-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQHOtpIxHpPn3jEGWdN5jKprusLTNEsBXVJlm+fxevK4rwalNB+t+vRxF7DMId6V CT71Iyia2bS3Q1VsAi2n2w== 0000950123-03-003273.txt : 20030326 0000950123-03-003273.hdr.sgml : 20030325 20030326124421 ACCESSION NUMBER: 0000950123-03-003273 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STURM RUGER & CO INC CENTRAL INDEX KEY: 0000095029 STANDARD INDUSTRIAL CLASSIFICATION: ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES) [3480] IRS NUMBER: 060633559 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10435 FILM NUMBER: 03617618 BUSINESS ADDRESS: STREET 1: 1 LACEY PLACE CITY: SOUTHPORT STATE: CT ZIP: 06490 BUSINESS PHONE: 2032597843 MAIL ADDRESS: STREET 2: 1 LACEY PLACE CITY: SOUTHPORT STATE: CT ZIP: 06490 10-K 1 y84768e10vk.txt STURM, RUGER & COMPANY, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ____________ TO ___________ COMMISSION FILE NUMBER 0-4776 STURM, RUGER & COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-0633559 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) LACEY PLACE, SOUTHPORT, CONNECTICUT 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 an accelerated filer (as defined in Exchange Act Rule 12b-2). YES |X| NO | | The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 30, 2002: Common Stock, $1 par value - $297,346,119 The number of shares outstanding of the issuer's common stock as of March 15, 2003: Common Stock, $1 par value - 26,910,720 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2002 are incorporated by reference into Parts I, II and IV of this Report. Portions of the Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 are incorporated by reference into Part III of this Report. TABLE OF CONTENTS PART I Item 1. Business ..................................................................... 3 Item 2. Properties ................................................................... 9 Item 3. Legal Proceedings ............................................................ 10 Item 4. Submission of Matters to a Vote of Security Holders .......................... 13 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ......... 14 Item 6. Selected Financial Data ...................................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................. 14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................... 14 Item 8. Financial Statements and Supplementary Data .................................. 14 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................................................................. 15 PART III Item 10. Directors and Executive Officers of the Registrant ........................... 15 Item 11. Executive Compensation ....................................................... 15 Item 12. Security Ownership of Certain Beneficial Owners and Management ............... 15 Item 13. Certain Relationships and Related Transactions ............................... 16 Item 14. Controls and Procedures ...................................................... 16 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............. 17 Signatures ............................................................................ 21 Certifications Pursuant to Sarbanes-Oxley Act of 2002 ................................. 22 Exhibit Index.......................................................................... 24 Schedule II - Valuation and Qualifying Accounts ....................................... 28
2 PART I ITEM 1--BUSINESS Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the design, manufacture, and sale of firearms and precision metal investment castings. The Company is the only U.S. firearms manufacturer which offers products in all four industry categories (rifles, shotguns, pistols, and revolvers) and believes that it is the largest U.S. firearms manufacturer, based on data reported in the Bureau of Alcohol, Tobacco and Firearms' 2000 Annual Firearms Manufacturing and Exportation Report ("BATF Data"). The Company, which has been profitable every year since 1950, believes it has a preeminent reputation among sportsmen, hunters, and gun collectors for technical innovation and quality construction, based on reports in industry and business publications. The Company also sells firearms to the law enforcement market. The Company has been in business since 1949 and was incorporated in its present form under the laws of Delaware in 1969. The Company's firearms, which are sold under the "Ruger" name and trademark, consist of single-shot, autoloading, bolt-action, lever action, and muzzleloading rifles in a broad range of hunting calibers; shotguns in three gauges; .22 caliber rimfire autoloading pistols and centerfire autoloading pistols in various calibers; and single-action, double-action, and muzzleloading revolvers in various calibers. The Company manufactures a wide range of high quality products and does not manufacture inexpensive concealable firearms, sometimes known as "Saturday Night Specials," "Junk Guns," nor does it commercially-sell any firearm included on the list of "assault weapons" which was part of anti-crime legislation enacted by Congress in 1994. Many of the firearms introduced by the Company over the years have become "classics" which have retained their popularity for decades and are sought by collectors. These firearms include the single-action Single-Six, Blackhawk, and Bearcat revolvers, the double-action Redhawk revolvers, the 10/22 and Mini-14 autoloading, M-77 bolt-action, and Number One Single-Shot rifles, and the Red Label over-and-under shotguns. The Company has supplemented these "classics" with the introduction of new models and variations of existing models, including a line of centerfire autoloading pistols introduced in 1987, three lines of double action revolvers, the SP101, GP100, and Super Redhawk models as well as a line of lever action rifles introduced in 1997. The Company's ongoing commitment to the development and introduction of new models of firearms in appropriate product categories continues to generate new offerings. In 2003, we will introduce several novel offerings including four models chambered for the popular new high velocity .17 Hornady Magnum Rimfire (.17 HMR) cartridge; the Ruger Model 96/17M, the Ruger New Model Single-Six, the Ruger Target Grey(R) Varmint Model 77/17M, and the Ruger Model 77/17M in blued alloy steel with a synthetic stock. Also new in 2003, the Company plans to introduce the Ruger 12 gauge Target Grey(R) All-Weather Red Label Shotgun, the Ruger New Model Bisley Hunter revolver, the Ruger "Bird's Head" Grip Vaquero with simulated ivory grips, and the 50th Anniversary Ruger New Model Single-Six. The Company is also engaged in the manufacture of titanium and ferrous investment castings for a wide variety of markets including sporting goods, commercial, and military. The Company produces steel marine propellers, titanium hand tools, and various titanium and steel castings for a number of customers. The Company plans to continue to pursue other titanium and steel castings markets. For the years ended December 31, 2002, 2001, and 2000, net sales attributable to the Company's firearms operations were approximately 86%, 85%, and 82%, respectively, of total net sales. The balance of the Company's net sales for the aforementioned periods was attributable to its investment castings operations. Further information regarding industry segment data is incorporated by reference to pages 20 and 21 of the Company's 2002 Annual Report to Stockholders. 3 ITEM 1--BUSINESS (CONTINUED) PRODUCTS--FIREARMS The Company presently manufactures 34 different types of firearm products in four industry categories: rifles, shotguns, pistols, and revolvers. Most are available in several models based upon caliber, finish, barrel length, and other features. RIFLES--A rifle is a long gun with spiral grooves cut into the interior of the barrel to give the bullet a stabilizing spin after it leaves the barrel. The Company presently manufactures fifteen different types of rifles: the M77 Mark II, the M77 Mark II Magnum, the 77/17, the 77/22, the 77/44, the 10/22, the Model 96/22, the Model 96/44, the Model 96/17, the Mini-14, the Mini Thirty, the Ruger Carbine, the Deerfield Carbine (99/44), the No. 1 Single-Shot, and the 77/50 Muzzle Loader. Sales of rifles by the Company accounted for approximately $69.1 million, $72.8 million, and $73.2 million of revenues for the years 2002, 2001, and 2000, respectively. SHOTGUNS--A shotgun is a long gun with a smooth barrel interior which fires lead or steel pellets. The Company presently manufactures two different types of over-and-under shotguns: the Red Label available in 12, 20, and 28 gauge and the Woodside available in 12 gauge. Most of the Red Label models are available in special Sporting Clays, English Field, All-Weather and engraved versions. The Company will shortly begin manufacture of a side-by-side shotgun in 12 gauge. Sales of shotguns by the Company accounted for approximately $6.0 million, $6.1 million, and $11.4 million of revenues for the years 2002, 2001, and 2000, respectively. PISTOLS--A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip. The Company presently manufactures three different types of pistols, the Ruger Mark II .22 caliber in Standard, Competition, and Target models, the Ruger 22/45, and the P-Series centerfire autoloading pistols in various calibers, configurations, and finishes. Sales of pistols by the Company accounted for approximately $25.8 million, $26.6 million, and $43.2 million of revenues for the years 2002, 2001, and 2000, respectively. REVOLVERS--A revolver is a handgun which has a cylinder that holds the ammunition in a series of chambers which are successively aligned with the barrel of the gun during each firing cycle. There are two general types of revolvers, single-action and double-action. To fire a single-action revolver, the hammer 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. The Company presently manufactures ten different types of single-action revolvers in a variety of calibers, configurations, and finishes: the New Model Single-Six, the New Model ..32 Magnum Super Single-Six, the New Model Blackhawk, the New Model Super Blackhawk, the Vaquero, the Ruger Bisley, the Old Army Cap & Ball, the New Bearcat, the Bisley Vaquero, and the Bisley Hunter. The Company presently manufactures four different types of double-action revolvers: the SP101, the GP100, the Redhawk, and the Super Redhawk. Sales of revolvers by the Company accounted for approximately $34.3 million, $37.9 million, and $34.0 million of revenues for the years 2002, 2001, and 2000, respectively. The Company also manufactures and sells accessories and replacement parts for its firearms. These sales accounted for approximately $4.6 million, $4.2 million, and $4.6 million of revenues for the years 2002, 2001, and 2000, respectively. PRODUCTS--INVESTMENT CASTINGS The investment castings products currently manufactured by the Company consist of titanium, chrome-molybdenum, stainless steel, nickel, and cobalt alloys. The Company produces steel marine propellers, steel and titanium hand tools, and various other titanium and steel castings for a number of customers. 4 ITEM 1--BUSINESS (CONTINUED) Ruger Investment Casting ("RIC"), which includes the Antelope Hills foundry, is located in Prescott, Arizona and engineers and produces titanium and ferrous castings. The Pine Tree Castings Division of the Company, located in Newport, New Hampshire, engineers and produces ferrous castings for a wide range of commercial customers. The Company sold the assets of its Uni-Cast Division, which was located in Manchester, New Hampshire, on June 2, 2000. Uni-Cast's activity was immaterial in 2000. Currently, Uni-Cast is a third party supplier of aluminum castings used in the manufacture of certain pistols. Sales from the Company's investment casting operations (excluding intercompany transactions) accounted for approximately $21.8 million, $26.7 million, and $36.2 million, or 14%, 15%, and 18% of the Company's total net sales for 2002, 2001, and 2000, respectively. MANUFACTURING FIREARMS--The Company produces most rifles, and all shotguns and revolvers at the Newport, New Hampshire facility. Some rifles and all 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 and believes that its widespread use of investment castings in the firearms manufacturing process is unique among firearms manufacturers. The investment casting process provides greater design flexibility and results in component parts which are generally close to their ultimate shape and, therefore, require less machining. Through the use of investment castings, the Company is able to produce durable and less costly component parts for its firearms. Third parties supply the Company with various raw materials for its firearms, such as fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle and shotgun stocks, various synthetic products and other component parts. These raw materials and component parts are readily available from multiple sources at competitive prices. One component part, an aluminum casting used in the manufacture of certain models of pistols, is purchased from only one third party and may not be readily available from other sources immediately. All assembly, inspection, and testing of firearms manufactured by the Company is 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--The Company manufactures all of its precision investment castings products at one of its three investment casting foundries. 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. All of the titanium investment castings and some of the ferrous investment castings products are manufactured by the Company's RIC-Prescott Division. This facility is one of the largest investment castings facilities in the Southwest. After a review of the castings business it was determined that a 5 ITEM 1--BUSINESS (CONTINUED) portion of the casting production capacity at the RIC-Prescott Division will not be utilized in the short-term. Therefore, in the fourth quarter of 2002, a $3.3 million pretax charge to earnings was recorded to recognize an impairment loss on certain of the investment castings segment assets. The Company is, however, committed to this business and believes it can ultimately benefit the Company. The Company's RIC-Newport Division (formerly Pine Tree Castings) manufactures ferrous investment castings. Raw materials including wax, ceramic material, and metal alloys necessary for the production of investment cast products are supplied to the Company through third parties. The Company believes that these raw materials are readily available from multiple sources at competitive prices. MARKETING AND DISTRIBUTION FIREARMS--The Company's firearms are primarily marketed through a network of selected licensed independent wholesale distributors who purchase the products directly from the Company. They resell to Federally-licensed retail firearms dealers and 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, 16 distributors service the domestic commercial market, with an additional 13 servicing the domestic law enforcement market and two servicing the Canadian market. Three of these distributors service both the domestic commercial market and the domestic law enforcement market. AcuSport Corporation accounted for approximately 17%, 21%, and 20% of net firearms sales and 15%, 17%, and 16% of consolidated net sales in 2002, 2001, and 2000, respectively. Davidson's Supply Company, accounted for approximately 14% of net firearms sales in both 2001 and 2000, and 12% and 11% of consolidated net sales in 2001 and 2000, respectively. Jerry's Sport Center, accounted for approximately 12% of the Company's net sales of firearms and 10% of consolidated net sales in 2000. The Company employs four 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 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. In addition, the Company markets its firearms directly to foreign customers, consisting primarily of law enforcement agencies, foreign governments, and a few select commercial distributors. Foreign sales were less than 10% of the Company's consolidated net sales for each of the past three years. No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of a government purchaser. In the fourth quarter of 2002, the Company received annual orders from its distributors for the 2003 marketing year. As of March 1, 2003, unfilled firearms orders were approximately $98.2 million as compared to approximately $128 million at March 1, 2002. Most of the firearms manufactured by the Company are sold on terms requiring payment in full within 30 days. However, certain products which are generally used during the fall hunting season are sold pursuant to a "dating plan" which, in general, allows the purchasing distributor to buy the products commencing in December, the normal start of the Company's dating plan year, and pay for them on extended terms. Discounts are offered for early payment. Management believes that this dating plan serves to level out the demand for these seasonal products throughout the entire year and facilitates an 6 ITEM 1--BUSINESS (CONTINUED) efficient manufacturing schedule. The Company does not consider its overall firearms business to be predictably seasonal; however, sales of certain models of firearms are usually lower in the third quarter of the year. INVESTMENT CASTINGS--The investment casting segment's principal markets are sporting goods, commercial, and military. Sales are made directly to customers or through manufacturers' representatives. The Company produces steel marine propellers, steel and titanium hand tools, and various other products for a number of customers. Sales of titanium golf club heads to Karsten Manufacturing Corporation ("Ping") were $8.2 million, $11.9 million and $14.8 million in 2002, 2001 and 2000, respectively. Shipments to Karsten Manufacturing Corporation in 2003 are expected to decline significantly. The Company plans to continue to pursue other titanium and steel castings markets. 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 foreign competitors manufacture products in all four industry categories (rifles, shotguns, pistols, and revolvers). Some of these competitors are subsidiaries of large corporations with substantially greater financial resources than the Company. The Company is the only domestic manufacturer which produces firearms in all four industry product categories and believes that it is the largest U.S. firearms manufacturer, according to BATF Data. The principal methods of competition in the industry are product quality and price. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability and performance of its products, and the competitiveness of its pricing. INVESTMENT CASTINGS--There are a large number of investment castings manufacturers, both domestic and foreign, with which the Company competes. Competition varies based on the type of investment castings products (titanium or steel) and the end use of the product (sporting goods, commercial, or military). Many of these competitors are larger than the Company and may have greater resources. The principal methods of competition in the industry are quality, production lead time, and price. The Company believes that it can compete effectively with its present domestic competitors and has expended significant amounts of resources on both expanding and modernizing its investment casting facilities during the last several years. However, after a review of the castings business the Company recorded a $3.3 million pretax charge to earnings in the fourth quarter of 2002 to recognize an impairment loss on certain of the investment castings segment assets due to anticipated underutilization of casting production capacity. EMPLOYEES As of March 1, 2003, the Company employed 1,390 full-time employees of which approximately 51% had at least ten years of service with the Company. None of the Company's employees are subject to a collective bargaining agreement. The Company has never experienced a strike during its entire 53-year history and believes its employee relations are satisfactory. 7 ITEM 1--BUSINESS (CONTINUED) RESEARCH AND DEVELOPMENT In 2002, 2001, and 2000, the Company spent approximately $0.7 million, $0.8 million, and $1.0 million, respectively, on research activities relating to the development of new products and the improvement of existing products. As of February 28, 2003, the Company had approximately 33 employees engaged in research and development activities as part of their responsibilities. PATENTS AND TRADEMARKS The Company owns various United States and foreign patents and trademarks which have been secured over a period of years and which expire at various times. It is the policy of the Company to apply for patents and trademarks whenever new products or processes deemed commercially valuable are developed or marketed by the Company. However, none of these patents and trademarks are considered to be basic to any important product or manufacturing process of the Company and, although the Company deems its patents and trademarks to be of value, it does not consider its business materially dependent on patent or trademark protection. ENVIRONMENTAL MATTERS The Company has programs in place that monitor compliance with various environmental regulations. However, in the normal course of its manufacturing operations the Company is subject to occasional governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. The Company believes that it is generally in compliance with applicable environmental regulations and the outcome of such proceedings and orders will not have a material effect on its business. EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the names, ages, and positions of the executive officers of the Company. Officers serve at the pleasure of the Board of Directors of the Company.
Name Age Position With Company ---- --- --------------------- William B. Ruger, Jr. 63 Chairman of the Board, Chief Executive Officer and Director Erle G. Blanchard 56 Vice Chairman, President, Chief Operating Officer, Treasurer and Director Stephen L. Sanetti 53 Vice Chairman, Senior Executive Vice President, General Counsel and Director Leslie M. Gasper 49 Corporate Secretary
William B. Ruger, Jr. became Chairman of the Board and Chief Executive Officer on October 24, 2000. Mr. Ruger had served as President and Chief Operating Officer since March 1, 1998, Vice Chairman and Senior Executive Officer of the Company since 1995 and Director of the Company since 1970. Previously, he served as President of the Company from 1991 to 1995 and as Senior Vice President of the Company from 1970 to 1990. Erle G. Blanchard was elected Vice Chairman, President, Chief Operating Officer, Treasurer and Director on October 24, 2000. Mr. Blanchard had returned to the Company as Vice President, Controller in March 1996. From March 1995 to March 1996, he was not employed by the Company. Prior to this, he served as Plant Manager of the Newport Firearms Manufacturing facility since 1986 and became Vice President, Controller - Newport in 1993. 8 ITEM 1--BUSINESS (CONTINUED) Stephen L. Sanetti became Vice Chairman, Senior Executive Vice President and General Counsel on October 24, 2000. Mr. Sanetti has been a Director since March 1, 1998. Prior to October 24, 2000, he had been Vice President, General Counsel of the Company since 1993 and has served as General Counsel since 1980. 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. 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 450 Fifth Street, NW, 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. In addition, our 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 will be 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 will not be accessible through the Company's website as promptly as they are accessible on the SEC's website until later technical improvements are made to the Company's website. ITEM 2--PROPERTIES The Company's manufacturing operations are carried out at three facilities. The following table sets forth certain information regarding each of these facilities:
Approximate Aggregate Usable Square Feet Status Segment ---------------- ------ ------- Newport, New Hampshire 350,000 Owned Firearms/Castings Prescott, Arizona 230,000 Leased Firearms/Castings Prescott, Arizona 110,000 Owned Castings
The Newport and one of the Prescott facilities each contain enclosed ranges for testing firearms and also contain modern tool room facilities. The lease of the Prescott facility provides for rental payments which approximate real property taxes. The Company's headquarters and related operations are in Southport, Connecticut. There are no mortgages on any of the real estate owned by the Company. 9 ITEM 3--LEGAL PROCEEDINGS As of December 31, 2002, the Company is a defendant in approximately 28 lawsuits involving its products and is aware of certain other such claims. These lawsuits and claims fall into two categories: (i) those that claim damages from the Company related to allegedly defective product design which stem from a specific incident. These lawsuits and claims are based principally on the theory of "strict liability" but also may be based on negligence, breach of warranty, and other legal theories, and (ii) those brought by cities, municipalities, counties, associations, individuals and one state Attorney General against numerous firearms manufacturers, distributors and dealers 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. None of the municipal cases allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom 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 further exist to the suits brought by cities, municipalities, counties, and the Attorney General based, among other reasons, on established state law precluding recovery by municipalities 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 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. The Court upheld the verdict of the jury and dismissed each case as to the Company in its later opinion. The three defendants found liable filed a notice of appeal from the Court's decision. On August 16, 2000, the U.S. 2nd Circuit Court of Appeals certified certain questions to the Appellate Division of the New York State Supreme Court for 10 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) resolution. On April 26, 2001, the Appellate Division of the New York State Supreme Court responded to the U.S. 2nd Circuit Court of Appeals' certified questions. The questions involved whether firearms manufacturers have a legal duty to prevent criminal misuses of their lawfully-sold products and whether any liability of the firearms manufacturers should be apportioned by a market share theory. The New York State Appellate Division answered both questions in the negative. On August 30, 2001, the United States Court of Appeals for the 2nd Circuit vacated and remanded the case with instructions for the trial court to enter a final judgment of dismissal. The trial court finally dismissed the case on its merits on September 17, 2001. Of the lawsuits brought by municipalities or a state Attorney General, ten have been dismissed as a matter of law. Eight of those cases are now concluded (Atlanta - dismissal by intermediate Appellate Court, no further appeal; Boston - - voluntarily dismissed with prejudice after withdrawal by the city; Bridgeport - - dismissal affirmed by Connecticut Supreme Court; County of Camden - dismissal affirmed by 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 - Third Circuit Court of Appeals affirmed dismissal, no further appeal; and Wilmington - dismissed, no further appeal). On September 20, 2002, the Indiana Court of Appeals affirmed the dismissal of the Gary case by the trial court, but the city has filed a petition for review by the Indiana Supreme Court. The Washington, D.C. case was also dismissed by the trial court on December 16, 2002. The New York State case is on appeal from its complete dismissal. On June 12, 2002, the Ohio Supreme Court voted 4-3 to reverse the dismissals of the Cincinnati case by the trial and appellate courts and remanded the case to the trial court for discovery proceedings. The Chicago case was dismissed by the trial court, but the dismissal was reversed by the Illinois Court of Appeals and defendants have appealed to the Illinois Supreme Court. On March 7, 2003, the trial court dismissed all manufacturer defendants from the consolidated California cities case. Of the remaining cases in which the Company has been served with process, two (Detroit/Wayne County and Newark) are on appeal from partial dismissal, two (Cleveland and New York City) are stayed, two (Camden City and St. Louis) have pending motions to dismiss at the trial level, and one (Jersey City) was filed on the same day the Boston suit was dismissed but has not seen any significant activity. The NAACP case is set for trial in March, 2003, but dispositive motions will be filed for adjudication by the trial court prior to trial. Legislation has been passed in approximately 30 states precluding suits of the type brought by the municipalities mentioned above. They include Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nevada, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia and Wyoming. Some statutes do, and some do not, have retroactive effect upon suits pending on their dates of enactment. A federal preemption bill had 42 11 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) Senate and 235 House co-sponsors, but was not brought to a floor vote in 2002. It is expected to be reintroduced in 2003. The Company's management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. While it is 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 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. Punitive damages, as well as compensatory damages, are demanded in many of the lawsuits and claims. Aggregate claimed amounts presently exceed product liability accruals and applicable insurance coverage. For claims made after July 10, 1994, compensatory and punitive damage insurance coverage is provided, in states where permitted, coverage is provided for losses exceeding $2.0 million per claim, or an aggregate maximum loss of $6.0 million. For claims made after July 10, 1997, coverage is provided for annual losses exceeding $2.0 million per claim, or an aggregate maximum loss of $5.5 million annually. For claims made after July 10, 2000, coverage is provided for annual 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. On March 17, 2000, Smith & Wesson announced that it had reached a settlement to conclude some of the municipal lawsuits with various governmental entities. On March 30, 2000, the Office of the Connecticut Attorney General began an investigation of certain alleged "anticompetitive practices in the firearms industry." On April 17, the State of Maryland's Attorney General also made similar inquiries as to the Company. On August 9, 2000, the U.S. Federal Trade Commission also filed such a civil investigative demand regarding the Smith & Wesson settlement. During April 2002, after the city of Boston voluntarily withdrew its case with prejudice as to all remaining defendants, Boston moved jointly with Smith & Wesson to dissolve their consent decree settlement, which motion the court accepted. The Company has not engaged in any improper conduct and has cooperated with these investigations. The Company has reported all cases instituted against it through September 30, 2002, 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. For a description of all pending lawsuits against the Company through September 30, 2002, reference is made to the discussion under the caption "Item 3. LEGAL PROCEEDINGS" of the Company's Annual Reports on Form 10-K for the years ended December 31, 1998 and 1999, and to the discussion under caption "Item 1. LEGAL PROCEEDINGS" of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1996, September 30, 1997, March 31, June 30, and September 30, 1999, March 31 and September 30, 2000, September 30, 2001, and March 31, 2002. Two cases were formally instituted against the Company during the three months ended December 31, 2002, which involved significant demands for compensatory and/or punitive damages and in which the Company has been served with process: 12 ITEM 3--LEGAL PROCEEDINGS (CONTINUED) Henry v. Company, et al, (GA) in the Superior Court of Johnson County, State of Georgia. The Company was served with the complaint on October 23, 2002. The complaint alleges that a Ruger M77 Mark II rifle "exploded," resulting in partial hearing loss as well as claimed injuries to the plaintiff's face, head, and eyes. Plaintiff is seeking $150,000 in damages. Lemongello, et al v. Company, et al, (WV) in the Circuit Court of Kanawha County, West Virginia. The Company was served with the complaint on November 18, 2002. The complaint alleges the Company failed to use reasonable care to prevent the sale of a pistol by a retail dealer to a purchaser who subsequently transferred it to a convicted felon and alleges that as a result, the plaintiffs were intentionally shot with a pistol manufactured by the Company. Plaintiffs are seeking punitive and compensatory damages, plus fees, costs, and other relief deemed appropriate by the Court. During the three months ending December 31, 2002, one previously-reported case was settled:
Case Name Jurisdiction --------- ------------ Larkins Missouri
The settlement amount was within the limits of the Company's self-insurance coverage or self-insurance retention. On November 4, 2002, the Illinois Appellate Court reversed and remanded the dismissal of the previously reported City of Chicago (IL) municipal lawsuit. The Company and co-defendants have petitioned the Illinois Supreme Court for leave to appeal. On November 27, 2002, the trial court granted the defendants' motion for summary judgment and dismissed the remaining counts of the previously reported City of Wilmington (DE) municipal lawsuit in favor of the Company and other defendants. On December 26, 2002, the mayor of Wilmington stated that the city would not appeal this dismissal, and the case is now closed. On December 16, 2002, judgment of dismissal on the pleadings was entered in favor of all defendants as to all counts in the previously reported District of Columbia (DC) municipal lawsuit. Plaintiffs have filed a notice of appeal. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 13 PART II ITEM 5--MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required for this Item is incorporated by reference from pages 4 and 23 of the Company's 2002 Annual Report to Stockholders. ITEM 6--SELECTED FINANCIAL DATA The information required for this Item is incorporated by reference from page 4 of the Company's 2002 Annual Report to Stockholders. ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required for this Item is incorporated by reference from pages 5 through 8 of the Company's 2002 Annual Report to Stockholders. 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 flow. A hypothetical ten percent change in market interest rates would not have a material effect on the fair value of the Company's investments. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (A) FINANCIAL STATEMENTS The consolidated balance sheets of Sturm, Ruger & Company, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2002 and the report dated February 10, 2003 of KPMG LLP, independent auditors, are incorporated by reference from pages 12 through 22 of the Company's 2002 Annual Report to Stockholders. The report dated February 9, 2001 of Ernst & Young LLP, independent auditors, is included as Exhibit 23.3. 14 ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) (B) SUPPLEMENTARY DATA Quarterly results of operations for 2002 and 2001 are incorporated by reference from page 21 of the Company's 2002 Annual Report to Stockholders. ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information as to the directors of the Company under the caption "ELECTION OF DIRECTORS" on pages 2 through 4 of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 is incorporated by reference into this Report. The information set forth under the caption "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 18 of the Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 is incorporated by reference into this Report. The information as to executive officers of the Company is included in Part I hereof under the caption "Executive Officers of the Company" in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. ITEM 11--EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 under the captions "THE BOARD OF DIRECTORS, ITS COMMITTEES AND DIRECTOR COMPENSATION," "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "EXECUTIVE COMPENSATION," "OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR," "AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES," "PENSION PLAN TABLE," "SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE," and "COMPANY STOCK PRICE PERFORMANCE" on pages 5 through 15. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 under the captions "ELECTION OF DIRECTORS," "PRINCIPAL STOCKHOLDERS," and "SECURITY OWNERSHIP OF MANAGEMENT" on pages 2 through 4, 17, and 18. 15 ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held May 6, 2003 under the captions "THE BOARD OF DIRECTORS, ITS COMMITTEES AND DIRECTOR COMPENSATION," "EXECUTIVE COMPENSATION," "OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR", AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES," and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on pages 5, 6, 9 through 12, and 18. ITEM 14--CONTROLS AND PROCEDURES Within the 90 days prior to the date of this Annual Report on Form 10-K, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (the "Disclosure Controls") and its internal controls and procedures for financial reporting (the "Internal Controls"). This evaluation (the "Controls Evaluation") was done under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Operating Officer and Treasurer ("COO"). Rules adopted by the SEC require that in this section of the Annual Report we present the conclusions of the CEO and the COO about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation. Appearing immediately following the signature pages of this Annual Report there are Certifications of the CEO and the COO. The Certifications are required by Section 302 of the Sarbanes-Oxley Act of 2002. LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS The Company's management, including the CEO and COO, does not expect that the Disclosure Controls or Internal Controls will prevent all error and all fraud because of the inherent limitations of control systems. Any control system, no matter how well conceived and operated, can only provide a reasonable assurance that the objectives of the control system are met. In addition, the design of any system of controls is based in part upon certain assumptions about the probability of future events. The design of a control system must also reflect the fact that there are resource constraints for any company, and the benefits of controls must be considered relative to their costs to the company. Furthermore, judgments in decision-making can be faulty, breakdowns can occur because of individual error or mistake, and controls can be circumvented by other individual acts, by collusion of two or more people, or by management override. For these reasons and others, no evaluation of controls can provide absolute assurance that all control issues and instances of error, mistake or fraud, if any, within the Company have been detected. SCOPE OF THE CONTROLS EVALUATION The Controls Evaluation included a review of the objectives, design and implementation by the Company of its system of controls, and the effect of the controls on the information generated for use in this Annual Report. The CEO and COO sought to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. The overall goals of this and the Company's other evaluation activities are to monitor its Disclosure Controls and Internal Controls and to make modifications as necessary. The Company 16 ITEM 14--CONTROLS AND PROCEDURES (CONTINUED) intends that its Disclosure Controls and Internal Controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant from time to time. Among other matters, the CEO and COO sought in their evaluation to determine whether there were any material weaknesses in the Internal Controls, or whether the Company had identified any acts of fraud involving personnel who have a significant role in the Internal Controls. CONCLUSIONS Our CEO and COO have concluded that, based upon the Controls Evaluation and subject to the limitations described above, the Disclosure Controls are effective to ensure that material information relating to the Company is made known to the management of the Company in a timely manner, particularly during the period in which this Annual Report was being prepared, and that the Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles. Since the date of the Controls Evaluation to the date of this Annual Report, there have been no significant changes in the Internal Controls or in other factors that could significantly affect the Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Form 10-K. (1) Financial Statements: Consolidated Balance Sheets--December 31, 2002 and 2001 Consolidated Statements of Income--Years ended December 31, 2002, 2001, and 2000 Consolidated Statements of Stockholders' Equity--Years ended December 31, 2002, 2001, and 2000 Consolidated Statements of Cash Flows--Years ended December 31, 2002, 2001, and 2000 Notes to Consolidated Financial Statements Report of KPMG LLP This information is incorporated by reference from the Company's 2002 Annual Report to Stockholders as noted in Item 8. 17 ITEM 15--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (2) Financial Statement Schedules: Schedule II-Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the required information is disclosed elsewhere, and therefore, have been omitted. (3) Listing of Exhibits: 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 (Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 0-4776). Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the Bylaws of the Company (Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, SEC File No. 0-4776). 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. 0-4776). 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. 0-4776). 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. 0-4776). 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. 0-4776). 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. 0-4776). 18 ITEM 15--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 10.6 Operating Agreement of Antelope Hills, LLC, a Delaware Limited Liability Company, dated as of October 5, 1995 (Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 0-4776). 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. 0-4776). Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan for Non-Employee Directors. Exhibit 13.1 Annual Report to Stockholders of the Company for the year ended December 31, 2002. Except for those portions of such Annual Report to Stockholders expressly incorporated by reference into the Report, such Annual Report to Stockholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "filed" document. Exhibit 23.1 Consent and Report on Schedule of Independent Auditors. Exhibit 23.2 Consent of Ernst & Young LLP, Independent Auditors Exhibit 23.3 Opinion of Ernst & Young LLP. Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 1995, 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 quarter ended June 30, 1996, 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, 1997, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.4 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1998, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. 19 ITEM 15--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, June 30, and September 30, 1999 SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.6 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1999, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.7 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 99.8 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarter ended September 30, 2001, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.9 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2002, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.10 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.11 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Report on Form 8-K filed in the fourth quarter of 2002: On December 19, 2002, the Company filed a Current Report on Form 8-K regarding an update to stockholders and other interested parties on preliminary estimates for the fourth quarter and year ending December 31, 2002. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STURM, RUGER & COMPANY, INC. ------------------------------------- (Registrant) S/ LESLIE M. GASPER ------------------------------------- Leslie M. Gasper Corporate Secretary March 25, 2003 ------------------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. S/ WILLIAM B. RUGER, JR. 3/25/03 S/ ERLE G. BLANCHARD 3/25/03 - --------------------------------------- ------------------------------------- William B. Ruger, Jr. Erle G. Blanchard Chairman of the Board, Chief Executive Vice Chairman, President, Chief Officer and Director Operating Officer, Treasurer and (Principal Executive Officer) Director (Principal Financial Officer) S/ STEPHEN L. SANETTI 3/25/03 S/ JOHN M. KINGSLEY, JR. 3/25/03 - --------------------------------------- ------------------------------------- Stephen L. Sanetti John M. Kingsley, Jr. Vice Chairman, Senior Executive Vice Director President, General Counsel and Director S/ STANLEY B. TERHUNE 3/25/03 S/ RICHARD T. CUNNIFF 3/25/03 - --------------------------------------- ------------------------------------- Stanley B. Terhune Richard T. Cunniff Director Director S/ TOWNSEND HORNOR 3/25/03 S/ PAUL X. KELLEY 3/25/03 - --------------------------------------- ------------------------------------- Townsend Hornor Paul X. Kelley Director Director S/ JAMES E. SERVICE 3/25/03 - --------------------------------------- James E. Service Director 21 CERTIFICATION I, William B. Ruger, Jr., Chief Executive Officer of Sturm, Ruger & Company, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Sturm, Ruger & Company, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. S/ WILLIAM B. RUGER, JR. - ---------------------------- William B. Ruger, Jr. Chief Executive Officer Date: March 25, 2003 22 CERTIFICATION I, Erle G. Blanchard, President, Chief Operating Officer and Treasurer of Sturm, Ruger & Company, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Sturm, Ruger & Company, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. S/ ERLE G. BLANCHARD - ---------------------------------- Erle G. Blanchard President, Chief Operating Officer and Treasurer Date: March 25, 2003 23 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 (Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 0-4776). Exhibit 3.3 Amendment to Article 2, Sections 4 and 5 of the Bylaws of the Company (Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, SEC File No. 0-4776). 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. 0-4776). 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. 0-4776). 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. 0-4776). 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. 0-4776).
24 EXHIBIT INDEX (continued)
Page No. -------- 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. 0-4776). Exhibit 10.6 Operating Agreement of Antelope Hills, LLC, a Delaware Limited Liability Company, dated as of October 5, 1995 (Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 0-4776). 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. 0-4776). Exhibit 10.8 Sturm, Ruger & Company, Inc. 2001 Stock Option Plan for Non-Employee Directors. Exhibit 13.1 Annual Report to Stockholders of the Company for the year ended December 31, 2002. Except for those portions of such Annual Report to Stockholders expressly incorporated by reference into the Report, such Annual Report to Stockholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "filed" document. 29 Exhibit 23.1 Consent and Report on Schedule of Independent Auditors. 47 Exhibit 23.2 Consent of Ernst & Young LLP, Independent Auditors 48 Exhibit 23.3 Opinion of Ernst & Young LLP 49 Exhibit 99.1 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 1995, 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 quarter ended June 30, 1996, 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 September 30, 1997, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.4 Item 1 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1998, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS.
25 EXHIBIT INDEX (continued)
Page No. -------- Exhibit 99.5 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarters ended March 31, June 30, and September 30, 1999, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.6 Item 3 LEGAL PROCEEDINGS from the Annual Report on Form 10-K of the Company for the year ended December 31, 1999, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.7 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 99.8 Item 1 LEGAL PROCEEDINGS from the Quarterly Reports on Form 10-Q of the Company for the quarter ended September 30, 2001, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.9 Item 1 LEGAL PROCEEDINGS from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2002, SEC File No. 1-10435, incorporated by reference in Item 3 LEGAL PROCEEDINGS. Exhibit 99.10 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 50 Exhibit 99.11 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 51
26 YEAR ENDED DECEMBER 31, 2002 STURM, RUGER & COMPANY, INC. AND SUBSIDIARIES ITEMS 15(a)(2) AND 15(d) FINANCIAL STATEMENT SCHEDULE 27 Sturm, Ruger & Company, Inc. and Subsidiaries 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 to Balance Balance at Charged to Other at End Beginning Costs and Accounts of Description of Period Expenses -Describe Deductions Period ----------- --------- -------- --------- ---------- ------ Deductions from asset accounts: Allowance for doubtful accounts: Year ended December 31, 2002 $1,061 $ 83 $ 695(a) $ 449 ------ ------- ------ ------ Year ended December 31, 2001 $1,252 $ 191(a) $1,061 ------ ------- ------ ------ Year ended December 31, 2000 $1,392 $ (125) $ 15(a) $1,252 ------ ------- ------ ------ Allowance for discounts: Year ended December 31, 2002 $1,145 $ 4,111 $4,473(b) $ 783 ------ ------- ------ ------ Year ended December 31, 2001 $1,130 $ 4,346 $4,331(b) $1,145 ------ ------- ------ ------ Year ended December 31, 2000 $1,749 $ 6,696 $7,315(b) $1,130 ------ ------- ------ ------
(a) Accounts written off (b) Discounts taken 28 EX-13.1 3 y84768exv13w1.txt SELECTED FINANCIAL DATA . . . EXHIBIT 13.1 Selected Financial Data (Dollars in thousands, except per share data)
Year Ended December 31, ---------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net firearms sales ..................... $139,762 $147,622 $166,415 $188,564 $144,898 Net castings sales ..................... 21,825 26,708 36,239 53,1O0 66,682 -------- -------- -------- -------- -------- Total net sales ........................ $161,587 $174,330 $202,654 $241,664 $211,580 ======== ======== ======== ======== ======== Cost of products sold .................. $125,376 $134,449 $144,503 $170,650 $157,048 Gross profit ........................... 36,211 39,881 58,151 71,014 54,532 Income before income taxes ............. 14,135 22,199 44,474 55,483 39,372 Income taxes ........................... 5,668 8,702 17,434 21,749 15,946 Net income ............................. 8,467 13,497 27,040 33,734 23,426 Basic and diluted earnings per share ... 0.31 0.50 1.00 1.25 0.87 Cash dividends per share ............... $0.80 $0.80 $0.80 $0.80 $0.80
December 31, ---------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Working capital ........................ $103,116 $118,760 $123,020 $118,593 $102,395 Total assets ........................... 183,958 204,378 215,665 215,684 196,734 Total stockholders' equity ............. 137,983 164,340 172,358 166,826 154,564 Book value per share ................... $5.13 $6.11 $6.40 $6.20 $5.74 Return on stockholders' equity ......... 6.1% 8.0% 15.9% 21.0% 15.2% Current ratio .......................... 4.8 TO 1 6.1 to 1 5.8 to 1 5.2 to 1 5.1 to 1 Common shares outstanding .............. 26,910,700 26,910,700 26,910,700 26,910,700 26,910,700 Number of stockholders of record ....... 2,026 2,064 2,011 2,046 1,974 Number of employees .................... 1,418 1,547 1,814 1,952 2,130
Selected Financial Data should be read in conjunction with the Consolidated Financial Statements and accompanying notes and Management's Discussion & Analysis of Financial Condition & Results of Operations. Management's Discussion & Analysis of Financial Condition & Results of Operations INTRODUCTION The Company's sales are comprised of the sales of firearms and investment castings. The Company is the only U.S. firearms manufacturer which offers products in all four industry product categories -- rifles, shotguns, pistols, and revolvers. Investment castings manufactured are of titanium, and steel, nickel and cobalt alloys. RESULTS OF OPERATIONS Year ended December 31, 2002, as compared to year ended December 31, 2001. Consolidated net sales of $161.6 million were achieved by the Company in 2002 representing a decrease of $12.7 million or 7.3% from net sales of $174.3 million in 2001. Firearms segment net sales decreased by $7.8 million or 5.3% to $139.8 million in 2002 from $147.6 million in the prior year. Firearms unit shipments for 2002 decreased 9.1% from 2001, as shipments for all product families declined significantly in the latter half of the year. In 2002, the Company instituted a sales incentive program for its distributors which allows them to earn rebates of up to 1.5% if certain annual overall sales targets are achieved. This program replaces a similar sales incentive program in 2001 which allowed rebates of up to 5%. From August 1, 2002 to November 30, 2002, a consumer-driven sales incentive program for certain hunting rifles and revolvers was in effect. Pistol demand may have been enhanced in 2001 by a sales incentive PAGE 4 29 Management's Discussion & Analysis of Financial Condition & Results of Operations (Continued) program which was in effect from August 2001 through December 2001. Casting segment net sales decreased 18.3% to $21.8 million in 2002 from $26.7 million in 2001 as a result of lower unit volume. The downturn in castings sales is due to continuing weakened demand for both steel and titanium castings. The Company continues to actively pursue other casting business opportunities. Consolidated cost of products sold for 2002 was $125.4 million compared to $134.4 million in 2001, representing a decrease of 6.7%. This decrease of $9.0 million was primarily attributable to decreased sales in both the firearms and investment castings segments, partially offset by increased product liability expenses. Gross profit as a percentage of net sales decreased to 22.4% in 2002 from 22.9% in 2001. This erosion is due to decreased sales in 2002, partially offset by the reversal of an overaccrual related to a pistol rebate program that ended December 31, 2001. Selling, general and administrative expenses decreased 1.0% to $20.7 million in 2002 from $20.9 million in 2001. In 2002, the Company recognized asset impairment charges of $3.3 million related to certain assets in the investment castings segment. Other income-net decreased from $3.2 million in 2001 to $1.9 million in 2002 primarily reflecting decreased earnings on short-term investments as a result of declining interest rates and reduced principal. The effective income tax rate of 40.1% in 2002 increased slightly from the income tax rate of 39.2% in 2001. As a result of the foregoing factors, consolidated net income in 2002 decreased to $8.5 million from $13.5 million in 2001, representing a decrease of $5.0 million or 37.3%. Year ended December 31, 2001, as compared to year ended December 31, 2000: Consolidated net sales of $174.3 million were achieved by the Company in 2001 representing a decrease of $28.4 million or 14.0% from net sales of $202.7 million in 2000. Firearms segment net sales decreased by $18.8 million or 11.3% to $147.6 million in 2001 from $166.4 million in the prior year. Firearms unit shipments for 2001 decreased 12.6% from 2000, as pistol, rifle and shotgun shipments declined. The unit decrease reflects a decline in overall market demand during the first six months of the year, partially offset by a resurgence in demand during the latter half of the year. Pistol demand may have been enhanced by a sales incentive program which was in effect from August through December 2001. Casting segment net sales decreased 26.3% to $26.7 million in 2001 from $36.2 million in 2000 as a result of lower unit volume. The downturn in castings sales is due to an apparent weakened demand for both steel and titanium castings. Consolidated cost of products sold for 2001 was $134.4 million compared to $144.5 million in 2000, representing a decrease of 7.0%. This decrease of $10.1 million was primarily attributable to decreased sales in both the firearms and investment castings segments. Gross profit as a percentage of net sales decreased to 22.9% in 2001 from 28.7% in 2000. This erosion is due to decreased sales in 2001, partially offset by pricing increases for selected models effective December 1, 2000 and 2001. Selling, general and administrative expenses increased 4.8% to $20.9 million in 2001 from $19.9 million in 2000 due to costs related to a voluntary firearms lock exchange program that began during the first quarter of 2001, and to increased personnel related expenses. Other income-net decreased from $6.2 million in 2000 to $3.2 million in 2001 primarily reflecting a gain on the sale of non-manufacturing real estate in the second quarter of 2000 and decreased earnings on short-term investments as a result of declining interest rates. The effective income tax rate remained consistent at 39.2% in 2001 and 2000. As a result of the foregoing factors, consolidated net income in 2001 decreased to $13.5 million from $27.0 million in 2000, representing a decrease of $13.5 million or 50.0%. FINANCIAL CONDITION At December 31, 2002, the Company had cash, cash equivalents and short-term investments of $53.4 million, working capital of $103.1 million and a current ratio of 4.8 to 1. Cash provided by operating activities was $9.9 million, $23.0 million, and $17.4 million in 2002, 2001, and 2000, respectively. The decrease in cash provided in 2002 is principally the result of decreased income in 2002 and an increase in prepaid and other assets of $6.5 million in 2002 compared with a decrease of $4.6 million in 2001. The Company follows an industry-wide practice of offering a "dating plan" to its firearms customers on selected products, which allows the purchasing distributor to buy the products commencing in December, the start of the Company's PAGE 5 30 Management's Discussion & Analysis of Financial Condition & Results of Operations (Continued) marketing year, and pay for them on extended terms. Discounts are offered for early payment. The dating plan provides a revolving payment plan under which payments for all shipments made during the period December through February must be made by April 30. Shipments made in subsequent months must be paid for within approximately 90 days. Dating plan receivable balances were $9.0 million and $12.2 million at December 31, 2002 and 2001, respectively. The Company has reserved the right to discontinue the dating plan at any time and has been able to finance this plan from internally generated funds provided by operating activities. The Company purchases its various raw materials from a number of suppliers. There is, however, 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 a reasonable cost without interruption of its manufacturing operations. However, if market conditions result in a significant prolonged inflation of certain prices, the Company's results could be adversely affected. Capital expenditures during the past three years averaged $4.6 million per year. In 2003, the Company expects to spend approximately $8 million on capital expenditures to continue to upgrade and modernize equipment at each of its manufacturing facilities. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations. In 2002 the Company paid dividends of $21.5 million. This amount reflects the regular quarterly dividend of $20 per share paid in March, June, September, and December 2002. On December 18, 2002, the Company declared a regular quarterly dividend of $20 per share payable on March 15, 2003. Future dividends depend on many factors, including internal estimates of future performance and the Company's need for funds. Historically, the Company has not required external financing. Based on its cash flow and unencumbered assets, the Company believes it has the ability to raise substantial amounts of short-term or long-term debt. The Company does not anticipate any need for external financing in 2003. In conjunction with the sale of its Uni-Cast division in June 2000, the Company extended credit to the purchaser in the form of a note and a line of credit, both of which are collateralized by certain of the assets of Uni-Cast. In July 2002, the Company established an additional collateralized line of credit for the purchaser and, as of December 31, 2002, the total amount due from the purchaser was $2.3 million. The Company purchases aluminum castings used in the manufacture of certain models of pistols exclusively from Uni-Cast. 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 long guns, replaced the five-day waiting period. The Company believes that the "Brady Law" has not had a significant effect on the Company's sales of firearms, nor does it anticipate any impact on sales in the future. The "Crime Bill" took effect on September 13, 1994, but none of the Company's products were banned as so-called "assault weapons. "To the contrary, all the Company's then-manufactured commercially-sold long guns were exempted by name as "legitimate sporting firearms." 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. The Company is a defendant in numerous lawsuits involving its products and is aware of certain other such claims. The Company has expended significant amounts of financial resources and management time in connection with PAGE 6 31 product liability litigation. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom 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 further exist to the suits brought by cities, municipalities, counties, and a state attorney general based, among other reasons, on established state law precluding recovery by municipalities 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 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. The Court upheld the verdict of the jury and dismissed each case as to the Company in its later opinion. The three defendants found liable filed a notice of appeal from the Court's decision. On August 16, 2000, the U.S. Second Circuit Court of Appeals certified certain questions to the Appellate Division of the New York State Supreme Court for resolution. On April 26, 2001, the Appellate Division of the New York State Supreme Court responded to the U.S. Second Circuit Court of Appeals' certified questions. The questions involved whether firearms manufacturers have a legal duty to prevent criminal misuses of their lawfully-sold products and whether any liability of the firearms manufacturers should be apportioned by a market share theory. The New York State Appellate Division answered both questions in the negative. On August 30, 2001, the U.S. Second Circuit Court of Appeals vacated and remanded the case with instructions for the trial court to enter a final judgment of dismissal. The trial court finally dismissed the case on its merits on September 17, 2001. Of the lawsuits brought by municipalities or a state Attorney General, twelve have been dismissed as a matter of law. Eight cases are concluded (Atlanta -- dismissal by intermediate Appellate Court, no further appeal; Boston - -- voluntarily dismissed with prejudice after withdrawal by the city; Bridgeport - -- dismissal affirmed by Connecticut Supreme Court; County of Camden -- dismissal affirmed by 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 -- Third Circuit Court of Appeals affirmed dismissal, no further appeal; and Wilmington -- dismissed by the trial court, no appeal taken). On June 12, 2002, the Ohio Supreme Court voted 4-3 to reverse the dismissals of the Cincinnati case by the trial and appellate courts and remanded the case to the trial court for discovery proceedings. On September 20, 2002, the Indiana Court of Appeals affirmed the dismissal of the Gary case by the trial court and plaintiffs have filed a request for appeal to the Indiana Supreme Court. Chicago was dismissed by the trial court, reversed by the appellate court, and is now on appeal to the Illinois Supreme Court. New York State is on appeal from its complete dismissal. Washington, D.C. was dismissed by the trial court on December 16, 2002, and the city has filed a notice of appeal. On March 7, 2003, the trial court dismissed all manufacturer defendants from the Consolidated California Cities case. Of the remaining cases in which the Company has been served with process, two (Detroit/Wayne County and Newark) are on appeal from partial dismissal, two (Cleveland and New York City) are stayed, and two (Camden City and St. Louis) have pending motions to dismiss at the trial level. The lawsuit filed by the NAACP is presently set for trial to begin on March 24, 2003 if dispositive motions are not granted. Legislation has been passed in approximately 30 states precluding suits of the type brought by the municipalities mentioned above. In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to waste disposal, air emissions and water discharges into the environment. The Company believes that it is generally in compliance with applicable environmental regulations and the outcome of such proceedings and orders will not have a material adverse effect on its business. The valuation of the future defined benefit pension obligations at December 31, 2002 indicated that these plans were underfunded. While this estimation has no bearing on the Company's profitability or the actual funded status of the pension plans, it results in the recognition of other comprehensive loss of $7.9 million. The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carry back against taxes previously paid. PAGE 7 32 Management's Discussion & Analysis of Financial Condition & Results of Operations (Continued) Inflation's effect on the Company's operations is most immediately felt in cost of products sold because the Company values inventory on the LIFO basis. Generally under this method, the cost of products sold reported in the financial statements approximates current costs, and thus, reduces distortion in reported income. The use of historical cost depreciation has a beneficial effect on cost of products sold. The Company has been affected by inflation in line with the general economy. Subsequent to the passage of the Sarbanes-Oxley Act of 2002, the Company extended approximately $35,000 of credit to an officer of the Company. This extension of credit may have been unintentionally contrary to the Sarbanes-Oxley Act of 2002. In recognition of this potential violation, this officer subsequently repaid this balance to the Company. CRITICAL ACCOUNTING POLICIES 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. Significant estimates in our consolidated financial statements include the product liability accrual, allowance for doubtful accounts, inventory valuation allowance, sales discounts and rebate allowances, employee benefit accruals, deferred tax asset valuation allowance, valuation of long-lived assets and pension liabilities. We base our estimates on prior experience, facts and circumstances and other assumptions, including those reviewed with actuarial consultants and independent counsel, when applicable, that we believe to be reasonable. However, actual results may differ from these estimates. We believe the determination of our product liability expense 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. 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, a state attorney 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. PAGE 8 33 [STURM, RUGER AND COMPANY(R) LOGO] Ruger Gold Label Shotgun and 77/17 Rifle Voted 2002's "Best New Products of the Year" By Shooting Industry's "Academy of Excellence" [PHOTO OF MAGAZINE COVERS] [PHOTO OF SHOTGUN] THE RUGER GOLD LABEL SIDE-BY-SIDE SHOTGUN [PHOTO OF AWARD PLAQUE] Throughout the year, Ruger firearms received much interest in the outdoor press, including covers and feature articles in many such publications. Among the topics featured was the unparalleled success of new Ruger products in 2002, as exemplified by two major industry awards. We are gratified that, in 2002, Ruger products won two out of the three firearms category awards. Our new RUGER GOLD LABEL SIDE-BY-SIDE 12 GAUGE DOUBLE SHOTGUN and our new RUGER 77/17 BOLT ACTION RIFLE won best shotgun and rifle, respectively; and our Ruger New Model Hunter .44 Magnum single action revolver was one of the three Handgun of the Year finalists. These prestigious awards are unique in that they are the result of closed voting by a large group of outdoor writers, editors, retailers, and firearms enthusiasts. They vote by secret ballot to select "The Best of the Best" each year, and we were delighted to have our products so honored. [PHOTO OF AWARD PLAQUE] [PHOTO OF RIFLE] THE RUGER 77/17 .17 HMB CALIBER BOLT ACTION RIFLE [PHOTO OF MAGAZINE COVERS] PAGE 9 34 [STURM, RUGER AND COMPANY(R) LOGO] New .17 HMR Caliber Ruger Firearms for 2003 THE .17 HMR RIMFIRE MAGNUM CARTRIDGE The new .17 HMR cartridge introduced by Ruger and Hornady Cartridge Company in 2002 was the most successful new ammunition launch since the .44 Magnum in 1956. It is quiet, accurate, flat shooting, and inexpensive; all the attributes of a winning 21st Century cartridge. It efficiently propels a .17 grain .17 caliber synthetic tipped bullet at a remarkable 2,550 feet per second. Demand for both firearms and ammunition far outstrips supply. New Ruger .17 HMR caliber product introductions for 2003 include: [PHOTO OF BULLET] THE RUGER MODEL 96/17 A lower-cost yet amazingly accurate lever action alternative to the Ruger 77/17 series of .17's. [PHOTO OF RIFLE] THE RUGER SYNTHETIC STOCK MODEL 77/17 Ruger's exciting new 77/17 bolt action is now mated to a lightweight impervious synthetic stock. [PHOTO OF RIFLE] THE RUGER VARMINT MODEL 77/17 To fully exploit the long-range capability of the new flat-shooting .17 HMR cartridge, this model features a longer, heavier barrel bedded into a handsome, warp-resistant laminated wood stock. [PHOTO OF RIFLE] THE RUGER NEW MODEL SINGLE-SIX .17 HMR CALIBER SINGLE-ACTION REVOLVER The first single action chambered for this cartridge is a natural to have handy for longer-range varmint hunting around the ranch or farm. [PHOTO OF REVOLVER] PAGE 10 35 [STURM, RUGER AND COMPANY(R) LOGO] Other New Ruger Firearms for 2003 THE 50TH ANNIVERSARY RUGER NEW MODEL SINGLE-SIX This thoroughly modern version of the original groundbreaking Ruger Single-Six evokes memories of the most famous revolver of the 1950's. It proudly bears a special gold-filled commemorative rollmark, stunning cocobolo wood grips, a red Ruger grip medallion, a classic fixed sight frame, and comes in a unique case. It will only be offered in 2003, and is a fitting tribute to its designer, our late founder William B. Ruger. [PHOTO OF REVOLVER] THE RUGER NEW MODEL BISLEY HUNTER Our Ruger New Model Hunter revolver, the first to be factory equipped with rugged scope rings securely mountable on a solid integral top rib, is now available in the popular Ruger Bisley configuration, using a grip frame which many consider the best in handling the recoil of today's magnum hunting cartridges. [PHOTO OF REVOLVER] [PHOTO OF REVOLVER BARREL] THE RUGER "BIRD'S HEAD" GRIP VAQUERO WITH SIMULATED IVORY GRIPS Another unique Ruger grip shape, the popular Ruger "Bird's Head" grip Vaquero is now offered with both blued steel and stainless finishes with attractive simulated ivory grips for the western aficionado. [PHOTO OF REVOLVER] THE RUGER TARGET GREY(R) ALL WEATHER MODEL OVER AND UNDER SHOTGUN Waterfowl hunters will appreciate the unique new Target Grey(R) model of our All-Weather shotgun, with its non-glare matte finish and synthetic polymer stock. [PHOTO OF SHOTGUN] THE RUGER NO. 1 SINGLE-SHOT RIFLE IN CALIBERS .458 LOTT AND .405 WINCHESTER The classic Ruger No. 1 is now available in two powerful big game cartridges, the .405 Winchester and the .458 Lott, representing some of the most powerful chamberings of the turn of both the 20th and 21st centuries. [PHOTO OF RIFLE] PAGE 11 36 Consolidated Balance Sheets (Dollars in thousands, except per share data)
December 31, 2002 2001 ASSETS Current Assets Cash and cash equivalents .................................. $ 3,598 $ 3,838 Short-term investments ..................................... 49,776 63,957 Trade receivables, less allowances for doubtful accounts ($449 and $1,061) and discounts ($783 and $1,145) ........ 14,026 15,121 Inventories: Finished products ........................................ 16,999 12,333 Materials and products in process ........................ 34,629 37,460 --------- --------- 51,628 49,793 Deferred income taxes ...................................... 6,985 7,922 Prepaid expenses and other current assets .................. 4,536 1,566 --------- --------- Total Current Assets ....................................... 130,549 142,197 Property, Plant, and Equipment Land and improvements .................................... 1,797 1,779 Buildings and improvements ............................... 30,824 30,782 Machinery and equipment .................................. 94,841 93,478 Dies and tools ........................................... 26,270 25,448 --------- --------- 153,732 151,487 Allowances for depreciation .............................. (124,538) (114,535) --------- --------- 29,194 36,952 Deferred income taxes ...................................... 9,594 3,671 Other assets ............................................... 14,621 21,893 --------- --------- Total Assets ............................................... $ 183,958 $ 204,713 ========= =========
See accompanying notes to consolidated financial statements. PAGE 12 37
December 31, 2002 2001 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable and accrued expenses ...... $ 5,080 $ 6,893 Product liability ................................ 4,000 4,000 Employee compensation and benefits ............... 7,324 7,220 Workers' compensation ............................ 4,765 4,620 Dividends payable ................................ 5,382 -- Income taxes ..................................... 882 704 --------- --------- Total Current Liabilities ........................ 27,433 23,437 Accrued pension liability ........................ 6,423 3,820 Deferred income taxes ............................ 5,886 4,654 Product liability ................................ 6,233 8,462 Contingent liabilities (Note 5) .................. -- -- Stockholders' Equity Common stock, non-voting, par value $1: Authorized shares -- 50,000; none issued ....... -- -- Common stock, par value $1: Authorized shares -- 40,000,000 Issued and outstanding shares -- 26,910,700 .... 26,911 26,911 Additional paid-in capital ....................... 2,508 2,492 Retained earnings ................................ 116,649 135,093 Accumulated other comprehensive income ........... (8,085) (156) --------- --------- Total Stockholders' Equity ....................... 137,983 164,340 --------- --------- Total Liabilities and Stockholders' Equity ....... $ 183,958 $ 204,713 ========= =========
PAGE 13 38 Consolidated Statements of Income (In thousands, except per share data)
Year ended December 31, 2002 2001 2000 Net firearms sales ...................... $139,762 $147,622 $166,415 Net castings sales ...................... 21,825 26,708 36,239 -------- -------- -------- Total net sales ......................... 161,587 174,330 202,654 Cost of products sold ................... 125,376 134,449 144,503 -------- -------- -------- Gross profit ............................ 36,211 39,881 58,151 Expenses: Selling ............................... 14,777 14,473 14,021 General and administrative ............ 5,885 6,392 5,886 Impairment of long-lived assets ....... 3,311 -- -- -------- -------- -------- 23,973 20,865 19,907 -------- -------- -------- Operating profit ........................ 12,238 19,016 38,244 Other income-net ........................ 1,897 3,183 6,230 -------- -------- -------- Income before income taxes .............. 14,135 22,199 44,474 Income taxes ............................ 5,668 8,702 17,434 -------- -------- -------- Net Income .............................. $ 8,467 $ 13,497 $ 27,040 ======== ======== ======== Basic and Diluted Earnings Per Share .... $ 0.31 $ 0.50 $ 1.00 ======== ======== ======== Cash Dividends Per Share ................ $ 0.80 $ 0.80 $ 0.80 ======== ======== ========
See accompanying notes to consolidated financial statements. Consolidated Statements of Stockholders' Equity (Dollars in thousands)
Accumulated Additional Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income Total ---------- ---------- --------- ------------- --------- Balance at December 31, 1999 .............. $ 26,911 $ 2,434 $ 137,614 $ (133) $ 166,826 Net income .............................. 27,040 27,040 Additional minimum pension liability, net of deferred taxes of $14 .......... 21 21 Comprehensive income .................... 27,061 --------- Cash dividends .......................... (21,529) (21,529) ---------- ---------- --------- ---------- --------- Balance at December 31, 2000 .............. 26,911 2,434 143,125 (112) 172,358 Net income .............................. 13,497 13,497 Additional minimum pension liability, net of deferred taxes of $29 .......... (44) (44) --------- Comprehensive income .................... 13,453 --------- Stock options compensation .............. 58 58 Cash dividends .......................... (21,529) (21,529) ---------- ---------- --------- ---------- --------- Balance at December 31, 2001 .............. 26,911 2,492 135,093 (156) $ 164,340 Net income .............................. 8,467 8,467 Additional minimum pension liability, net of deferred taxes of $5,287 ....... (7,929) (7,929) --------- Comprehensive income .................... 538 --------- Stock options compensation .............. 16 16 Cash dividends .......................... (21,529) (21,529) Unpaid dividends declared ............... (5,382) (5,382) ---------- ---------- --------- ---------- --------- BALANCE AT DECEMBER 31, 2002 .............. $ 26,911 $ 2,508 $ 116,649 $ (8,085) $ 137,983 ========== ========== ========= ========== =========
See accompanying notes to consolidated financial statements. PAGE 14 39 Consolidated Statements of Cash Flows (In thousands)
Year ended December 3l, 2002 2001 2000 OPERATING ACTIVITIES Net income .................................................... $ 8,467 $ 13,497 $ 27,040 Adjustments to reconcile net income to cash provided by operating activities: Depreciation .............................................. 7,490 8,151 8,751 Impairment of long-lived assets ........................... 3,311 -- -- Gain on sale of assets .................................... (209) -- (1,068) Gain on sale of Uni-Cast assets ........................... -- -- (626) Deferred income taxes ..................................... 1,533 1,302 3,542 Changes in operating assets and liabilities: Trade receivables ....................................... 1,095 (767) 5,916 Inventories ............................................. (1,835) 1,571 (13,761) Trade accounts payable and accrued expenses ............. (1,813) 1,038 (304) Product liability ....................................... (2,229) (3,846) (3,191) Prepaid expenses, other assets, and other liabilities ... (6,048) 2,843 (7,541) Income taxes ............................................ 178 (808) (1,393) --------- --------- --------- Cash provided by operating activities ..................... 9,940 22,981 17,365 INVESTING ACTIVITIES Property, plant, and equipment additions ...................... (3,155) (3,605) (7,023) Purchases of short-term investments ........................... (145,392) (165,183) (156,700) Proceeds from sales or maturities of short-term investments ...................................... 159,574 167,101 161,436 Net proceeds from sale of assets .............................. 322 -- 1,978 Net proceeds from sale of Uni-Cast assets ..................... -- -- 382 --------- --------- --------- Cash provided (used) by investing activities .............. 11,349 (1687) 73 FINANCING ACTIVITIES Dividends paid ................................................ (21,529) (21,529) (21,529) --------- --------- --------- Cash used by financing activities ......................... (21,529) (21,529) (21,529) --------- --------- --------- Decrease in cash and cash equivalents ........................... (240) (235) (4,091) Cash and cash equivalents at beginning of year .................. 3,838 4,073 8,164 --------- --------- --------- Cash and Cash Equivalents at End of Year ........................ $ 3,598 $ 3,838 $ 4,073 ========= ========= =========
See accompanying notes to consolidated financial statements. PAGE 15 40 Notes to Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sturm, Ruger & Company, Inc. (the "Company") is principally engaged in the design, manufacture, and sale of firearms and precision investment castings. The Company's design and manufacturing operations are located in the United States. Substantially all sales are domestic. The Company's firearms are sold through a select number of independent wholesale distributors to the sporting and law enforcement markets. Investment castings are sold either directly to or through manufacturers' representatives to companies in a wide variety of industries. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year balances have been reclassified to conform with current year presentation. REVENUE RECOGNITION Revenue is recognized, net of any estimated discounts, sales incentives, or rebates, upon the shipment of products. 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. 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 $47.2 million and $45.4 million at December 31, 2002 and 2001, respectively. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated on the basis of cost. Depreciation is computed by the straight-line and declining balance methods predominately over 15, 10, and 3 years for buildings, machinery and equipment, and tools and dies, respectively. In October 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which requires the use of a specific accounting model to determine the valuation of 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 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 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. The Company adopted SFAS No. 144 on January 1, 2002. 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 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, 2002, 2001, and 2000 were $2.2 million, $2.1 million, and $2.6 million, respectively. SHIPPING COSTS Costs incurred related to the shipment of products are included in selling expense. Such costs totaled $1.6 million in 2002, 2001, and 2000. STOCK OPTIONS The Company records stock option compensation on an intrinsic value basis in accordance with Accounting Principles Board ("APB") PAGE 16 41 Opinion No. 25, "Accounting for Stock Issued to Employees. "The Company also provides pro forma disclosures of stock option compensation recorded on a fair value basis in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." 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 26,910,700 in 2002, 2001, and 2000. Diluted earnings per share reflect the impact of options outstanding using the treasury stock method. This results in diluted weighted-average shares outstanding of 27,002,200 in 2002, 26,922,800 in 2001, and 26,910,700 in 2000. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 143, "Accounting for Asset Retirement Obligations," requires the recognition of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," requires a guarantor to recognize a liability with respect to a non-contingent obligation to stand ready to perform under the guarantee even if the probability of future payments under the conditions of a guarantee is remote, for periods beginning after December 15, 2002, and requires certain related disclosures as of December 31, 2002. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to when management is committed to an exit plan. The Company will adopt these statements effective January 1, 2003. The Company does not expect the adoption of these statements to have a material impact on its financial statements. 2. INCOME TAXES The Federal and state income tax provision consisted of the following (in thousands):
Year ended December 3l, 2002 2001 2000 ------------------ ------------------- ------------------ CURRENT DEFERRED Current Deferred Current Deferred ------- -------- ------- -------- ------- -------- Federal ................ $3,190 $1,303 $6,009 $ 1,072 $11,621 $2,944 State .................. 945 230 1,391 230 2,271 598 ------ ------ ------ ------- ------- ------ $4,135 $1,533 $7,400 $ 1,302 $13,892 $3,542 ====== ====== ====== ======= ======= ======
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31, 2002 2001 ------- ------- Deferred tax assets: Product liability .................................... $ 4,103 $ 4,885 Employee compensation and benefits ................... 3,553 3,398 Allowances for doubtful accounts and discounts ....... 887 1,704 Inventories .......................................... 1,109 1,111 Additional minimum pension liability ................. 5,391 104 Other ................................................ 1,536 391 ------- ------- Total deferred tax assets .............................. 16,579 11,593 ------- ------- Deferred tax liabilities: Depreciation ......................................... 1,428 1,584 Pension plans ........................................ 4,458 3,070 ------- ------- Total deferred tax liabilities ......................... 5,886 4,654 ------- ------- Net deferred tax assets ................................ $10,693 $ 6,939 ======= =======
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, 2002 2001 2000 ---- ---- ---- Statutory Federal income tax rate .............. 35.0% 35.0% 35.0% State income taxes, net of Federal tax benefit . 5.4 4.7 4.2 Other items .................................... (0.3) (0.5) -- ---- ---- ---- Effective income tax rate ...................... 40.1% 39.2% 39.2% ==== ==== ====
The Company made income tax payments of approximately $6.4 million, $4.7 million, and $18.9 million during 2002, 2001, and 2000, respectively. The Company expects to realize its deferred tax assets through tax deductions against future taxable income or carry back against taxes previously paid. PAGE 17 42 Notes to Consolidated Financial Statements (Continued) 3. PENSION PLANS The Company and its subsidiaries sponsor two defined benefit pension plans which cover substantially all employees. A third defined benefit pension plan is non-qualified and covers certain executive officers of the Company. The cost of these defined benefit plans and the balances of plan assets and obligations are shown below (in thousands).
Change in Benefit Obligation 2002 2001 -------- -------- Benefit obligation at January 1 ..................................... $ 41,370 $ 35,420 Service cost ....................................... 1,414 1,321 Interest cost ...................................... 2,879 2,659 Actuarial loss ..................................... 3,807 3,570 Benefits paid ...................................... (1,682) (1,600) -------- -------- Benefit obligation at December 31 ................................... 47,788 41,370 -------- -------- Change in Plan Assets -------- -------- Fair value of plan assets at January 1 ..................................... 36,723 33,297 Actual return on plan assets ....................... (721) 1,984 Employer contributions ............................. 4,486 3,042 Benefits paid ...................................... (1,682) (1,600) -------- -------- Fair value of plan assets at December 31 ................................... 38,806 36,723 -------- -------- Funded status ...................................... (8,982) (4,647) Unrecognized net actuarial loss .................... 15,734 8,310 Unrecognized prior service cost ..................................... 2,629 3,110 Unrecognized transition obligation (asset) ............................... 33 (88) -------- -------- Net amount recognized .............................. $ 9,414 $ 6,685 ======== ========
Amounts Recognized on the Balance Sheet 2002 2001 ------- ------- Prepaid benefit cost ................................. $ -- $ 9,563 Accrued benefit liability ............................ (6,423) (3,820) Intangible asset ..................................... 2,361 682 Accumulated other comprehensive income ............................... 8,085 156 Deferred tax asset ................................... 5,391 104 ------- ------- $ 9,414 $ 6,685 ------- ------- Weighted Average Assumptions as of December 31, ------- ------- Discount rate ........................................ 6.50% 7.00% Expected return on plan assets ....................... 8.00% 9.00% Rate of compensation increases ....................... 5.00% 5.00% Components of Net Periodic Pension Cost ------- ------- Service cost ......................................... $ 1,414 $ 1,321 Interest cost ........................................ 2,879 2,659 Expected return on assets .......................................... (3,344) (3,019) Amortization of unrecognized transition asset ................................... (121) (121) Recognized gains ..................................... 329 92 Prior service cost recognized ........................ 600 591 ------- ------- Net periodic pension cost ............................ $ 1,757 $ 1,523 ======= =======
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $47.8 million, $45.2 million, and $38.8 million, respectively, as of December 31, 2002 and $11.8 million, $9.3 million and $6.3 million, respectively, as of December 31, 2001. Intangible assets are included in other assets in the consolidated balance sheet. The Company also sponsors two defined contribution plans which cover substantially all of its hourly and salaried employees and a non-qualified defined contribution plan which covers certain of its salaried employees. Expenses related to the defined contribution plans were $1.6 million, $1.5 million, and $1.4 million in 2002, 2001, and 2000, respectively. In 2002 and 2001 the Company changed the weighted-average discount rates which increased the projected benefit obligation by approximately $3.2 million and $2.7 million, respectively. In accordance with SFAS No. 87, "Employers' Accounting for Pension Costs," the Company recorded an additional minimum pension liability which decreased comprehensive income by $7.9 million and $44,000 in 2002 and 2001, respectively, and increased comprehensive income by $21,000 in 2000. 4. STOCK INCENTIVE AND BONUS PLANS In 1998, the Company adopted, and in May 1999 the shareholders approved, the 1998 Stock Incentive Plan (the "1998 Plan") under which employees may be granted options to purchase shares of the Company's Common Stock and stock appreciation rights. The Company has 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. To date, no stock appreciation rights have been granted. 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 are granted options to purchase shares of the Company's authorized but unissued stock. The Company has 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 and the remaining options vest ratably over three years. PAGE 18 43 The following table summarizes the activity of the Plans:
Weighted Average Shares Exercise Price ---------- ---------------- Outstanding at December 31, 1999 ............. 1,420,000 $11.94 Granted .................................... -- -- Exercised .................................. -- -- Canceled ................................... (50,000) 11.94 ---------- ------ Outstanding at December 31, 2000 ............. 1,370,000 11.94 Granted .................................... 220,000 9.99 Exercised .................................. -- -- Canceled ................................... (100,000) 11.94 ---------- ------ Outstanding at December 31, 2001 ............. 1,490,000 11.65 Granted .................................... -- -- Exercised .................................. -- -- Canceled ................................... (160,000) 11.94 ---------- ------ Outstanding at December 31, 2002 ............. 1,330,000 $11.62 ========== ======
There were 962,000 exercisable options at December 31, 2002, with a weighted average exercise price of $11.79 and an average contractual life remaining of 6.2 years. At December 31, 2002, an aggregate of 870,000 shares remain available for grant under the Plans. The Company accounts for employee stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Had compensation expense for the Plans been determined in accordance with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share data):
2002 2001 2000 ------- -------- -------- Net Income: As reported .............................................. $ 8,467 $ 13,497 $ 27,040 Add: Recognized stock-based employee compensation, net of tax ............................................. 10 35 -- Deduct: Employee compensation expense determined under fair value method, net of tax .......................... (387) (366) (340) ------- -------- -------- Pro forma .............................................. $ 8,090 $ 13,166 $ 26,700 ======= ======== ======== Earnings per Share (Basic and Diluted): As reported .............................................. $ 0.31 $ 0.50 $ 1.00 Pro forma ................................................ $ 0.30 $ 0.49 $ 0.99 ======= ======== ========
The weighted average fair value of options granted under the Plans was estimated at $1.88 on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions in 2001, respectively: dividend yield of 8.0%, expected volatility of 34.3%, risk free rate of return of 2.0%, and expected lives of 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. The Company's Stock Bonus Plan, as amended, covers its key employees excluding members of the Ruger family. Pursuant to the Plan, awards are made of Common Stock and a cash bonus approximating the estimated income tax on the awards. At December 31, 2002, 502,000 shares of Common Stock were reserved for future awards. 5. CONTINGENT LIABILITIES As of December 31, 2002 the Company was a defendant in approximately 28 lawsuits involving its products and is aware of certain other such claims. These lawsuits and claims fall within two categories: (i) Those that claim damages from the Company related to allegedly defective product design which stem from a specific incident. These lawsuits and claims are based principally on the theory of "strict liability" but also may be based on negligence, breach of warranty, and other legal theories, and (ii) Those brought by cities, municipalities, counties, individuals (including certain putative class actions) and one state Attorney General against numerous firearms manufacturers, distributors and dealers 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 PAGE 19 44 Notes to Consolidated Financial Statements (Continued) 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. None of these cases allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products. In many of these cases punitive damages, as well as compensatory damages, are demanded. Aggregate claimed amounts presently exceed product liability accruals and, if applicable, insurance coverage. Management believes that, in every case, the allegations are unfounded, and that the shootings and any results therefrom 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 further exist to the suits brought by cities, municipalities, counties, and the Attorney General based, among other reasons, on established state law precluding recovery by municipalities 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. 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 the Company's 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 the Company's 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 the product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $837 million and $865 million at December 31, 2002 and 2001, 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. 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. 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. 6. ASSET IMPAIRMENT CHARGES In 2002 the Company recognized asset impairment charges of $3.3 million related to certain assets in the investment castings segment. As a result of the significant reduction in sales and substantial losses incurred by this segment, in the fourth quarter the Company evaluated the recoverability of certain assets and wrote off $1.0 million of a building and $2.3 million of machinery and equipment. The Company was required to reduce the carrying value of the assets to fair value and recognized asset impairment charges, because the carrying value of the affected assets exceeded the projected future undiscounted cash flows. The fair value of the building was based on available market data and the fair value of the machinery and equipment was based on estimated discounted cash flows from the assets. 7. RELATED PARTY TRANSACTIONS In 2002 and 2001, the Company paid Newport Mills, of which William B. Ruger, Jr., Chairman and Chief Executive Officer of the Company, is the sole proprietor, $206,250 and $243,750, respectively, for storage rental. In addition, the Company paid $16,500 and $19,500 in 2002 and 2001, respectively, for the rental of office space owned by Mr. Ruger, Jr. 8. OPERATING SEGMENT INFORMATION The Company has two reportable 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 consists of two operating divisions which manufacture and sell titanium and steel investment castings. The Company evaluates performance and allocates resources, in part, based on profit or 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 $3.3 million asset impairment charges recorded in 2002 are included in the investment castings segment. The Company's assets are located entirely in the United States and export sales are insignificant. Revenues from one customer in the firearms segment totaled $24.0 million, $30.4 million and $33.3 million in 2002, 2001, and 2000, respectively. Revenues from an additional customer in the firearms segment totaled $20.1 million and $22.8 million in 2001 and 2000, respectively. Revenues from a third customer in the firearms segment totaled $20.7 million in 2000. PAGE 20 45
Year ended December 3l, (in thousands) 2002 2001 2000 --------- --------- --------- Net Sales Firearms ........................... $ 139,762 $ 147,622 $ 166,415 Castings Unaffiliated ..................... 21,825 26,708 36,239 Intersegment ..................... 17,679 27,282 31,645 --------- --------- --------- 39,504 53,990 67,884 Eliminations ....................... (17,679) 127,282) (31,645) --------- --------- --------- $ 161,587 $ 174,330 $ 202,654 ========= ========= ========= Income (Loss) Before Income Taxes Firearms ........................... $ 23,673 $ 22,800 $ 39,137 Castings ........................... (11,230) (3,473) 546 Corporate .......................... 1,692 2,872 4,791 --------- --------- --------- $ 14,135 $ 22,199 $ 44,474 ========= ========= ========= Identifiable Assets Firearms ........................... $ 79,301 $ 78,774 $ 79,230 Castings ........................... 19,394 27,351 33,043 Corporate .......................... 85,263 98,588 103,392 --------- --------- --------- $ 183,958 $ 204,713 $ 215,665 ========= ========= ========= Depreciation Firearms ........................... $ 3,448 $ 3,395 $ 3,468 Castings ........................... 4,042 4,756 5,283 --------- --------- --------- $ 7,490 $ 8,151 $ 8,751 ========= ========= ========= Capital Expenditures Firearms ........................... $ 2,767 $ 2,073 $ 3,693 Castings ........................... 388 1,532 3,330 --------- --------- --------- $ 3,155 $ 3,605 $ 7,023 ========= ========= =========
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 2002 (in thousands, except per share data):
THREE MONTHS ENDED ----------------------------------------------- 3/31/02 6/30/02 9/30/02 12/31/02 ------- ------- ------- -------- NET SALES ...................................... $48,440 $39,784 $38,040 $ 35,323 GROSS PROFIT ................................... 12,280 9,945 6,925 7,061 NET INCOME (LOSS) .............................. 4,532 2,905 1,360 (330) BASIC AND DILUTED EARNINGS (LOSS) PER SHARE .... 0.17 0.11 0.05 (0.02)
Three Months Ended ----------------------------------------------- 3/31/01 6/30/01 9/30/01 12/31/01 ------- ------- ------- -------- Net sales ...................................... $43,864 $37,668 $41,138 $ 52,660 Gross profit ................................... 11,967 7,219 8,192 12,503 Net income ..................................... 4,134 1,805 2,684 4,874 Basic and diluted earnings per share ........... 0.15 0.07 0.10 0.18
PAGE 21 46 EX-23.1 4 y84768exv23w1.txt CONSENT AND REPORT EXHIBIT 23.1 Consent and Report on Schedule of Independent Auditors To the Board of Directors of Sturm, Ruger & Company, Inc.: The audits referred to in our report dated February 10, 2003 included the related financial statement schedule for the years ended December 31, 2002 and 2001, included in the Sturm, Ruger & Company, Inc. 2002 Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein for the years ended December 31, 2002 and 2001. We consent to the use of our reports included herein and incorporated by reference in the Registration Statements of Sturm, Ruger & Company, Inc. on Form S-8 (Nos. 333-84677 and 333-53234) relating to the consolidated balance sheets of Sturm, Ruger & Company, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity, and cash flows and related financial statement schedule for the years ended December 31, 2002 and 2001, which reports appear in the Sturm, Ruger & Company, Inc. 2002 Annual Report on Form 10-K. KPMG LLP Stamford, Connecticut March 24, 2003 47 EX-23.2 5 y84768exv23w2.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.2 Consent of Ernst & Young LLP, Independent Auditors We consent to the inclusion in this Annual Report (Form 10-K) of Sturm, Ruger & Company, Inc. of our report dated February 9, 2001. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-84677) pertaining to the Sturm, Ruger & Company, Inc. 1998 Stock Incentive Plan and the Registration Statement (Form S-8 No. 333-53234) pertaining to the 2001 Stock Option Plan for Non-Employee Directors of our report dated February 9, 2001, with respect to the consolidated financial statements and schedule of Sturm, Ruger & Company, Inc. indicated in our report included herein. Ernst & Young LLP Stamford, Connecticut March 24, 2003 48 EX-23.3 6 y84768exv23w3.txt OPINION OF ERNST & YOUNG LLP EXHIBIT 23.3 Report of Independent Auditors Stockholders and Board of Directors Sturm, Ruger & Company, Inc. We have audited the consolidated statements of income, stockholders' equity, and cash flows for the year ended December 31, 2000 of Sturm, Ruger & Company, Inc. and Subsidiaries. Our audit also included the financial statement schedule for the year ended December 31, 2000 listed in Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Sturm, Ruger & Company, Inc. and Subsidiaries for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2000, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP Stamford, Connecticut February 9, 2001 49 EX-99.10 7 y84768exv99w10.txt CERTIFICATION OF CEO EXHIBIT 99.10 Certification Pursuant to 18 U.S.C. Section 1350 In connection with the Annual Report of Sturm, Ruger & Company, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William B. Ruger, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. Date: March 25, 2003 S/ WILLIAM B. RUGER, JR. ---------------------------------------- William B. Ruger, Jr. Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Strum, Ruger & Company, Inc. and will be retained by Strum, Ruger & Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 50 EX-99.11 8 y84768exv99w11.txt CERTIFICATION OF CFO EXHIBIT 99.11 Certification Pursuant to 18 U.S.C. Section 1350 In connection with the Annual Report of Sturm, Ruger & Company, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Erle G. Blanchard, President, Chief Operating Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. Date: March 25, 2003 S/ ERLE G. BLANCHARD ---------------------------------------- Erle G. Blanchard President, Chief Operating Officer and Treasurer (Principal Financial Officer) A signed original of this written statement required by Section 906 has been provided to Strum, Ruger & Company, Inc. and will be retained by Strum, Ruger & Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 51 -----END PRIVACY-ENHANCED MESSAGE-----