 17 19 (i) The value of non-cash assets for distribution purposes shall be the gross fair market value of such assets as determined by the Member Committee. (ii) The difference between the gross fair market value of any asset to be distributed in kind and its Company book value shall be deemed a gain or loss and any such deemed gain or loss shall be allocated in accordance with Section 11.2(b). 11.3 Report on Liquidation and Transfer of Company Books. Within a reasonable time following the completion of the liquidation of the Company's properties, the Member Committee (or other liquidating party) shall supply to each of the Members financial statements setting forth the assets and the liabilities of the Company as of the date of complete liquidation, each Member's pro rata portion of distributions and the amount retained as reserves pursuant to Section 11.2(b)(ii). ARTICLE XII AMENDMENTS 12.1 Amendments. All amendments to this Agreement shall require the express written consent of all of the Members. ARTICLE XIII MISCELLANEOUS 13.1 Confidentiality. Each Member agrees that except as may be required to be disclosed by a Member or its parent entity pursuant to the 1934 Act or the 1933 Act, such Member will not, during the term of this Agreement or thereafter, disclose, directly or indirectly, to any person (other than to its affiliates, subsidiaries, employees and/or agents in the ordinary course of business or in connection with such Member' s performance of its obligations hereunder) any Company Confidential Information, known, learned or acquired by such Member during the term of this Agreement. As used in this Section 13.1, Company Confidential Information" shall mean trade secrets and other confidential information concerning the Company, but shall not include (i) information, at which at the time of disclosure to such Member, had been previously published, (ii) information which is published after disclosure, unless such publication is a breach of this Agreement or is otherwise a violation of the contractual, legal or fiduciary duties owed to the Company, which violation is known to such Member, or (iii) information which, subsequent to disclosure, is obtained by such Member from a third person who is lawfully in possession of such information (which was not acquired in violation of any contractual, legal or fiduciary obligation owed to the Company with respect to such information) and does not require such Member to refrain from disclosing such information to others. 18 20 13.2 Non-Solicitation of Company Employees. Without the prior written consent of the Manager, which consent shall not be unreasonably withheld, until the dissolution of the Company, each Member agrees that it shall not solicit the employment of, offer employment to, or employ any person who is an employee of the Company or who has been an employee of the Company at any time within the twelve months preceding any such solicitation, offer of employment or employment. 13.3 Notices. Any notice or other communication given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly made as of the date delivered if delivered personally, by overnight courier or by telecopy or five (S) days after being mailed by certified mail (postage prepaid, return receipt requested), in each case addressed to the Member at its address appearing on the books of the Company or given by the Member to the Company for the purpose of notice. 13.4 Successors and Assigns. This Agreement shall be binding upon the parties hereto and their respective successors and permitted assigns. 13.5 Governing Law. This Agreement and all amendments hereto shall be governed by the laws of the State of Delaware. 13.6 Entire Agreement. This Agreement contains the entire understanding between the pares with respect to the subject matter hereof and supersedes any prior or contemporaneous understandings and agreements between them with respect thereto. 13.7 Titles and Captions. Section titles or captions contained in this Agreement are in inserted only as a matter of convenience and for reference purposes and do not define, limit, extend or describe the scope of this Agreement or the intent of any provisions hereof. All uses of the words "Article(s)" and "Section(s)" in this Agreement are references to articles and sections of this Agreement, unless otherwise specified. 13.8 Counterparts. This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement. 13.9 Terms. Whenever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. The term person means any individual, corporation, partnership, trust or other entity. 13.10 Severability. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 19 21 13.11 Additional Documents. Each party hereto agrees to execute, with acknowledgment or affidavit, if required, any and all documents and writings which may be necessary or expedient in connection with the creation of the Company and the achievement of its purposes, specifically including (a) all amendments to this Agreement and such certificates and other documents as the Member Committee deems necessary or appropriate to form, qualify or continue the Company as a limited liability company in all other jurisdictions in which the Company conducts or plans to conduct business and (b) all such agreements, certificates, tax statements, tax returns and other documents as may be required of the Company or its Members by the laws of the United States of America, the State of California, or any other state in which the Company conducts or plans to conduct business, or any political subdivision or agency thereof. 13.12 No Right to Partition. No Member shall have the right to bring an action for partition against the Company. Each of the Members hereto waives any and all right which it may have to maintain an action to partition Company property. 13.13 Insurance. The Company shall carry such insurance as the Member Committee from time to time may deem appropriate (to the extent that same is obtainable on reasonable commercial terms) for the protection of the Company and the Members. 13.14 Dispute Resolution. (a) Negotiation. The parties will attempt in good faith to resolve any claim or controversy arising out of or relating to the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of this mediation and arbitration provision) promptly by negotiations between the parties. These negotiations shall include, if necessary, at least one meeting between the chief executive officers of each Member for the purpose of resolving such matter. (b) Mediation. If any claim or controversy is not fully resolved through negotiation within thirty (30) business days after a party first notifies the other party of a claim or controversy which is identified as a claim or controversy which will be taken to mediation if not resolved, the parties will attempt in good faith to resolve the controversy or claim through a non-binding mediation to be conducted in accordance with procedures to be agreed upon by the parties at that time. The mediation process shall be concluded as expeditiously as possible but not more than sixty (60) days after the initial notice referred to above in this Section 13.14(b). Any such mediation shall be held in Orange County, California unless the parties otherwise agree to another location. (c) Arbitration. Any claim or controversy arising hereunder or in any way related to this Agreement, its interpretation, enforceability, or inapplicability that cannot be resolved by mutual agreement of the parties or mediation as set forth above shall be submitted to arbitration. The arbitration shall be conducted by an arbitrator mutually agreed upon by the parties or, if no arbitrator is mutually selected within 60 days of a demand therefore, then by a retired judge from the 20 22 Judicial Arbitration and Mediation Service ("JAMS") office located in Orange County, California, who shall have the powers to hear motions, control discovery, conduct hearings and otherwise do all that is necessary to resolve the matter. The arbitration award shall be final and binding, and judgment on the award may be entered in any court having jurisdiction thereof. It is expressly understood that the parties have chosen arbitration to avoid the burdens, costs and publicity of a court proceeding, and the arbitrator is expected to handle all aspects of the matter, including discovery and any hearings, in such a way as to minimize the expense, time, burden and publicity of the process, while assuring a fair and just result. In particular, the parties expect that the arbitrator will limit discovery by controlling the amount of discovery that may be taken (e.g., the number of depositions or interrogatories) and by restricting the scope of discovery to only those matters clearly relevant to the dispute. (d) Injunctive Relief. Nothing in this Section 13.14 shall prevent a party from seeking injunctive or other equitable relief in a judicial or administrative proceeding where reasonably necessary to protect its intellectual property rights. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. STURM, RUGER & COMPANY, INC., a Delaware corporation By: /s/ William B. Ruger -------------------- Title: Chairman -------- CALLAWAY GOLF COMPANY, INC., a California corporation By: /s/ Donald H. Dye ----------------- Title: President --------- 21 23 EXHIBIT A TO OPERATING AGREEMENT The Member Committee shall initially consist of the following persons: Ruger designees: William B. Ruger, Jr. Gerald W. Bersett Callaway Golf designees: Donald H. Dye John P. Duffy Dated as of October 5, 1995 EX-13.1 5 ANNUAL REPORT 1 [GRAPHIC OF SEVEN RIFLES] RUGER 1995 ANNUAL REPORT [STURM, RUGER LOGO] STURM, RUGER & COMPANY, INC. 2 ABOUT OUR COVER: Some of the hundreds of model variations of Ruger(R) long guns are proudly depicted. At the top, the new Ruger Model 96 lever action rifle, our first of this type, combines up-to-date design and engineering in a rifle with styling reminiscent of the horseman's "saddle gun" of a century ago. It will be made in .22 LR, .22 WMR, and .44 Magnum - a natural for hunting in heavy timber. Next is a Ruger No. 1 rifle with deluxe checkered stock and beavertail forend, available calibers .222-.458. A classic since its introduction in 1968, and never more popular than today. Beneath the No. 1 appears a Ruger Red Label over-and-under shotgun in 28 gauge. This was introduced in 1995 and is a delight to carry, since it was engineered on a smaller frame specifically scaled down for the diminutive 28 gauge shell. The 28 gauge complements its larger brethren in 20 and 12 gauges, some of which are now also available in Woodside models and with three grades of strikingly handsome engraving. The following rifle is a Ruger Mini Thirty, this one shown in stainless-steel. It has been touted as "the world's most perfect deer rifle," especially designed for those situations where a few quick shots are necessary. It is a slightly larger version of the popular Ruger Mini-14 rifle, first introduced in 1975, in caliber .223 Remington, itself designed for small game and predator hunting. The world's most successful .22 carbine is next - the Ruger 10/22. First introduced in 1964, it is now also available in Deluxe Sporter and brand new target models, which are factory fitted with special Ruger hammer-forged stainless-steel barrels and target triggers for the superb rapid-fire accuracy demanded in today's action shooting competitive events, such as the National Shooting Sports Foundation's (NSSF) "Sportsman's Team Challenge". Another smallbore winner is next in line - the Ruger 77/22 Target rifle. With its bold laminated warp-proof target stock and heavy target-weight barrel, it was our first purpose-built smallbore target rifle when introduced last year. It is available in .22 LR, .22 WMR, and the classic .22 Hornet. Finally, a Ruger M77 MKll rounds off our display, this one a special "All-Weather" model with all stainless-steel construction and a precision injection-molded synthetic stock to make it impervious to the worst climatic conditions that are often found where the game and the hunts are toughest. M77 MKll rifles are also available in conventional blued steel and wood stocked models in all popular calibers. Our top-of-the-line luxury Express and Magnum models feature stocks of fancy cut-checkered Circassian walnut and barrels with integral quarter ribs and express-type sights. No finer production rifles can be found. To the right of our rifle array shows what the operator sees on his video monitor when peering into one of our electric-induction titanium melting furnaces during a "heat". This symbolizes the pioneering metallurgical processes at the heart of all Ruger firearms that have made it possible for the Company to manufacture high-quality firearms that represent genuine value to our customers and return consistent dividends to our stockholders. COMPANY PRODUCTS: Sturm, Ruger & Company, Inc. is engaged principally in the design, manufacture, and sale of pistols, revolvers, rifles, and shotguns for a variety of sporting purposes. The Company also produces and markets various models of police revolvers, pistols, rifles, and selected firearms for law enforcement agencies and military establishments. The Company's line of products consists of .22 caliber target pistols; single-action revolvers in various calibers from .22 to .44 Magnum; .22 caliber sporting carbines and target rifles, single-shot and bolt-action rifles in a wide variety of modern hunting calibers from .22 to .458 Magnum; hunting rifles in .223 and 7.62 x 39mm calibers; lever action rifles in .22 and .44 calibers; various models of double-action revolvers in calibers .22, .38 Special, .357 Magnum, and .44 Magnum; 9mm, .40, and .45 caliber pistols; police and military automatic rifles; and over-and-under shotguns in 12, 20, and 28 gauges. These firearms have been originated and engineered by the Company's own personnel, under the supervision of the present management, and are sold under the U.S. registered trademark "Ruger". The Company is also engaged in precision investment casting manufacturing using titanium, ferrous, and aluminum metals for a variety of outside customers of its Ruger Investment Casting, Pine Tree Castings, and Uni-Cast divisions. Foremost among these in 1995 was the "Great Big Bertha" series of titanium golf club heads produced for Callaway Golf Company, Inc. 3 STURM, RUGER & COMPANY, INC. 1995 Annual Report CONTENTS To Our Stockholders ....................................................... 2 Selected Financial Data ................................................... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................... 6 New Ruger Products for 1996 ............................................... 9 Ruger Titanium ............................................................ 10 Consolidated Balance Sheets ............................................... 12 Consolidated Statements of Income ............................................................... 14 Consolidated Statements of Stockholders' Equity .................................................... 14 Consolidated Statements of Cash Flows .............................................................. 15 Notes to Consolidated Financial Statements .............................................................. 16 Report of Independent Auditors ............................................ 22 Stockholder Information ................................................... 23 Directors and Officers .................................................... 24 Plant Locations ........................................................... 25
1 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 4 TO OUR STOCKHOLDERS [PHOTO of William B. Ruger, Chairman and Chief Executive Officer and William B. Ruger, Jr. Vice Chairman and Senior Executive Officer] We are denied the satisfaction on this occasion of being able to report another record-breaking year in 1995. Quite early in the year we perceived a marked fall-off in sales of our P-Series pistols which are manufactured in our Prescott, Arizona plant. We were in good company because this adverse trend affected all our competitors and was undoubtedly a reaction to exceptionally heavy sales that were experienced during 1993 and 1994. Inasmuch as this line of products is one of our most profitable, it had a great effect on the overall performance of the Company. Sales and earnings were adversely impacted to a significant extent. Specifically, sales for the entire Company were $192.5 million, net income after taxes was $26.2 million, and earnings per share were $1.95. In contrast, comparable figures for 1994 were sales of $196.4 million and net income after taxes of $34 million, equivalent to $2.53 per share. All our other product lines performed well during 1995. We look at 1995 as a transition year and feel that much was accomplished which will ensure that the Company remains the firearms industry leader and paves the way for growth in our investment casting operations and in the development of advanced products of metallurgical science. At the beginning of 1995, we were working actively to complete several major objectives, namely: - - development of our management organization - - enlargement of our plant capacity - - completion of a range of five or six important new products in the firearm category - - development of our capacity to manufacture golf club heads - - implementation of a strengthened marketing effort for firearms. All these objectives have been essentially achieved and we look toward 1996 as a year when we should realize the fruits of our long preparations which we worked on so ardently all through 1995. With respect to the firearm segment, a 65,000 square foot addition to the Newport, New Hampshire facility was completed, significantly increasing capacity at this plant. Incremental production increases were realized in the fourth quarter of the year. In 1996, the full impact of this added capacity will become evident. The demand for the products manufactured at this facility continues to be strong, and this 2 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 5 addition will enhance the Company's ability to meet this demand. In 1995, significant progress was made to bolster the Company's earnings from the casting segment. Initially, this was a result of the Company's agreement with Callaway Golf Company, Inc. ("Callaway") to produce their revolutionary "Great Big Bertha" golf club heads in titanium. Callaway's requirements for these heads vastly exceeded the capacity of our Prescott foundry. Accordingly, all through 1995 the facilities of our titanium foundry in Prescott have been augmented and improved, and substantial investments have been made, with a result that our Prescott foundry is probably one of the most advanced and well-equipped foundries in the world for the production of this class of castings. Furthermore, an agreement between the Company and Callaway set up a joint venture, Antelope Hills, LLC, owned on a 50-50 basis, for the purpose of building an additional foundry facility with the same capacity as the one currently operating. In October 1995, site preparation for the joint venture began. Plans call for construction of a 118,000 square foot building on a ten acre site contiguous to the present facility. It is planned that production from this new facility will begin sometime in the third quarter of 1996. Also in 1995, the Company entered into a licensing agreement with Lanxide Corporation whereby it obtained exclusive rights to Lanxide's patented technology to manufacture components for firearms and bicycles, and for the manufacture of golf club heads. Lanxide technology relates to the emerging area of inorganic composites such as ceramic-reinforced aluminum alloys. Parts made from this material have many advantages such as superior wear resistance, corrosion resistance, and dimensional stability, among others. During the year, new firearms product development continued unabated. As a result, the Company introduced the Ruger P95 pistol, Ruger Model 96 lever action rifle, and the Ruger 10/22T Target rifle at the 1996 SHOT Show in Dallas, Texas. The shortened and streamlined P95 features a rigid one-piece Isoplast polyurethane grip frame reinforced with glass fiber. Up-to-the-minute technology has made possible this amazing new grip frame. This strong, lightweight P-Series pistol is now in production and we are gratified by test results which prove its performance by all standards, and rate this firearm as the leader in its field. In addition, the new Ruger Model 96 lever action rifle started into production at the end of 1995 with excited and enthusiastic responses from experts and users. This new rifle will be made in .22 Long Rifle, .22 Magnum Rimfire, and .44 Magnum calibers and will be, to a large segment of the market, a rifle of choice for many sporting activities. The Ruger 10/22T autoloading target rifle, with a precision hammer-forged barrel, laminated warp-proof stock, and the reliable 10/22 action, was also introduced. All these products have shown signs of increasing our sales to a significant degree. On the legal front, we are pleased to report that at year's end only twenty-two product liability cases were pending. New cases have decreased steadily since the early 1980's, and most have involved our "old model" single-action revolvers, which were discontinued in 1973. Only about six such cases remain. The jury in our only trial in 1995 unanimously found, after a very brief deliberation, that the Ruger "old model" single-action revolver was not defective in design, nor had the Company been in any way negligent in conducting its ongoing free safety retrofit for these collectible revolvers. This is completely in accord with the vast majority of juries who have considered this question and similarly found the revolver to be safe to use when handled properly. Also, in recognition of common sense, four of the so-called "absolute liability" cases filed against the Company, which involved claims of liability for intentional criminal misuse of nondefective products, were dismissed in 1995. Even though these dismissals were in keeping with unanimous legal precedents holding that no such cause of action can exist, these cases always get much publicity when filed, but curiously little notice when they are dismissed. 3 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 6 TO OUR STOCKHOLDERS (continued) We hope our stockholders will take note of this and realize that such false "product liability" claims against manufacturers of nondefective products are a total affront, whether they involve a criminal igniting gasoline on a train or intentionally driving a car into a crowd. They are to be opposed regardless of the product involved, or every American manufacturer of any product which could conceivably be intentionally misused by a criminal would face ruinous liability without defense, standing any notion of personal responsibility on its head. During 1995, we were fortunate to have added several people to the Company's top management, which accomplished one of the goals established at the beginning of the year. Among these individuals is Gerald W. Bersett, who was elected President and Chief Operating Officer of the Company. He brings with him 30 years of experience with Olin Corporation, most recently as President of its Winchester Ammunition Division. John K. Thorne was appointed as the General Manager of Ruger Investment Casting and Antelope Hills foundry. He brings extensive experience in the titanium casting field and holds a Ph.D. in Metallurgical Engineering from the University of Michigan. John T. Burke, formerly of Lanxide Corporation, was appointed as General Manager of the Company's Uni-Cast division and will direct the Company's efforts to capitalize on the recently acquired Lanxide technology previously cited. In conclusion, while the 1995 operating results were less than desired, we feel that during the course of the year we have placed the Company in a strong position to take advantage of future opportunities, not only in the firearms field but also in the high technology segment of the investment casting market. The entire Company seems stimulated by and enthusiastic about these programs, and all through the year we have been gratified and charmed by the enthusiasm and support of the efforts given by the almost two thousand men and women who constitute Sturm, Ruger. /s/ William B. Ruger William B. Ruger Chairman and Chief Executive Officer /s/ William B. Ruger, Jr. William B. Ruger, Jr. Vice Chairman and Senior Executive Officer February 26, 1996 4 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 7 SELECTED FINANCIAL DATA (Dollars in thousands, except per-share data)
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- Net firearm sales......................... $ 155,622 $ 180,079 $ 176,203 $ 138,967 $ 124,791 Net casting sales......................... 36,847 16,358 17,996 17,108 11,990 - ------------------------------------------------------------------------------------------------------------------- Total net sales........................... $ 192,469 $ 196,437 $ 194,199 $ 156,075 $ 136,781 - ------------------------------------------------------------------------------------------------------------------- Cost of products sold..................... $ 134,930 $ 125,439 $ 123,336 $ 105,826 $ 97,018 Gross profit.............................. 57,539 70,998 70,863 50,249 39,763 Income before income taxes and cumulative effect of accounting change............. 43,846 56,992 55,997 37,142 24,262 Income taxes.............................. 17,670 22,943 22,768 14,991 9,690 Net income................................ 26,176 34,049 32,789 22,151 14,572 Net income per share...................... 1.95 2.53 2.44 1.65 1.08 Cash dividends per share.................. 1.40 1.20 1.05 1.25 .60
December 31, - ------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- Working capital........................... $ 91,942 $ 93,852 $ 81,504 $ 65,358 $ 60,911 Total assets.............................. 178,552 169,492 150,085 124,185 115,961 Total stockholders' equity................ 133,735 126,295 108,389 89,725 84,389 Book value per share...................... 9.94 9.39 8.06 6.67 6.27 Return on stockholders' equity............ 20.1% 29.0% 33.1% 25.4% 17.9% Current ratio............................. 4.6 to 1 4.8 to 1 4.3 to 1 4.5 to 1 4.8 to 1 Common shares outstanding................. 13,455,400 13,452,400 13,452,400 13,452,400 13,452,400 Number of stockholders of record.......... 1,678 1,478 1,400 1,164 1,134 Number of employees....................... 1,937 1,905 1,719 1,549 1,410
Selected Financial Data should be read in conjunction with the Consolidated Financial Statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations. [Bar Graph of [Bar Graph of [Bar Graph of [Bar Graph of Net Sales in Net Income in Stockholders Net Income Millions of Dollars Millions of Dollars Equity in Percent in Dollars for 1991-1995] for 1991-1995] for 1991-1995] for 1991-1995] 5 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company's sales are comprised of the sales of firearms and investment castings. The Company is the only U.S. firearms manufacturer which offers products in all four industry categories--pistols, revolvers, rifles, and shotguns. Investment castings are manufactured using titanium, ferrous, and aluminum metals. RESULTS OF OPERATIONS Year ended December 31, 1995, as compared to year ended December 31, 1994: Consolidated net sales of $192.5 million were reached by the Company in 1995, a decrease of $4.0 million or 2.0% from 1994 consolidated net sales of $196.4 million. Firearm segment net sales decreased in 1995 by $24.5 million or 13.6% to $155.6 million from $180.1 million in 1994. The decrease in firearm unit shipments of 12.8% was primarily attributable to weak consumer demand throughout most of the year for pistols, which are manufactured in the Company's Prescott, Arizona facility. In the fourth quarter of 1995, the Company offered a special sales promotion on most pistol models. This program, which reduced the average selling price of these pistols by 10% to 30%, had the impact of producing significantly greater sales quantities than those anticipated if the program had not been offered. At the present time, the Company anticipates that weak consumer demand for pistol products will continue at least through the first part of 1996. In an effort to stimulate sales of pistols, the Company commenced a sales promotion program in February 1996, that provides discounts of up to 10% on certain pistol models based on customer purchases. The impact of this program on sales or operating results of the Company cannot be estimated at the present time. Sales of firearms in the other industry product categories -- revolvers, rifles, and shotguns -- remained strong in 1995 with consumer demand for these products being substantially in excess of the production capacity of the Company's Newport, New Hampshire facility through most of the year. In the third quarter of 1995, the outfitting of machinery and equipment in the 65,000 square foot addition to the Newport facility was completed which enabled the facility to realize significant firearm production increases in the fourth quarter. Casting segment net sales increased by 125.3% to $36.8 million in 1995 from $16.4 million in 1994. This increase was achieved by Ruger Investment Casting commencing the shipment of "Great Big Bertha" titanium golf club heads to Callaway Golf Company, Inc. ("Callaway") in the first quarter of 1995. The Company invested considerable resources in late 1994 and throughout 1995 to significantly increase its capacity to produce titanium investment castings. Higher production quantities of "Great Big Bertha" titanium golf club heads were achieved beginning in the latter part of the third quarter and increased steadily through the fourth quarter of 1995. Consolidated cost of products sold for 1995 was $134.9 million compared to $125.4 million for 1994, an increase of $9.5 million or 7.6%. This increase was primarily attributable to a number of factors which affected both the firearm and casting segments, consisting of an unfavorable firearm product sales mix, costs incurred by Ruger Investment Casting to expand capacity for the production of an increasing number of titanium golf club heads, inefficiencies from decreased firearm unit production at the Company's Prescott, Arizona facility, and increases in casting segment sales which had higher manufacturing costs as a percentage of sales dollars. During the third quarter of 1995, the Company implemented certain steps that reallocated production capacity from the Prescott firearms facility. Specifically, the Company transferred skilled production employees and manufacturing floor space to Ruger Investment Casting. Also, significant process changes in the manufacturing of titanium golf club heads were made in the fourth quarter of 1995 which had a positive impact on both production and operating margins. Additional efforts in these areas continue. In June 1995, the Company entered into a joint venture agreement with Callaway to collaborate in the construction of a new investment casting foundry, Antelope Hills, LLC, for the production of titanium golf club heads. Under the terms of this agreement, Callaway has committed to purchase a quantity of titanium golf club heads with sales totalling a minimum of approximately $150 million in the years 1996 through 1998. Antelope Hills foundry is expected to be operational and commence production in the third quarter of 1996. As a result of the foregoing and the impact of the special sales promotion offered on most firearm pistol models in the fourth quarter of 1995, gross profit as a percentage of net sales decreased to 29.9% in 1995 from 36.1% in 1994. Selling, general and administrative expenses increased nominally by 1.5% to $17.0 million in 1995 from $16.7 million in 1994. This increase was primarily due to the addition of a new executive officer to the Company. Other income-net increased in 1995 compared to 1994 primarily as a result of interest rates on Treasury Bills which while declining during 1995, generally were higher than those prevailing during most of 1994. This more than offset the decrease in average fund balances available for investment in 1995. The effective tax rate remained unchanged in 1995 from 1994 at 40.3%. 6 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 9 As a result of the foregoing factors, consolidated net income for 1995 decreased to $26.2 million from $34.0 million for 1994 or by $7.9 million and 23.1%. Year ended December 31, 1994, as compared to year ended December 31, 1993: All share and per-share amounts have been adjusted to reflect the two-for-one stock split on May 14, 1993. Record consolidated net sales of $196.4 million were achieved by the Company in 1994, an increase of $2.2 million or 1.2% from 1993 net sales of $194.2 million. This increase was the result of a $3.9 million or 2.2% increase in firearm segment sales which offset a $1.6 million or 9.1% decrease in casting segment sales. The firearm segment increase was due to continued strong customer demand for virtually all of the Company's firearm products which increased unit sales by 1.6%. The limiting factors in this increase were lack of production capacity to meet customer demand and the fact that the Company began 1994 with the lowest finished goods inventory since the 1980's. The nominal increase in unit sales was accomplished as a result of a 7.6% increase in unit production. Casting segment sales decreased as a result of the Company being more selective in accepting work for outside customers and a continued increase in demand by the Company's firearm segment for castings to accommodate increased production schedules. Gross profit as a percent of net sales decreased to 36.1% in 1994 from 36.5% in 1993, while remaining relatively constant in dollars, $71.0 million versus $70.9 million, respectively. The percent change is caused primarily by higher costs in 1994 due to the effect of higher LIFO inventory quantities. Selling, general and administrative expenses increased nominally by 1.7% to $16.7 million in 1994, versus $16.4 million in 1993. This increase was primarily from increased marketing costs. Other income-net increased from $1.6 million in 1993 to $2.7 million in 1994 as a result of the Company having higher cash balances available for investment as well as interest rates in 1994 being significantly higher than in 1993. The effective tax rate declined from 40.7% in 1993 to 40.3% in 1994 due to lower state taxes. As a result of the foregoing factors, consolidated net income for 1994 increased only marginally from $32.8 million in 1993 to $34.0 million, or by $1.3 million and 3.8%. FINANCIAL CONDITION At December 31, 1995, the Company had cash, cash equivalents, and short-term investments of $47.1 million, working capital of $91.9 million, and a current ratio of 4.6 to 1. Cash provided by operating activities was $16.9 million, $35.4 million, and $49.5 million for the years ended Dec-ember 31, 1995, 1994, and 1993, respectively. The 1995 decrease from 1994 is the result of a decline in net income of $7.9 million as well as an increase in inventory of $15.2 million in 1995. This is in contrast with an increase of $1.3 million in net income in 1994 offset by an increase of $5.8 million in inventories in 1994. Future inventory levels will be determined by a number of conditions, including market demand for the Company's products, production capabilities, and the Company's ability to obtain raw materials at favorable prices. The Company follows an industry-wide practice of offering a "dating plan" to its firearm customers on selected products, which allows the purchasing distributor to buy the products commencing in December, the start of the Company's dating plan year, and pay for them on extended terms. Discounts are offered for early payment. The dating plan provides a revolving payment plan under which payments for all shipments made during the period December through March have to be made by April 30. Shipments made in subsequent months are required to be paid for within 90 days. Dating plan receivable balances were $7.9 million at December 31, 1995, as compared to $6.1 million at December 31, 1994. The Company has reserved the right to discontinue the dating plan at any time. Throughout 1995, 1994, and 1993, the Company has been able to finance this dating plan from internally generated funds provided by operating activities and has not found it necessary to discontinue the dating plan at any time during the period due to insufficient cash flow. The Company's production of "Great Big Bertha" titanium golf club heads requires a certain titanium metal alloy. Presently the Company buys all of its titanium metal alloys under a short-term (approximately one year) purchasing arrangement from one supplier. Although there are a limited number of companies that produce titanium metal alloys, management believes that other suppliers could provide the Company with the required titanium metal alloys. However, the purchase price of the metals to the Company may be significantly higher which could have a negative financial impact on the Company's operations. The Company believes that it has adequate quantities of titanium metal alloys in inventory to provide enough time to locate another supplier without interruption of manufacturing operations. Capital expenditures and acquisitions for the past three years averaged $11.8 million per year. These have all been financed through funds provided from operations. The Company has budgeted for 1996, $10.4 million in capital expenditures and an additional $5.1 million as its share of capital to complete construction and outfit with machinery the Antelope Hills foundry. The Company intends to continue to finance all of these activities through funds provided from operations. This reduction from 1995 capital expenditures of $15.7 million is the result of the Company having completed both a 65,000 square foot addition to the Newport Firearm division and a 17,000 square foot addition to the Ruger Investment Casting division during 1995. In 1995, dividends paid totaled $18.8 million. This amount reflects regular quarterly dividends of $.35 per share paid on March 15, 1995, June 15, 1995, September 7 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 15, 1995, and December 15, 1995. On January 11, 1996, the Company increased its regular quarterly dividend from $.35 per share to $.40 per share commencing with the March 15, 1996 payment. Future dividends depend on many factors, including internal estimates of future performance and the Company's need for funds. Historically, the Company has not required external financing. Based on its cash flow and unencumbered assets, the Company believes it has the ability to raise substantial amounts of short-term or long-term debt. The Company does not anticipate any need for external financing through 1996. The purchase of firearms is subject to federal, state, and local governmental regulations. The basic federal laws are the National Firearms Act and the Federal Firearms Act. 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, or to impose a mandatory waiting period prior to their purchase. Several states currently have laws in effect similar to the aforementioned legislation. The "Brady Law" mandating a nationwide 5-day waiting period prior to the purchase of a handgun, was signed into law in November 1993, and became effective February 28, 1994. The Company believes that, because its customers are sportsmen, hunters, gun collectors, and law enforcement agencies, and since approximately 26 states already had enacted some form of a waiting period prior to purchase, the "Brady Law" has not had a significant effect on the Company's sales of firearms. 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 currently manufactured long guns have been exempted by name as "legitimate sporting firearms". A separate provision of the "Crime Bill" prohibited production or sale of detachable magazines of over 10-round capacity manufactured after September 13, 1994, other than to law enforcement agencies. Only two such magazines (9mm and .40 caliber) were commercially sold by the Company, and production of substitute 10-round magazines in these calibers (approved by the BATF) began immediately. The Company remains strongly opposed to laws which would unduly restrict the rights of law-abiding citizens to acquire firearms for legitimate purposes. The Company believes that the private ownership of firearms is guaranteed by the Second Amendment to the United States Constitution and that the widespread private ownership of firearms in the United States will continue. However, there can be no assurances that the regulation of firearms will not become more restrictive in the future or that any such restriction would not have a material adverse effect on the business of the Company. The Company has expended significant amounts of financial resources and management time in connection with product liability litigation. While it is difficult to forecast the outcome of litigation or the timing of costs, management believes, after consultation with its special and corporate counsel, that this litigation will not have a material adverse effect on the financial condition of the Company. The Company is not aware of any adverse trends in its litigation as a whole. In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. The Company believes that it is generally in compliance with applicable environmental regulations and the outcome of such proceedings and orders will not have a material effect on its business. The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carryback against taxes previously paid. Inflation's effect on the Company's operations is most immediately felt in the cost of products sold because the Company values inventory on the LIFO basis. Generally, under this method, the cost of products sold reported in the financial statements approximates current costs, and thus reduces distortion in reported income which would result from the slower recognition of increased costs when other methods are used. However, in 1993 a LIFO inventory liquidation reduced the costs of products sold below current costs. The use of historical cost depreciation has a beneficial effect on cost of products sold. The Company has been affected by inflation in line with the general economy. In 1995, the rate of inflationary cost increases was slightly lower than in 1994, and in 1994 was slightly higher than in 1993. RECENT DEVELOPMENTS As of January 31, 1996, unfilled firearms orders were less than unfilled orders as of January 31, 1995. The majority of the decrease is the result of the significant reduction in orders for the Company's pistols, both rimfire and centerfire, which are manufactured in Prescott, Arizona. The impact of the Company's recently introduced firearm models on unfilled orders is not readily determinable at this time. It is anticipated that demand for these new models will be strong. 8 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 11 NEW RUGER PRODUCTS FOR 1996 THE RUGER MODEL 96 LEVER ACTION RIFLE [GRAPHIC OF RIFLE] Ruger's first lever action rifle will be offered in three calibers -- .22 Long Rifle, .22 Magnum Rimfire, and .44 Magnum. It features the classic appeal of the lever action with an all-new Ruger mechanism using Ruger's patented rotary magazine for unparalleled reliability. THE RUGER MODEL 10/22T TARGET RIFLE [GRAPHIC OF RIFLE] Advanced Ruger manufacturing technology has created a superbly accurate .22 caliber target rifle for today's popular "action shooting" events. It combines the speed and reliability of Ruger's famous 10/22 rifle with the accuracy of a heavyweight hammer-forged target barrel, and features a warp-proof laminated stock, to create a sure winner. THE RUGER MODEL MK-4B PISTOL [GRAPHIC OF PISTOL] The newest version of the original Ruger .22 caliber pistol features a shorter, heavyweight barrel with target sights and attractive laminated thumb-rest grips. It is a natural for the trail, target range, or tackle box. THE RUGER P95 PISTOL [GRAPHIC OF PISTOL] A new (patent pending) mechanism allows the use of an Isoplast polymer grip frame in a compact, lightweight, high-powered pistol without sacrificing the durability, reliability, and price advantages that have made the Ruger P-Series pistols so popular during the last ten years. 9 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 12 RUGER TITANIUM Titanium is a metal element that was first isolated almost 200 years ago, but only in the past 40 years has it been used in industrial applications. Titanium ores are abundantly found throughout the world. However, the metal is relatively expensive due to the necessity of using specialized chemical and metallurgical technologies to extract the metal from its ore. Casting the metal requires utilizing advanced equipment and foundry practices. With high strength, low density, and excellent corrosion resistance, titanium alloys have been widely used in aircraft engine and airframe applications. Other more recent uses include medical prosthetic devices, marine hardware, chemical process equipment, and recreational products. Titanium alloys, developed for aerospace applications, have quickly become the material of choice for high performance, top-of-the-line golf metal woods. The combination of high strength and low density permits club head size to be increased without changing overall swing weight. Improved perimeter-weighted design flexibility is possible to create a much larger "sweet spot" on the club head face, because titanium is 40% less dense than stainless-steel. The low elastic modulus of titanium creates a hitting surface with more rebound than stainless-steel, translating into longer drives. Golf club heads made of Ruger Titanium" alloy are used by Callaway Golf Company, Inc. for its "Great Big Bertha" metal woods, the best selling and highest performance design of the more than two dozen manufacturers now marketing titanium clubs. Sturm, Ruger & Company, Inc. manufactures titanium alloy golf club heads at its Ruger Invest-ment Casting division in Prescott, Arizona. A new $14 million, 118,000 sq. ft. manufacturing plant is being constructed immediately adjacent to the present facility to double total titanium golf club head manufacturing capacity. This new facility, Antelope Hills, LLC, is a 50/50 joint venture of the Company and Callaway. Production is scheduled to begin in the third quarter of 1996. The combined manufacturing complex will comprise one of the largest titanium foundry operations in the United States. [PHOTO] Pictured above (as the background) is the inside of a titanium furnace during a heat as seen from the control monitor. 10 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 13 [PHOTO] Pictured above (as the background) is the inside of a titanium furnace during a heat as seen from the control monitor. 11 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 14 CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per-share data)
December 31, 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,633 $ 7,719 Short-term investments 43,477 58,650 Trade receivables, less allowances for doubtful accounts ($981 and $900) and discounts ($871 and $650) 19,864 17,889 Inventories: Finished products 6,039 1,672 Materials and products in process 36,253 25,432 - ----------------------------------------------------------------------------------------- 42,292 27,104 Deferred income taxes 7,231 6,077 Prepaid expenses and other assets 1,044 1,123 - ----------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 117,541 118,562 PROPERTY, PLANT, AND EQUIPMENT Land and improvements 3,423 3,304 Buildings and improvements 20,087 16,846 Machinery and equipment 67,913 56,865 Dies and tools 19,449 18,143 - ----------------------------------------------------------------------------------------- 110,872 95,158 Allowances for depreciation (66,742) (59,866) - ----------------------------------------------------------------------------------------- 44,130 35,292 DEFERRED INCOME TAXES 4,338 4,532 INVESTMENT IN JOINT VENTURE (NOTE 3) 1,645 -- OTHER ASSETS 10,898 11,106 - ----------------------------------------------------------------------------------------- TOTAL ASSETS $ 178,552 $ 169,492 =========================================================================================
See accompanying notes. 12 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 15
December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 3,346 $ 4,825 Accrued expenses 647 1,254 Product safety modifications 1,439 1,548 Product liability 3,000 3,000 Employee compensation 7,888 7,024 Workers' compensation 6,262 6,318 Income taxes 3,017 741 - ------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 25,599 24,710 PRODUCT LIABILITY ACCRUAL 19,218 18,487 CONTINGENT LIABILITIES (NOTE 6) -- -- STOCKHOLDERS' EQUITY Common Stock, non-voting, par value $1: Authorized shares -- 50,000; none issued Common Stock, par value $1: Authorized shares -- 20,000,000 Issued and outstanding shares -- 13,455,400 and 13,452,400 13,455 13,452 Additional paid-in capital 2,380 2,283 Retained earnings 117,900 110,560 - ------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 133,735 126,295 - ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,552 $169,492 =================================================================================================
13 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 16 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per-share data)
Year ended December 31, ............................ 1995 1994 1993 Net sales .......................................... $ 192,469 $ 196,437 $ 194,199 Cost of products sold .............................. 134,930 125,439 123,336 - ----------------------------------------------------------------------------------------------------- Gross profit ....................................... 57,539 70,998 70,863 Expenses: Selling ................................... 12,345 12,399 12,109 General and administrative ................ 4,612 4,304 4,322 - ----------------------------------------------------------------------------------------------------- 16,957 16,703 16,431 - ----------------------------------------------------------------------------------------------------- 40,582 54,295 54,432 Other income-net, principally interest ............. 3,264 2,697 1,565 - ----------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............... 43,846 56,992 55,997 Income taxes ....................................... 17,670 22,943 22,768 - ----------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 26,176 34,049 33,229 Cumulative effect of accounting change ............. -- -- (440) - ----------------------------------------------------------------------------------------------------- NET INCOME ......................................... $ 26,176 $ 34,049 $ 32,789 INCOME PER SHARE: Income before cumulative effect of accounting change $ 1.95 $ 2.53 $ 2.47 Cumulative effect of accounting change ............. -- -- (.03) - ----------------------------------------------------------------------------------------------------- NET INCOME ......................................... $ 1.95 $ 2.53 $ 2.44 CASH DIVIDENDS PER SHARE ........................... $ 1.40 $ 1.20 $ 1.05 - -----------------------------------------------------------------------------------------------------
See accompanying notes. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Additional Common Paid-In Retained Stock Capital Earnings - ----------------------------------------------------------------------------------------------------- Balance at December 31, 1992 ....................... $ 13,452 $ 2,283 $ 73,990 Net income ................................ 32,789 Cash dividends ............................ (14,125) - ----------------------------------------------------------------------------------------------------- Balance at December 31, 1993 ....................... 13,452 2,283 92,654 Net income ................................ 34,049 Cash dividends ............................ (16,143) - ----------------------------------------------------------------------------------------------------- Balance at December 31, 1994 ....................... 13,452 2,283 110,560 Net income ................................ 26,176 Issuance of 3,000 shares of Common Stock .. 3 97 -- Cash dividends ............................ (18,836) - ----------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 ....................... $ 13,455 $ 2,380 $ 117,900 =====================================================================================================
See accompanying notes. 14 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 17 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year ended December 31, 1995 1994 1993 OPERATING ACTIVITIES Net income ................................................... $ 26,176 $ 34,049 $ 32,789 Adjustments to reconcile net income to cash provided by operating activities: Depreciation ............................................. 6,876 5,281 4,352 Issuance of restricted stock ............................. 100 -- -- Net provision for product safety modifications ........... (109) (157) (92) Provision for product liability claims, net of payments of $3,269, $2,564, and $2,958 ............................. 731 1,436 1,042 Deferred income taxes .................................... (960) (1,036) (732) Decrease (increase) in trade receivables ................. (1,975) 1,374 (1,935) Decrease (increase) in inventories ....................... (15,188) (5,757) 8,145 Increase (decrease) in trade accounts payable ............ (1,479) 1,900 442 Net decrease in prepaid expenses, other assets, and other liabilities .................... 488 1,688 2,298 Net increase (decrease) in current income taxes payable ................................... 2,276 (3,414) 3,240 - ------------------------------------------------------------------------------------------------------------------ Cash provided by operating activities .................... 16,936 35,364 49,549 INVESTING ACTIVITIES Property, plant, and equipment additions ..................... (15,714) (12,434) (7,291) Purchases of short-term investments .......................... (158,953) (168,621) (199,475) Proceeds from sales or maturities of short-term investments ..................................... 174,126 161,883 176,724 Investment in joint venture .................................. (1,645) -- -- - ------------------------------------------------------------------------------------------------------------------ Cash used by investing activities ........................ (2,186) (19,172) (30,042) FINANCING ACTIVITIES Dividends paid ............................................... (18,836) (16,143) (14,125) - ------------------------------------------------------------------------------------------------------------------ Cash used by financing activities ........................ (18,836) (16,143) (14,125) - ------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............... (4,086) 49 5,382 Cash and cash equivalents at beginning of year ................. 7,719 7,670 2,288 - ------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 3,633 $ 7,719 $ 7,670 ==================================================================================================================
See accompanying notes. 15 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sturm, Ruger & Company, Inc. ("Company") is principally engaged in the design, manufacture, and sale of firearms and investment castings. The Company's design and manufacturing operations are located in the United States. Substantially all sales are domestic. The Company's firearms are sold through a select number of distributors to the sporting and law enforcement markets. Investment castings are sold either directly to or through manufacturer representatives to companies in a wide variety of industries. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. A joint venture, of which the Company owns 50%, is accounted for using the equity method (See Note 3). All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS The Company considers interest-bearing deposits with financial institutions with remaining maturities of three months or less at the time of acquisition to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments are recorded at cost plus accrued interest, which approximates market, and are principally United States Treasury Bills, all maturing within one year. The income from short-term investments is included in other income--net. The Company intends to hold these investments until maturity. INVENTORIES Inventories are stated at the lower of cost, principally determined by the last-in, first-out (LIFO) method, or market. If inventories had been valued using the first-in, first-out method, inventory values would have been higher by approximately $33.1 million and $32.3 million at December 31, 1995 and 1994, respectively. During 1993, 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 increased net income by approximately $779,000 or $.06 per share. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated on the basis of cost. Depreciation is computed by the straight-line and declining balance methods. INCOME TAXES The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as of January 1, 1993. SFAS No. 109 changed the method of accounting for income taxes from the deferred to the liability method. Under the liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The cumulative effect at January 1, 1993, of this change in accounting for income taxes reduced net income by $440,000 ($.03 per share) and resulted in a corresponding reduction in deferred income tax assets. Prior year consolidated financial statements were not restated to apply the provisions of SFAS No. 109. PRODUCT LIABILITY The Company provides for product liability claims. The provision for product liability claims is charged to cost of products sold. ADVERTISING COSTS The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 1995, 1994, and 1993 were $2.1 million, $2.1 million, and $2.4 million, respectively. 16 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NET INCOME PER COMMON SHARE Net income per common share is based upon the weighted-average number of common shares outstanding during the year which was 13,453,468 in 1995 and 13,452,400 in 1994 and 1993. Common Stock equivalents represent shares awarded, but not issued, pursuant to the Company's Stock Bonus Plan (See Note 5). Common Stock equivalents in 1995, 1994, and 1993 were immaterial. The Company effected a two-for-one stock split, in the form of a 100% stock dividend, distributed on May 14, 1993 to stockholders of record on May 7, 1993. All share and per-share amounts have been adjusted to reflect this split. OTHER In 1995, the Financial Accounting Standards Board issued SFAS No.121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Company plans to adopt this Statement in the first quarter of 1996 and is currently studying its impact which is not expected to have a material effect on the Company's financial position. 2. INCOME TAXES Federal and state income taxes (benefit) consisted of the following (in thousands):
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Current Deferred Current Deferred Current Deferred - ------------------------------------------------------------------------------------------------------------------- Federal ....... $ 15,292 $ (775) $ 19,485 $ (841) $ 18,783 $ (914) State ......... 3,338 (185) 4,494 (195) 5,157 (258) - ------------------------------------------------------------------------------------------------------------------- $ 18,630 $ (960) $ 23,979 $ (1,036) $ 23,940 $ (1,172) - -------------------------------------------------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31, 1995 1994 - ----------------------------------------------------------------------------------- Deferred tax assets: Product liability ............................ $ 8,887 $ 8,460 Employee compensation ........................ 2,047 1,884 Product safety modifications ................. 575 619 Allowances for doubtful accounts and discounts 741 620 Inventory .................................... 1,113 985 Other ........................................ 2,186 1,520 - ----------------------------------------------------------------------------------- Total deferred tax assets ............................. 15,549 14,088 - ----------------------------------------------------------------------------------- Deferred tax liabilities: Prepaid insurance ............................ 372 499 Depreciation ................................. 2,065 1,319 Pension plans ................................ 1,543 1,661 - ----------------------------------------------------------------------------------- Total deferred tax liabilities ........................ 3,980 3,479 - ----------------------------------------------------------------------------------- Net deferred tax assets ............................... $11,569 $10,609 ===================================================================================
17 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The effective income tax rate varied from the statutory Federal income tax rate as follows:
Year ended December 31, 1995 1994 1993 - ----------------------------------------------------------------------------------------- Statutory Federal income tax rate ............ 35.0% 35.0% 35.0% State income taxes, net of Federal tax benefit 4.7 5.0 6.0 Other items .................................. .6 .3 (.3) - ----------------------------------------------------------------------------------------- Effective income tax rate .................... 40.3% 40.3% 40.7% =========================================================================================
The Company made income tax payments of approximately $16.4 million, $27.4 million, and $20.7 million during 1995, 1994, and 1993, respectively. 3. JOINT VENTURE The Company entered into a joint venture agreement with Callaway Golf Company, Inc. ("Callaway") to plan, develop, build, and operate a foundry for the production of golf club heads investment cast in titanium. The joint venture named Antelope Hills, LLC, is owned 50% by the Company and 50% by Callaway. The Company has been designated as the manager of the facility and is responsible for all daily activity and recordkeeping. Construction of the Antelope Hills foundry is currently underway and is expected to be completed in the third quarter of 1996. 4. PENSION PLANS The Company and its subsidiaries sponsor two defined benefit pension plans which cover substantially all hourly (Hourly Plan) and salaried (Salaried Plan) employees. Benefits under the Salaried Plan are based on an employee's number of years of service, basic compensation during the last five years of employment, and Social Security "Covered Compensation". Benefits under the Hourly Plan are based on the number of years of an employee's service. The Company's funding policy is to contribute annually to fund each plan's normal cost and provide for amortization of any unfunded prior service cost over a period of approximately twenty years. The Company also sponsors a defined contribution pension plan (Profit Sharing Plan) which covers substantially all of its salaried employees and a non-qualified defined contribution pension plan (Supplemental Executive Profit Sharing Plan) which covers certain of its salaried employees. Contributions to these plans are determined annually by the Company's Board of Directors and, in the case of the Profit Sharing Plan, contributions cannot exceed the maximum amount deductible for Federal income tax purposes. A summary of the components of net periodic pension cost for the defined benefit pension plans and amounts charged to pension expense for the defined contribution plans were as follows (in thousands):
- ------------------------------------------------------------------------------------------------ Year ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------ Defined benefit plans: Service cost--benefits earned during the period .. $ 817 $ 832 $ 615 Interest cost on projected benefit obligation .... 1,472 1,278 1,205 Actual return on plan assets ..................... (3,249) 550 (2,446) Net amortization and deferral .................... 1,687 (2,478) 816 - ------------------------------------------------------------------------------------------------ Net periodic pension cost of defined benefit plans 727 182 190 Profit Sharing Plan ................................ 706 684 687 Supplemental Executive Profit Sharing Plan ....................................... 285 211 165 - ------------------------------------------------------------------------------------------------ Net periodic pension cost .......................... $ 1,718 $ 1,077 $ 1,042 - ------------------------------------------------------------------------------------------------
18 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company's defined benefit pension plans (in thousands):
December 31, 1995 1994 - --------------------------------------------------------------------------------------------------- Actuarial present value of accumulated benefit obligation, including vested benefits of $21,200 in 1995 and $15,161 in 1994 .................................................. $(21,918) $(15,722) - --------------------------------------------------------------------------------------------------- Actuarial present value of projected benefit obligation for services rendered to date ........................................ $(23,611) $(16,727) Plans' assets (unallocated insurance contracts) at contract value... 21,784 18,552 - --------------------------------------------------------------------------------------------------- Plans' assets in excess of projected benefit obligation ............ (1,827) 1,825 Prior service cost not yet recognized in net periodic pension cost.. 1,536 1,679 Unrecognized net gain from past experience, different from that assumed, and effects of changes in assumptions .............. 3,640 (35) Unrecognized net asset from date of adoption of SFAS No. 87 (January 1, 1987) .................................... (818) (938) - --------------------------------------------------------------------------------------------------- Prepaid pension cost ............................................... $ 2,531 $ 2,531 - ---------------------------------------------------------------------------------------------------
Hourly Plan Salaried Plan - ------------------------------------------------------------------------------------------------------------ December 31, December 31, 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Summary of significant actuarial assumptions used: Discount rate 7% 8% 7% 7% 8% 7% Rate of increase in compensation levels N/A N/A N/A 5% 5% 5% Expected long-term rate of return on assets 9% 9% 9% 9% 9% 9%
In 1995, the Company changed certain actuarial assumptions used in the pension accounting calculation for its defined benefit pension plans. The discount rate was reduced to 7% per annum and a more current mortality table was adopted. These changes increased the projected benefit obligation by approximately $5 million at December 31, 1995. 5. STOCK BONUS PLAN 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, 1995, 251,000 shares of Common Stock are reserved for future awards. 6. CONTINGENT LIABILITIES The Company is a defendant in approximately 22 lawsuits involving product liability claims and is aware of other product liability claims which allege defective product design. 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. In many of the lawsuits, punitive damages, as well as compensatory damages, are demanded. Aggregate claimed amounts presently exceed product liability accruals and, if applicable, insurance coverage. Management believes that, in every case, the allegations of defective product design are unfounded, and that the accident and any results therefrom were due to negligence or misuse of the firearm by the claimant or a third party and that there should be no recovery against the Company. The Company's management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. The number of lawsuits and claims that were tried, dismissed, settled or otherwise resolved, and average settlement payments (excluding legal fees) were as follows: 1995--18 and $46,000, 1994--24 and $55,000. While it is difficult to forecast the outcome of these claims, in the opinion of management, after consultation with special and corporate counsel, the outcome of these claims will not have a material adverse effect on the results of operations or financial condition of the Company. 19 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. INDUSTRY SEGMENT DATA AND CONCENTRATIONS OF CREDIT RISK The Company's business segments are engaged in manufacturing firearms and investment castings. Corporate assets consisting principally of cash and cash equivalents, short-term investments, and deferred taxes have been segregated along with related income; however, general corporate expenses are allocated to the segments in relation to the size of their operations. The Company's manufacturing operations are located in the United States of America and export sales are not significant. Intersegment sales are accounted for at cost. The firearm segment's principal markets are sporting and law enforcement. Distribution is mainly through a select number of distributors primarily located throughout the United States. Sales of firearms to two distributors accounted for approximately 12% and 9% of 1995, 15% and 8% of 1994, and 16% and 9% of 1993 consolidated net sales, respectively. The casting segment's principal markets are sporting goods, commercial, and military. Sales are made directly to customers and through manufacturers' representatives. In 1995, sales of castings to one customer accounted for approximately 12% of consolidated net sales.
Year ended December 31, (in thousands) 1995 1994 1993 - --------------------------------------------------------------------------------- Net Sales Firearm ................................. $ 155,622 $ 180,079 $ 176,203 Casting Unaffiliated .......................... 36,847 16,358 17,996 Intersegment .......................... 30,956 33,468 23,809 - --------------------------------------------------------------------------------- 67,803 49,826 41,805 Eliminations ............................ (30,956) (33,468) (23,809) - --------------------------------------------------------------------------------- $ 192,469 $ 196,437 $ 194,199 ================================================================================= Income Before Income Taxes Firearm ................................. $ 34,778 $ 51,275 $ 50,730 Casting ................................. 6,051 3,204 3,859 Corporate (principally interest income).. 3,017 2,513 1,408 - --------------------------------------------------------------------------------- $ 43,846 $ 56,992 $ 55,997 ================================================================================= Identifiable Assets Firearm ................................. $ 80,006 $ 68,734 $ 62,653 Casting ................................. 34,730 18,655 13,175 Corporate ............................... 63,816 82,103 74,257 - --------------------------------------------------------------------------------- $ 178,552 $ 169,492 $ 150,085 ================================================================================= Depreciation Firearm ................................. $ 4,523 $ 3,782 $ 3,259 Casting ................................. 2,353 1,499 1,093 - --------------------------------------------------------------------------------- $ 6,876 $ 5,281 $ 4,352 ================================================================================= Capital Expenditures Firearm ................................. $ 7,245 $ 8,009 $ 5,211 Casting ................................. 8,469 4,425 2,080 - --------------------------------------------------------------------------------- $ 15,714 $ 12,434 $ 7,291 =================================================================================
20 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company performs periodic credit evaluations of its distributors' and other customers' financial condition and generally does not require collateral. The Company has a concentration of trade receivables from five firearm distributors aggregating $8.1 million (ranging from $.8 million to $2.5 million) and $7.8 million (ranging from $1.0 million to $3.2 million) as of December 31, 1995 and 1994, respectively. These distributors sell to numerous retailers and dealers in different regions of the country. The Company has a trade receivable with one casting segment customer of $5.1 million as of December 31, 1995. 8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1995 (in thousands, except per-share data):
THREE MONTHS ENDED - -------------------------------------------------------------------------------- 3/31/95 6/30/95 9/30/95 12/31/95 - -------------------------------------------------------------------------------- NET SALES ............... $50,303 $45,196 $42,086 $54,884 GROSS PROFIT ............ 17,627 14,106 7,500 18,306 NET INCOME .............. 8,559 6,480 2,101 9,036 NET INCOME PER SHARE .... .64 .48 .15 .67
Three Months Ended - -------------------------------------------------------------------------------- 3/31/94 6/30/94 9/30/94 12/31/94 - -------------------------------------------------------------------------------- Net sales ............... $51,053 $48,554 $44,942 $51,888 Gross profit ............ 19,987 18,023 14,894 18,094 Net income .............. 9,854 8,533 6,892 8,770 Net income per share .... .73 .64 .51 .65
The sum of the quarters' net income per share may not equal the full year per-share amounts due to rounding differences resulting from changes in the number of common shares outstanding. The Company made certain adjustments in the fourth quarters of 1995 and 1994 resulting from changes in estimates that were material to the operating results of each quarter. These adjustments related primarily to inventory and increased net income in the fourth quarters of 1995 and 1994 by approximately $1.5 million or $.11 per share and $1.1 million or $.08 per share, respectively. 21 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 24 REPORT OF INDEPENDENT AUDITORS [ERNST & YOUNG LLP LOGO] - 1111 Summer Street - Phone: 203 326 8200 Stamford, Connecticut 06905 Fax: 203 358 9644 Stockholders and Board of Directors Sturm, Ruger & Company, Inc. We have audited the accompanying consolidated balance sheets of Sturm, Ruger & Company, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sturm, Ruger & Company, Inc. and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the notes to the financial statements, in 1993 the Company changed its method of accounting for income taxes. /s/ Ernst & Young LLP February 23, 1996 22 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 25 STOCKHOLDER INFORMATION COMMON STOCK DATA The Company's Common Stock is traded on the New York Stock Exchange under the symbol "RGR". At January 31, 1996 the Company had 1,681 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 - -------------------------------------------------------------------------------- 1995: FIRST QUARTER ............................. $34.50 $28.00 $.35 SECOND QUARTER ............................ 32.63 27.00 .35 THIRD QUARTER ............................. 35.63 30.75 .35 FOURTH QUARTER ............................ 31.25 25.88 .35 1994: First Quarter ............................. $30.38 $23.88 $.30 Second Quarter ............................ 33.25 27.88 .30 Third Quarter ............................. 29.88 25.00 .30 Fourth Quarter ............................ 28.50 25.38 .30
ITEMS OF INTEREST TO STOCKHOLDERS ANNUAL MEETING The Annual Meeting of Stockholders will be held on Thursday, April 25, 1996 at Marriott's Camelback Inn, Scottsdale, Arizona, at 10:30 a.m. PRINCIPAL BANKS Fleet Bank, Southport, Connecticut Lake Sunapee Savings Bank, Newport, New Hampshire Bank One, Arizona, NA, Prescott, Arizona INDEPENDENT AUDITORS Ernst & Young LLP, Stamford, Connecticut TRANSFER AGENT Harris Trust & Savings Bank, Chicago, Illinois FORM 10-K REPORT AVAILABLE A copy of the Sturm, Ruger & Company, Inc. Annual Report on Form 10-K as filed with the Securities and Exchange Commission for 1995 can be obtained free of charge by writing to: Corporate Secretary Sturm, Ruger & Company, Inc. Lacey Place Southport, Connecticut 06490 23 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 26 DIRECTORS AND OFFICERS [PHOTO] [CAPTION] Sturm, Ruger Board of Directors, October 1995 Meeting. Back Row (L to R) Anderson, Cunniff, Hornor, Terhune, Kingsley Front Row (L to R) Service, Ruger, Jr., Ruger, Kelley DIRECTORS **William B. Ruger Chairman and Chief Executive Officer William B. Ruger, Jr. Vice Chairman and Senior Executive Officer *Nils Anderson, Jr. **Retired President Debevoise-Anderson Co., Inc. *Richard T. Cunniff **President, Ruane, Cunniff & Co., Inc. *Townsend Hornor Corporate Director Paul X. Kelley Vice Chairman Cassidy and Associates, Inc. John M. Kingsley, Jr. Executive Vice President James E. Service Consultant PGGR/Russell, Inc. Stanley B. Terhune Consultant *Audit Committee Member **Compensation Committee Member OFFICERS William B. Ruger Chairman and Chief Executive Officer William B. Ruger, Jr. Vice Chairman and Senior Executive Officer Gerald W. Bersett President and Chief Operating Officer John M. Kingsley, Jr. Executive Vice President Stephen L. Sanetti Vice President General Counsel Leslie M. Gasper Secretary [Photo] [Photo] [Photo] BERSETT SANETTI GASPER 24 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 27 PLANT LOCATIONS [PHOTO] Southport, Connecticut, Corporate Headquarters [PHOTO] Newport, New Hampshire, Firearms Division [PHOTO] Newport, New Hampshire, Pine Tree Castings Division [PHOTO] Prescott, Arizona, Firearms & Ruger Investment Casting Divisions [PHOTO] Manchester, New Hampshire, Uni-Cast Division Sturm, Ruger & Company, Inc. manufactures sporting and law enforcement firearms in Newport, NH and Prescott, AZ. Southport, CT is the site of the Company's Corporate Headquarters. Newport is also the site of Pine Tree Castings, a major producer of highquality ferrous (both chrome-moly and stainless-steel) investment castings. In addition, the Company operates a state-of-the art investment casting foundry in Prescott, Ruger Investment Castings, which produces titanium, ferrous, and aluminum commercial investment castings as well as components for the Company's firearms production. This facility also is the site of a contiuing research effort endeavoring to produce technologically superior small arms and other component parts. The Company also operates an aluminum foundry, Uni-Cast, in Manchester, NY, which produces a wide variety of complex parts. 25 Sturm, Ruger & Company, Inc. and Subsidiaries [STURM, RUGER LOGO] 28 [STURM, RUGER & COMPANY, INC. LOGO] Lacey Place, Southport, Connecticut 06490 EX-23.1 6 CONSENT 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Sturm, Ruger & Company, Inc. of our report dated February 23, 1996, included in the 1995 Annual Report to Stockholders of Sturm, Ruger & Company, Inc. Our audits also included the consolidated financial statement schedules of Sturm, Ruger & Company, Inc. and Subsidiaries listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Stamford, Connecticut February 23, 1996 119 EX-27 7 ART. 5 FDS FOR Y/E DEC-31-1995
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 3,633 43,477 21,716 1,852 42,292 117,541 110,872 66,742 178,552 25,599 0 0 0 13,455 120,280 178,552 192,469 192,469 134,930 16,957 0 200 0 43,846 17,670 26,176 0 0 0 26,176 1.95 1.95
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