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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).
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EXHIBIT INDEX (continued)
Page No.
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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