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, 1997 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 001-10435 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) 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, 1997: Common Stock, $1 par value - 26,916,800. Page 1 of 16
2 INDEX STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--June 30, 1997 and December 31, 1996 3 Condensed consolidated statements of income--Three months ended June 30, 1997 and 1996; Six months ended June 30, 1997 and 1996 5 Condensed consolidated statements of cash flows--Six months ended June 30, 1997 and 1996 6 Notes to condensed consolidated financial statements--June 30, 1997 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 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) <TABLE> <CAPTION> June 30, December 31, 1997 1996 ----------- ------------ (unaudited) (Note) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,374 $ 2,729 Short-term investments 45,446 30,652 Trade receivables, less allowances for doubtful accounts ($905 and $834) and discounts ($249 and $1,095) 18,814 21,074 Inventories: Finished products 10,878 11,895 Materials and products in process 32,984 43,173 -------- -------- 43,862 55,068 Deferred income taxes 7,393 7,949 Prepaid expenses and other assets 729 1,690 -------- -------- TOTAL CURRENT ASSETS 122,618 119,162 PROPERTY, PLANT AND EQUIPMENT 137,280 118,497 Less allowances for depreciation (79,013) (74,330) -------- -------- 58,267 44,167 DEFERRED INCOME TAXES 4,063 4,672 INVESTMENT IN JOINT VENTURE (Note 7) -- 10,586 OTHER ASSETS 12,558 11,303 -------- -------- $197,506 $189,890 ======== ======== </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, except per share data) <TABLE> <CAPTION> June 30, December 31, 1997 1996 ----------- ------------ (unaudited) (Note) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $ 5,363 $ 4,628 Product safety modifications 965 1,302 Product liability 3,000 3,000 Employee compensation 12,026 8,312 Workers' compensation 5,578 6,108 Income taxes -- 595 -------- -------- TOTAL CURRENT LIABILITIES 26,932 23,945 PRODUCT LIABILITY ACCRUAL 19,218 19,218 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 - 40,000,000; issued and outstanding 26,916,800 26,917 26,917 Additional paid-in capital 2,514 2,514 Retained earnings 121,925 117,296 -------- -------- 151,356 146,727 -------- -------- $197,506 $189,890 ======== ======== </TABLE> Note: The balance sheet at December 31, 1996 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, 1997 1996 1997 1996 --------------------------- ------------------------- <S> <C> <C> <C> <C> Firearms sales $40,772 $40,107 $ 82,924 $ 87,667 Castings sales 13,733 25,819 26,669 43,816 ------- ------- -------- -------- Net sales 54,505 65,926 109,593 131,483 Cost of products sold 36,397 42,243 74,749 85,332 ------- ------- -------- -------- 18,108 23,683 34,844 46,151 Expenses: Selling 3,083 3,622 6,242 6,788 General and administrative 1,847 1,350 2,723 2,904 ------- ------- -------- -------- 4,930 4,972 8,965 9,692 ------- ------- -------- -------- 13,178 18,711 25,879 36,459 Other income (expense)-net (99) 703 70 1,478 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES 13,079 19,414 25,949 37,937 Income taxes 5,431 7,766 10,553 15,175 ------- ------- -------- -------- NET INCOME $ 7,648 $11,648 $ 15,396 $ 22,762 ======= ======= ======== ======== Net income per share $ 0.28 $ 0.43 $ 0.57 $ 0.85 ------- ------- -------- -------- 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, 1997 1996 ------------------------- <S> <C> <C> CASH PROVIDED BY OPERATING ACTIVITIES $ 38,152 $ 25,153 INVESTING ACTIVITIES Property, plant and equipment additions (2,465) (3,881) Purchases of short-term investments (89,596) (95,560) Proceeds from sales or maturities of short-term investments 74,802 88,594 Investment in joint venture 518 (3,354) Purchase of Callaway's interest in joint venture (7,000) -- -------- -------- Cash used in investing activities (23,741) (14,201) -------- -------- FINANCING ACTIVITIES Dividends paid (10,766) (10,764) -------- -------- Cash used by financing activities (10,766) (10,764) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 3,645 188 Cash and cash equivalents at beginning of period 2,729 3,633 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,374 $ 3,821 ======== ======== </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, 1997 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, 1997 are not necessarily indicative of the results to be expected for the full year ending December 31, 1997. 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, 1996. 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. During 1997, inventory quantities have been reduced. This reduction will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases. Although the reduction in inventory levels is expected to remain through year-end, the effect of this liquidation can not be quantified at the present time. However, management believes that the impact will not be material to the financial statements. 7
8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED 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, 1997 and 1996 were $10.1 million and $17.1 million, respectively. NOTE 5--NET INCOME PER COMMON SHARE Net income per common share is based upon the weighted average number of common shares outstanding during the period. On July 24, 1996, the Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend which was distributed on September 16, 1996 to stockholders of record on August 15, 1996. All share and per share amounts have been adjusted to reflect this split. NOTE 6--CONTINGENT LIABILITIES The Company is a defendant in approximately 15 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 lawsuits instituted against it through March 31, 1997 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. NOTE 7--ANTELOPE HILLS In 1995, the Company entered into a joint venture agreement with Callaway Golf Company, Inc. ("Callaway") to construct and operate a foundry for the production of golf club heads investment cast in titanium. The joint venture, named Antelope Hills, LLC ("Antelope Hills"), was owned 50% by the Company and 50% by Callaway. On June 25, 1997, the Company purchased Callaway's interest in Antelope Hills for $7 million, an amount approximating Callaway's equity in the venture. As a result, Antelope Hills is now a wholly-owned subsidiary of the Company and is consolidated in the Condensed Consolidated Balance Sheet as of June 30, 1997. 8
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Consolidated net sales of $54.5 million and $109.6 million were achieved by the Company for the three and six months ended June 30, 1997. This represents a decrease of 17.3% and 16.6% from the respective 1996 consolidated net sales amounts of $65.9 million and $131.5 million. Firearms segment net sales increased by $0.7 million or 1.7% in the second quarter to $40.8 million from $40.1 in the prior year. For the six months ended June 30, 1997, firearms segment net sales decreased by $4.7 million or 5.4% to $82.9 million, compared to the corresponding 1996 period. Firearms unit shipments increased 0.4% in the quarter but remained below shipments for the six months period ended June 30, 1996. The slight increase in the quarter reflects continuing strong demand for the rimfire and centerfire pistols offset by reduced overall market demand, particularly for certain revolvers and rifles. Special incentive programs introduced previously are continuing for discounts of 10% of the sales price of certain pistol models. Additionally, new incentive programs for selected revolver models were introduced for the calendar year 1997, and a special 1% overall incentive program for customers exceeding specific sales targets based on prior year volumes was announced in December 1996 for the marketing year 1997. Shipments of certain new firearms models, including the new Ruger Bisley-Vaquero revolver, continued to grow during the second quarter. The Company anticipates 1997 sales levels of pistols will exceed 1996 levels, while the overall shipments of rifles and revolvers for 1997 will fall short of 1996. Casting segment net sales decreased by 46.8% and 39.1% to $13.7 million and $26.7 million, respectively, in the three and six months ended June 30, 1997 from $25.8 million and $43.8 million in the comparable 1996 periods. This was due to decreased shipments of titanium golf club heads to Callaway Golf Company, Inc. ("Callaway") during the first half of 1997 as a result of the Company's March 1997 agreement with Callaway to "stretch out" the delivery schedule of golf club heads pursuant to the August 1996 order from completion in October 1997 to completion in September 1998. In return, the Company was released from the provision in its agreement with Callaway which prohibited the Company from producing titanium golf club heads for any other golf club customer. The Company feels that this agreement is beneficial as it allows it the flexibility to actively seek additional customers for titanium golf club heads while maintaining its current business with Callaway. The original extension of delivery times adversely affected first quarter, and thereby six months casting sales, and was expected to shift some 1997 revenues into 1998. However, in June Callaway again revised its delivery schedule, but reversed its previously requested "stretch out", accelerating it to more closely resemble the original delivery terms. Casting segment net sales are expected to increase significantly in the third quarter from the levels achieved in the first half of 1997 as a result of this acceleration. Also, in June 1997 in conjunction with the Company's purchase of Callaway's 50% interest in Antelope Hills, LLC ("Antelope Hills"), a former joint venture of the two entities, Callaway agreed to order an additional 1 million cast titanium golf club heads, over and above the present orders, commencing when the present order is completed in early 1998. 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, 1997 were $36.4 million and $74.7 million compared to $42.2 million and $85.3 million in the corresponding 1996 periods, respectively, representing a decrease of 13.8% and 12.4%, respectively. This was primarily attributable to decreased sales activities by the investment casting segment during the quarter and by both the firearms and investment casting segments during the six months ended June 30, 1997, as detailed above. During 1997, inventory quantities have been reduced which will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases. Although the reduction in 9
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED inventory levels is expected to remain through year-end, the effect of this liquidation on costs of products sold can not be quantified at the present time. However, management believes that the impact will not be material to the financial statements. Gross profit as a percentage of net sales decreased to 33.2% in the current quarter from 35.9% in the second quarter of 1996 and decreased to 31.8% in the current six month period from 35.1% in the same period of 1996. The decrease is due to the reduced overall volume of business in the castings segments and pricing pressures created by the softening demand in the firearms market. Although variable costs were reduced during the periods in response to the changes in sales volumes, the impact of fixed costs associated with operating the Company's facilities resulted in reduced gross profit margins from the like period in 1996. Selling, general & administrative expenses decreased by 0.8% to $4.9 million and 7.5% to $9.0 million, respectively, in the second quarter and six months ended June 30, 1997 from $5.0 million and $9.7 million, in the comparable 1996 periods. The decrease reflects lower than anticipated employee related expenses as well as reduced professional services fees for the period, particularly in the first quarter. Other income (expense)-net decreased in 1997 compared to the corresponding 1996 periods due to the fixed costs incurred in 1997 at Antelope Hills, which was in development in 1996, the elimination of royalty income related to the licensed use by Callaway of the "Ruger Titanium"(R) trademark for titanium golf club head castings which ceased in 1996, as well as reduced earnings on Treasury bill investments. The effective income tax rate increased to 41.5% and 40.7% in the second quarter and six months ended June 30, 1997 from 40.0% in the corresponding 1996 periods due to increased state income taxes. As a result of the foregoing factors, consolidated net income for the three and six months ended June 30, 1997 decreased to $7.6 million and $15.4 million, respectively, from $11.6 million and $22.8 million for the three and six months ended June 30, 1996, representing decreases of $4.0 million or 34.3% and $7.4 million or 32.4%, respectively. Financial Condition At June 30, 1997, the Company had cash, cash equivalents and short-term investments of $51.8 million, working capital of $95.7 million and a current ratio of 4.6 to 1. Cash provided by operating activities was $38.2 million and $25.2 million for the six months ended June 30, 1997 and 1996, respectively. This change in cash flows is principally a result of reductions in inventories and trade receivables, increases in the employee compensation liability, offset by lower net income. 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 March have to be made by April 30. Shipments made in subsequent months 10
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED have to be paid for within 90 days. Dating plan receivable balances were $5.1 million at June 30, 1997 compared to $7.1 million at June 30, 1996. 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, 1997 totaled $2.5 million. For the past two years capital expenditures averaged approximately $2.1 million per quarter. For 1997, the Company expects to spend approximately $7.5 million on capital expenditures to upgrade and modernize equipment at the Newport Firearms, Pine Tree Castings, and Ruger Investment Casting Divisions. Additional funds are committed for the introduction of new metal matrix composite infiltration processes at the Uni-Cast Division. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations. During the first quarter of 1997, the construction and outfitting of the foundry for Antelope Hills was completed. As previously noted, the Company purchased Callaway Golf's 50% interest in Antelope Hills in June 1997. Antelope Hills is now a wholly-owned subsidiary of the Company and operations are commencing at that facility. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which changes the methodology of calculating earnings per share. SFAS No. 128 requires the disclosure of diluted earnings per share regardless of its difference from basic earnings per share. The Company plans to adopt SFAS No. 128 in December 1997. Early adoption is not permitted. Had the Company adopted SFAS No. 128 as of June 30, 1997 the related per share disclosure for both basic and diluted earnings per share would have remained as previously reported for the quarters and six months ended June 30, 1997 and June 30, 1996. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." While the Company is studying the application of the disclosure provision, it does not expect either of these statements to affect its financial position or results of operations. For the six months ended June 30, 1997 dividends paid totaled $10.8 million. This amount reflects the regular quarterly dividend of $.20 per share paid in March and June 1997. On July 25, 1997, the Company declared a regular quarterly dividend of $.20 per share payable on September 15, 1997. 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 1997. 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. 11
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED 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. 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. 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 and sales levels of firearms for the second half of 1997, anticipated castings sales and earnings contributions from the Foundry operations through the third quarter of 1997, 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 and environmental legislation, which would cause actual results to differ materially from these 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 6--Contingent Liabilities" presented in Part I is incorporated herein by reference. The following case was instituted against the Company during the three months ended June 30, 1997, which involved significant demands for compensatory and/or punitive damages: Robert Alston, Plaintiff vs. City of Camden et al., Third Party Plaintiffs vs. Michael's of Oregon Co. d/b/a Uncle Mike's, Sturm, Ruger & Company, Inc., John Visintini and Bill Quinn in the Superior Court of New Jersey, Camden County Law Division. The complaint, which was filed on May 30, 1997, alleges that on or about July 7, 1993, a 9mm pistol manufactured by the Company allegedly discharged when it dropped out of Officer Ron Conley's holster, resulting in injuries to Alston's left leg and pelvis. Plaintiff is seeking third party damages in an amount equal to the judgment amount (if any) obtained by Alston. During the three months ending June 30, 1997, one previously reported case was settled: Name Jurisdiction Davidson Mississippi This case was settled for an amount within the insurance limits and/or self-insured retention of the Company. The previously reported case of Hart vs. Company (West Virginia) was dismissed by the trial court on motion for summary judgment by the Company for failure to state a cause of action. No appeal was taken. In the previously reported cases of Lovett and Thomas (Michigan), summary judgments in favor of the Company were affirmed on appeal by the Michigan Court of Appeals. Additionally, the court held that the plaintiff's appeals were vexatious because they were taken without any basis in the law. The Plaintiff is appealing these decisions to the Michigan Supreme Court. 14
15 PART II. OTHER INFORMATION--CONTINUED ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1997 Annual Meeting of the Stockholders of the Company was held on May 20, 1997. the table below sets forth the results of the votes taken at the 1997 Annual Meeting: <TABLE> <CAPTION> 1. Votes Election of Directors Votes For Withheld --------------------- --------- -------- <S> <C> <C> William B. Ruger 25,166,812 164,698 William B. Ruger, Jr. 25,166,806 164,704 Gerald W. Bersett 25,167,668 163,842 Richard T. Cunniff 25,154,368 177,142 Townsend Hornor 25,155,368 176,142 Paul X. Kelley 25,164,021 167,489 John M. Kingsley, Jr. 25,167,068 164,442 James E. Service 25,159,516 171,994 Stanley B. Terhune 25,155,768 175,742 </TABLE> As nominated at the Annual Meeting held May 20, 1997: <TABLE> <S> <C> <C> Rick Gray 1,973 0 </TABLE> 2. Ratification of Ernst & Young as Auditors for 1997: <TABLE> <CAPTION> Votes For Votes Against Votes Withheld --------- ------------- -------------- <S> <C> <C> 25,217,550 40,056 73,904 </TABLE> 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, 1997. 15
16 STURM, RUGER & COMPANY, INC. FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1997 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 13, 1997 /s/ Erle G. Blanchard --------------------------------- Erle G. Blanchard Principal Financial and Accounting Officer, Vice President, Controller 16