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 September 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 October 31, 1997: Common Stock, $1 par value - 26,922,800. Page 1 of 16
2 INDEX STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES <TABLE> <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--September 30, 1997 and December 31, 1996 3 Condensed consolidated statements of income--Three months ended September 30, 1997 and 1996; Nine months ended September 30, 1997 and 1996 5 Condensed consolidated statements of cash flows--Nine months ended September 30, 1997 and 1996 6 Notes to condensed consolidated financial statements--September 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 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, except per share data) <TABLE> <CAPTION> September 30, December 31, 1997 1996 --------- --------- (unaudited) (Note) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,215 $ 2,729 Short-term investments 48,475 30,652 Trade receivables, less allowances for doubtful accounts ($775 and $834) and discounts ($91 and $1,095) 14,579 21,074 Inventories: Finished products 12,840 11,895 Materials and products in process 31,285 43,173 --------- --------- 44,125 55,068 Deferred income taxes 7,056 7,949 Prepaid expenses and other assets 1,786 1,690 --------- --------- TOTAL CURRENT ASSETS 121,236 119,162 PROPERTY, PLANT AND EQUIPMENT 138,066 118,497 Less allowances for depreciation (81,364) (74,330) --------- --------- 56,702 44,167 DEFERRED INCOME TAXES 4,198 4,672 INVESTMENT IN JOINT VENTURE (Note 7) -- 10,586 OTHER ASSETS 12,547 11,303 --------- --------- $ 194,683 $ 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> September 30, December 31, 1997 1996 -------- -------- (unaudited) (Note) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $ 4,944 $ 4,628 Product safety modifications 947 1,302 Product liability 3,000 3,000 Employee compensation 10,574 8,312 Workers' compensation 5,056 6,108 Income taxes -- 595 -------- -------- TOTAL CURRENT LIABILITIES 24,521 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 26,922,800 26,923 26,917 Additional paid-in capital 2,633 2,514 Retained earnings 121,388 117,296 -------- -------- 150,944 146,727 -------- -------- $194,683 $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 Nine Months Ended September 30, September 30, -------------------- -------------------- 1997 1996 1997 1996 -------- -------- -------- -------- <S> <C> <C> <C> <C> Firearms sales $ 27,704 $ 32,814 $110,628 $120,481 Castings sales 19,522 15,222 46,191 59,038 -------- -------- -------- -------- Net sales 47,226 48,036 156,819 179,519 Cost of products sold 34,874 34,941 109,623 120,273 -------- -------- -------- -------- 12,352 13,095 47,196 59,246 Expenses: Selling 3,185 3,036 9,427 9,824 General and administrative 1,489 1,473 4,212 4,377 -------- -------- -------- -------- 4,674 4,509 13,639 14,201 -------- -------- -------- -------- 7,678 8,586 33,557 45,045 Other income-net 396 856 466 2,334 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 8,074 9,442 34,023 47,379 Income taxes 3,226 3,777 13,779 18,952 -------- -------- -------- -------- $ 4,848 $ 5,665 $ 20,244 $ 28,427 NET INCOME ======== ======== ======== ======== Net income per share $ 0.18 $ 0.21 $ 0.75 $ 1.06 ======== ======== ======== ======== Cash dividends per share $ 0.20 $ 0.20 $ 0.60 $ 0.60 ======== ======== ======== ======== </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> Nine Months Ended September 30, 1997 1996 --------- --------- <S> <C> <C> CASH PROVIDED BY OPERATING ACTIVITIES $ 46,194 $ 31,721 INVESTING ACTIVITIES Property, plant and equipment additions (3,252) (5,799) Purchases of short-term investments (125,511) (135,246) Proceeds from sales or maturities of short-term investments 107,688 131,310 Investment in joint venture 518 (5,244) Purchase of Callaway's interest in joint venture (7,000) -- --------- --------- Cash used in investing activities (27,557) (14,979) --------- --------- FINANCING ACTIVITIES Dividends paid (16,151) (16,148) --------- --------- Cash used in financing activities (16,151) (16,148) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 2,486 594 Cash and cash equivalents at beginning of period 2,729 3,633 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,215 $ 4,227 ========= ========= </TABLE> See notes to condensed consolidated financial statements. 6
7 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 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 nine months ended September 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 has resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases. For the nine months ended September 30, 1997 the effect of the liquidation of LIFO inventories was a decrease to cost of products sold of $0.6 million. This favorable adjustment to cost of products sold is based on projected year-end inventory levels and management's estimate of the Company's current year inflationary rate. 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 nine months ended September 30, 1997 and 1996 were $13.4 million and $21.1 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 17 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 June 30, 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 September 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 $47.2 million and $156.8 million were achieved by the Company for the three and nine months ended September 30, 1997. This represents a decrease of 1.7% and 12.6% from the respective 1996 consolidated net sales amounts of $48.0 million and $179.5 million. Firearms segment net sales decreased by $5.1 million or 15.6% in the third quarter to $27.7 million from $32.8 in the prior year. For the nine months ended September 30, 1997, firearms segment net sales decreased by $9.9 million or 8.2% to $110.6 million, compared to the corresponding 1996 period. Firearms unit shipments for the quarter ended September 30, 1997 decreased 18.7% from the like 1996 quarter due to reduced demand for rifles and pistols partially offset by increased demand for revolvers. For the nine month period ended September 30, 1997 unit shipments decreased 10.7% reflecting reductions in rifles and revolvers offset by increases in pistols and shotguns. 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 third 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 increased by 28.2% to $19.5 million in the three months ended September 30, 1997 from $15.2 million in the third quarter of 1996. For the nine months ended September 30, 1997, casting segment net sales decreased 21.8% or $12.8 million to $46.2 million The decrease in the year-to-date casting sales was due to decreased shipments of titanium golf club heads to Callaway Golf Company, Inc. ("Callaway") during the first half of 1997. Shipments to Callaway have increased during the third quarter resulting in increased casting sales. 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 third quarter and the nine months ended September 30, 1997 were $34.9 million and $109.6 million compared to $34.9 million and $120.3 million in the corresponding 1996 periods, respectively, representing a decrease of 0.2% and 8.9%, respectively. This was primarily attributable to decreased sales activities by the firearms segment offset by increased investment casting segment sales during the third quarter and decreased sales activities by both the firearms and investment casting segments during the nine months ended September 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. The effect of this liquidation was a reduction of cost of products sold of $0.6 million during the nine months ended September 30, 1997. 9
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED Gross profit as a percentage of net sales decreased to 26.2% in the current quarter from 27.3% in the third quarter of 1996 and decreased to 30.1% in the current nine month period from 33.0% in the same period of 1996. The decrease is due to the reduced overall volume of business in both the firearms and investment castings segments coupled with pricing pressures in both markets. 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 periods in 1996. Selling, general & administrative expenses increased by 3.7% to $4.7 million from $4.5 million in the third quarter and decreased by 4.0% to $13.6 million from $14.2 million in the nine months ended September 30, 1997. Other income-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 rates of 40.0% and 40.5% in the third quarter and nine months ended September 30, 1997 are consistent with the tax rate of 40.0% in the corresponding 1996 periods . As a result of the foregoing factors, consolidated net income for the three and nine months ended September 30, 1997 decreased to $4.8 million and $20.2 million, respectively, from $5.7 million and $28.4 million for the three and nine months ended September 30, 1996, representing decreases of $0.8 million or 14.4% and $8.2 million or 28.8%, respectively. Financial Condition At September 30, 1997, the Company had cash, cash equivalents and short-term investments of $53.7 million, working capital of $96.7 million and a current ratio of 5.0 to 1. Cash provided by operating activities was $46.2 million and $31.7 million for the nine months ended September 30, 1997 and 1996, respectively. This change in cash flows is principally a result of reductions in inventories and trade receivables, and the increase in the employee compensation accrual, 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 have to be paid for within 90 days. Dating plan receivable balances were $3.1 million at September 30, 1997 compared to $4.5 million at September 30, 1996. The Company has reserved the right to discontinue the dating plan at any time. 10
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED Capital expenditures during the nine months ended September 30, 1997 totaled $3.3 million. For the past two years capital expenditures averaged approximately $1.8 million per quarter. For the fourth quarter of 1997, the Company expects to spend approximately $2.5 million on capital expenditures to upgrade and modernize equipment at the Newport Firearms, Pine Tree Castings, and Ruger Investment Casting Divisions and to continue to develop the infrastructure at the Uni-Cast Division related to the introduction of the new metal matrix composite infiltration processes. 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 have commenced 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 September 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 nine months ended September 30, 1997 and 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 these disclosure provisions, it does not expect either of these statements to affect its financial position or results of operations. For the nine months ended September 30, 1997 dividends paid totaled $16.2 million. This amount reflects the regular quarterly dividend of $.20 per share paid in March, June and September 1997. On October 29, 1997, the Company declared a regular quarterly dividend of $.20 per share payable on December 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, sales levels of firearms, anticipated castings sales and earnings contributions from the Foundry operations, 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 four* cases were instituted against the Company during the three months ended September 30, 1997, which involved significant demands for compensatory and/or punitive damages: *Iris Prosper, Guardian Ad Litem of Erica Prosper, Yessenia Prosper and April Prosper, infants, and Iris Prosper, Individually vs. Accu-tek et. al., in the United States District Court, Eastern District of New York. The complaint, which was filed on May 13, 1997, and served on August 27, 1997, alleges that on or about May 16, 1994, the plaintiff's decedent was intentionally injured by a criminal utilizing a product allegedly manufactured by some of or all 61 defendants, allegedly including the Company. Compensatory, exemplary and punitive damages in an amount to be determined at trial are demanded. *Gladys Gerena Administratrix of the Estate of Shawn Johnson, Deceased, and Individually; Kenneth McLaughlin, III vs. Accu-tek et. al., in the United States District Court, Eastern District of New York. The complaint, which was filed on July 24, 1997, alleges that on or about September 1, 1995, Johnson suffered a fatal criminal assault, and on or about June 30, 1996, McLaughlin suffered injuries as a result of an intentional criminal act by unnamed assailants. Both instances occurred utilizing products allegedly manufactured by some of or all 61 defendants, allegedly including the Company. Compensatory, exemplary, and punitive damages in an amount to be determined at trial are demanded. Stephen W. Whaley vs. Sturm, Ruger & Company, Inc. and Pay N'Save, in the Superior Court for the State of Alaska, Third Judicial District. The complaint, which was filed on July 1, 1997, alleges that on or about August 21, 1996, a .338 caliber rifle manufactured by the Company allegedly discharged while he was handling it, resulting in injuries to his right hand. Plaintiff is seeking compensatory and punitive damages in the amount of $1,750,000. Thad C. Cummins vs. Sturm, Ruger & Company, Inc., Harvey DeAndre and Michelle Doss, in the Iowa District Court for Webster County. The complaint, which was filed on September 2, 1997, alleges that on or about March 11, 1995, DeAndre and Doss used a .22 Ruger pistol to intentionally assault the plaintiff, resulting in facial injuries. Compensatory and punitive damages plus interest and costs are demanded in an amount to be proven at trial. *Since these two cases involve the same issues as the previously reported case of Hamilton vs. Accu-tek et. al. (NY), and have been brought in the same court by the same attorney, they will be reported as part of the Hamilton case. During the three months ending September 30, 1997, there were no previously reported cases settled. 14
15 PART II. OTHER INFORMATION--CONTINUED ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule (b) The Company filed a report on Form 8-K dated July 7, 1997 related to the Company's purchase of Callaway Golf's 50% interest in Antelope Hills, LLC on June 25, 1997. 15
16 STURM, RUGER & COMPANY, INC. FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 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: November 13, 1997 /S/ ERLE G. BLANCHARD ----------------- -------------------------------------------- Erle G. Blanchard Principal Financial and Accounting Officer, Vice President, Controller 16