1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________ to _______________ Commission file number 0-4776 STURM, RUGER & COMPANY, INC. (Exact name of registrant as specified in its charter) <TABLE> <S> <C> 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) </TABLE> (203) 259-7843 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No _____ The number of shares outstanding of the issuer's common stock as of July 31, 1998: Common Stock, $1 par value - 26,910,720. Page 1 of 19
2 INDEX STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES <TABLE> <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--June 30, 1998 and December 31, 1997 3 Condensed consolidated statements of income--Three months ended June 30, 1998 and 1997; Six months ended June 30, 1998 and 1997 5 Condensed consolidated statements of cash flows--Six months ended June 30, 1998 and 1997 6 Notes to condensed consolidated financial statements--June 30, 1998 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 </TABLE> 2
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> June 30, December 31, 1998 1997 -------- ------------ (unaudited) (Note) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,129 $ 4,488 Short-term investments 55,256 45,484 Trade receivables, less allowances for doubtful accounts ($1,211 and $1,001) and discounts ($382 and $2,842) 21,311 21,118 Inventories: Finished products 11,240 12,708 Materials and products in process 31,991 32,841 --------- --------- 43,231 45,549 Deferred income taxes 8,845 7,224 Prepaid expenses and other assets 338 1,344 --------- --------- TOTAL CURRENT ASSETS 135,110 125,207 PROPERTY, PLANT AND EQUIPMENT 141,859 139,201 Less allowances for depreciation (88,327) (83,538) --------- --------- 53,532 55,663 DEFERRED INCOME TAXES 4,502 4,701 OTHER ASSETS 14,263 14,223 --------- --------- $ 207,407 $ 199,794 ========= ========= </TABLE> 3
4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ------- ------------ (unaudited) (Note) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $ 5,865 $ 4,628 Product safety modifications 791 870 Product liability 3,000 3,000 Employee compensation 13,750 10,303 Workers' compensation 4,683 5,063 Income taxes 3,350 3,792 --------- --------- TOTAL CURRENT LIABILITIES 31,439 27,656 PRODUCT LIABILITY ACCRUAL 18,455 19,218 CONTINGENT LIABILITIES -- Note 7 -- -- STOCKHOLDERS' EQUITY Common Stock, non-voting, par value $1: Authorized shares 50,000; none issued Common Stock, par value $1: Authorized shares - 40,000,000 issued and outstanding shares- 26,910,720 and 26,922,800 26,911 26,923 Additional paid-in capital 2,434 2,632 Retained earnings 128,313 123,510 Additional minimum pension liability (145) (145) --------- --------- 157,513 152,920 --------- --------- $ 207,407 $ 199,794 ========= ========= </TABLE> Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 4
5 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, 1998 1997 1998 1997 -------- -------- -------- -------- <S> <C> <C> <C> <C> Firearms sales $41,773 $ 40,772 $ 78,786 $ 82,924 Castings sales 18,224 13,733 39,732 26,669 -------- -------- -------- -------- Net sales 59,997 54,505 118,518 109,593 Cost of products sold 42,679 36,397 84,876 74,749 -------- -------- -------- -------- 17,318 18,108 33,642 34,844 Expenses: Selling 3,468 3,083 6,774 6,242 General and administrative 1,419 1,847 3,156 2,723 -------- -------- -------- -------- 4,887 4,930 9,930 8,965 -------- -------- -------- -------- 12,431 13,178 23,712 25,879 Other income (expense)-net 1,698 (99) 2,454 70 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 14,129 13,079 26,166 25,949 Income taxes 5,722 5,431 10,597 10,553 -------- -------- -------- -------- NET INCOME $ 8,407 $ 7,648 $ 15,569 $ 15,396 ======== ======== ======== ======== Basic and diluted earnings per share $ 0.31 $ 0.28 $ 0.58 $ 0.57 ======== ======== ======== ======== Cash dividends per share $ 0.20 $ 0.20 $ 0.40 $ 0.40 ======== ======== ======== ======== </TABLE> See notes to condensed consolidated financial statements. 5
6 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) <TABLE> <CAPTION> Six Months Ended June 30, 1998 1997 -------- -------- <S> <C> <C> CASH PROVIDED BY OPERATING ACTIVITIES $ 24,153 $ 38,152 INVESTING ACTIVITIES Property, plant and equipment additions (2,841) (2,465) Purchases of short-term investments (77,544) (89,596) Proceeds from sales or maturities of short-term investments 67,772 74,802 Net proceeds from sale of land 1,077 -- Investment in joint venture -- 518 Purchase of Callaway's interest in joint venture -- (7,000) -------- -------- Cash used in investing activities (11,536) (23,741) -------- -------- FINANCING ACTIVITIES Repurchase of Common Stock (210) -- Dividends paid (10,766) (10,766) -------- -------- Cash used by financing activities (10,976) (10,766) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 1,641 3,645 Cash and cash equivalents at beginning of period 4,488 2,729 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,129 $ 6,374 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 6
7 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1998 NOTE 1--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. Operating results for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the full year ending December 31, 1998. For further information refer to the consolidated financial statements and footnotes thereto included in the Sturm, Ruger & Company, Inc. Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES Organization: Sturm, Ruger & Company, Inc. ("Company") is principally engaged in the design, manufacture, and sale of firearms and investment castings. The 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 manufacturers' representatives to companies in a wide variety of industries. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. NOTE 3--INVENTORIES Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. NOTE 4--INCOME TAXES The Company's effective tax rate differs from the statutory tax rate principally as a result of state income taxes. Total income tax payments during the six months ended June 30, 1998 and 1997 were $12.5 million and $10.1 million, respectively. 7
8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED NOTE 5--BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share is based upon the weighted average number of common shares outstanding during the period. NOTE 6--COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net income or shareholders' equity. SFAS 130 requires that all non-owner changes in equity, such as additional minimum pension liability, which are not included in net income, be included in other comprehensive income. As there were no non-owner changes in equity during the first half of 1998 and 1997, total comprehensive income equals net income for the three and six months ended June 30, 1998 and 1997, or $8.4 million and $7.6 million, and $15.6 million and $15.4 million, respectively. NOTE 7--CONTINGENT LIABILITIES The Company is a defendant in approximately 11 lawsuits involving product liability claims which allege defective product design and is aware of other product liability claims. 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 shooting 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. 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. The Company has reported all product liability lawsuits instituted against it through March 31, 1998 and the results of those lawsuits, where terminated, to the S.E.C. on its Form 10-K and Form 10-Q reports, to which reference is hereby made. 8
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Consolidated net sales of $60.0 million and $118.5 million were achieved by the Company for the three and six months ended June 30, 1998. This represents an increase of 10.1% and 8.1% from the respective 1997 consolidated net sales amounts of $54.5 million and $109.6 million. Firearms segment net sales increased by $1.0 million or 2.5% in the second quarter to $41.8 million from $40.8 million in the prior year. For the six months ended June 30, 1998, firearms segment net sales decreased by $4.1 million or 5.0% to $78.8 million, compared to the corresponding 1997 period. Although firearms unit shipments decreased 1.4% in the second quarter and 6.4% for the six-month period ended June 30, 1998, net firearms sales for the second quarter increased slightly due to a favorable product mix. The unit decrease in both of these periods reflects reduced overall market demand, particularly for certain revolvers and rifles, partially offset by continuing strong demand for centerfire pistols and shotguns. Shipments in the second quarter may have been favorably impacted by a pricing increase in selected models, effective July 1, 1998, that was announced in May. The Company continues to employ three sales incentive programs which were in effect in 1997. Two of these programs provide discounts of up to 10% of the sales price of selected pistol and revolver models, while another provides a 1% overall discount for customers meeting specific annual sales targets. In 1998 one new program was introduced offering an additional 1% for distributors qualifying for each of the aforementioned three programs. The Company anticipates that total firearm shipments for the second half of the year will be below those of the first half. Casting segment net sales increased by 32.7% and 49.0% to $18.2 million and $39.7 million, respectively, in the three and six months ended June 30, 1998 from $13.7 million and $26.7 million in the comparable 1997 periods. This was principally due to increased shipments of titanium golf club heads to Callaway Golf Company, Inc. ("Callaway") which increased 48.7% and 78.0% for the three and six months ended June 30, 1998, respectively. The Company has commenced shipments to other golf companies, however these shipments were not material to the results of either the second quarter or the first half of 1998. The Company anticipates that total casting segment sales in the second half of 1998 may be below those of the first half. However, the Company continues to actively pursue other titanium markets as well as other golf club casting business. Consolidated cost of products sold for the second quarter and the six months ended June 30, 1998 were $42.7 million and $84.9 million compared to $36.4 million and $74.7 million in the corresponding 1997 periods, respectively, representing an increase of 17.3% and 13.5%, respectively. This was primarily attributable to increased sales activities by the investment casting segment during the second quarter and the six months ended June 30, 1998, as detailed above. Gross profit as a percentage of net sales decreased to 28.9% in the second quarter from 33.2% in the second quarter of 1997 and decreased to 28.4% in the six-month period ended June 30, 1998 from 31.8% in the first half of 1997. The margin erosion in the second quarter and the first six months of 1998 is primarily due to increased costs associated with the additional capacity provided by the Company's June 25, 1997 purchase of Callaway's interest in Antelope Hills, LLC ("Antelope Hills"), coupled with reduced overall business volume in the firearms segment during the first half of the year. Antelope Hills, a former joint venture between the Company and Callaway, was formed to construct and operate a foundry for the production of golf club heads investment cast in titanium. 9
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED Selling, general & administrative expenses were unchanged at $4.9 million in the second quarter and increased by 10.8% to $9.9 million from $9.0 million in the six months ended June 30, 1998. Selling, general & administrative expense as a percentage of sales in the three and six months ended June 30, 1998 of 8.1% and 8.4%, respectively, is consistent with the 8.5% ratio for the year ended December 31, 1997. The increase during the first half of 1998 reflects higher than anticipated employee related expenses as well as increased professional services fees in the first quarter, and increased expenses related to national advertising and promotional efforts in the firearms segment. Other income (expense)-net increased by $1.8 million and $2.4 million in three and six months ended June 30, 1998, respectively, compared to the corresponding 1997 periods due to expenses incurred in 1997 at Antelope Hills, a gain on the sale of non-manufacturing real estate in the second quarter of 1998, and increased interest income resulting from greater Treasury bill investments in 1998. The effective income tax rate decreased to 40.5% in both the second quarter and six months ended June 30, 1998 from 41.5% and 40.7% in the corresponding 1997 periods due to decreased state income taxes. As a result of the foregoing factors, consolidated net income for the three and six months ended June 30, 1998 increased to $8.4 million and $15.6 million, respectively, from $7.6 million and $15.4 million for the three and six months ended June 30, 1997, representing increases of $0.8 million or 9.9% and $0.2 million or 1.1%, respectively. Financial Condition At June 30, 1998, the Company had cash, cash equivalents and short-term investments of $61.4 million, working capital of $103.7 million and a current ratio of 4.3 to 1. Cash provided by operating activities was $24.2 million and $38.2 million for the six months ended June 30, 1998 and 1997, respectively. The decrease in cash provided is principally a result of large reductions in inventories and trade receivables in 1997, which did not recur in 1998. The Company follows an industry-wide practice of offering a "dating plan" to its firearms customers on selected products, which allows the purchasing distributor to buy the products commencing in December, the start of the Company's 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 February have to be made by April 30. Shipments made in subsequent months have to be paid within 90 days. Dating plan receivable balances were $6.6 million at June 30, 1998 compared to $5.1 million at June 30, 1997. The Company has reserved the right to discontinue the dating plan at any time and has been able to finance this dating plan from internally generated funds provided by operating activities. Capital expenditures during the six months ended June 30, 1998 totaled $2.8 million. For the past two years capital expenditures averaged approximately $1.4 million per quarter. For 1998, the Company expects to spend approximately $8.3 million on capital expenditures to upgrade and modernize manufacturing equipment primarily at the Newport Firearms, Ruger Investment Casting, and Pine Tree Castings Divisions. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations. As noted above, on June 25, 1997, the Company purchased Callaway's interest in Antelope Hills for $7.0 million, an amount approximating Callaway's equity in the venture. 10
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED For the six months ended June 30, 1998 dividends paid totaled $10.8 million. This amount reflects the regular quarterly dividend of $.20 per share paid in March and June 1998. On July 30, 1998, the Company declared a regular quarterly dividend of $.20 per share payable on September 15, 1998. 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 1998. 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. Several states currently have laws in effect similar to the aforementioned legislation. The "Brady Law" mandates a nationwide 5-day waiting period prior to the purchase of a handgun. The Company believes that, because its customers are sportsmen, hunters, gun collectors and law enforcement agencies and since 26 states had previously 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 then-manufactured long guns were 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. 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 assurance that the regulation of firearms will not become more restrictive in the future and that any such restriction would not have a material adverse effect on the business of the Company. The Company 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 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 adverse effect on its business. 11
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carry back against taxes previously paid. Inflation's effect on the Company's operations is most immediately felt in cost of products sold because the Company values inventory on the LIFO basis. Generally under this method, the cost of products sold reported in the financial statements approximates current costs, and thus, reduces distortion in reported income which would result from the slower recognition of increased costs when other methods are used. The use of historical cost depreciation has a beneficial effect on cost of products sold. The Company has been affected by inflation in line with the general economy. Some of the Company's computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculation causing disruptions of operations, including a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Efforts are currently underway to modify or replace certain portions of the Company's software and hardware so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company is, however, still in the process of assessing the manner in which it will modify or replace other portions of its software or hardware. Current results of the efforts underway and the ongoing assessment continue to indicate that the impact of this replacement or modification will be immaterial to the Company's future operating results and cash flows. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information" which establishes standards for the way that public business enterprises report information about operating segments. SFAS 131 is effective for financial statements for fiscal years beginning after December 15, 1997, and therefore the Company will adopt the new requirements before the end of 1998. SFAS 131 does not need to be applied to interim financial information in the year of adoption. Management has not completed its review of SFAS 131, but does not anticipate that the adoption of this statement will result in the identification of additional segments. In October 1997, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Post Retirement Benefits" which changes financial statement disclosure requirements for pension and other post retirement benefits. While the Company is studying the application of these disclosure provisions, it does not expect SFAS 132 to affect its financial position or results of operations. 12
13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED Forward-Looking Statements and Projections The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings (including those from titanium golf club components), the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, and the impact of future firearms control, environmental legislation, and computer systems replacement and modification, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date made and the Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of unanticipated events. 13
14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS "Note 7--Contingent Liabilities" presented in Part I is incorporated herein by reference. There were no cases instituted against the Company during the three months ended June 30, 1998, which involved significant demands for compensatory and/or punitive damages. During the three months ending June 30, 1998, two previously reported cases were settled: <TABLE> <CAPTION> Name Jurisdiction ---- ------------ <S> <C> <C> Cota Arizona Howard Alabama </TABLE> These cases were settled for minor amounts ($5,000 and under) within the insurance limits and/or self-insured retention of the Company. The dismissals of the previously reported cases of Lovett and Thomas (MI) were finally affirmed on May 21, 1998, when plaintiffs' leave to appeal was denied by the Michigan Supreme Court. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1998 Annual Meeting of the Stockholders of the Company was held on May 12, 1998. The table below sets forth the results of the votes taken at the 1998 Annual Meeting: <TABLE> <CAPTION> 1. Votes Election of Directors Votes For Withheld --------------------- ---------- -------- <S> <C> <C> William B. Ruger 25,025,620 166,597 William B. Ruger, Jr. 25,039,587 152,630 Stephen L. Sanetti 25,039,670 152,547 Richard T. Cunniff 25,042,404 149,813 Townsend Hornor 25,045,784 146,433 Paul X. Kelley 25,052,316 139,901 John M. Kingsley, Jr. 25,037,259 154,958 James E. Service 25,047,247 144,970 Stanley B. Terhune 24,826,799 365,418 </TABLE> 2. Ratification of Ernst & Young LLP as Auditors for 1998: <TABLE> <CAPTION> Votes For Votes Against Votes Withheld --------- ------------- -------------- <S> <C> <C> <C> 25,116,921 18,302 56,994 </TABLE> 14
15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the three months ended June 30, 1998. 15
16 STURM, RUGER & COMPANY, INC. FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STURM, RUGER & COMPANY, INC. ----------------------------- Date: August 12, 1998 /S/ ERLE G. BLANCHARD --------------- ----------------------------- Erle G. Blanchard Principal Financial and Accounting Officer, Vice President, Controller 16