SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 0-4776
STURM, RUGER & COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0633559
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Lacey Place, Southport, Connecticut 06890
(Address of Principal Executive Offices) (Zip Code)
(203) 259-7843
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of June 30, 2008: Common Stock, $1 par value - $
The number of shares outstanding of the registrant's common stock as of February
17, 2009: Common Stock, $1 par value - 19,046,780 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's Proxy Statement relating to the 2009Annual Meeting
of Stockholders to be held April 29, 2009 are incorporated by reference into
Part III (Items 10 through 14) of this Report.
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TABLE OF CONTENTS
PART I
Item 1. Business............................................................ 4
Item 1A. Risk Factors........................................................ 10
Item 1B. Unresolved Staff Comments........................................... 16
Item 2. Properties.......................................................... 17
Item 3. Legal Proceedings................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 18
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities................. 19
Item 6. Selected Financial Data............................................. 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......... 42
Item 8. Financial Statements and Supplementary Data......................... 43
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ............................................. 72
Item 9A. Controls and Procedures............................................. 72
Item 9B. Other Information................................................... 73
PART III
Item 10. Directors, Executive Officers and Corporate Governance.............. 74
Item 11. Executive Compensation.............................................. 74
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................... 74
Item 13. Certain Relationships and Related Transactions, and Director
Independence...................................................... 74
Item 14. Principal Accountant Fees and Services.............................. 74
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PART IV
Item 15. Exhibits and Financial Statement Schedules.......................... 75
Signatures................................................................... 80
Exhibit Index................................................................ 81
Financial Statement Schedule................................................. 86
Exhibits..................................................................... 88
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In this Annual Report on Form 10-K, Sturm, Ruger & Company, Inc. (the "Company")
makes forward-looking statements and projections concerning future expectations.
Such statements are based on current expectations and are subject to certain
qualifying risks and uncertainties, such as market demand, sales levels of
firearms, anticipated castings sales and earnings, the need for external
financing for operations or capital expenditures, the results of pending
litigation against the Company including lawsuits filed by mayors, attorneys
general and other governmental entities and membership organizations, and the
impact of future firearms control and environmental legislation, any one or more
of which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to publish revised forward-looking statements to reflect events or
circumstances after the date such forward-looking statements are made or to
reflect the occurrence of subsequent unanticipated events.
PART I
ITEM 1--BUSINESS
Company Overview
Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the
design, manufacture, and sale of firearms to domestic customers. Approximately
96% of the Company's total sales for the year ended December 31, 2008 were from
the firearms segment, and approximately 4% were from investment castings. Export
sales represent less than 6% of firearms sales. The Company's design and
manufacturing operations are located in the United States and most product
content is domestic.
The Company has been in the business since 1949 and was incorporated in its
present form under the laws of Delaware in 1969. The Company offers products in
four industry product categories - rifles, shotguns, pistols, and revolvers. The
Company's firearms are sold through a select number of independent wholesale
distributors, principally to the commercial sporting market.
The Company manufactures and sells investment castings made from steel alloys
for both outside customers and internal use in the firearms segment. Investment
castings sold to outside customers, either directly to or through manufacturers'
representatives, represented approximately 4% of the Company's total sales for
the year ended December 31, 2008. In July 2006, the Company announced the
cessation of the titanium castings portion of its investment casting operations.
This cessation of operations was completed in 2007, at which time the Company
consolidated its Arizona casting operations into its New Hampshire casting
operations.
For the years ended December 31, 2008, 2007, and 2006, net sales attributable to
the Company's firearms operations were approximately, $174.4 million, $144.2
million and $139.1 million or approximately 96%, 92%, and 83%, respectively, of
total net sales. The balance of the Company's net sales for the aforementioned
periods was attributable to its investment castings operations.
Firearms Products
The Company presently manufactures firearm products, under the "Ruger" name and
trademark, in the following industry categories:
Rifles Shotguns
o Single-shot o Over and Under
o Autoloading
o Bolt-action
o Lever action
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Pistols Revolvers
o Rimfire autoloading o Single action
o Centerfire autoloading o Double action
Most firearms are available in several models based upon caliber, finish, barrel
length, and other features. Many of the firearms introduced by the Company over
the years have become "classics" which have retained their popularity for
decades and are sought by collectors.
Rifles
A rifle is a long gun with spiral grooves cut into the interior of the barrel to
give the bullet a stabilizing spin after it leaves the barrel. Sales of rifles
by the Company accounted for approximately $69.4 million, $64.9 million, and
$58.4 million, of revenues for the years 2008, 2007 and 2006, respectively.
Shotguns
A shotgun is a long gun with a smooth barrel interior which fires lead or steel
pellets. Sales of shotguns by the Company accounted for approximately $1.5
million, $3.8 million, and $5.5 million of revenues for the years 2008, 2007 and
2006, respectively.
Pistols
A pistol is a handgun in which the ammunition chamber is an integral part of the
barrel and which typically is fed ammunition from a magazine contained in the
grip. Sales of pistols by the Company accounted for approximately $52.5 million,
$33.4 million, and $31.9 million of revenues for the years 2008, 2007 and 2006,
respectively.
Revolvers
A revolver is a handgun that has a cylinder that holds the ammunition in a
series of chambers which are successively aligned with the barrel of the gun
during each firing cycle. There are two general types of revolvers,
single-action and double-action. To fire a single-action revolver, the hammer is
pulled back to cock the gun and align the cylinder before the trigger is pulled.
To fire a double-action revolver, a single trigger pull advances the cylinder
and cocks and releases the hammer. Sales of revolvers by the Company accounted
for approximately $41.0 million, $35.6 million, and $37.6 million of revenues
for the years 2008, 2007, and 2006, respectively.
The Company also manufactures and sells accessories and replacement parts for
its firearms. These sales accounted for approximately $9.9 million, $6.5
million, and $5.7 million of revenues for the years 2008, 2007 and 2006,
respectively.
Investment Casting Products
The Company manufactures and sells investment castings made from steel alloys
for both outside customers and internal use in the firearms segment. Investment
castings sold to outside customers, either directly to or through manufacturers'
representatives, represented approximately 4% of the Company's total sales for
the year ended December 31, 2008. In July 2006, the Company announced the
cessation of the titanium castings portion of its investment casting operations.
This cessation of operations was completed in 2007, at which time the Company
consolidated its Arizona casting operations into its New Hampshire casting
operations.
Net sales attributable to the Company's investment casting operations (excluding
intercompany transactions) accounted for approximately $7.1 million, $12.3
million, and $28.5 million, or approximately 4%, 8%, and 17% of the Company's
total net sales for 2008, 2007, and 2006, respectively.
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Manufacturing
Firearms
The Company produces one model of pistol and all of its rifles, shotguns, and
revolvers at the Newport, New Hampshire facility. All other pistols are produced
at the Prescott, Arizona facility.
Many of the basic metal component parts of the firearms manufactured by the
Company are produced by the Company's castings facilities through a process
known as precision investment casting. See "Manufacturing-Investment Castings"
for a description of the investment casting process. The Company initiated the
use of this process in the production of component parts for firearms in 1953.
The Company believes that the investment casting process provides greater design
flexibility and results in component parts which are generally close to their
ultimate shape and, therefore, require less machining than processes requiring
machining a solid billet of metal to obtain a part. Through the use of
investment castings, the Company endeavors to produce durable and less costly
component parts for its firearms.
All assembly, inspection, and testing of firearms manufactured by the Company
are performed at the Company's manufacturing facilities. Every firearm,
including every chamber of every revolver manufactured by the Company, is
test-fired prior to shipment.
Investment Castings
To produce a product by the investment casting method, a wax model of the part
is created and coated ("invested") with several layers of ceramic material. The
shell is then heated to melt the interior wax which is poured off, leaving a
hollow mold. To cast the desired part, molten metal is poured into the mold and
allowed to cool and solidify. The mold is then broken off to reveal a near net
shape cast metal part.
In July 2006, the Company announced the cessation of the titanium castings
portion of its investment casting operations. This cessation of operations was
completed in 2007, at which time the Company consolidated its Arizona casting
operations into its New Hampshire casting operations. The Company only produces
ferrous investment castings.
Marketing and Distribution
Firearms
The Company's firearms are primarily marketed through a network of selected
Federally-licensed independent wholesale distributors who purchase the products
directly from the Company. They resell to Federally-licensed retail firearms
dealers who in turn resell to legally authorized end-users. All retail
purchasers are subject to a point-of-sale background check by law enforcement.
These end-users include sportsmen, hunters, law enforcement and other
governmental organizations, and gun collectors. Each distributor carries the
entire line of firearms manufactured by the Company for the commercial market.
Currently, 15 distributors service the domestic commercial market, with an
additional 12 distributors servicing the domestic law enforcement market and two
distributors servicing the Canadian market. Six of the Company's distributors
service both the domestic commercial market and the domestic law enforcement
market.
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One customer accounted for approximately 13%, 13%, and 13% of net firearms sales
and 12%, 12%, and 11% of consolidated net sales in 2008, 2007, and 2006,
respectively. A second customer accounted for approximately 12%, 12%, and 13% of
net firearms sales and 11%, 11%, and 11% of consolidated net sales in 2008,
2007, and 2006, respectively. A third customer accounted for approximately 12%
and 13% of the Company's net firearms sales and 11% and 10% of consolidated net
sales in 2007 and 2006, respectively. A fourth customer accounted for
approximately 10% and 10% of net firearms sales in 2008 and 2006, respectively.
The Company employs eight employees and one independent contractor who service
these distributors and call on dealers and law enforcement agencies. Because the
ultimate demand for the Company's firearms comes from end-users, rather than
from the Company's distributors, the Company believes that the loss of any
distributor would not have a material long-term adverse effect on the Company,
but may have a material impact on the Company's financial results for a
particular period. The Company considers its relationships with its distributors
to be satisfactory.
The Company also exports its firearms through a network of selected commercial
distributors and directly to certain foreign customers, consisting primarily of
law enforcement agencies and foreign governments. Foreign sales were less than
6% of the Company's consolidated net sales for each of the past three fiscal
years.
Prior to 2006, the Company received one cancelable annual order in December from
each of its distributors. Effective December 1, 2006 the Company changed the
manner in which distributors order firearms, and began receiving firm,
non-cancelable purchase orders on a frequent basis, with most orders for
immediate delivery. As of February 1, 2009, the order backlog was $87 million.
As of February 1, 2008, order backlog was approximately $20 million. Shipments
in 2009 will be essentially limited to units produced as finished goods
inventory was largely depleted during the fourth quarter of 2008.
The Company does not consider its overall firearms business to be predictably
seasonal; however, sales of many models of firearms are usually lower in the
third quarter of the fiscal year.
Investment Castings
The investment casting segment's principal markets are commercial, sporting
goods, and military. Sales are made directly to customers or through
manufacturers' representatives. The Company produces various products for a
number of customers in a variety of industries, including approximately 20
firearms and firearms component manufacturers. The investment castings segment
provides castings for the Company's firearms segment.
The Company continues to evaluate the viability and profitability of the
commercial castings market.
Competition
Firearms
Competition in the firearms industry is intense and comes from both foreign and
domestic manufacturers. While some of these competitors concentrate on a single
industry product category, such as rifles or pistols, several competitors
manufacture products in the same four industry categories as the Company
(rifles, shotguns, pistols, and revolvers). Some of these competitors are
subsidiaries of larger corporations than the Company with substantially greater
financial resources than the Company, which could affect the Company's ability
to compete. The principal methods of competition in the industry are product
innovation, quality, availability, and price. The Company believes that it can
compete effectively with all of its present competitors.
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Investment Castings
There are a large number of investment castings manufacturers, both domestic and
foreign, with which the Company competes. Competition varies based on the type
of investment castings products and the end-use of the product (commercial,
sporting goods, or military). Many of these competitors are larger corporations
than the Company with substantially greater financial resources than the
Company, which could affect the Company's ability to compete with these
competitors. The principal methods of competition in the industry are quality,
price, and production lead time. The Company believes that it can compete
effectively with its present domestic competitors. However, it is unknown if the
Company can compete with foreign competitors in the long-term.
Employees
As of February 1, 2009, the Company employed approximately 1,150 full-time
employees of which approximately 53% had at least ten years of service with the
Company.
None of the Company's employees are subject to a collective bargaining
agreement.
Research and Development
In 2008, 2007, and 2006, the Company spent approximately $1.5 million, $0.7
million, and $0.6 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. As of
February 15, 2009, the Company had approximately 17 employees whose primary
responsibilities were research and development activities.
Patents and Trademarks
The Company owns various United States and foreign patents and trademarks which
have been secured over a period of years and which expire at various times. It
is the policy of the Company to apply for patents and trademarks whenever new
products or processes deemed commercially valuable are developed or marketed by
the Company. However, none of these patents and trademarks are considered to be
basic to any important product or manufacturing process of the Company and,
although the Company deems its patents and trademarks to be of value, it does
not consider its business materially dependent on patent or trademark
protection.
Environmental Matters
The Company is committed to achieving high standards of environmental quality
and product safety, and strives to provide a safe and healthy workplace for its
employees and others in the communities in which it operates. The Company has
programs in place that monitor compliance with various environmental
regulations. However, in the normal course of its manufacturing operations the
Company is subject to occasional governmental proceedings and orders pertaining
to waste disposal, air emissions, and water discharges into the environment.
These regulations are integrated into the Company's manufacturing, assembly, and
testing processes. The Company believes that it is generally in compliance with
applicable environmental regulations and the outcome of any environmental
proceedings and orders will not have a material effect on the financial position
of the Company, but could have a material impact on the financial results for a
particular period.
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Executive Officers of the Company
Set forth below are the names, ages, and positions of the executive officers of
the Company. Officers serve at the discretion of the Board of Directors of the
Company.
Name Age Position With Company
---------------------------------------------------------------------------------------------------
Michael O. Fifer 51 Chief Executive Officer
Thomas A. Dineen 40 Vice President, Treasurer and Chief Financial Officer
Christopher J. Killoy 50 Vice President of Sales and Marketing
Mark T. Lang 52 Group Vice President
Thomas P. Sullivan 48 Vice President of Newport Operations
Leslie M. Gasper 55 Corporate Secretary
Michael O. Fifer joined the Company as Chief Executive Officer on September 25,
2006, and was named to the Board of Directors on October 19, 2006. Prior to
joining the Company, Mr. Fifer was President of the Engineered Products Division
of Mueller Industries, Inc. Prior to joining Mueller Industries, Inc., Mr. Fifer
was President, North American Operations, Watts Water Technologies.
Thomas A. Dineen became Vice President on May 24, 2006. Previously he served as
Treasurer and Chief Financial Officer since May 6, 2003 and had been Assistant
Controller since 2001. Prior to that, Mr. Dineen had served as Manager,
Corporate Accounting since 1997.
Christopher J. Killoy rejoined the Company as Vice President of Sales and
Marketing on November 27, 2006. Mr. Killoy originally joined the Company in 2003
as Executive Director of Sales and Marketing, and subsequently served as Vice
President of Sales and Marketing from November 1, 2004 to January 25, 2005.
Mark T. Lang joined the Company as Group Vice President on February 18, 2008.
Mr. Lang is responsible for management of the Prescott Firearms Division and the
Company's acquisition efforts. Prior to joining the Company, Mr. Lang was
President of the Custom Products Business at Mueller Industries, Inc. Prior to
joining Mueller, Mr. Lang was the Vice President of Operations for the
Automotive Division of Thomas and Betts, Inc.
Thomas P. Sullivan joined the Company as Vice President of Newport Operations
for the Newport, New Hampshire Firearms and Pine Tree Castings divisions on
August 14, 2006. Prior to joining the Company, Mr. Sullivan was Vice President
of Lean Enterprises at IMI Norgren Ltd.
Leslie M. Gasper has been Secretary of the Company since 1994. Prior to this,
she was the Administrator of the Company's pension plans, a position she held
for more than five years prior thereto.
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Where You Can Find More Information
The Company is a reporting company and is therefore subject to the informational
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and accordingly files its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K,
and other information with the Securities and Exchange Commission (the "SEC").
The public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 100 F Street NE, Washington, DC 20549. Please call the
SEC at (800) SEC-0330 for further information on the Public Reference Room. As
an electronic filer, the Company's public filings are maintained on the SEC's
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that website is http://www.sec.gov.
The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Definitive Proxy Statements, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act accessible free of charge through the Company's Internet site after
the Company has electronically filed such material with, or furnished it to, the
SEC. The address of that website is http://www.ruger.com. However, such reports
may not be accessible through the Company's website as promptly as they are
accessible on the SEC's website.
Additionally, the Company's corporate governance materials, including its
Corporate Governance Guidelines; the charters of the Audit, Compensation, and
Nominating and Corporate Governance committees; and the Code of Business Conduct
and Ethics may also be found under the "Stockholder Relations" section of the
Company's Internet site at www.ruger.com. A copy of the foregoing corporate
governance materials are available upon written request of the Corporate
Secretary at Sturm, Ruger & Company, Inc., Lacey Place, Southport, Connecticut
06890.
ITEM 1A--RISK FACTORS
In evaluating the Company's business, the following risk factors, as well as
other information in this report, should be carefully considered.
Firearms Legislation
The sale, purchase, ownership, and use of firearms are subject to thousands of
federal, state and local governmental regulations. The basic federal laws are
the National Firearms Act, the Federal Firearms Act, and the Gun Control Act of
1968. These laws generally prohibit the private ownership of fully automatic
weapons and place certain restrictions on the interstate sale of firearms unless
certain licenses are obtained. The Company does not manufacture fully automatic
weapons, other than for the law enforcement market, and holds all necessary
licenses under these federal laws. From time to time, congressional committees
review proposed bills relating to the regulation of firearms. These proposed
bills generally seek either to restrict or ban the sale and, in some cases, the
ownership of various types of firearms. Several states currently have laws in
effect similar to the aforementioned legislation.
Until November 30, 1998, the "Brady Law" mandated a nationwide five-day waiting
period and background check prior to the purchase of a handgun. As of November
30, 1998, the National Instant Check System, which applies to both handguns and
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long guns, replaced the five-day waiting period. The Company believes that the
"Brady Law" and the National Instant Check System have not had a significant
effect on the Company's sales of firearms, nor does it anticipate any impact on
sales in the future. On September 13, 1994, the "Crime Bill" banned so-called
"assault weapons." All the Company's then-manufactured commercially-sold long
guns were exempted by name as "legitimate sporting firearms." This ban expired
by operation of law on September 13, 2004. The Company remains strongly opposed
to laws which would restrict the rights of law-abiding citizens to lawfully
acquire firearms. The Company believes that the lawful private ownership of
firearms is guaranteed by the Second Amendment to the United States Constitution
and that the widespread private ownership of firearms in the United States will
continue. However, there can be no assurance that the regulation of firearms
will not become more restrictive in the future and that any such restriction
would not have a material adverse effect on the business of the Company.
Firearms Litigation
(The following disclosures within "Firearms Litigation" are identical to the
disclosures within Note 6 of the notes to the financial statements-Contingent
Liabilities.)
As of December 31, 2008, the Company was a defendant in approximately 6 lawsuits
involving its products and is aware of certain other such claims. These lawsuits
and claims fall into one of the two following categories:
(i) Those that claim damages from the Company related to allegedly
defective product design which stem from a specific incident.
Pending 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.
(ii) Those brought by cities or other governmental entities, and
individuals against firearms manufacturers, distributors and
retailers seeking to recover damages allegedly arising out of the
misuse of firearms by third-parties in the commission of homicides,
suicides and other shootings involving juveniles and adults. The
complaints by municipalities seek damages, among other things, for
the costs of medical care, police and emergency services, public
health services, and the maintenance of courts, prisons, and other
services. In certain instances, the plaintiffs seek to recover for
decreases in property values and loss of business within the city
due to criminal violence. In addition, nuisance abatement and/or
injunctive relief is sought to change the design, manufacture,
marketing and distribution practices of the various defendants.
These suits allege, among other claims, strict liability or
negligence in the design of products, public nuisance, negligent
entrustment, negligent distribution, deceptive or fraudulent
advertising, violation of consumer protection statutes and
conspiracy or concert of action theories. Most of these cases do not
allege a specific injury to a specific individual as a result of the
misuse or use of any of the Company's products.
The Company has expended significant amounts of financial resources and
management time in connection with product liability litigation. Management
believes that, in every case involving firearms, the allegations are unfounded,
and that the shootings and any results from the shootings were due to negligence
or misuse of the firearms by third-parties or the claimant, and that there
should be no recovery against the Company. Defenses to the suits brought by
governmental entities further exist based on, among other things, the Protection
of Lawful Commerce in Arms Act, established state law precluding recovery for
essential government services, the remoteness of the claims, the types of
damages sought to be recovered, and limitations on the extraterritorial
authority which may be exerted by a city, municipality, county or state under
state and federal law, including State and Federal Constitutions.
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The only case against the Company alleging liability for criminal shootings by
third-parties to ever be permitted to go before a constitutional jury, Hamilton,
et al. v. Accu-tek, et al., resulted in a defense verdict in favor of the
Company on February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. In subsequent proceedings involving other
defendants, the New York Court of Appeals as a matter of law confirmed that 1)
no legal duty existed under the circumstances to prevent or investigate criminal
misuses of a manufacturer's lawfully made products; and 2) liability of firearms
manufacturers could not be apportioned under a market share theory. More
recently, the New York Court of Appeals on October 21, 2003 declined to hear the
appeal from the decision of the New York Supreme Court, Appellate Division,
affirming the dismissal of New York Attorney General Eliot Spitzer's public
nuisance suit against the Company and other manufacturers and distributors of
firearms. In its decision, the Appellate Division relied heavily on Hamilton in
concluding that it was "legally inappropriate," "impractical," "unrealistic" and
"unfair" to attempt to hold firearms manufacturers responsible under theories of
public nuisance for the criminal acts of others.
Of the lawsuits brought by municipalities, counties or a state Attorney General,
twenty have been concluded: Atlanta - dismissal by intermediate Appellate Court,
no further appeal; Bridgeport - dismissal affirmed by Connecticut Supreme Court;
County of Camden - dismissal affirmed by U.S. Third Circuit Court of Appeals;
Miami - dismissal affirmed by intermediate appellate court, Florida Supreme
Court declined review; New Orleans - dismissed by Louisiana Supreme Court,
United States Supreme Court declined review; Philadelphia - U.S. Third Circuit
Court of Appeals affirmed dismissal, no further appeal; Wilmington - dismissed
by trial court, no appeal; Boston - voluntary dismissal with prejudice by the
City at the close of fact discovery; Cincinnati - voluntarily withdrawn after a
unanimous vote of the city council; Detroit - dismissed by Michigan Court of
Appeals, no appeal; Wayne County - dismissed by Michigan Court of Appeals, no
appeal; New York State - Court of Appeals denied plaintiff's petition for leave
to appeal the Intermediate Appellate Court's dismissal, no further appeal;
Newark - Superior Court of New Jersey Law Division for Essex County dismissed
the case with prejudice; City of Camden - dismissed on July 7, 2003, not
reopened; Jersey City - voluntarily dismissed and not re-filed; St. Louis -
Missouri Supreme Court denied plaintiffs' motion to appeal Missouri Appellate
Court's affirmation of dismissal; Chicago - Illinois Supreme Court affirmed
trial court's dismissal; and Los Angeles City, Los Angeles County, San Francisco
- Appellate Court affirmed summary judgment in favor of defendants, no further
appeal; and Cleveland - dismissed on January 24, 2006 for lack of prosecution.
On April 21, 2005, the D.C. Court of Appeals, in an en banc hearing, unanimously
dismissed all negligence and public nuisance claims, but let stand individual
claims based upon a Washington, D.C. act imposing "strict liability" for
manufacturers of "machine guns." Based on present information, none of the
Company's products has been identified with any of the criminal assaults which
form the basis of the individual claims. The writ of certiorari to the United
States Supreme Court regarding the constitutionality of the Washington, D.C. act
was denied and the case was remanded to the trial court for further proceedings.
The defendants subsequently moved to dismiss the case based upon the Protection
12
of Lawful Commerce in Arms Act ("PLCAA"), which motion was granted on May 22,
2006. The individual plaintiffs and the District of Columbia, which has
subrogation claims in regard to the individual plaintiffs, appealed. On January
10, 2008, the District of Columbia Court of Appeals unanimously upheld the
dismissal. On February 22, 2008, the District and the individual plaintiffs
filed petitions for rehearing or rehearing en banc. On June 9, 2008, the court
denied the petition. On October 23, 2008, the District and the individual
plaintiffs filed a petition for writ of certiorari in the United States Supreme
Court.
The Indiana Court of Appeals affirmed the dismissal of the Gary case by the
trial court, but the Indiana Supreme Court reversed this dismissal and remanded
the case for discovery proceedings on December 23, 2003. The defendants filed a
motion to dismiss pursuant to the PLCAA. On November 23, 2005, the state court
judge held the PLCAA unconstitutional and the defendants filed a motion with the
Indiana Court of Appeals asking it to accept interlocutory appeal on the issue,
which appeal was accepted on February 5, 2007. On October 29, 2007, the Indiana
Appellate Court affirmed, holding that the PLCAA does not apply to the City's
claims. A petition for rehearing was filed in the Appellate Court and denied on
January 9, 2008. On February 8, 2008, a Petition to Transfer the appeal to the
Supreme Court of Indiana was filed. The petition was denied on January 13, 2009
and the case was remanded to the trial court.
In the previously reported New York City municipal case, the defendants moved to
dismiss the suit pursuant to the PLCAA. The trial judge found the PLCAA to be
constitutional, but denied the defendants' motion to dismiss the case, on the
basis that the Act was not applicable to the suit. The defendants were given
leave to appeal to the U.S. Court of Appeals for the Second Circuit. The Second
Circuit affirmed the constitutionality of the PLCAA and reversed on
applicability, holding that the PLCAA did apply. The case was remanded for
dismissal. On June 16, 2008, the City filed a petition for rehearing or
rehearing en banc. On August 20, 2008, the City's petition was denied by the
Second Circuit. On October 20, 2008, the City filed a petition for writ of
certiorari in the United States Supreme Court.
In the NAACP case, on May 14, 2003, an advisory jury returned a verdict
rejecting the NAACP's claims. On July 21, 2003, Judge Jack B. Weinstein entered
an order dismissing the NAACP lawsuit, but this order contained lengthy dicta
which defendants believe are contrary to law and fact. Appeals by both sides
were filed, but plaintiffs withdrew their appeal. On August 3, 2004, the United
States Court of Appeals for the Second Circuit granted the NAACP's motion to
dismiss the defendants' appeal of Judge Weinstein's order denying defendants'
motion to strike his dicta made in his order dismissing the NAACP's case, and
the defendants' motion for summary disposition was denied as moot. The ruling of
the Second Circuit effectively confirmed the decision in favor of defendants and
brought this matter to a conclusion.
Legislation has been passed in approximately 34 states precluding suits of the
type brought by the municipalities mentioned above. On the Federal level, the
"Protection of Lawful Commerce in Arms Act" was signed by President Bush on
October 26, 2005. The Act requires dismissal of suits against manufacturers
arising out of the lawful sale of their products for harm resulting from the
criminal or unlawful misuse of a firearm by a third party. The Company is
pursuing dismissal of each action involving such claims, including the municipal
cases described above.
Punitive damages, as well as compensatory damages, are demanded in certain of
the lawsuits and claims. Aggregate claimed amounts presently exceed product
liability accruals and applicable insurance coverage. For claims made after July
13
10, 2000, coverage is provided on an annual basis for losses exceeding $5
million per claim, or an aggregate maximum loss of $10 million annually, except
for certain new claims, which might be brought by governments or municipalities
after July 10, 2000, which are excluded from coverage.
Product liability claim payments are made when appropriate if, as, and when
claimants and the Company reach agreement upon an amount to finally resolve all
claims. Legal costs are paid as the lawsuits and claims develop, the timing of
which may vary greatly from case to case. A time schedule cannot be determined
in advance with any reliability concerning when payments will be made in any
given case.
Provision is made for product liability claims based upon many factors related
to the severity of the alleged injury and potential liability exposure, based
upon prior claim experience. Because our experience in defending these lawsuits
and claims is that unfavorable outcomes are typically not probable or estimable,
only in rare cases is an accrual established for such costs. In most cases, an
accrual is established only for estimated legal defense costs. Product liability
accruals are periodically reviewed to reflect then-current estimates of possible
liabilities and expenses incurred to date and reasonably anticipated in the
future. Threatened product liability claims are reflected in our product
liability accrual on the same basis as actual claims; i.e., an accrual is made
for reasonably anticipated possible liability and claims-handling expenses on an
ongoing basis.
A range of reasonably possible loss relating to unfavorable outcomes cannot be
made. However, in product liability cases in which a dollar amount of damages is
claimed, the amount of damages claimed, which totaled $12.2 million and $5.0 at
December 31, 2008 and 2007, respectively, are set forth as an indication of
possible maximum liability that the Company might be required to incur in these
cases (regardless of the likelihood or reasonable probability of any or all of
this amount being awarded to claimants) as a result of adverse judgments that
are sustained on appeal.
As of December 31, 2008 and 2007, the Company was a defendant in 6 and 5
lawsuits, respectively, involving its products and is aware of other such
claims. During the year ended December 31, 2008 and 2007, respectively, 1 and 2
claims were filed against the Company, 0 and 1 claims were dismissed, and 0 and
0 claims were settled.
During the years ended December 31, 2008 and 2007, the Company incurred product
liability expense of $0.9 million and $1.7 million, respectively, which includes
the cost of outside legal fees, insurance, and other expenses incurred in the
management and defense of product liability matters.
The Company management monitors the status of known claims and the product
liability accrual, which includes amounts for asserted and unasserted claims.
While it is not possible to forecast the outcome of litigation or the timing of
costs, in the opinion of management, after consultation with special and
corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial
position of the Company, but may have a material impact on the Company's
financial results for a particular period.
The Company has reported all cases instituted against it through September 27,
2008 and the results of those cases, where terminated, to the S.E.C. on its
previous Form 10-K and 10-Q reports to which reference is hereby made.
14
A roll-forward of the product liability reserve and detail of product liability
expense for the three years ended December 31, 2008 follows:
Balance Sheet Roll-forward for Product Liability Reserve
(Dollars in thousands)
Cash Payments
-------------
Accrued
Balance Legal Balance
Beginning of Expense Legal Fees Settlements Insurance Admin. End of
Year (a) (b) (c) (d) Premiums Expense Year (a)
-----------------------------------------------------------------------------------------------------
2006 $2,196 $688 $(1,000) $(143) N/A N/A $1,741
2007 1,741 639 (447) - N/A N/A 1,933
2008 1,933 176 (358) (7) N/A N/A 1,744
Income Statement Detail for Product Liability Expense
(Dollars in thousands)
Accrued Insurance Total Product
Legal Premium Admin. Liability
Expense (b) Expense (e) Expense (f) Expense
-----------------------------------------------------------
2006 $688 $1,141 $691 $2,520
2007 639 748 299 1,686
2008 176 739 - 915
Notes
(a) The beginning and ending liability balances represent accrued legal fees
only. Settlements and administrative costs are expensed as incurred. Only
in rare instances is an accrual established for settlements.
(b) The expense accrued in the liability is for legal fees only.
(c) Legal fees represent payments to outside counsel related to product
liability matters.
(d) Settlements represent payments made to plaintiffs or allegedly injured
parties in exchange for a full and complete release of liability.
(e) Insurance expense represents the cost of insurance premiums.
(f) Administrative expense represents personnel related and travel expenses of
Company employees and firearm experts related to the management and
monitoring of product liability matters.
15
There were no insurance recoveries during any of the above years.
Environmental
The Company is subject to numerous federal, state and local laws and
governmental regulations and related state laws. These laws generally relate to
potential obligations to remove or mitigate the environmental effects of the
disposal or release of certain pollutants at the Company's manufacturing
facilities and at third-party or formerly owned sites at which contaminants
generated by the Company may be located. This requires the Company to make
capital and other expenses.
The Company is committed to achieving high standards of environmental quality
and product safety, and strives to provide a safe and healthy workplace for its
employees and others in the communities in which it operates. In an effort to
comply with federal and state laws and regulations, the Company has programs in
place that monitor compliance with various environmental regulations. However,
in the normal course of its 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. However, the Company cannot assure that the outcome
of any environmental proceedings and orders will not have a material adverse
effect on the business.
Reliance on Two Facilities
The Newport, New Hampshire and Prescott, Arizona facilities are critical to the
Company's success. These facilities house the Company's principal production,
research, development, engineering, design, and shipping. Any event that causes
a disruption of the operation of either of these facilities for even a
relatively short period of time might have a material adverse affect on the
Company's ability to produce and ship products and to provide service to its
customers.
Availability of Raw Materials
Third parties supply the Company with various raw materials for its firearms and
castings, such as fabricated steel components, walnut, birch, beech, maple and
laminated lumber for rifle and shotgun stocks, wax, ceramic material, metal
alloys, various synthetic products and other component parts. There is a limited
supply of these materials in the marketplace at any given time, which can cause
the purchase prices to vary based upon numerous market factors. The Company
believes that it has adequate quantities of raw materials in inventory to
provide ample time to locate and obtain additional items at then-current market
cost without interruption of its manufacturing operations. However, if market
conditions result in a significant prolonged inflation of certain prices or if
adequate quantities of raw materials can not be obtained, the Company's
manufacturing processes could be interrupted and the Company's financial
condition or results of operations could be materially adversely affected.
ITEM 1B--UNRESOLVED STAFF COMMENTS
None
16
ITEM 2--PROPERTIES
The Company's manufacturing operations are carried out at two facilities. The
following table sets forth certain information regarding each of these
facilities:
Approximate
Aggregate Usable
Square Feet Status Segment
----------------------------------------------
Newport, New Hampshire 350,000 Owned Firearms/Castings
Prescott, Arizona 230,000 Leased Firearms
Each facility contains enclosed ranges for testing firearms and also contains
modern tool room facilities. The lease of the Prescott facility provides for
rental payments, which are approximately equivalent to estimated rates for real
property taxes. The Company consolidated its casting operations in its Newport,
New Hampshire foundry in 2007.
The Company has three other facilities that were not used in its manufacturing
operations in 2008:
Approximate
Aggregate Usable
Square Feet Status Segment
----------------------------------------------
Southport, Connecticut (Station 5,000 Owned Not Utilized
Street property)
Southport, Connecticut 25,000 Owned Corporate
(Lacey Place property)
Newport, New Hampshire 300,000 Owned Firearms (a)
(Dorr Woolen Building)
(a) In 2005, the Company relocated its firearms shipping department into a
portion of the Dorr Woolen Building. In 2006, certain of the Company's
sales department personnel were moved into the same facility.
There are no mortgages or any other major encumbrance on any of the real estate
owned by the Company. The Company sold some of its non-manufacturing real
property assets in 2007. The three non-manufacturing facilities identified above
are listed for sale.
The Company's principal executive offices are located in Southport, Connecticut.
The Company believes that its existing facilities are suitable and adequate for
its present purposes.
ITEM 3--LEGAL PROCEEDINGS
The nature of the legal proceedings against the Company is discussed at Note 6
to this Form 10-K report, which is incorporated herein by reference.
The Company has reported all cases instituted against it through September 27,
2008, and the results of those cases, where terminated, to the S.E.C. on its
previous Form 10-Q and 10-K reports, to which reference is hereby made.
17
One case was formally instituted against the Company during the three months
ending December 31, 2008:
Chan v. Company, et al (CA) in the Superior Court of the State of California for
the County of Los Angeles - Central District. The complaint, which was received
on October 14, 2008, alleges that the plaintiff was exposed to chemical
products, including aluminum parts provided by the Company, resulting in chronic
hepatitis. Compensatory damages and costs are demanded.
During the three months ending December 31, 2008, no previously reported cases
were settled.
On February 11, 2009, the previously reported Pearce v. Company, et al (MA) case
was settled. The settlement amount was within the limits of the Company's
self-insurance coverage and self-insurance retention.
For a description of all pending lawsuits against the Company through September
28, 2008, reference is made to the discussion under the caption "Item 1. LEGAL
PROCEEDINGS" of the Company's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1999, March 31 and September 30, 2000, and June 30, 2007.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "RGR." At February 1, 2009, the Company had 1,818 stockholders of record.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Common Stock as reported on the New York Stock Exchange and
dividends paid on Common Stock.
Dividends
High Low Per Share
---------------------------------------------------------------
2007:
First Quarter $13.27 $ 8.91 -
Second Quarter 15.49 11.77 -
Third Quarter 20.94 13.86 -
Fourth Quarter 18.35 7.22 -
---------------------------------------------------------------
2008:
First Quarter $ 9.32 $ 7.32 -
Second Quarter 8.88 6.95 -
Third Quarter 7.84 5.60 -
Fourth Quarter 7.44 4.36 -
---------------------------------------------------------------
Issuer Repurchase of Equity Securities
Approximate Dollar
Value of Shares
Total Number Total Number of that may yet be
of Shares Average Price Shares Purchased Purchased Under the
Dates Purchased Paid Per Share Under the Program Program
-----------------------------------------------------------------------------------------------
October 2008 364,000 $6.87 364,000 $ -
-----------------------------------------------------------------------------------------------
November 2008 - - - $ -
-----------------------------------------------------------------------------------------------
December 2008 47,000 $5.98 47,000 $ 4.7 million
-----------------------------------------------------------------------------------------------
Total 411,000 $8.02 411,000 $ 4.7 million
===============================================================================================
All of these purchases were made with cash held by the Company and no debt was
incurred.
19
Comparison of Five-Year Cumulative Total Return *
Sturm, Ruger & Company, Inc., Standard & Poor's 500 and
Value Line Recreation Index
(Performance Results through 12/31/08)
[GRAPHIC OMMITED]
Assumes $100 invested at the close of trading December 31, 2003 in Sturm, Ruger
& Company, Inc. Common Stock, Standard & Poor's 500 and Value Line Recreation
Index.
* Cumulative total return assumes reinvestment of dividends.
Source: Value Line, Inc.
Factual material is obtained from sources believed to be reliable, but the
publisher is not responsible for any errors or omissions contained herein.
2003 2004 2005 2006 2007 2008
Sturm, Ruger & Company, Inc. 100.00 83.75 67.36 92.24 79.56 57.36
Standard & Poor's 500 100.00 108.99 112.26 127.55 132.06 81.23
Value Line Recreation Index 100.00 135.42 126.33 142.41 127.12 80.34
20
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information regarding compensation plans under
which equity securities of the Company are authorized for issuance as of
December 31, 2008:
======================================================================================================
Equity Compensation Plan Information
------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders
------------------------------------------------------------------------------------------------------
1998 Stock Incentive Plan 600,000 $7.77 per share -
------------------------------------------------------------------------------------------------------
2001 Stock Option Plan
for Non-Employee Directors 180,000 $8.75 per share -
------------------------------------------------------------------------------------------------------
2007 Stock Incentive Plan 640,250 $10.26 per share 1,909,750
------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders
------------------------------------------------------------------------------------------------------
None.
------------------------------------------------------------------------------------------------------
Total 1,420,250 $9.02 per share 1,909,750
======================================================================================================
21
ITEM 6--SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
-------------------------------------------------------------------------------------------------------------------------
December 31,
-------------------------------------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------------
Net firearms sales $ 174,416 $ 144,222 $ 139,110 $ 132,805 $ 124,924
Net castings sales 7,067 12,263 28,510 21,917 20,700
-------------------------------------------------------------------------------------------------------------------------
Total net sales 181,483 156,485 167,620 154,722 145,624
=========================================================================================================================
Cost of products sold 138,730 117,186 139,610 124,826 115,725
Gross profit 42,753 39,299 28,010 29,896 29,899
Income before income taxes 13,978 16,659 1,843 1,442 8,051
Income taxes 5,312 6,330 739 578 3,228
Net income $ 8,666 $ 10,329 $ 1,104 $ 864 $ 4,823
Basic and diluted earnings per share 0.43 0.46 0.04 0.03 0.18
Cash dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.30 $ 0.60
December 31,
-------------------------------------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------------
Working capital $ 46,250 $ 53,264 $ 60,522 $ 83,522 $ 90,947
Total assets 112,760 101,882 117,066 139,639 147,460
Total stockholders' equity 65,603 76,069 87,326 111,578 120,687
Book value per share $ 3.44 $ 3.57 $ 3.86 $ 4.15 $ 4.48
Return on stockholders' equity 12.2% 12.6% 1.3% 0.8% 4.0%
Current ratio 2.6 to 1 3.6 to 1 3.8 to 1 5.5 to 1 5.7 to 1
Common shares outstanding 19,047,300 20,571,800 22,638,700 26,910,700 26,910,700
Number of stockholders of record 1,841 1,769 1,851 1,922 1,977
Number of employees 1,145 1,154 1,108 1,250 1,291
22
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Company Overview
Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the
design, manufacture, and sale of firearms to domestic customers. Approximately
96% of the Company's total sales for the year ended December 31, 2008 were from
the firearms segment, and approximately 4% were from investment castings. Export
sales represent approximately 6% of firearms sales. The Company's design and
manufacturing operations are located in the United States and most product
content is domestic. The Company's firearms are sold through a select number of
independent wholesale distributors principally to the commercial sporting
market.
The Company manufactures and sells investment castings made from steel alloys
for both outside customers and internal use in the firearms segment. Investment
castings sold to outside customers, either directly to or through manufacturers'
representatives, represented approximately 4% of the Company's total sales for
the year ended December 31, 2008. In July 2006, the Company announced the
cessation of the titanium castings portion of its investment casting operations.
This cessation of operations was completed in 2007, at which time the Company
consolidated its Arizona casting operations into its New Hampshire casting
operations.
Because most of the Company's competitors are not subject to public filing
requirements and industry-wide data is generally not available in a timely
manner, the Company is unable to compare its performance to other companies or
specific current industry trends. Instead, the Company measures itself against
its own historical results.
The Company does not consider its overall firearms business to be predictably
seasonal; however, sales of many models of firearms are usually lower in the
third quarter of the year.
23
Results of Operations
Annual Summary Unit Data
Firearms unit data for orders, production, shipments and ending inventory, and
castings setups (a measure of foundry production) are as follows:
----------------------------------------------
2008 2007 2006 2005
----------------------------------------------
Units Ordered 776,400 485,000 (1) (1)
Units Produced 600,600 464,900 419,800 414,600
Units Shipped 626,500 481,800 475,900 460,200
Average Sales Price $278 $299 $292 $289
Units on Backorder 175,900 36,500 (1) (1)
Units - Company Inventory 12,400 38,300 55,200 111,246
Units - Distributor Inventory 57,500 62,000 57,100 70,498
(2)
Castings Setups 144,600 156,100 169,100 174,443
Orders Received and Ending Backlog
(in millions except average sales price, including Federal Excise Tax):
----------------
2008 2007
----------------
Orders Received $233.8 $156.4
Average Sales Price of Orders Received
(Note 3) $301 $322
Ending Backlog (Note 3) $47.8 $17.9
Average Sales Price of Ending Backlog
(Note 3) $269 $444
(1) Prior to 2006, the Company received one cancelable annual firearms order
in December from each of its distributors. Effective December 1, 2006, the
Company changed the manner in which distributors order firearms, and began
receiving firm, non-cancelable purchase orders on a frequent basis, with
most orders for immediate delivery. Because of this change, comparable
data for orders received and units on backorder for prior periods is not
meaningful.
24
(2) Distributor ending inventory as provided by the Company's distributors.
(3) Average sales price for orders received and ending backlog is net of
Federal Excise Tax of 10% for handguns and 11% for long guns.
The increase in orders received in 2008 is attributable to the following:
1. Increased demand for firearms during the fourth quarter,
2. New products introduced in 2008, and
3. Increased production and order fulfillment in 2008.
The product mix of orders received in 2008 shows an increase in demand for
firearms related to self defense, including the LCP pistol, which was introduced
in the first quarter of 2008.
The decrease in the average sales price of the units in backlog in 2008 is due
to the large quantity of new products in the backlog with lower unit sales
prices and a reduction in backlog for certain rifle products where production
has increased to meet demand.
Orders for certain discontinued models totaling $3.7 million at the end of 2007
were cancelled and have been eliminated from the 2008 backlog information. These
orders were included in the backlog for 2007, and their elimination had a
significant impact on the change in average sales price of the ending backlog
from 2007 to 2008.
The increase in the order backlog is due to the strong incoming order rate for
new products and the increase in overall demand that occurred in the fourth
quarter. Shipments in 2009 will be essentially limited to units produced as
finished goods inventory was largely depleted during the fourth quarter of 2008.
Production
Production rates, which started to increase late in 2007, have continued to
improve throughout 2008. This allowed for a 29% increase in unit production from
2007 to 2008.
The Company continues to work on the transition from large-scale batch
production to lean manufacturing, with an emphasis on setting up manufacturing
cells that facilitate flow production and pull systems. The focus now is on
establishing single-piece flow cells for small parts manufacturing, refining
existing cells, developing pull systems, managing vendors, and increasing
capacity for the products with the greatest unmet demand. There is also
considerable, on-going engineering work in process to re-engineer existing
product designs for improved manufacturability.
Inventories
The Company's finished goods unit inventory levels decreased in 2008, ending at
a recent historic low. Finished goods inventories are anticipated to increase
during the later half of 2009 as safety stock levels are rebuilt when the
current, unusually high level of demand subsides.
25
Quarterly Summary Unit Data
To supplement the summary annual unit data and discussion above, the same data
for the last eight quarters follows:
2008
----------------------------------------------
Q4 Q3 Q2 Q1
----------------------------------------------
Units Ordered 270,400 125,700 120,300 260,100
Units Produced 167,100 158,900 150,600 124,000
Units Shipped 208,100 146,000 136,700 135,700
Average Sales Price $275 $276 $270 $296
Units on Backorder 175,900 115,300 137,700 157,100
Units - Company Inventory
12,400 52,600 40,200 24,900
Units - Distributor
Inventory (1) 57,500 65,800 62,900 61,800
2007
----------------------------------------------
Q4 Q3 Q2 Q1
----------------------------------------------
Units Ordered 113,100 80,900 115,300 175,700
Units Produced 104,900 100,800 132,000 127,200
Units Shipped 111,900 98,600 129,600 141,700
Average Sales Price $283 $297 $306 $308
Units on Backorder 36,500 35,700 53,400 68,300
Units - Company Inventory
38,300 45,300 43,100 40,700
Units - Distributor
Inventory (1) 62,000 70,500 78,800 60,000
(1) Distributor ending inventory as provided by the Company's distributors.
26
(in millions except average sales price, including Federal Excise Tax)
2008
----------------------------------------------
Q4 Q3 Q2 Q1
----------------------------------------------
Orders Received $86.1 $33.5 $37.0 $73.8
Average Sales Price of
Orders Received $287 $267 $275 $257
Ending Backlog $47.8 $27.9 $33.7 $40.7
Average Sales Price of
Ending Backlog $269 $242 $245 $234
2007
----------------------------------------------
Q4 Q3 Q2 Q1
----------------------------------------------
Orders Received $32.8 $25.4 $39.1 $58.9
Average Sales Price of
Orders Received $262 $284 $307 $303
Ending Backlog $17.9 $16.2 $23.3 $27.9
Average Sales Price of
Ending Backlog $444 $411 $395 $370
Note: Average sales price for orders received and ending backlog is net of
Federal Excise Tax of 10% for handguns and 11% for long guns.
Year ended December 31, 2008, as compared to year ended December 31, 2007:
Sales
Consolidated net sales were $181.5 million in 2008. This represents an increase
of $25.0 million or 16.0% from 2007 consolidated net sales of $156.5 million.
Firearms segment net sales were $174.4 million in 2008. This represents an
increase of $30.2 million or 20.9% from 2007 firearm net sales of $144.2
million. Firearms unit shipments increased 30.0% in 2008 due to increased
shipments of pistols, rifles and revolvers. This increase is attributable to the
introduction of new products in 2008, increased production of mature products,
and increased overall industry demand. A shift in product mix toward firearms
with lower unit sales prices, including some new products, resulted in the
greater percentage increase in unit shipments than sales.
27
Casting segment net sales were $7.1 million in 2008. This represents a decrease
of $5.2 million or 42.4% from 2007 casting sales of $12.3 million.
The casting sales decrease in 2008 primarily reflects the cessation of titanium
casting operations, as previously announced by the Company in July 2006. In
2007, titanium casting sales were $3.2 million of total casting sales. In 2007,
the Company significantly increased prices to certain external customers,
seeking to improve margins and free up available capacity for additional
internal use. Certain customers accepted the price increases while others moved
their business away from the Company as anticipated.
Cost of Products Sold and Gross Margin
Consolidated cost of products sold was $138.7 million in 2008. This represents
an increase of $21.5 million or 18.4% from 2007 consolidated cost of products
sold of $117.2 million.
The gross margin as a percent of sales was 23.6% in 2008. This represents a
decrease from the 2007 gross margin of 25.1% as illustrated below:
December 31,
--------------------------------------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------------------------------------
Net sales $181,483 100.0% $156,485 100.0%
Cost of products sold, before LIFO, overhead and
labor rate adjustments to inventory, product
liability and product recall 136,172 75.0% 123,170 78.7%
LIFO expense (income) 781 0.4% (9,074) (5.8)%
Overhead rate adjustments to inventory (1,389) (0.7)% 1,404 0.9%
Labor rate adjustments to inventory (1,251) (0.7)% - -
Product liability 915 0.5% 1,686 1.1%
Product recalls 3,502 1.9% - -
--------------------------------------------------------------------------------------------------------
Total cost of products sold 138,730 76.4% 117,186 74.9%
--------------------------------------------------------------------------------------------------------
Gross margin $ 42,753 23.6% $ 39,299 25.1%
========================================================================================================
28
Cost of products sold, before LIFO, overhead and labor rate adjustments to
inventory, product liability, and product recall-- In 2008, cost of products
sold, before LIFO, overhead and labor rate adjustments to inventory, product
liability, and product recall decreased as a percentage of sales by 3.7%
compared to the comparable 2007. The decrease was primarily related to increased
comparable period sales and production while holding fixed-overhead expenses
fairly stable and decreases in non-personnel variable-overhead spending.
Excess and Obsolete Inventory--The excess and obsolete inventory reserve
balances as of December 31, 2008 and December 31, 2007 were $3.6 million and
$4.1 million, respectively. The reduction was principally attributable to
continued reduction in work-in-process inventory.
LIFO--In 2008, gross inventories were reduced by $4.5 million compared to a
decrease in gross inventories of $23.1 million in 2007. In 2008 the Company
recognized a LIFO charge resulting in increased cost of products sold of $0.8
million compared to LIFO income and decreased cost of products sold of $9.1
million in 2007.
Overhead Rate Change--In the first half of 2008, increased expenses incurred
related to expanding manufacturing capacity resulted in an increase in overhead
absorbed into inventory of $1.5 million and a corresponding reduction in cost of
sales. In the latter half of 2008, the change in inventory value resulting from
the change in the overhead rates used to absorb overhead expenses into inventory
was a decrease in inventory of $0.1 million.
The net impact in 2008 from the change in the overhead rates used to absorb
overhead expenses into inventory was an increase to inventory of $1.4 million.
This increase in inventory value resulted in a decrease to cost of sales in
2008.
In 2007, the change in inventory value resulting from the change in the overhead
rate used to absorb overhead expenses into inventory was a decrease of $1.4
million. This reduction in inventory value resulted in an increase to cost of
products sold.
Labor Rate Adjustments--Effective April 1, 2008, the Company changed its
methodology for estimating standard direct labor rates for its firearms. This
change in estimation resulted in an increase to gross inventories of $1.9
million and a corresponding reduction in cost of sales. For the remainder of
2008, the change in inventory value resulting from the change in the labor rates
used to absorb labor expenses into inventory was a decrease in inventory of $0.6
million, reflecting continued improvement of labor efficiency.
The net impact in 2008 from the change in the labor rates used to absorb labor
expenses into inventory was an increase to inventory of $1.3 million. This
increase in inventory value resulted in a decrease to cost of sales in 2008.
Product Liability--During the years ended December 31, 2008 and 2007, the
Company incurred product liability expense of $0.9 million and $1.7 million,
respectively, which includes the cost of outside legal fees, insurance, and
other expenses incurred in the management and defense of product liability
matters. See Note 6 to the notes to the financial statements "Contingent
Liabilities" for further discussion of the Company's product liability.
29
Product Recalls-In 2008, the Company received a small number of reports from the
field that its SR9 pistols, and later, its LCP pistols, could discharge if
dropped onto a hard surface. The Company began recalling SR9 pistols in April
2008 and LCP pistols in October 2008 to offer free safety retrofits. The
estimated cost of these safety retrofit programs of approximately $3.5 million
was recorded in 2008. At December 31, 2008, an accrual of $1.5 million remains.
Gross Margin--Gross margin was $42.8 million or 23.6% of sales in 2008. This is
an increase of $3.5 million or 8.7% from 2007 gross margin of $39.3 million or
25.1% of sales.
Selling, General and Administrative
Selling, general and administrative expenses were $30.1 million in 2008. This
represents an increase of $1.3 million or 4.5% from 2007 selling, general and
administrative expenses of $28.8 million. The increase reflects increased
advertising and sales promotion expenses, many of which related to new products,
and greater personnel-related expenses.
Pension Curtailment Charge
In 2007, the Company amended its hourly and salaried defined benefit pension
plans which resulted in a $1.2 million pension curtailment charge. No such
charge was incurred in 2008.
Other Operating Expenses (Income), net
Other operating expenses (income), net consist of the following:
Year ended December 31, 2008 2007
------------------------------------------------------------------
Gain on sale of operating assets (a) $ (95) $(472)
Impairment of operating assets (b) - 489
Gain on sale of real estate (c) - (1,521)
Impairment of real estate held for sale (d) - 1,775
Frozen defined benefit pension plan income (745) -
------------------------------------------------------------------
Total other operating expenses (income), net $ (840) $ 271
==================================================================
(a) The gain on sale of operating assets was generated primarily from
the sale of used machinery and equipment. The used equipment sold in
2008 was previously used in firearms manufacturing. Most of the used
machinery and equipment sold in 2007 was related to titanium
investment casting.
(b) In 2007, the Company recognized an impairment charge of $0.5 million
related to machinery and equipment previously in the Company's
Arizona investment casting operations.
(c) In 2007, the Company sold a facility in Arizona for $5.0 million.
This facility had not been used in the Company's operations for
several years. The Company realized a gain of approximately $1.5
million from this sale. The Company has three additional
non-manufacturing properties listed for sale, two in Connecticut and
one in New Hampshire. The Company does not, however, expect to sell
them anytime soon due to the currently depressed real estate market.
(d) In the fourth quarter of 2007, the Company recognized an asset
impairment charge of $1.8 million related to the Dorr Building, a
non-manufacturing property in New Hampshire that has been for sale
for an extended period of time without any meaningful market
interest.
30
Operating Income--Operating Income was $13.5 million or 7.5% of sales in 2008.
This is a 48.5% increase of $4.4 million from 2007 operating income of $9.1
million or 5.8% of sales.
Gain on Sale of Real Estate--In 2007, the $5.2 million gain on sale of real
estate reflects the sale of largely undeveloped non-manufacturing real property
held for investment.
Interest income
Interest income was $0.4 million in 2008. This represents a decrease of $2.0
million from 2007 interest income of $2.4 million. The decrease is attributable
primarily to reduced interest rates in 2008 and secondarily to reduced principal
invested.
Income Taxes and Net Income
The effective income tax rate in 2008 was 38.0%, which is consistent with the
2007 effective income tax rate of 38.0%.
As a result of the foregoing factors, consolidated net income was $8.7 million
in 2008. This represents a decrease of $1.6 million from 2007 consolidated net
income of $10.3 million.
Results of Operations
Year ended December 31, 2007, as compared to year ended December 31, 2006:
Summary Unit Data
Firearms unit data for orders, production, shipments and ending inventory, and
castings setups (a measure of foundry production) are as follows:
---------------------------------
2007 2006 2005
---------------------------------
Units Ordered 485,000 (1) (1)
Units Produced 464,900 419,800 414,600
Units Shipped 481,800 475,900 460,200
Average Sales Price $299 $292 $289
Units on Backorder 36,500 (1) (1)
Units - Company Inventory 38,300 55,200 111,246
Units, Distributor Inventory (2) 62,000 57,100 70,498
Castings Setups 156,100 169,100 174,443
31
(1) Prior to 2006, the Company received one cancelable annual firearms
order in December from each of its distributors. Effective December
1, 2006, the Company changed the manner in which distributors order
firearms, and began receiving firm, non-cancelable purchase orders
on a frequent basis, with most orders for immediate delivery.
Because of this change, comparable data for orders received and
units on backorder for prior periods is not meaningful.
(2) Distributor ending inventory as provided by the Company's
distributors.
Orders Received
The Company saw unusually high bookings during the 1st quarter of 2007 and then
unusually low bookings during the 3rd quarter of 2007. Bookings picked up again
during the 4th quarter, gaining strength during the quarter. The Company's
distributors indicated anecdotally that this order pattern was in line with what
the overall industry experienced during 2007. This order pattern in 2007 was
more volatile than the modest seasonality typically encountered in other years.
Certain product lines were on backorder throughout the year, including new
product introductions and low-volume products that were not in regular
production throughout the year. The Company initiated sales promotions during
the 3rd and 4th quarters of the year to encourage demand for those product lines
where manufacturing capacity exceeded current demand.
Production
Throughout 2007, the Company continued to work on the transition from
large-scale batch production to lean manufacturing, with an emphasis on setting
up manufacturing cells that facilitate flow production and pull systems. At the
end of 2007, the Company had converted over 70% of its batch manufacturing
processes to single-piece or small-batch flow cells.
In the first half of 2007, unit shipments exceeded production and there was a
significant reduction in finished goods inventory. There was also a significant
reduction in work-in-process inventory in the first half of 2007 as available
work-in-process inventory allowed the Company to produce more units than its
staffing and manufacturing processes would have otherwise allowed.
As a result of reducing gross inventory by $28.3 million in the second half of
2006 and by $26.6 million in the first half of 2007, including significant
reductions in work-in-process inventory, many issues with design for
manufacturability, poor machinery and tool reliability, weak manufacturing
processes, long machine changeover times, and vendor supply were identified. The
Company has made partial progress in addressing these issues with careful
re-engineering of both our product and component designs and manufacturing
processes as problems were identified, with the net result for certain product
lines of significantly reduced factory throughput time, improved quality, and
modestly improved productivity. The rate of product returns (from firearms in
service less than 1 year) dropped by approximately 30% from the first quarter of
2007 to the fourth quarter of 2007. The Company was also able to increase unit
production by approximately 10% from 2006 to 2007.
During the 2nd half of 2007, the Company slowed its rapid, wide-spread draw down
of inventory and increased the foundry output to replenish component part
shortages. Gross inventory was relatively unchanged during the 2nd half of 2007.
Production rates started to increase late in 2007 as a result of the months of
effort spent addressing manufacturing process and design-for-manufacturability
issues and as a result of the increased availability of investment cast
component parts.
32
Sales
Consolidated net sales were $156.5 million in 2007. This represents a decrease
of $11.1 million or 6.6% from 2006 consolidated net sales of $167.6 million.
Firearms segment net sales were $144.2 million in 2007. This represents an
increase of $5.1 million or 3.7% from 2006 firearm net sales of $139.1 million.
Firearms unit shipments increased 1% in 2007 due to increased shipments of
rifles and pistols, offset by a decline in shipments of revolvers and shotguns.
A modest price increase and a shift in product mix toward firearms with greater
unit sales prices resulted in the greater percentage increase in sales than unit
shipments.
Casting segment net sales were $12.3 million in 2007. This represents a decrease
of $16.2 million or 57.0% from 2006 casting sales of $28.5 million.
The casting sales decrease in 2007 primarily reflects the cessation of titanium
casting operations, as previously announced by the Company in July 2006. In
2007, titanium casting sales were $3.2 million or 26% of total casting sales
compared to $16.2 million or 56% in 2006. In addition, the Company significantly
increased prices to most external customers in the second half of the 2007,
seeking to improve margins and free up available capacity for additional
internal use. Certain customers accepted the price increases while others moved
their business away from the Company as anticipated.
Cost of Products Sold and Gross Margin
Consolidated cost of products sold was $117.2 million in 2007. This represents a
decrease of $22.4 million or 16.1% from 2006 consolidated cost of products sold
of $139.6 million.
The gross margin as a percent of sales was 25.1% in 2007. This represents an
increase from the 2006 gross margin of 16.7% as illustrated below:
December 31,
-----------------------------------------------------------------------------------------------
2007 2006
-----------------------------------------------------------------------------------------------
Net sales $156,485 100.0% $167,620 100.0%
Cost of products sold, before LIFO, overhead
and labor rate adjustments to inventory, and
product liability 123,170 78.7% 135,881 81.1%
LIFO income (9,074) (5.8)% (1,233) (0.7)%
Overhead rate adjustments to inventory 1,404 0.9% 2,681 1.5%
Labor rate adjustments to inventory - - - -
Product liability 1,686 1.1% 2,281 1.4%
-----------------------------------------------------------------------------------------------
Total cost of products sold 117,186 74.9% 139,610 83.3%
-----------------------------------------------------------------------------------------------
Gross margin $ 39,299 25.1% $ 28,010 16.7%
===============================================================================================
33
Excess and Obsolete Inventory--Prior to 2006, the Company adjusted production
schedules to consume on-hand raw material and WIP inventories, regardless of
customer demand for the finished goods so produced. This practice led to
increased investment in inventory, and an unbalanced finished goods inventory.
Consistent with the change in the manner in which distributors order from the
Company, the Company significantly changed its production scheduling philosophy
from an annual production cycle to a customer-demand pull system in the fourth
quarter of 2006. Under the Company's new system, production is driven solely by
customer demand.
As a result of this new production philosophy, it became apparent that the
Company had inventory in excess of its needs over the foreseeable future.
Therefore, in 2006, the Company evaluated the adequacy of the excess and
obsolescence inventory reserve and concluded that additional reserves were
required to reflect the estimated recoverable value of excess inventories below
LIFO carrying cost. The required reserve was estimated at $5.5 million as of
December 31, 2006.
The Company employed the same methodology and parameters in 2007, which resulted
in a reserve balance as of December 31, 2007 of $4.1 million. This reduction was
principally caused by the increased impact of LIFO in 2007 as evidenced by the
LIFO reserve representing 73% of gross inventories at December 31, 2007,
compared to 66% at December 31, 2006.
LIFO--In 2007, gross inventories were reduced by $23.1 million compared to
decreases in gross inventories of $24.0 million in 2006. The 2007 inventory
reduction resulted in LIFO income and decreased cost of products sold of $9.1
million compared to LIFO income and decreased cost of products sold of $1.2
million in 2006.
Overhead Rate Change-- For the first three quarters of 2007, the change in
inventory value resulting from the change in the labor rates used to absorb
labor expenses into inventory was a decrease in inventory of $5.0 million,
reflecting continued improvement of labor efficiency. Effective December 31,
2007, the Company changed its methodology for absorbing overhead rates for its
firearms. This change in estimation resulted in an increase to gross inventories
of $3.6 million and a corresponding reduction in cost of sales in the fourth
quarter of 2007.
The net impact in 2007 from the change in the overhead rates used to absorb
overhead expenses into inventory was a decrease in inventory of $1.4 million.
This decrease in inventory value resulted in an increase to cost of sales in
2007.
In 2006, the change in inventory value resulting from the change in the overhead
rate used to absorb overhead expenses into inventory was a decrease of $2.7
million. This reduction in inventory value resulted in an increase to cost of
products sold.
Product Liability--During the years ended December 31, 2007 and 2006, the
Company incurred product liability expense of $1.7 million and $2.3 million,
respectively, which includes the cost of outside legal fees, insurance, and
other expenses incurred in the management and defense of product liability
matters. See note 6 to the notes to the financial statements "Contingent
Liabilities" for further discussion of the Company's product liability.
34
Gross Margin--Gross margin was $39.3 million or 25.1% of sales in 2007. This is
an increase of $11.3 million or 40.3% from 2006 gross
margin of $28.0 million or 16.7% of sales.
Selling, General and Administrative
Selling, general and administrative expenses were $28.8 million in 2007. This
represents an increase of $0.9 million or 3.0% from 2006 selling, general and
administrative expenses of $27.9 million. The increase reflects greater
personnel-related expenses including equity-based compensation expense such as
stock-option expense and performance-stock-option expense, partially offset by a
reduction in advertising and sales promotion expenses.
Pension Curtailment Charge
In 2007, the Company amended its hourly and salaried defined benefit pension
plans so that employees will no longer accrue benefits under these plans
effective December 31, 2007. This action "froze" the benefits for all employees
and prevented future hires from joining the plans, effective December 31, 2007.
In 2008, the Company provided supplemental discretionary contributions to
substantially all employees' individual 401(k) accounts.
These amendments resulted in a $1.2 million pension curtailment charge that was
recognized in 2007.
Other Operating Expenses (Income), net
Other operating expenses (income), net consist of the following:
Year ended December 31, 2007 2006
--------------------------------------------------------------------------
Gain on sale of operating assets (a) $ (472) $(929)
Impairment of operating assets (b) 489 494
Gain on sale of real estate (c) (1,521) (397)
Impairment of real estate held for sale (d) 1,775 -
--------------------------------------------------------------------------
Total other operating expenses (income), net $ 271 $(832)
==========================================================================
(a) The gain on sale of operating assets was generated primarily from
the sale of used machinery and equipment. Most of the used machinery
and equipment sold in 2007 and 2006 was related to titanium
investment casting.
(b) In 2007, the Company recognized an impairment charge of $0.5 million
related to machinery and equipment previously in the Company's
Arizona investment casting operations. In 2006, the Company
recognized an impairment charge of $0.5 million related to building
improvements at the Dorr Building. The Company had planned to
establish a titanium investment castings foundry at Dorr, but that
plan was aborted in 2006.
(c) On April 16, 2007, the Company sold a facility in Arizona for $5.0
million. This facility had not been used in the Company's operations
for several years. The Company realized a gain of approximately $1.5
million from this sale. In 2006, the $0.4 million gain on sale of
real estate reflects the sale of non-manufacturing real property.
(d) In the fourth quarter of 2007, the Company recognized an asset
impairment charge of $1.8 million related to the Dorr Building, a
non-manufacturing property in New Hampshire that had been for sale
for an extended period of time without any meaningful market
interest.
35
Operating Income--Operating Income was $9.1 million or 5.8% of sales in 2007.
This is an increase of $8.2 million from 2006 operating income of $0.9 million
or 0.6% of sales.
Gain on Sale of Real Estate
In 2007, the $5.2 million gain on sale of real estate reflects the sale of
largely undeveloped non-manufacturing real property held for investment.
Interest income
Interest income was $2.4 million in 2007. This represents an increase of $1.3
million from 2006 interest income of $1.1 million. The increase is attributable
to increased principal invested in 2007 compared to 2006.
Income Taxes and Net Income
The effective income tax rate in 2007 was 38.0%. This compares favorably to the
2006 effective income tax rate of 40.1%. The reduction in 2007 results from an
increase in the domestic production activities deduction.
As a result of the foregoing factors, consolidated net income was $10.3 million
in 2007. This represents an increase of $9.2 million from 2006 consolidated net
income of $1.1 million.
Financial Condition
Operations
At December 31, 2008, the Company had cash, cash equivalents and short-term
investments of $28.2 million. The Company's pre-LIFO working capital of $90.6
million, less the LIFO reserve of $44.3 million, resulted in working capital of
$46.3 million and a current ratio of 2.6 to 1.
Cash provided by operating activities was $11.2 million, $19.3 million, and
$30.2 million in 2008, 2007, and 2006, respectively. The decrease in cash
provided in 2008 compared to 2007 is principally attributable to a lesser
reduction in gross inventory in 2008 compared to 2007 and an increase in
accounts receivable in 2008 due to strong fourth quarter sales in 2008. The
decrease in cash provided in 2007 compared to 2006 is principally a result of a
lesser reduction in gross inventories in 2007 compared to 2006.
Third parties supply the Company with various raw materials for its firearms and
castings, such as fabricated steel components, walnut, birch, beech, maple and
laminated lumber for rifle and shotgun stocks, wax, ceramic material, metal
alloys, various synthetic products and other component parts. There is a limited
supply of these materials in the marketplace at any given time, which can cause
the purchase prices to vary based upon numerous market factors. The Company
believes that it has adequate quantities of raw materials in inventory to
provide ample time to locate and obtain additional items at then-current market
cost without interruption of its manufacturing operations. However, if market
conditions result in a significant prolonged inflation of certain prices or if
adequate quantities of raw materials can not be obtained, the Company's
manufacturing processes could be interrupted and the Company's financial
condition or results of operations could be materially adversely affected.
36
Investing and Financing
Capital expenditures were $9.5 million, $4.5 million, and $3.9 million in 2008,
2007, and 2006, respectively. In 2009, the Company expects to spend
approximately $12 million on capital expenditures to purchase tooling for new
product introductions and to upgrade and modernize manufacturing equipment, and
to increase capacity of certain products in strong demand. The Company finances,
and intends to continue to finance, all of these activities with funds provided
by operations and current cash and short-term investments.
In 2008, the Company repurchased 1,535,000 shares of its common stock,
representing 7.5% of the outstanding shares, in the open market at an average
price of $6.57 per share. In 2007, the Company repurchased 2,216,000 shares of
its common stock, representing 9.7% of the then outstanding shares, in the open
market at an average price of $8.99 per share. On September 26, 2006, the
Company repurchased 4,272,000 shares of its common stock, representing 15.9% of
the then outstanding shares, from entities controlled by members of the Ruger
family at a price of $5.90 per share. All of these purchases were made with cash
held by the Company and no debt was incurred.
There were no dividends paid in 2008, 2007 or 2006. The payment of future
dividends depends on many factors, including internal estimates of future
performance, then-current cash and short-term investments, and the Company's
need for funds. The Company does not expect to pay dividends in the near term.
Based on its unencumbered assets, the Company believes it has the ability to
raise substantial amounts of cash through issuance of short-term or long-term
debt. In the fourth quarter of 2007, the Company established an unsecured $25
million credit facility. At December 31, 2008, $1.0 million was drawn from this
credit facility.
On March 8, 2007, the Company sold 42 parcels of non-manufacturing real property
for $7.3 million to William B. Ruger, Jr., the Company's former Chief Executive
Officer and Chairman of the Board. The sale included substantially all of the
Company's raw land real property assets in New Hampshire. The sales price was
based upon an independent appraisal, and the Company recognized a gain of $5.2
million on the sale.
On April 16, 2007, the Company sold a non-manufacturing facility in Arizona for
$5.0 million. This facility had not been used in the Company's operations for
several years. The Company realized a gain of approximately $1.5 million from
this sale.
In 2007, the Company amended its hourly and salaried defined benefit pension
plans so that employees will no longer accrue benefits under them effective
December 31, 2007. This action "froze" the benefits for all employees and
prevented future hires from joining the plans, effective December 31, 2007. In
2008, the Company provided supplemental discretionary contributions to
substantially all employees' individual 401(k) accounts.
In late 2007, after authorizing the "freeze" amendment to its hourly and
salaried defined benefit pension plans, the Company contributed an additional $5
million to the plans. The intent of this discretionary contribution is to reduce
the amount of time that the Company will be required to continue to operate the
frozen plans. The ongoing cost of running the plans (even if frozen) is
approximately $200,000 per year, which includes PBGC premiums, actuary and audit
fees, and other expenses.
37
In 2009 and future years, the Company may be required to make cash contributions
to the two defined benefit pension plans according to the new rules of the
Pension Protection Act of 2006. The annual contributions will be based on the
amount of the unfunded plan liabilities derived from the frozen benefits and
will not include liabilities for any future accrued benefits for any new or
existing participants. The total amount of these future cash contributions will
be dependent on the investment returns generated by the plans' assets and the
then-applicable discount rates used to calculate the plans' liabilities. There
is no minimum required cash contribution for the defined benefit plans for 2009,
but there may be such a requirement in future years because of recent market
volatility which has adversely affected investment returns for the plans'
assets. The 2009 cash contribution for the defined benefit plans is expected to
be approximately $2 million.
In the fourth quarter of 2008, the Company settled $2.3 million of pension
liabilities through the purchases of group annuities. This transaction resulted
in an insignificant actuarial gain.
In February 2008, the Company made lump sum benefit payments to two participants
in its only non-qualified defined benefit plan, the Supplemental Executive
Retirement Plan (SERP). These payments, which totaled $2.1 million, represented
the actuarial present value of the participants' accrued benefit as of the date
of payment. Only one, retired participant remains in this plan.
Contractual Obligations
The table below summarizes the Company's significant contractual obligations at
December 31, 2008, and the effect such obligations are expected to have on the
Company's liquidity and cash flows in future periods. This table excludes
amounts already recorded on the Company's balance sheet as current liabilities
at December 31, 2008.
"Purchase Obligations" as used in the below table includes all agreements to
purchase goods or services that are enforceable and legally binding on the
Company and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Certain of the Company's purchase orders
or contracts for the purchase of raw materials and other goods and services that
may not necessarily be enforceable or legally binding on the Company, are also
included in "Purchase Obligations" in the table. Certain of the Company's
purchase orders or contracts therefore included in the table may represent
authorizations to purchase rather than legally binding agreements. The Company
expects to fund all of these commitments with cash flows from operations and
current cash and short-terms investments.
38
=================================================================================================
Payment due by period (in thousands)
-------------------------------------------------------------------------------------------------
Contractual Obligations Total Less than 1 1-3 years 3-5 years More than 5
year years
-------------------------------------------------------------------------------------------------
Long-Term Debt Obligations - - - - -
-------------------------------------------------------------------------------------------------
Capital Lease Obligations - - - - -
-------------------------------------------------------------------------------------------------
Operating Lease Obligations - - - - -
-------------------------------------------------------------------------------------------------
Purchase Obligations $29,700 $29,700 - - -
-------------------------------------------------------------------------------------------------
Other Long-Term Liabilities
Reflected on the
Registrant's Balance
Sheet under GAAP - - - - -
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total $29,700 $29,700 - - -
=================================================================================================
The expected timing of payment of the obligations discussed above is estimated
based on current information. Timing of payments and actual amounts paid may be
different depending on the time of receipt of goods or services or changes to
agreed-upon amounts for some obligations.
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes," on January 1, 2007. Upon the adoption of FIN
48, the Company commenced a review of all open tax years in all jurisdictions.
The Company does not believe it has included any "uncertain tax positions" in
its Federal income tax return or any of the state income tax returns it is
currently filing. The Company has made an evaluation of the potential impact of
additional state taxes being assessed by jurisdictions in which the Company does
not currently consider itself liable. The Company does not anticipate that such
additional taxes, if any, would result in a material change to its financial
position. However, the Company anticipates that it is more likely than not that
additional state tax liabilities in the range of $0.4 to $0.7 million exist. The
Company had previously recorded $0.4 million relating to these additional state
income taxes, including approximately $0.2 million for the payment of interest
and penalties. This amount is included in income taxes payable at December 31,
2008 and 2007. In connection with the adoption of FIN 48, the Company will
include interest and penalties related to uncertain tax positions as a component
of its provision for taxes.
Firearms Legislation and Litigation
See Item 1A - Risk Factors for discussion of firearms legislation and
litigation.
Other Operational Matters
In the normal course of its manufacturing operations, the Company is subject to
occasional governmental proceedings and orders pertaining to waste disposal, air
emissions and water discharges into the environment. The Company believes that
it is generally in compliance with applicable environmental regulations and the
outcome of such proceedings and orders will not have a material adverse effect
on the financial position or results of operations of the Company.
39
The Company self-insures a significant amount of its product liability, workers
compensation, medical, and other insurance. It also carries significant
deductible amounts on various insurance policies.
The valuation of the future defined-benefit pension obligations at December 31,
2008 and 2007 indicated that these plans were underfunded by $16.9 million and
$4.8 million, respectively, and resulted in a cumulative other comprehensive
loss of $23.0 million and $13.4 million on the Company's balance sheet at
December 31, 2008 and 2007, respectively.
The Company expects to realize its deferred tax assets through tax deductions
against future taxable income.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make assumptions
and estimates that affect the reported amounts of assets and liabilities as of
the balance sheet date and revenues and expenses recognized and incurred during
the reporting period then ended. The Company bases estimates on prior
experience, facts and circumstances, and other assumptions, including those
reviewed with actuarial consultants and independent counsel, when applicable,
that are believed to be reasonable. However, actual results may differ from
these estimates.
The Company believes the determination of its product liability accrual is a
critical accounting policy. The Company's management reviews every lawsuit and
claim at the outset and is in contact with independent and corporate counsel on
an ongoing basis. The provision for product liability claims is based upon many
factors, which vary for each case. These factors include the type of claim,
nature and extent of injuries, historical settlement ranges, jurisdiction where
filed, and advice of counsel. An accrual is established for each lawsuit and
claim, when appropriate, based on the nature of each such lawsuit or claim.
Amounts are charged to product liability expense in the period in which the
Company becomes aware that a claim or, in some instances a threat of claim, has
been made when potential losses or costs of defense can be reasonably estimated.
Such amounts are determined based on the Company's experience in defending
similar claims. Occasionally, charges are made for claims made in prior periods
because the cumulative actual costs incurred for that claim, or reasonably
expected to be incurred in the future, exceed amounts already provided. Likewise
credits may be taken if cumulative actual costs incurred for that claim, or
reasonably expected to be incurred in the future, are less than amounts
previously provided.
While it is not possible to forecast the outcome of litigation or the timing of
costs, in the opinion of management, after consultation with independent and
corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial
position of the Company, but may have a material impact on the Company's
financial results for a particular period.
The Company believes the valuation of its inventory and the related excess and
obsolescence reserve is also a critical accounting policy. Inventories are
carried at the lower of cost, principally determined by the last-in, first-out
(LIFO) method, or market. An actual valuation of inventory under the LIFO method
is made at the end of each year based on the inventory levels and prevailing
inventory costs existing at that time.
40
The Company determines its excess and obsolescence reserve by projecting the
year in which inventory will be consumed into a finished product. Given
ever-changing market conditions, customer preferences and the anticipated
introduction of new products, it does not seem prudent nor supportable to carry
inventory at full cost beyond that needed during the next 36 months. Therefore,
the Company estimates its excess and obsolescence inventory reserve based on the
following parameters:
Projected Year Required
Of Consumption Reserve %
-------------- ---------
2009 2%
2010 10%
2011 35%
2012 and thereafter 90%
Recent Accounting Pronouncements
In September 2006, FASB issued FAS No. 157, "Fair Value Measurements" ("FAS
157"). FAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions of FAS 157 were
effective for the fiscal year beginning January 1, 2008. The implementation of
FAS 157 for certain non-financial assets and liabilities will be effective for
fiscal years beginning January 1, 2009.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("FAS 141R"). FAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquiree and the goodwill acquired. FAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. FAS 141R is effective for the fiscal year
beginning January 1, 2009, and will be adopted by the Company in the first
quarter of 2009. The adoption of FAS 141R is not expected to have a material
impact on the Company's financial position, results of operations and cash
flows.
Forward-Looking Statements and Projections
The Company may, from time to time, make forward-looking statements and
projections concerning future expectations. Such statements are based on current
expectations and are subject to certain qualifying risks and uncertainties, such
as market demand, sales levels of firearms, anticipated castings sales and
earnings, the need for external financing for operations or capital
expenditures, the results of pending litigation against the Company including
lawsuits filed by mayors, state attorneys general and other governmental
entities and membership organizations, and the impact of future firearms control
and environmental legislation, any one or more of which could cause actual
results to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date made. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
such forward-looking statements are made or to reflect the occurrence of
subsequent unanticipated events.
41
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changing interest rates on its investments, which
consists primarily of United States Treasury instruments with short-term (less
than one year) maturities and cash. The interest rate market risk implicit in
the Company's investments at any given time is low, as the investments mature
within short periods and the Company does not have significant exposure to
changing interest rates on invested cash.
The Company has not undertaken any actions to cover interest rate market risk
and is not a party to any interest rate market risk management activities.
A hypothetical ten percent change in market interest rates over the next year
would not materially impact the Company's earnings or cash flows. A hypothetical
ten percent change in market interest rates would not have a material effect on
the fair value of the Company's investments.
42
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Sturm, Ruger & Company, Inc. Financial Statements
Reports of Independent Registered Public Accounting Firm 44
Balance Sheets at December 31, 2008 and 2007 46
Statements of Income for the years ended December 31, 2008, 2007 and 2006 48
Statements of Stockholders' Equity for the years ended
December 31, 2008, 2007 and 2006 49
Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006 50
Notes to financial statements 51
43
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Sturm, Ruger & Company, Inc.
We have audited Sturm, Ruger & Company, Inc.'s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Sturm, Ruger & Company, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in Management's Report on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (a) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (b)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (c) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Sturm, Ruger & Company, Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheets of Sturm, Ruger &
Company, Inc. as of December 31, 2008 and 2007, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2008, and our report dated February 20, 2009 expressed
an unqualified opinion.
/s/McGladrey & Pullen, LLP
Stamford, Connecticut
February 20, 2009
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Sturm, Ruger & Company, Inc.
We have audited the accompanying balance sheets of Sturm, Ruger & Company, Inc.
as of December 31, 2008 and 2007, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2008. Our audits also included the financial statement
schedule of Sturm, Ruger & Company, Inc. listed in Item 15(a). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sturm, Ruger & Company, Inc. as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Sturm, Ruger & Company, Inc.'s
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 20, 2009 expressed an unqualified opinion on the effectiveness of
Sturm, Ruger & Company, Inc.'s internal control over financial reporting.
/s/McGladrey & Pullen, LLP
Stamford, Connecticut
February 20, 2009
45
Balance Sheets
(Dollars in thousands, except per share data)
December 31, 2008 2007
-------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 9,688 $ 5,106
Short-term investments 18,558 30,504
Trade receivables, net 25,809 15,636
Gross inventories: 59,846 64,330
Less LIFO reserve (44,338) (46,890)
Less excess and obsolescence reserve (3,569) (4,143)
-------------------------------------------------------------------------------
Net inventories 11,939 13,297
-------------------------------------------------------------------------------
Deferred income taxes 6,400 5,878
Prepaid expenses and other current assets 3,374 3,091
-------------------------------------------------------------------------------
Total Current Assets 75,768 73,512
Property, Plant, and Equipment 125,026 126,496
Less allowances for depreciation (98,807) (104,418)
-------------------------------------------------------------------------------
Net property, plant and equipment 26,219 22,078
-------------------------------------------------------------------------------
Deferred income taxes 7,743 3,626
Other assets 3,030 2,666
-------------------------------------------------------------------------------
Total Assets $ 112,760 $ 101,882
===============================================================================
See accompanying notes to financial statements.
46
December 31, 2008 2007
-------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable and accrued expenses $ 10,235 $ 8,102
Product liability 1,051 1,208
Employee compensation and benefits 7,994 4,860
Workers' compensation 5,067 5,667
Income taxes payable 4,171 411
Line of credit 1,000 --
-------------------------------------------------------------------------------
Total Current Liabilities 29,518 20,248
Accrued pension liability 16,946 4,840
Product liability 693 725
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
2008-22,798,732 issued,
19,047,323 outstanding
2007-22,787,812 issued,
20,571,817 outstanding 22,799 22,788
Additional paid-in capital 2,442 1,836
Retained earnings 93,500 84,834
Less: Treasury stock - at cost
2008 - 3,751,419 shares
2007 - 2,215,995 shares (30,153) (20,000)
Accumulated other comprehensive loss (22,985) (13,389)
-------------------------------------------------------------------------------
Total Stockholders' Equity 65,603 76,069
-------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 112,760 $ 101,882
===============================================================================
See accompanying notes to financial statements.
47
Statements of Income
(In thousands, except per share data)
Year ended December 31, 2008 2007 2006
-------------------------------------------------------------------------------
Net firearms sales $ 174,416 $ 144,222 $ 139,110
Net castings sales 7,067 12,263 28,510
-------------------------------------------------------------------------------
Total net sales 181,483 156,485 167,620
Cost of products sold 138,730 117,186 139,610
-------------------------------------------------------------------------------
Gross profit 42,753 39,299 28,010
-------------------------------------------------------------------------------
Operating Expenses:
Selling 17,189 15,092 15,810
General and administrative 12,867 13,678 12,110
Pension plan curtailment charges -- 1,143 --
Other operating (income) expenses, net (840) 271 (832)
-------------------------------------------------------------------------------
Total operating expenses 29,216 30,184 27,088
-------------------------------------------------------------------------------
Operating income 13,537 9,115 922
-------------------------------------------------------------------------------
Other income:
Gain on sale of real estate -- 5,168 --
Interest income 405 2,368 1,062
Other income (expense), net 36 8 (141)
-------------------------------------------------------------------------------
Total other income, net 441 7,544 921
-------------------------------------------------------------------------------
Income before income taxes 13,978 16,659 1,843
-------------------------------------------------------------------------------
Income taxes 5,312 6,330 739
-------------------------------------------------------------------------------
Net income $ 8,666 $ 10,329 $ 1,104
===============================================================================
Basic and Diluted Earnings Per Share $ 0.43 $ 0.46 $ 0.04
===============================================================================
Cash Dividends Per Share $ 0.00 $ 0.00 $ 0.00
===============================================================================
See accompanying notes to financial statements.
48
Statements of Stockholders' Equity
(Dollars in thousands)
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock Loss Total
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005 $ 26,911 $ 2,508 $ 94,334 -- $(12,175) $111,578
--------
Net income 1,104 1,104
Pension liability, net of deferred
taxes of $172 (258) (258)
Stock-based compensation, net of tax 107 107
--------
Comprehensive income 953
--------
Repurchase of 4,272,000
shares of common stock (4,272) (20,933) (25,205)
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2006 22,639 2,615 74,505 -- (12,433) 87,326
--------
Net income 10,329 10,329
Pension liability, net of
deferred taxes of $637 (956) (956)
Stock-based compensation, net of tax 30 1,017 1,047
--------
Comprehensive income 10,420
--------
Exercise of options 119 (1,796) (1,677)
--------
Repurchase of 2,216,000 shares of
common stock $(20,000) (20,000)
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2007 22,788 1,836 84,834 (20,000) (13,389) 76,069
--------
Net income 8,666 8,666
Pension liability, net of
deferred taxes of $5,882 (9,596) (9,596)
Stock-based compensation, net of tax 11 606 617
--------
Comprehensive loss (313)
--------
Repurchase of 1,535,400 shares of
common stock (10,153) (10,153)
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2008 $ 22,799 $ 2,442 $ 93,500 $(30,153) $(22,985) $ 65,603
=========================================================================================================================
See accompanying notes to financial statements.
49
Statements of Cash Flows
(In thousands)
Year ended December 31, 2008 2007 2006
---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 8,666 $ 10,329 $ 1,104
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 5,365 4,372 3,852
Impairment of assets -- 2,264 494
Pension plan curtailment charge -- 1,143 --
Gain on sale of assets (95) (7,161) (1,326)
Deferred income taxes (4,639) 2,473 (2,759)
Changes in operating assets and liabilities:
Trade receivables (10,173) 2,371 (2,230)
Inventories 1,358 11,109 24,320
Trade accounts payable and other
Liabilities 5,134 (1,001) 3,023
Product liability (189) 192 (455)
Prepaid expenses and other assets 1,995 (6,128) 4,077
Income taxes 3,760 (643) 119
---------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 11,182 19,320 30,219
Investing Activities
Property, plant, and equipment additions (9,488) (4,468) (3,906)
Purchases of short-term investments (45,363) (51,328) (114,585)
Proceeds from sales or maturities of short-term investments
57,309 42,850 114,485
Net proceeds from sale of assets 95 12,542 2,251
---------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities 2,553 (404) (1,755)
Financing Activities
Cashless exercise of stock options -- (1,126) --
Repurchase of common stock (10,153) (20,000) (25,205)
Increase in line of credit 1,000 -- --
---------------------------------------------------------------------------------------------------------------
Cash used for financing activities (9,153) (21,126) (25,205)
---------------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents 4,582 (2,210) 3,259
Cash and cash equivalents at beginning of year 5,106 7,316 4,057
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 9,688 $ 5,106 $ 7,316
===============================================================================================================
See accompanying notes to financial statements.
50
Notes to Financial Statements
1. Significant Accounting Policies
Organization
Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the
design, manufacture, and sale of firearms to domestic customers. Approximately
96% of the Company's total sales for the year ended December 31, 2008 were from
the firearms segment. Export sales represent less than 6% of firearms sales. The
Company's design and manufacturing operations are located in the United States
and most product content is domestic. The Company's firearms are sold through a
select number of independent wholesale distributors principally to the
commercial sporting market.
The Company manufactures and sells investment castings made from steel alloys
for both outside customers and internal use in the firearms segment. Investment
castings sold to outside customers, either directly to or through manufacturers'
representatives, were approximately 4% of the Company's total sales for the year
ended December 31, 2008.
Use of Estimates
The preparation of financial statements in conformity with U.S. 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.
Revenue Recognition
Revenue is recognized, net of any estimated discounts, sales incentives, or
rebates, when product is shipped and the customer takes ownership and assumes
risk of loss.
Cash Equivalents
The Company considers interest-bearing deposits with financial institutions with
remaining maturities of three months or less at the time of acquisition to be
cash equivalents.
Short-term Investments
Short-term investments are recorded at cost plus accrued interest, which
approximates market, and are principally United States Treasury instruments, all
maturing within one year. The income from short-term investments is included in
other income - net. The Company intends to hold these investments until
maturity.
Accounts Receivable
Accounts receivable balances for significant customers follow:
As of December 31, (in thousands) 2008 2007
--------------------------------------------------------------------
Customer 1 $3,914 $1,593
Customer 2 $3,895 $2,931
Customer 3 $3,382 $ 893
Customer 4 $3,047 $1,625
Customer 5 $1,961 $2,513
--------------------------------------------------------------------
51
The allowance for doubtful accounts and discounts was $0.1 million in both 2008
and 2007.
The Company establishes an allowance for doubtful accounts based on the credit
worthiness of its customers and historical experience. Bad debt expense has been
immaterial during each of the last three years.
Inventories
Inventories are stated at the lower of cost, principally determined by the
last-in, first-out (LIFO) method, or market. If inventories had been valued
using the first-in, first-out method, inventory values would have been higher by
approximately $44.3 million and $46.9 million at December 31, 2008 and 2007,
respectively. During 2008 and 2007, inventory quantities were reduced. This
reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the current cost of
purchases, the effect of which decreased costs of products sold by approximately
$3.7 million and $12.1 million in 2008 and 2007, respectively.
Inventories consist of the following:
As of December 31, (in thousands) 2008 2007
----------------------------------------------------------------------
Finished products $ 592 $ 1,859
Materials and products in process 11,347 11,438
Net inventories $11,939 $13,297
Property, Plant, and Equipment
Property, plant, and equipment are stated on the basis of cost. Depreciation is
computed using the straight-line and declining balance methods predominately
over 15, 10, and 3 years for buildings, machinery and equipment, and tools and
dies, respectively.
Property, plant and equipment consist of the following at cost:
As of December 31, (in thousands) 2008 2007
----------------------------------------------------------------------
Land and improvements $ 1,194 $ 1,194
Buildings and improvements 24,488 23,953
Machinery and equipment 80,046 83,173
Dies and tools 19,298 18,176
$125,026 $126,496
Long-lived Assets
Long-lived assets are reviewed for impairment whenever circumstances indicate
that the carrying amount of an asset may not be recoverable in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144. In performing this
review, the carrying value of the assets is compared to the projected
undiscounted cash flows to be generated from the assets. If the sum of the
undiscounted expected future cash flows is less than the carrying value of the
assets, the assets are considered to be impaired. Impairment losses are measured
as the amount by which the carrying value of the assets exceeds the fair value
of the assets. When fair value estimates are not available, the Company
estimates fair value using the estimated future cash flows discounted at a rate
commensurate with the risks associated with the recovery of the assets.
52
Income Taxes
Income taxes are accounted for using the asset and liability method in
accordance with SFAS No. 109. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory rates applicable to future years to temporary differences
between the financial statement carrying amounts and the tax basis of the
Company's assets and liabilities.
Product Liability
The Company provides for product liability claims including estimated legal
costs to be incurred defending such claims. The provision for product liability
claims is charged to cost of products sold.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses for the
years ended December 31, 2008, 2007, and 2006, were $2.3 million, $2.6 million,
and $2.3 million, respectively.
Shipping Costs
Costs incurred related to the shipment of products are included in selling
expense. Such costs totaled $2.6 million, $2.3 million, and $1.9 million in
2008, 2007, and 2006, respectively.
Research and Development
In 2008, 2007, and 2006, the Company spent approximately $1.5 million, $0.7
million, and $0.6 million, respectively, on research activities relating to the
development of new products and the improvement of existing products. Research
and development expense is expensed as incurred.
Stock Options
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of FASB Statement 123(R), Share-Based Payment, utilizing the modified
prospective approach. Prior to the adoption of SFAS 123(R) the Company accounted
for stock option grants in accordance with APB Opinion 25, Accounting for Stock
Issued to Employees, (the intrinsic value method), and accordingly, recognized
no compensation expense for stock option grants.
Under the modified prospective approach, the provisions of SFAS 123(R) apply to
new awards and to awards that were outstanding on January 1, 2006 that are
subsequently modified, repurchased or cancelled. Under the modified prospective
approach, compensation cost recognized includes compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the original
provisions of SFAS 123, and compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R). Prior periods were
not restated to reflect the impact of adopting the new standard.
Earnings Per Share
Basic earnings per share is based upon the weighted-average number of shares of
Common Stock outstanding during the year, which was 20,069,200 in 2008,
22,441,700 in 2007 and 25,775,400 in 2006. Diluted earnings per share reflect
the impact of options outstanding using the treasury stock method. This results
in diluted weighted-average shares outstanding of 20,084,600 in 2008, 22,757,500
in 2007 and 25,787,600 in 2006.
53
Reclassifications
Certain prior year balances may have been reclassified to conform with current
year presentation.
Recent Accounting Pronouncements
In September 2006, FASB issued FAS No. 157, "Fair Value Measurements" ("FAS
157"). FAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions of FAS 157 were
effective for the fiscal year beginning January 1, 2008. The implementation of
FAS 157 for certain non-financial assets and liabilities will be effective for
fiscal years beginning January 1, 2009.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("FAS 141R"). FAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquiree and the goodwill acquired. FAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. FAS 141R is effective for the fiscal year
beginning January 1, 2009, and will be adopted by the Company in the first
quarter of 2009. The adoption of FAS 141R is not expected to have a material
impact on the Company's financial position, results of operations and cash
flows.
2. Income Taxes
The Federal and state income tax provision consisted of the following (in
thousands):
Year ended December 31, 2008 2007 2006
----------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
----------------------------------------------------------------------------------------------------
Federal $3,298 $1,057 $3,782 $1,516 $2,587 $(1,925)
State 721 236 687 345 739 (662)
----------------------------------------------------------------------------------------------------
$4,019 $1,293 $4,469 $1,861 $3,326 $(2,587)
====================================================================================================
54
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
December 31, 2008 2007
--------------------------------------------------------------------------------
Deferred tax assets:
Product liability $ 663 $ 734
Employee compensation and benefits 3,285 3,376
Allowances for doubtful accounts and discounts 458 143
Depreciation 201 --
Inventories 1,458 1,675
Additional minimum pension liability 14,087 8,205
Asset impairment charges 913 1,605
Product safety modification charges 601 --
Other 391 425
--------------------------------------------------------------------------------
Total deferred tax assets 22,057 16,163
--------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation -- 796
Pension plans 7,721 5,665
Other 193 198
--------------------------------------------------------------------------------
Total deferred tax liabilities 7,914 6,659
--------------------------------------------------------------------------------
Net deferred tax assets $14,143 $ 9,504
================================================================================
In accordance with the provisions of SFAS No. 87, "Employers' Accounting for
Pension Plan Costs," changes in deferred tax assets relating to the additional
minimum pension liability are not charged to expense and are therefore not
included in the deferred tax provision; instead they are charged to other
comprehensive income.
The effective income tax rate varied from the statutory Federal income tax rate
as follows:
Year ended December 31, 2008 2007 2006
-------------------------------------------------------------------------
Statutory Federal income tax rate 35.0% 35.0% 34.0%
State income taxes, net of Federal tax benefit 4.5 4.3 4.2
Domestic production activities deduction (2.1) (1.7) 0.2
Other items 0.6 0.4 1.7
-------------------------------------------------------------------------
Effective income tax rate 38.0% 38.0% 40.1%
=========================================================================
The Company made income tax payments of approximately $0.0 million, $4.9
million, and $0.2 million, during 2008, 2007, and 2006, respectively. The
Company expects to realize its deferred tax assets through tax deductions
against future taxable income or carry back against taxes previously paid.
The Company files income tax returns in the U.S. federal jurisdiction and
various state jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal and state income tax examinations by tax authorities for
years before 2004. In the third quarter of 2007, the Internal Revenue Service
(IRS) completed an examination of the Company's Federal income tax return for
2005. The IRS did not propose any adjustments as a result of this examination
and has accepted the Company's return as filed. In the fourth quarter of 2008,
the IRS completed examinations of the Company's 2006 and 2007 income tax
returns. Proposed adjustments were de minimus.
55
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes," ("FIN 48") on January 1, 2007. Upon the
adoption of FIN 48, the Company commenced a review of all open tax years in all
jurisdictions. The Company does not believe it has included any "uncertain tax
positions" in its Federal income tax return or any of the state income tax
returns it is currently filing. The Company has made an evaluation of the
potential impact of additional state taxes being assessed by jurisdictions in
which the Company does not currently consider itself liable. The Company does
not anticipate that such additional taxes, if any, would result in a material
change to its financial position. However, the Company anticipates that it is
more likely than not that additional state tax liabilities in the range of $0.4
to $0.7 million exist. The Company had recorded $0.4 million relating to these
additional state income taxes in previous years, including approximately $0.2
million for the payment of interest and penalties. These amounts are included in
income taxes payable at December 31, 2008 and 2007. In connection with the
adoption of FIN 48, the Company has included interest and penalties related to
uncertain tax positions as a component of its provision for taxes.
56
3. Pension Plans
The Company sponsors two qualified defined benefit pension plans that cover
substantially all employees. As discussed below, benefits from these plans are
frozen. A third defined benefit pension plan is non-qualified and covers certain
executive officers of the Company. The Company also sponsors a defined
contribution 401(k) plan that covers substantially all employees.
The cost of the defined benefit plans and the balances of plan assets and
obligations are as follows (in thousands):
Change in Benefit Obligation 2008 2007
------------------------------------------------------------------------------------------------
Benefit obligation at January 1 $ 68,674 $ 64,167
Service cost -- 1,590
Interest cost 3,768 3,672
Actuarial loss (gain) (3,727) 4,090
Benefits paid (8,389) (2,609)
Curtailments -- (2,236)
------------------------------------------------------------------------------------------------
Benefit obligation at December 31 60,326 68,674
------------------------------------------------------------------------------------------------
Change in Plan Assets
------------------------------------------------------------------------------------------------
Fair value of plan assets at January 1 63,834 56,527
Actual return on plan assets (15,002) 3,057
Employer contributions 2,936 6,859
Benefits paid (8,389) (2,609)
------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 43,379 63,834
------------------------------------------------------------------------------------------------
Funded Status
------------------------------------------------------------------------------------------------
Funded status (16,947) (4,840)
Unrecognized net actuarial loss 37,066 21,575
Unrecognized prior service cost 7 20
Unrecognized transition obligation (asset) -- --
------------------------------------------------------------------------------------------------
Net amount recognized $ 20,126 $ 16,755
================================================================================================
57
Weighted Average Assumptions for the years
ended December 31, 2008 2007
------------------------------------------------------------------------------------------------
Discount rate 6.25% 5.75%
Expected long-term return on plan assets 8.00% 8.00%
Rate of compensation increases N/A 5.00%
================================================================================================
Components of Net Periodic Pension Cost
------------------------------------------------------------------------------------------------
Service cost $ -- $ 1,590
Interest cost 3,768 3,672
Expected return on assets (4,999) (4,488)
Recognized gains 581 1,108
Prior service cost recognized 13 161
------------------------------------------------------------------------------------------------
Net periodic pension cost $ (637) $ 2,043
Pension plan curtailment charge -- 1,143
------------------------------------------------------------------------------------------------
Total net periodic pension cost $ (637) $ 3,186
================================================================================================
Amounts Recognized on the Balance Sheet 2008 2007
------------------------------------------------------------------------------------------------
Accrued benefit liability $(16,946) $ (4,839)
Accumulated other comprehensive income, net of tax 22,985 13,389
Deferred tax asset 14,087 8,205
------------------------------------------------------------------------------------------------
$ 20,126 $ 16,755
================================================================================================
Weighted Average Assumptions as of December 31, 2008 2007
------------------------------------------------------------------------------------------------
Discount rate 6.25% 5.75%
Rate of compensation increases N/A 5.00%
================================================================================================
Information for Pension Plans with an Accumulated Benefit
Obligation in excess of plan assets 2008 2007
------------------------------------------------------------------------------------------------
Projected benefit obligation $ 60,326 $ 68,674
Accumulated benefit obligation $ 60,326 $ 68,708
Fair value of plan assets $ 43,379 $ 63,834
================================================================================================
Pension Weighted Average Asset Allocations as of December 31, 2008 2007
------------------------------------------------------------------------------------------------
Debt securities 35% 40%
Equity securities 58% 53%
Real estate 4% 4%
Money market funds 3% 3%
------------------------------------------------------------------------------------------------
100% 100%
================================================================================================
58
The estimated future benefit payments for the defined benefit plans for each of
the next five years and the total amount for years six through ten, are as
follows: 2009-$3.0 million, 2010-$3.1 million, 2011-$3.3 million, 2012-$3.5
million, 2013-$3.8 million, and for the five year period ending 2018-$21.5
million.
The accumulated benefit obligation for all the defined benefit pension plans was
$60.3 million and $68.7 million as of December 31, 2008 and 2007, respectively.
The measurement dates of the assets and liabilities of all plans presented for
2008 and 2007 were December 31, 2008 and December 31, 2007, respectively.
The current investment objective is to produce income and long-term appreciation
through a target asset allocation of 35% debt securities and other fixed income
investments including cash and short-term instruments, and 65% equity
investments, to provide for the current and future benefit payments of the
plans. The pension plans are not invested in the common stock of the Company.
The Company determines the expected return on plan assets based on the target
asset allocations. In addition, the historical returns of the plan assets are
also considered in arriving at the expected rate of return.
In accordance with SFAS No. 158, "Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans" and its predecessor, SFAS No. 87,
"Employers' Accounting for Pension Costs", the Company recorded an additional
minimum pension liability, net of tax, which decreased comprehensive income by
$0.5 million, $0.5 million, and $0.3 million, in 2008, 2007, and 2006,
respectively.
In 2007, the Company amended its hourly and salaried defined benefit pension
plans so that employees will no longer accrue benefits under them effective
December 31, 2007. This action "froze" the benefits for all employees and
prevented future hires from joining the plans, effective December 31, 2007. In
2008 the Company provided supplemental discretionary contributions to
substantially all employees' individual 401(k) accounts.
In late 2007, after authorizing the "freeze" amendment to its hourly and
salaried defined benefit pension plans, the Company contributed an additional $5
million to the plans. The intent of this discretionary contribution was to
reduce the amount of time that the Company will be required to continue to
operate the frozen plans. The ongoing cost of running the plans (even if frozen)
is approximately $200,000 per year, which includes PBGC premiums, actuary and
audit fees, and other expenses.
In 2009 and future years, the Company may be required to make cash contributions
to the two defined benefit pension plans according to the new rules of the
Pension Protection Act of 2006. The annual contributions will be based on the
amount of the unfunded plan liabilities derived from the frozen benefits and
will not include liabilities for any future accrued benefits for any new or
existing participants. The total amount of these future cash contributions will
be dependent on the investment returns generated by the plans' assets and the
then-applicable discount rates used to calculate the plans' liabilities. There
is no minimum required cash contribution for the defined benefit plans for 2009,
but there may be such a requirement in future years because of recent market
volatility which has adversely
59
affected investment returns for the plans' assets. The 2009 cash contribution
for the defined benefit plans is expected to be approximately $2 million.
In the fourth quarter of 2008, the Company settled $2.3 million of pension
liabilities through the purchases of group annuities. This transaction resulted
in an insignificant actuarial gain.
In the first quarter of 2008, the Company made lump sum benefit payments to two
participants in the non-qualified defined benefit plan, the Supplemental
Executive Retirement Plan. These payments, which totaled $2.1 million,
represented the actuarially determined present value of the participants'
accrued benefit as of the date of payment. Only one participant, who is retired,
remains in this plan.
Prior to 2007, the Company also sponsored two qualified defined contribution
plans that covered substantially all of its hourly and salaried employees and a
non-qualified defined contribution plan which covered certain of its salaried
employees. Expenses related to these defined contribution plans were $1.1
million in 2006.
Effective January 1, 2007, all qualified and non-qualified defined contribution
plans were merged into a single 401(k) plan. Under the terms of the 401(k) plan,
the Company matches a certain portion of employee contributions. Expenses
related to matching employee contributions to the 401(k) plan were $1.3 million
and $0.8 million in 2008 and 2007, respectively.
Additionally, in 2008 the Company provided supplemental discretionary
contributions to the individual 401(k) accounts of substantially all employees.
Each employee received a supplemental contribution to their account based on a
uniform percentage of qualifying base compensation established annually. The
cost of this supplemental contribution totaled $1.4 million in 2008.
FAS No. 158 requires an employer to measure the funded status of a plan as of
its year-end date and was first effective for fiscal 2006 for the Company. Upon
adoption of this standard in 2006, the Company recorded a charge of $1.6
million, net of tax, to other comprehensive income and a $2.6 million credit to
accrued pension liability.
4. Line of Credit
In December 2007, the Company established an unsecured $25 million revolving
line of credit with a bank. This facility is renewable annually and now
terminates on December 13, 2009. The balance outstanding on this credit facility
was $1.0 million and $0.0 million at December 31, 2008 and 2007, respectively.
Borrowings under this facility bear interest at LIBOR plus 200 basis points
(2.42% at December 31, 2008) and the Company is charged 50 basis points per year
on the unused portion. At December 31, 2008 and 2007, the Company was in
compliance with the terms and covenants of the agreement.
5. Share Based Payments
In 1998, the Company adopted, and in May 1999 the shareholders approved, the
1998 Stock Incentive Plan (the "1998 Plan") under which employees were granted
options to purchase shares of the Company's Common Stock and stock appreciation
rights. The Company reserved 2,000,000 shares for issuance under the 1998 Plan.
These options have an exercise price equal to the fair market value of the
shares of the Company at the date of grant, become vested ratably over five
years, and expire ten years from the date of grant. In April 2007, all reserved
shares for which a stock option had not been granted under the 1998 Plan were
deregistered. No further stock options or stock will be granted under the 1998
Plan.
60
On December 18, 2000, the Company adopted, and in May 2001 the shareholders
approved, the 2001 Stock Option Plan for Non-Employee Directors (the "2001
Plan") under which non-employee directors were granted options to purchase
shares of the Company's authorized but unissued stock. The Company reserved
200,000 shares for issuance under the 2001 Plan. Options granted under the 2001
Plan have an exercise price equal to the fair market value of the shares of the
Company at the date of grant and expire ten years from the date of grant.
Twenty-five percent of the options vest immediately upon grant and the remaining
options vest ratably over three years. In April 2007, all reserved shares for
which a stock option had not been granted under the 2001 Plan were deregistered.
No further stock options or stock will be granted under the 2001 Plan.
In April 2007, the Company adopted and the shareholders approved the 2007 Stock
Incentive Plan (2007 SIP) under which employees, independent contractors, and
non-employee directors may be granted stock options, restricted stock, deferred
stock awards, and stock appreciation rights, any of which may or may not require
the satisfaction of performance objectives. Vesting requirements will be
determined by the Compensation Committee or the Board of Directors. The Company
has reserved 2,550,000 shares for issuance under the 2007 SIP.
In 2007, a total of 10,920 deferred stock awards were issued to non-employee
directors, which vested in April 2008. In 2008, a total of 18,222 deferred stock
awards were issued to non-employee directors, which will vest in April 2009.
Compensation expense related to these awards is amortized ratably over the
vesting period. The total compensation expense related to these awards is $0.1
million. The impact on the 2009 results will be immaterial.
In 2007, a total of 29,500 shares of stock were awarded to employees. All
compensation expense related to these awards, which totaled $0.4 million, was
recognized in 2007.
61
The following table summarizes the stock option activity of the Plans:
Weighted Avg
Weighted Avg Grant Remaining
Weighted Avg Exercise Date Contractual
Shares Price Fair Value Life (Years)
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2005 1,020,000 $ 11.50 $ 1.89 3.3
Granted 660,000 8.51 3.51 9.7
Exercised -- -- -- --
Canceled (355,000) 11.90 2.00 2.3
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2006 1,325,000 9.46 2.66 5.4
Granted 311,250 13.06 5.67 9.3
Exercised (495,000) 11.77 1.92 1.2
Canceled (50,000) 9.59 1.24 3.5
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2007 1,091,250 9.44 3.91 8.4
Granted 359,000 8.10 4.39 9.44
Exercised -- -- -- --
Canceled (30,000) 13.39 5.64 8.5
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2008 1,420,250 9.02 3.99 8.0
----------------------------------------------------------------------------------------------------------------------------
Exercisable Options Outstanding at December
31, 2008 433,000 8.54 3.07 6.6
----------------------------------------------------------------------------------------------------------------------------
Non-Vested Options Outstanding at December
31, 2008 987,250 $ 9.22 $ 4.40 8.6
============================================================================================================================
At December 31, 2008, an aggregate of 1,909,750 shares remain available for
grant under the Plans.
The Company uses the Black-Scholes option pricing model to estimate the fair
value of stock-based awards with the following weighted average assumptions:
2008 2007 2006
--------------------------------------------------------------------
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 47.6% 33.9% 44.3%
Risk free rate of return 4.0% 4.0% 4.0%
Expected lives 7.5 years 7.5 years 5 years
--------------------------------------------------------------------
The estimated fair value of options granted is subject to the assumptions made
and if the assumptions changed, the estimated fair value amounts could be
significantly different.
At December 31, 2008, there was $1.4 million of unrecognized compensation cost
related to share-based payments that is expected to be recognized over a
weighted-average period of 2.3 years.
At December 31, 2008 the aggregate intrinsic value of all options, including
exercisable options, was $0.1 million.
62
6. Contingent Liabilities
As of December 31, 2008, the Company was a defendant in approximately 6 lawsuits
involving its products and is aware of certain other such claims. These lawsuits
and claims fall into one of the two following categories:
(i) Those that claim damages from the Company related to allegedly
defective product design which stem from a specific incident.
Pending 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.
(ii) Those brought by cities or other governmental entities, and
individuals against firearms manufacturers, distributors and
retailers seeking to recover damages allegedly arising out of the
misuse of firearms by third-parties in the commission of homicides,
suicides and other shootings involving juveniles and adults. The
complaints by municipalities seek damages, among other things, for
the costs of medical care, police and emergency services, public
health services, and the maintenance of courts, prisons, and other
services. In certain instances, the plaintiffs seek to recover for
decreases in property values and loss of business within the city
due to criminal violence. In addition, nuisance abatement and/or
injunctive relief is sought to change the design, manufacture,
marketing and distribution practices of the various defendants.
These suits allege, among other claims, strict liability or
negligence in the design of products, public nuisance, negligent
entrustment, negligent distribution, deceptive or fraudulent
advertising, violation of consumer protection statutes and
conspiracy or concert of action theories. Most of these cases do not
allege a specific injury to a specific individual as a result of the
misuse or use of any of the Company's products.
The Company has expended significant amounts of financial resources and
management time in connection with product liability litigation. Management
believes that, in every case involving firearms, the allegations are unfounded,
and that the shootings and any results from the shootings were due to negligence
or misuse of the firearms by third-parties or the claimant, and that there
should be no recovery against the Company. Defenses to the suits brought by
governmental entities further exist based on, among other things, the Protection
of Lawful Commerce in Arms Act, established state law precluding recovery for
essential government services, the remoteness of the claims, the types of
damages sought to be recovered, and limitations on the extraterritorial
authority which may be exerted by a city, municipality, county or state under
state and federal law, including State and Federal Constitutions.
The only case against the Company alleging liability for criminal shootings by
third-parties to ever be permitted to go before a constitutional jury, Hamilton,
et al. v. Accu-tek, et al., resulted in a defense verdict in favor of the
Company on February 11, 1999. In that case, numerous firearms manufacturers and
distributors had been sued, alleging damages as a result of alleged negligent
sales practices and "industry-wide" liability. The Company and its marketing and
distribution practices were exonerated from any claims of negligence in each of
the seven cases decided by the jury. In subsequent proceedings involving other
defendants, the New York Court of Appeals as a matter of law confirmed that 1)
no legal duty existed under the circumstances to prevent or investigate criminal
misuses of a manufacturer's lawfully made products; and 2) liability of firearms
manufacturers could not be apportioned under a market share theory. More
recently, the New York Court of Appeals on October 21, 2003 declined to hear the
63
appeal from the decision of the New York Supreme Court, Appellate Division,
affirming the dismissal of New York Attorney General Eliot Spitzer's public
nuisance suit against the Company and other manufacturers and distributors of
firearms. In its decision, the Appellate Division relied heavily on Hamilton in
concluding that it was "legally inappropriate," "impractical," "unrealistic" and
"unfair" to attempt to hold firearms manufacturers responsible under theories of
public nuisance for the criminal acts of others.
Of the lawsuits brought by municipalities, counties or a state Attorney General,
twenty have been concluded: Atlanta - dismissal by intermediate Appellate Court,
no further appeal; Bridgeport - dismissal affirmed by Connecticut Supreme Court;
County of Camden - dismissal affirmed by U.S. Third Circuit Court of Appeals;
Miami - dismissal affirmed by intermediate appellate court, Florida Supreme
Court declined review; New Orleans - dismissed by Louisiana Supreme Court,
United States Supreme Court declined review; Philadelphia - U.S. Third Circuit
Court of Appeals affirmed dismissal, no further appeal; Wilmington - dismissed
by trial court, no appeal; Boston - voluntary dismissal with prejudice by the
City at the close of fact discovery; Cincinnati - voluntarily withdrawn after a
unanimous vote of the city council; Detroit - dismissed by Michigan Court of
Appeals, no appeal; Wayne County - dismissed by Michigan Court of Appeals, no
appeal; New York State - Court of Appeals denied plaintiff's petition for leave
to appeal the Intermediate Appellate Court's dismissal, no further appeal;
Newark - Superior Court of New Jersey Law Division for Essex County dismissed
the case with prejudice; City of Camden - dismissed on July 7, 2003, not
reopened; Jersey City - voluntarily dismissed and not re-filed; St. Louis -
Missouri Supreme Court denied plaintiffs' motion to appeal Missouri Appellate
Court's affirmation of dismissal; Chicago - Illinois Supreme Court affirmed
trial court's dismissal; and Los Angeles City, Los Angeles County, San Francisco
- Appellate Court affirmed summary judgment in favor of defendants, no further
appeal; and Cleveland - dismissed on January 24, 2006 for lack of prosecution.
On April 21, 2005, the D.C. Court of Appeals, in an en banc hearing, unanimously
dismissed all negligence and public nuisance claims, but let stand individual
claims based upon a Washington, D.C. act imposing "strict liability" for
manufacturers of "machine guns." Based on present information, none of the
Company's products has been identified with any of the criminal assaults which
form the basis of the individual claims. The writ of certiorari to the United
States Supreme Court regarding the constitutionality of the Washington, D.C. act
was denied and the case was remanded to the trial court for further proceedings.
The defendants subsequently moved to dismiss the case based upon the Protection
of Lawful Commerce in Arms Act ("PLCAA"), which motion was granted on May 22,
2006. The individual plaintiffs and the District of Columbia, which has
subrogation claims in regard to the individual plaintiffs, appealed. On January
10, 2008, the District of Columbia Court of Appeals unanimously upheld the
dismissal. On February 22, 2008, the District and the individual plaintiffs
filed petitions for rehearing or rehearing en banc. On June 9, 2008, the court
denied the petition. On October 23, 2008, the District and the individual
plaintiffs filed a petition for writ of certiorari in the United States Supreme
Court.
The Indiana Court of Appeals affirmed the dismissal of the Gary case by the
trial court, but the Indiana Supreme Court reversed this dismissal and remanded
the case for discovery proceedings on December 23, 2003. The defendants filed a
motion to dismiss pursuant to the PLCAA. On November 23, 2005, the state court
judge held the PLCAA unconstitutional and the defendants filed a motion with the
Indiana Court of Appeals asking it to accept interlocutory appeal on the issue,
which appeal was accepted on February 5, 2007. On October 29, 2007, the Indiana
Appellate Court affirmed, holding that the PLCAA does not apply to the City's
claims. A petition for rehearing was filed in the Appellate Court and denied on
January 9, 2008. On February 8, 2008, a Petition to Transfer the appeal to the
Supreme Court of Indiana was filed. The petition was denied on January 13, 2009
and the case was remanded to the trial court.
64
In the previously reported New York City municipal case, the defendants moved to
dismiss the suit pursuant to the PLCAA. The trial judge found the PLCAA to be
constitutional, but denied the defendants' motion to dismiss the case, on the
basis that the Act was not applicable to the suit. The defendants were given
leave to appeal to the U.S. Court of Appeals for the Second Circuit. The Second
Circuit affirmed the constitutionality of the PLCAA and reversed on
applicability, holding that the PLCAA did apply. The case was remanded for
dismissal. On June 16, 2008, the City filed a petition for rehearing or
rehearing en banc. On August 20, 2008, the City's petition was denied by the
Second Circuit. On October 20, 2008, the City filed a petition for writ of
certiorari in the United States Supreme Court.
In the NAACP case, on May 14, 2003, an advisory jury returned a verdict
rejecting the NAACP's claims. On July 21, 2003, Judge Jack B. Weinstein entered
an order dismissing the NAACP lawsuit, but this order contained lengthy dicta
which defendants believe are contrary to law and fact. Appeals by both sides
were filed, but plaintiffs withdrew their appeal. On August 3, 2004, the United
States Court of Appeals for the Second Circuit granted the NAACP's motion to
dismiss the defendants' appeal of Judge Weinstein's order denying defendants'
motion to strike his dicta made in his order dismissing the NAACP's case, and
the defendants' motion for summary disposition was denied as moot. The ruling of
the Second Circuit effectively confirmed the decision in favor of defendants and
brought this matter to a conclusion.
Legislation has been passed in approximately 34 states precluding suits of the
type brought by the municipalities mentioned above. On the Federal level, the
"Protection of Lawful Commerce in Arms Act" was signed by President Bush on
October 26, 2005. The Act requires dismissal of suits against manufacturers
arising out of the lawful sale of their products for harm resulting from the
criminal or unlawful misuse of a firearm by a third party. The Company is
pursuing dismissal of each action involving such claims, including the municipal
cases described above.
Punitive damages, as well as compensatory damages, are demanded in certain of
the lawsuits and claims. Aggregate claimed amounts presently exceed product
liability accruals and applicable insurance coverage. For claims made after July
10, 2000, coverage is provided on an annual basis for losses exceeding $5
million per claim, or an aggregate maximum loss of $10 million annually, except
for certain new claims, which might be brought by governments or municipalities
after July 10, 2000, which are excluded from coverage.
Product liability claim payments are made when appropriate if, as, and when
claimants and the Company reach agreement upon an amount to finally resolve all
claims. Legal costs are paid as the lawsuits and claims develop, the timing of
which may vary greatly from case to case. A time schedule cannot be determined
in advance with any reliability concerning when payments will be made in any
given case.
Provision is made for product liability claims based upon many factors related
to the severity of the alleged injury and potential liability exposure, based
upon prior claim experience. Because our experience in defending these lawsuits
and claims is that unfavorable outcomes are typically not probable or estimable,
only in rare cases is an accrual established for such costs. In most cases, an
accrual is established only for estimated legal defense costs. Product liability
accruals are periodically reviewed to reflect then-current estimates of possible
65
liabilities and expenses incurred to date and reasonably anticipated in the
future. Threatened product liability claims are reflected in our product
liability accrual on the same basis as actual claims; i.e., an accrual is made
for reasonably anticipated possible liability and claims-handling expenses on an
ongoing basis.
A range of reasonably possible loss relating to unfavorable outcomes cannot be
made. However, in product liability cases in which a dollar amount of damages is
claimed, the amount of damages claimed, which totaled $12.2 million and $5.0 at
December 31, 2008 and 2007, respectively, are set forth as an indication of
possible maximum liability that the Company might be required to incur in these
cases (regardless of the likelihood or reasonable probability of any or all of
this amount being awarded to claimants) as a result of adverse judgments that
are sustained on appeal.
As of December 31, 2008 and 2007, the Company was a defendant in 6 and 5
lawsuits, respectively, involving its products and is aware of other such
claims. During the year ended December 31, 2008 and 2007, respectively, 1 and 2
claims were filed against the Company, 0 and 1 claims were dismissed, and 0 and
0 claims were settled.
During the years ended December 31, 2008 and 2007, the Company incurred product
liability expense of $0.9 million and $1.7 million, respectively, which includes
the cost of outside legal fees, insurance, and other expenses incurred in the
management and defense of product liability matters.
The Company management monitors the status of known claims and the product
liability accrual, which includes amounts for asserted and unasserted claims.
While it is not possible to forecast the outcome of litigation or the timing of
costs, in the opinion of management, after consultation with special and
corporate counsel, it is not probable and is unlikely that litigation, including
punitive damage claims, will have a material adverse effect on the financial
position of the Company, but may have a material impact on the Company's
financial results for a particular period.
The Company has reported all cases instituted against it through September 27,
2008 and the results of those cases, where terminated, to the S.E.C. on its
previous Form 10-K and 10-Q reports to which reference is hereby made.
66
A roll-forward of the product liability reserve and detail of product liability
expense for the three years ended December 31, 2008 follows:
Balance Sheet Roll-forward for Product Liability Reserve
(Dollars in thousands)
Cash Payments
-------------
Accrued
Balance Legal Balance
Beginning of Expense Legal Fees Settlements Insurance Admin. End of
Year (a) (b) (c) (d) Premiums Expense Year (a)
-----------------------------------------------------------------------------------------------------
2006 $2,196 $688 $(1,000) $(143) N/A N/A $1,741
2007 1,741 639 (447) - N/A N/A 1,933
2008 1,933 176 (358) (7) N/A N/A 1,744
Income Statement Detail for Product Liability Expense
(Dollars in thousands)
Accrued Insurance Total Product
Legal Premium Admin. Liability
Expense (b) Expense (e) Expense (f) Expense
-----------------------------------------------------------
2006 $688 $1,141 $691 $2,520
2007 639 748 299 1,686
2008 176 739 - 915
Notes
(a) The beginning and ending liability balances represent accrued legal fees
only. Settlements and administrative costs are expensed as incurred. Only
in rare instances is an accrual established for settlements.
(b) The expense accrued in the liability is for legal fees only.
(c) Legal fees represent payments to outside counsel related to product
liability matters.
(d) Settlements represent payments made to plaintiffs or allegedly injured
parties in exchange for a full and complete release of liability.
(e) Insurance expense represents the cost of insurance premiums.
(f) Administrative expense represents personnel related and travel expenses of
Company employees and firearm experts related to the management and
monitoring of product liability matters.
67
There were no insurance recoveries during any of the above years.
7. Asset Impairment Charges
In 2007 and 2006 the Company recognized asset impairment charges of $2.3 million
and $0.5 million, respectively, related to certain assets in the corporate and
investment castings segments. The Company was required to reduce the carrying
value of these assets to fair value and recognized asset impairment charges
because the carrying value of the affected assets exceeded their projected
future undiscounted cash flows.
8. Stock Repurchases
In 2008, the Company repurchased 1,535,000 shares of its common stock,
representing 7.5% of the outstanding shares, in the open market at an average
price of $6.57 per share. In 2007, the Company repurchased 2,216,000 shares of
its common stock, representing 9.7% of the then outstanding shares, in the open
market at an average price of $8.99 per share. On September 26, 2006, the
Company repurchased 4,272,000 shares of its common stock, representing 15.9% of
the then outstanding shares, from entities controlled by members of the Ruger
family at a price of $5.90 per share. All of these purchases were made with cash
held by the Company and no debt was incurred.
At December 31, 2008, $4.7 million remains available under a $5 million stock
repurchase program approved by the Board of Directors in November 2008.
9. Related Party Transactions
In the first quarter of 2008, the Company made lump sum pension benefit payments
to William B. Ruger, Jr., the former Chairman and Chief Executive Officer of the
Company, and Stephen L. Sanetti, the former President of the Company. These
payments totaled $2.1 million, which represented the actuarially determined
present value of the accrued benefits payable to these individuals under the
Supplementary Executive Retirement Plan as of the date of payment.
In March 2007 the Company sold 42 parcels of non-manufacturing real property
held for investment for $7.3 million to William B. Ruger, the Company's former
Chief Executive Officer and Chairman of the Board. The sales price was based
upon an independent appraisal. The sale included substantially all of the
Company's raw land non-manufacturing real property assets in New Hampshire. The
Company recognized a gain of $5.2 million on the sale. Also in March 2007, the
Company sold several pieces of artwork to members of the Ruger family for $0.1
million and recognized insignificant gains from these sales.
10. Operating Segment Information
The Company has two reportable operating segments: firearms and investment
castings. The firearms segment manufactures and sells rifles, pistols,
revolvers, and shotguns principally to a select number of licensed independent
wholesale distributors primarily located in the United States. The investment
castings segment manufactures and sells steel investment castings.
68
Corporate segment income relates to interest income on short-term investments,
the sale of non-operating assets, and other non-operating activities. Corporate
segment assets consist of cash and short-term investments and other
non-operating assets.
The Company evaluates performance and allocates resources, in part, based on
profit and loss before taxes. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies (see Note 1). Intersegment sales are recorded at the Company's cost
plus a fixed profit percentage.
The Company's assets are located entirely in the United States and domestic
sales represent at least 95% of total sales in 2008, 2007, and 2006.
69
Revenues from significant customers in 2008, 2007, and 2006 were as follows:
Year ended December 31, (in thousands) 2008 2007 2006
-------------------------------------------------------------------------------
Customer 1 $ 22,600 $ 18,500 $ 18,600
Customer 2 20,400 16,900 18,100
Customer 3 18,000 12,300 13,900
Customer 4 16,000 13,700 12,300
Customer 5 15,400 17,200 17,400
-------------------------------------------------------------------------------
Year ended December 31, (in thousands) 2008 2007 2006
-------------------------------------------------------------------------------
Net Sales
Firearms $ 174,416 $ 144,222 $ 139,110
Castings
Unaffiliated 7,067 12,263 28,510
Intersegment 10,135 9,165 11,818
-------------------------------------------------------------------------------
17,202 21,428 40,328
Eliminations (10,135) (9,165) (11,818)
-------------------------------------------------------------------------------
$ 181,483 $ 156,485 $ 167,620
===============================================================================
Income (Loss) Before Income Taxes
Firearms $ 18,614 $ 11,400 $ 1,387
Castings (2,836) (2,806) (1,178)
Corporate (1,800) 8,065 1,634
-------------------------------------------------------------------------------
$ 13,978 $ 16,659 $ 1,843
===============================================================================
Identifiable Assets
Firearms $ 63,042 $ 47,870 $ 53,525
Castings 4,842 6,165 17,154
Corporate 44,876 47,847 46,387
-------------------------------------------------------------------------------
$ 112,760 $ 101,882 $ 117,066
===============================================================================
Depreciation
Firearms $ 4,515 $ 3,563 $ 2,475
Castings 850 809 1,377
-------------------------------------------------------------------------------
$ 5,365 $ 4,372 $ 3,852
===============================================================================
Capital Expenditures
Firearms $ 8,972 $ 3,950 $ 3,486
Castings 516 518 420
-------------------------------------------------------------------------------
$ 9,488 $ 4,468 $ 3,906
===============================================================================
70
11. Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 2008 (in thousands, except per share data):
Three Months Ended
-------------------------------------------------------------------------------
3/31/08 6/30/08 9/30/08 12/31/08
-------------------------------------------------------------------------------
Net Sales $42,506 $38,664 $41,822 $58,491
Gross profit 10,655 8,495 6,858 16,745
Net income 1,452 1,082 372 5,760
Basic earnings per share 0.07 0.05 0.02 0.28
Diluted earnings per share 0.07 0.05 0.02 0.28
Three Months Ended
-------------------------------------------------------------------------------
3/31/07 6/30/07 9/30/07 12/31/07
-------------------------------------------------------------------------------
Net Sales $48,456 $42,107 $31,863 $34,058
Gross profit 15,563 13,128 5,595 5,012
Net income (loss) 8,060 5,131 (617) (2,245)
Basic earnings (loss) per share 0.36 0.23 (0.03) (0.10)
Diluted earnings (loss) per share 0.36 0.22 (0.03) (0.10)
-------------------------------------------------------------------------------
In the fourth quarter of 2007, the Company recorded an asset impairment charge
of $1.8 million related to the Dorr Building, a non-manufacturing property in
New Hampshire that has been for sale for an extended period of time without any
meaningful market interest.
13. Other Operating Expenses (Income), net
Other net operating expenses (income) consist of the following:
Year ended December 31, 2008 2007 2006
-------------------------------------------------------------------------------
Gain on sale of operating assets (a) $ (95) $ (472) $ (929)
Impairment of operating assets (b) - 489 494
Gain on sale of real estate (c) - (1,521) (397)
Impairment of real estate held for sale (d) - 1,775 -
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Frozen defined-benefit pension plan income (745) - -
-------------------------------------------------------------------------------
Total other operating expenses (income), net $(840) $ 271 $ (832)
===============================================================================
71
(a) The gain on sale of operating assets was generated primarily from the sale
of used machinery and equipment. Most of the used machinery and equipment
sold in 2007 and 2006 was related to titanium investment casting.
(b) In 2007, the Company recognized an impairment charge of $0.5 million
related to machinery and equipment previously in the Company's Arizona
investment casting operations. In 2006, the Company recognized an
impairment charge of $0.5 million related to building improvements at the
Dorr Building. The Company had planned to establish a titanium investment
castings foundry at Dorr, but that plan was aborted in 2006.
(c) On April 16, 2007, the Company sold a non-manufacturing facility in
Arizona for $5.0 million. This facility had not been used in the Company's
operations for several years. The Company realized a gain of approximately
$1.5 million from this sale. In 2006, the $0.4 million gain on sale of
real estate reflects the sale of non-manufacturing real property. The
Company has three additional non-manufacturing properties listed for sale,
two in Connecticut and one in New Hampshire.
(d) In late 2007, the Company recognized an asset impairment charge of $1.8
million related to the Dorr Building, a non-manufacturing property in New
Hampshire that has been for sale for an extended period of time without
any meaningful market interest.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A--CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company conducted an evaluation, with the participation of its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended, as of December 31, 2008. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that as of December
31, 2008, the Company's controls and procedures over financial reporting were
effective.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
72
The Company conducted an evaluation, with the participation of its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of its
internal control over financial reporting as of December 31, 2008. This
evaluation was performed based on the criteria established in "Internal Control
-- Integrated Framework" issued by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO").
Management has concluded that the Company maintained effective internal control
over financial reporting as of December 31, 2008, based on criteria established
in "Internal Control -- Integrated Framework" issued by the COSO.
The effectiveness of the Company's internal control over financial reporting as
of December 31, 2008 has been audited by McGladrey & Pullen, LLP, an independent
registered public accounting firm, as stated in their report which is included
in this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that
occurred during our most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
New York Stock Exchange Certification
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company
Manual, the Company submitted an unqualified certification of our Chief
Executive Officer to the New York Stock Exchange on May 15, 2007. The Company
has also filed, as exhibits to this Annual Report on Form 10-K, the Chief
Executive Officer and Chief Financial Officer Certifications required under the
Sarbanes-Oxley Act of 2002.
ITEM 9B--OTHER INFORMATION
None.
73
PART III
ITEM 10--DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning the Company's directors, including the Company's
separately designated standing audit committee, and on the Company's code of
business conduct and ethics required by this Item is incorporated by reference
from the Company's Proxy Statement relating to the 2009 Annual Meeting of
Stockholders scheduled to be held April 29, 2009.
Information concerning the Company's executive officers required by this Item is
set forth in Item 1 of this Annual Report on Form 10-K under the caption
"Executive Officers of the Company."
Information concerning beneficial ownership reporting compliance required by
this Item is incorporated by reference from the Company's Proxy Statement
relating to 2009 Annual Meeting of Stockholders scheduled to be held April 29,
2009.
ITEM 11--EXECUTIVE COMPENSATION
Information concerning director and executive compensation required by this Item
is incorporated by reference from the Company's Proxy Statement relating to the
2009 Annual Meeting of Stockholders scheduled to be held April 29, 2009.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning the security ownership of certain beneficial owners and
management and related stockholder matters required by this Item is incorporated
by reference from the Company's Proxy Statement relating to 2009 Annual Meeting
of Stockholders scheduled to be held April 29, 2009.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Information concerting certain relationships and related transactions required
by this Item is incorporated by reference from the Company's Proxy Statement
relating to the 2009 Annual Meeting of Stockholders scheduled to be held April
29, 2009.
ITEM 14--PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning the Company's principal accountant fees and services and
the pre-approval policies and procedures of the audit committee of the board of
directors required by this Item is incorporated by reference from the Company's
Proxy Statement relating to 2009 Annual Meeting of Stockholders scheduled to be
held April 29, 2009.
74
PART IV
ITEM 15--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits and Financial Statement Schedules
(1) Financial Statements can be found under Item 8 of Part II of this
Form 10-K
(2) Schedules can be found on Page 84 of this Form 10-K
(3) Listing of Exhibits:
Exhibit 3.1 Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibits 4.1
and 4.2 to the Form S-3 Registration Statement
previously filed by the Company File No.
33-62702).
Exhibit 3.2 Bylaws of the Company, as amended.
Exhibit 3.3 Amended and restated Article 3, Section 2 of
Bylaws (Incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K filed
with the SEC on April 24, 2007).
Exhibit 3.4 Amended and restated Article 3, Section 4 and
Article 4, Section 5 of Bylaws (Incorporated by
reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed with the SEC on April 24,
2007).
Exhibit 3.5 Amended and restated Bylaws (Incorporated by
reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed with the SEC on July 26,
2007).
Exhibit 3.6 Amended and restated Bylaws (Incorporated by
reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed with the SEC on April 25,
2008).
Exhibit 3.7 Amendment to Article 5, Section 1 of Bylaws
(Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with
the SEC on February 6, 2009).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988, as amended by Form 8
filed March 27, 1990, SEC File No. 1-10435).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986
Stock Bonus Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991,
SEC File No. 1-10435).
75
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental
Executive Profit Sharing Retirement Plan
(Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1991, SEC File No. 1-10435).
Exhibit 10.4 Agreement and Assignment of Lease dated September
30, 1987 by and between Emerson Electric Co. and
Sturm, Ruger & Company, Inc. (Incorporated by
reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1991, SEC File No. 1-10435).
Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental
Executive Retirement Plan (Incorporated by
reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1995, SEC File No. 1-10435).
Exhibit 10.6 [Intentionally omitted.]
Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.7
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, SEC File No.
1-10435).
Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option
Plan for Non-Employee Directors (Incorporated by
reference to Exhibit 4 to the Form S-8
Registration Statement filed by the Company File
No. 33-53234).
Exhibit 10.9 Agreement and Release, dated as of February 28,
2006, by and between Sturm, Ruger & Company, Inc.
and William B. Ruger (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on April 4, 2006, SEC
File No. 1-10435).
Exhibit 10.10 Sale and Purchase Agreement, dated as of September
26, 2006, by and between Sturm, Ruger & Company,
Inc. and Ruger Business Holdings, L.P.
(Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with
the SEC on September 26, 2006, SEC File No.
1-10435).
Exhibit 10.11 Severance Agreement, dated as of September 21,
2006, by and between Sturm, Ruger & Company, Inc.
and Stephen L. Sanetti (Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on September 27, 2006,
SEC File No. 1-10435).
Exhibit 10.12 Severance Agreement, dated as of September 21,
2006, by and between Sturm, Ruger & Company, Inc.
and Thomas A. Dineen (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on
Form 8-K filed with the SEC on September 27, 2006,
SEC File No. 1-10435).
76
Exhibit 10.13 Severance Agreement, dated as of September 21,
2006, by and between Sturm, Ruger & Company, Inc.
and Robert R. Stutler (Incorporated by reference
to Exhibit 10.4 to the Company's Current Report on
Form 8-K filed with the SEC on September 27, 2006,
SEC File No. 1-10435).
Exhibit 10.14 Offer Letter, dated as of September 5, 2006, by
and between Sturm, Ruger & Company, Inc. and
Michael O. Fifer (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on September 28, 2006,
SEC File No. 1-10435).
Exhibit 10.15 Severance Agreement, dated as of December 15,
2006, by and between Sturm, Ruger & Company, Inc.
and Michael O. Fifer (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on December 19, 2006,
SEC File No. 1-10435).
Exhibit 10.16 Severance Agreement, dated as of December 15,
2006, by and between Sturm, Ruger & Company, Inc.
and Christopher John Killoy (Incorporated by
reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K filed with the SEC on December
19, 2006, SEC File No. 1-10435).
Exhibit 10.17 Amended Severance Agreement, dated as of December
15, 2006, by and between Sturm, Ruger & Company,
Inc. and Thomas P. Sullivan (Incorporated by
reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K filed with the SEC on December
19, 2006, SEC File No. 1-10435).
Exhibit 10.18 Retention and Consultation Agreement, dated
December 4, 2007, by and between Sturm, Ruger &
Company, Inc. and Robert R. Stutler.
Exhibit 10.19 Credit Agreement, dated as of December 14, 2007,
by and between the Company and Bank of America
(Incorporated by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K filed with
the SEC on December 20, 2007).
Exhibit 10.20 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Michael O. Fifer
(Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
Exhibit 10.21 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Thomas A. Dineen
(Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
Exhibit 10.22 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Mark T. Lang
(Incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
77
Exhibit 10.23 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Christopher J.
Killoy (Incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K filed
with the SEC on April 11, 2008).
Exhibit 10.24 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Steven M. Maynard
Incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
Exhibit 10.25 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Thomas P. Sullivan
(Incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
Exhibit 10.26 Severance Agreement, dated as of April 10, 2008,
by and between the Company and Leslie M. Gasper
(Incorporated by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K filed with
the SEC on April 11, 2008).
Exhibit 10.27 Agreement, dated as of April 10, 2008, by and
between the Company and Stephen L. Sanetti
(Incorporated by reference to Exhibit 10.8 to the
Company's Current Report on Form 8-K/A filed with
the SEC on April 30, 2008).
Exhibit 10.28 Severance Agreement, dated as of May 2, 2008 by
and between the Company and Kevin B. Reid, Sr.
(Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with
the SEC on May 5, 2008).
Exhibit 10.29 First Amendment to Credit Agreement, dated as of
December 15, 2008, by and between the Company and
Bank of America (Incorporated by reference to
Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the SEC on December 22, 2008).
Exhibit 23.1 Consent of McGladrey & Pullen, LLP
Exhibit 31.1 Certification of Chief Executive Officer Pursuant
to Rule 13a-14(a) of the Exchange Act.
Exhibit 31.2 Certification of Treasurer and Chief Financial
Officer Pursuant to Rule 13a-14(a) of the Exchange
Act.
Exhibit 32.1 Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(b) of the Exchange Act and
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of the Treasurer and Chief Financial
Officer Pursuant to Rule 13a-14(b) of the Exchange
Act and 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
78
Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report
on Form 10-Q of the Company for the quarter ended
September 30, 1999, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.2 Item 1 LEGAL PROCEEDINGS from the Quarterly Report
on Form 10-Q of the Company for the quarters ended
March 31, and September 30, 2000, SEC File No.
1-10435, incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.3 Item 1 LEGAL PROCEEDINGS from the Quarterly Report
on Form 10-Q of the Company for the quarter ended
September 30, 2005, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL
PROCEEDINGS.
Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly Report
on Form 10-Q of the Company for the quarter ended
June 30, 2007, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STURM, RUGER & COMPANY, INC.
----------------------------
(Registrant)
/S/THOMAS A. DINEEN
----------------------------------
Thomas A. Dineen
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
February 23, 2009
----------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/S/ MICHAEL O. FIFER 2/23/09 /S/ JOHN M. KINGSLEY, JR. 2/23/09
-------------------------------------------- ----------------------------------------
Michael O. Fifer John M. Kingsley, Jr.
Chief Executive Officer, Director Director
(Principal Executive Officer)
/S/ JAMES E. SERVICE 2/23/09 /S/ JOHN A. CONSENTINO, JR. 2/23/09
-------------------------------------------- ----------------------------------------
James E. Service John A. Cosentino, Jr.
Director Director
/S/ C. MICHAEL JACOBI 2/23/09 /S/ RONALD C. WHITAKER 2/23/09
-------------------------------------------- ----------------------------------------
C. Michael Jacobi Ronald C. Whitaker
Director Director
/S/ STEPHEN T. MERKEL 2/23/09
--------------------------------------------
Stephen T. Merkel
Director
80
EXHIBIT INDEX
Page No.
Exhibit 3.1 Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibits 4.1 and
4.2 to the Form S-3 Registration Statement previously
filed by the Company File No. 33-62702).
Exhibit 3.2 Bylaws of the Company, as amended.
Exhibit 3.3 Amended and restated Article 3, Section 2 of Bylaws
(Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the
SEC on April 24, 2007).
Exhibit 3.4 Amended and restated Article 3, Section 4 and Article
4, Section 5 of Bylaws (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form
8-K filed with the SEC on April 24, 2007).
Exhibit 3.5 Amended and restated Bylaws (Incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form
8-K filed with the SEC on July 26, 2007).
Exhibit 3.6 Amended and restated Bylaws (Incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form
8-K filed with the SEC on April 25, 2008).
Exhibit 3.7 Amendment to Article 5, Section 1 of Bylaws
(Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the
SEC on February 6, 2009).
Exhibit 10.1 Sturm, Ruger & Company, Inc. 1986 Stock Bonus Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988, as amended by Form 8 filed
March 27, 1990, SEC File No. 1-10435).
Exhibit 10.2 Amendment to Sturm, Ruger & Company, Inc. 1986 Stock
Bonus Plan (Incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, SEC File No. 1-10435).
Exhibit 10.3 Sturm, Ruger & Company, Inc. Supplemental Executive
Profit Sharing Retirement Plan (Incorporated by
reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991, SEC File No. 1-10435).
Exhibit 10.4 Agreement and Assignment of Lease dated September 30,
1987 by and between Emerson Electric Co. and Sturm,
Ruger & Company, Inc. (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, SEC File
No. 1-10435).
81
EXHIBIT INDEX (continued)
Exhibit 10.5 Sturm, Ruger & Company, Inc. Supplemental Executive
Retirement Plan (Incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File No.
1-10435).
Exhibit 10.6 [Intentionally omitted.]
Exhibit 10.7 Sturm, Ruger & Company, Inc. 1998 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, SEC File No. 1-10435).
Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan
for Non-Employee Directors (Incorporated by reference
to Exhibit 4 to the Form S-8 Registration Statement
filed by the Company File No. 33-53234).
Exhibit 10.9 Agreement and Release, dated as of February 28, 2006,
by and between Sturm, Ruger & Company, Inc. and
William B. Ruger (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 4, 2006, SEC File No. 1-10435).
Exhibit 10.10 Sale and Purchase Agreement, dated as of September 26,
2006, by and between Sturm, Ruger & Company, Inc. and
Ruger Business Holdings, L.P. (Incorporated by
reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed with the SEC on September 26,
2006, SEC File No. 1-10435).
Exhibit 10.11 Severance Agreement, dated as of September 21, 2006,
by and between Sturm, Ruger & Company, Inc. and
Stephen L. Sanetti (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form
8-K filed with the SEC on September 27, 2006, SEC File
No. 1-10435).
Exhibit 10.12 Severance Agreement, dated as of September 21, 2006,
by and between Sturm, Ruger & Company, Inc. and Thomas
A. Dineen (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K filed with
the SEC on September 27, 2006, SEC File No. 1-10435).
Exhibit 10.13 Severance Agreement, dated as of September 21, 2006,
by and between Sturm, Ruger & Company, Inc. and Robert
R. Stutler (Incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K filed with
the SEC on September 27, 2006, SEC File No. 1-10435).
Exhibit 10.14 Offer Letter, dated as of September 5, 2006, by and
between Sturm, Ruger & Company, Inc. and Michael O.
Fifer (Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed with
the SEC on September 28, 2006, SEC File No. 1-10435).
82
EXHIBIT INDEX (continued)
Exhibit 10.15 Severance Agreement, dated as of December 15, 2006, by
and between Sturm, Ruger & Company, Inc. and Michael
O. Fifer (Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed with
the SEC on December 19, 2006, SEC File No. 1-10435).
Exhibit 10.16 Severance Agreement, dated as of December 15, 2006, by
and between Sturm, Ruger & Company, Inc. and
Christopher John Killoy (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form
8-K filed with the SEC on December 19, 2006, SEC File
No. 1-10435).
Exhibit 10.17 Amended Severance Agreement, dated as of December 15,
2006, by and between Sturm, Ruger & Company, Inc. and
Thomas P. Sullivan (Incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form
8-K filed with the SEC on December 19, 2006, SEC File
No. 1-10435).
Exhibit 10.18 Retention and Consultation Agreement, dated December
4, 2007, by and between Sturm, Ruger & Company, Inc.
and Robert R. Stutler.
Exhibit 10.19 Credit Agreement, dated as of December 14, 2007, by
and between the Company and Bank of America
(Incorporated by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K filed with the
SEC on December 20, 2007).
Exhibit 10.20 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Michael O. Fifer
(Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
Exhibit 10.21 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Thomas A. Dineen
(Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
Exhibit 10.22 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Mark T. Lang (Incorporated
by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K filed with the SEC on April 11,
2008).
Exhibit 10.23 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Christopher J. Killoy
(Incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
Exhibit 10.24 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Steven M. Maynard
Incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
83
EXHIBIT INDEX (continued)
Exhibit 10.25 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Thomas P. Sullivan
(Incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
Exhibit 10.26 Severance Agreement, dated as of April 10, 2008, by
and between the Company and Leslie M. Gasper
(Incorporated by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K filed with the
SEC on April 11, 2008).
Exhibit 10.27 Agreement, dated as of April 10, 2008, by and between
the Company and Stephen L. Sanetti (Incorporated by
reference to Exhibit 10.8 to the Company's Current
Report on Form 8-K/A filed with the SEC on April 30,
2008).
Exhibit 10.28 Severance Agreement, dated as of May 2, 2008 by and
between the Company and Kevin B. Reid, Sr.
(Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the
SEC on May 5, 2008).
Exhibit 10.29 First Amendment to Credit Agreement, dated as of
December 15, 2008, by and between the Company and Bank
of America (Incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K filed with
the SEC on December 22, 2008).
Exhibit 23.1 Consent of McGladrey & Pullen, LLP
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Exhibit 31.2 Certification of Treasurer and Chief Financial Officer
Pursuant to Rule 13a-14(a) of the Exchange Act.
Exhibit 32.1 Certification of the Chief Executive Officer Pursuant
to Rule 13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of the Treasurer and Chief Financial
Officer Pursuant to Rule 13a-14(b) of the Exchange Act
and 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended
September 30, 1999, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
84
EXHIBIT INDEX (continued)
Exhibit 99.2 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on
Form 10-Q of the Company for the quarters ended March
31, and September 30, 2000, SEC File No. 1-10435,
incorporated by reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.3 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended
September 30, 2005, SEC File No. 1-10435, incorporated
by reference in Item 3 LEGAL PROCEEDINGS.
Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on
Form 10-Q of the Company for the quarter ended June
30, 2007, SEC File No. 1-10435, incorporated by
reference in Item 3 LEGAL PROCEEDINGS.
85
YEAR ENDED DECEMBER 31, 2008
STURM, RUGER & COMPANY, INC.
ITEMS 15(a)(2) AND 15(d)
FINANCIAL STATEMENT SCHEDULE
86
Sturm, Ruger & Company, Inc.
Item 15(a)(2) and Item 15(d)--Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
(In Thousands)
---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------
(1) (2)
Charged Charged to
Balance at (Credited)to Other Balance
Beginning Costs and Accounts at End
Description of Period Expenses -Describe Deductions of Period
---------------------------------------------------------------------------------------------------------------------------
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 2008 $127 $ 1 (a) $126
Year ended December 31, 2007 $155 $ 28 (a) $127
Year ended December 31, 2006 $351 $ (81) $ 115 (a) $155
Allowance for discounts:
Year ended December 31, 2008 $233 $1,370 $1,154 (b) $449
Year ended December 31, 2007 $206 $ 998 $ 971 (b) $233
Year ended December 31, 2006 $346 $2,808 $2,948 (b) $206
Excess and obsolete inventory reserve:
Year ended December 31, 2008 $4,143 $1,163 $1,737 (c) $3,569
Year ended December 31, 2007 $5,516 $ 755 $2,128 (c) $4,143
Year ended December 31, 2006 $3,137 $3,217 $ 838 (c) $5,516
(a) Accounts written off or (subsequently recovered)
(b) Discounts taken
(c) Inventory written off
87