Sturm, Ruger & Company, Inc.
2001 Annual Report Sturm, Ruger & Company, Inc.
Arms Makers for
The Ruger Side-by-Side Gold Label Shotgun
The first American-designed and -manufactured side-by-side shotgun in decades is by all accounts one of the best ever made. Its revolutionary “round action” styling and slim barrels combine to give this 6 1/3-pound elegant masterpiece unparalleled handling dynamics for the discriminating upland hunter. Responsible Citizens®
2-3 – To Our Stockholders • 4 – Selected Financial Data • 5-8 – Management’s Discussion & Analysis of Financial Condition & Results of Operations • 9 – Award Winner • 10-11 – New Products for 2002 • 12-13 – Consolidated Balance Sheets • 14 – Consolidated Statements of Income and Stockholders’ Equity • 15 – Consolidated Statements of Cash Flows • 16-21 – Notes to Consolidated Financial Statements • 22 – Report of Independent Auditors • 23 – Stockholder Information • 24 – Directors and Officers
1 To Our Stockholders
In my last annual message, and is yet another unique and desirable Ruger product offering. I reported that our firearms pro- In addition, we introduced the Ruger 77/17 rifle in the new duction was adversely affected .17 Hornady Magnum Rimfire cartridge. This new offering is a during late 2000 and early 2001 natural extension of our range of rotary magazine, bolt-action by insufficient availability of rifles. We are encouraged by the enthusiastic reception given to investment castings. I am both products at the 2002 SHOT show, and we expect signifi- pleased to report that by the cant incremental business from these attractive new products. end of the first half of 2001, Specific financial results for the year 2001 include sales of this problem had been corrected $174.3 million, net income of $13.5 million, earnings per share by management reorganization, of $0.50 and dividends of $0.80. Comparable results for 2000 and our production of castings were sales of $202.7 million, net income of $27.0 million, and firearms is now satisfactory. earnings per share of $1.00 and dividends of $0.80. In light of In response to disappointing the reduced earnings, our Directors continue to review our first and second quarter existing dividend policy, carefully considering current and pro- firearms sales, we implemented significant consumer-driven jected earnings, and items such as liquidity, future required sales incentive programs, such as a retail level rebate program capital expenditures, and new research and development which significantly improved the sales of rim-fire and center- commitments. At its January 24, 2002 meeting, the Board fire pistols in the second half of 2001. This program, and the approved a $0.20 quarterly dividend, an amount which has addition of a significant new wholesale distributor, were been unchanged since 1996. factors which, in the latter half of 2001, contributed to The year 2001 was eminently successful for the Company improved firearms sales over the comparable period of 2000. in the legal arena. A dramatic series of victories in trial and We have now focused management attention on our invest- appellate courts across the country have soundly endorsed the ment castings segment and will continue to report on our rule of law over the coercive attempts of publicity-seeking progress with this business unit. politicians and trial lawyers to misuse tort law. Supreme Courts The future of our Company depends substantially on the from New York to California and from Connecticut to Florida, talents and capabilities of our management team. We began a and other Federal and State appellate and trial courts around management transition in October 2000 with the promotions the country, agree that manufacturers of lawfully sold, non- of Erle Blanchard and Stephen Sanetti, both veterans of the defective firearms cannot be held liable for criminal misuses of Company, to President and Senior Executive Vice President, their products under any cognizable legal theory. Furthermore, respectively. We have turned significant attention to identifying the United States Supreme Court declined to hear New both the needs of the Company and potential candidates to fill Orleans’s appeal of the dismissal of its lawsuit. these needs. Where appropriate, we have promoted current A few quotations from some opinions dismissing such employees, and in other instances we have hired experienced claims against firearms manufacturers succinctly state individuals from outside the Company. New positions include applicable law: Chief Information Officer, Assistant Controller, Assistant “The County’s request that the trial court use its injunctive General Counsel, and Director of Sales and Marketing for our powers to mandate the redesign of firearms and declare Investment Castings Division. These positions were added at that appellees’ business methods create a public nuisance, no additional expense as significant savings were realized by is an attempt to regulate firearms and ammunition streamlining the existing organization. The evolution of our through the medium of the judiciary...The power to legis- management team is critical to both our short and long term late belongs not to the judicial branch of government, success and will remain a priority in 2002. but to the legislative branch.” Alexander Penelas and With respect to our tradition of new product introductions, Miami-Dade County v. Arms Technology Inc., et. al., we introduced our new Ruger Gold Label side-by-side shotgun Case No. 3D00-113, in the Third District Court of Appeal at the Shooting, Hunting, and Outdoor Trade (SHOT) Show in of Florida, February 14, 2001, rehearing denied, Supreme Las Vegas in February 2002. We believe that there is no better Court of Florida, October 24, 2001. balanced 12 gauge shotgun in the world at any price. The Gold “This lawsuit constitutes an indirect attempt to regulate the Label is designed to be carried afield throughout a full day, lawful design, manufacture, marketing and sales of firearms. whether the quarry is grouse in Scotland or pheasant in South As such, it squarely conflicts with the reasonable exercise Dakota. It represents a significant addition to our shotgun line 2 of the state’s police powers and must be dismissed on the schemes, expressly allows and licenses...and the trial grounds that the City lacks a right of action to pursue this court erred in not dismissing the City’s complaint and suit.” Mayor Marc H. Morial and the City of New Orleans amended complaints against all defendants.” v. Smith & Wesson Corporation et. al., in the Supreme Sturm, Ruger & Company, Inc. et. al. v. City of Atlanta, No. Court of Louisiana, No. 00-CA-1132, April 3, 2001. A01A2521, Georgia Court of Appeals, February 13, 2002. “The legislature has set California’s public policy regarding a It would appear that this lamentable chapter of the misuse gun manufacturer’s liability under these circumstances. of American jurisprudence may at some point come to an end, Given that public policy, plaintiffs may not proceed with but the battle is not over. A few such cases have withstood their negligence claim.” Merrill et. al. v. Navegar Inc., motions to dismiss at the trial court level and have proceeded Supreme Court of California, No. S083466, August 6, 2001. into the discovery phase. We will continue to fight these ill- conceived lawsuits whenever they arise. Further to this, it “The parties most directly responsible for the unlawful should be noted that we, and our industry, stand as both allies use of handguns are the individuals who unlawfully use and arsenal of civil society. It is manifestly in the best interest them, i.e., criminals. But for their conduct, the nuisance of law-abiding citizens everywhere that these cities immedi- alleged here would not exist...The relief sought here ately cease dissipating their resources on efforts to sue the would have the potential effect of preventing defendants firearms industry for the results of their failed public policies. from engaging in activities, i.e., the manufacture and Instead, we should work together to battle all true enemies of sale of guns, that they are permitted to engage in by law civilization, peace, and dignity, both foreign and domestic. in an area which is strongly controlled by various federal We note with immense satisfaction that the most recent and state statutes...” People of the State of New York, National Safety Council statistics show that firearms accidents by Eliot Spitzer, Attorney General of the State of New declined 25% from 1999 to 2000, and dropped an astounding York v. Sturm, Ruger & Company, Inc., et. al., Index No. 67% in the decade 1990-2000 to the lowest level ever recorded 402586/00, Supreme Court of the State of New York, since 1903. Our own accident claims history mirrors the County of New York, August 10, 2001. national trend, which is no doubt due in part to the extensive “We agree with the defendants that the plaintiffs lack firearms safety efforts undertaken by the industry and by our standing...because the harms they alleged are too indi- Company. These are explained in more detail in our “blue rect and remote from defendants’ conduct, and are book” entitled Firearms Safety for Responsible Citizens which derivative of others’ injuries. Accordingly, we affirm the accompanies this annual report; and these programs include judgment of the trial court dismissing their claims...” ongoing free safety conversion for all pre-1973 Ruger “old Joseph Ganim and the City of Bridgeport et. al. v. Smith model” single action revolvers, which is now in its 20th year. & Wesson Corporation et. al., No. SC16465, Supreme Only one product liability lawsuit involving these older prod- Court of the State of Connecticut, October 1, 2001. ucts remains open. I remain tremendously optimistic about the future of our “...the non-defective, lawful products at issue in this case Company and all it stands for. Any temporary unfavorable cannot be a nuisance without straining the law to absur- circumstances alluded to in the foregoing discussion should dity...” Camden County Board of Chosen Freeholders v. be regarded merely as passing shadows which are inevitably Beretta et. al., No. 01-1051, United States Court of cast by the strong and wholesome light of the future. Appeals for the Third Circuit, November 16, 2001. In conclusion, I wish to emphasize the pleasure and honor “The causal connection between the gun manufacturers’ you would give us if you are able to attend our annual stock- conduct and plaintiffs’ injuries is attenuated and weak... holders’ meeting on May 9, 2002 in New London, New Accordingly, we will dismiss plaintiff’s claim that tort Hampshire. We hope you will join us. liability should be assessed against gun manufacturers when their legally-sold, non-defective products are crimi- nally used to injure others.” City of Philadelphia et. al. v. Beretta USA Corp. et. al., No. 01-1118, United States William B. Ruger, Jr. Court of Appeals for the Third Circuit, January 11, 2002. Chairman of the Board and “Through this lawsuit, the City seeks to punish the con- Chief Executive Officer duct which the State, through its regulatory and statutory February 9, 2002 3 Selected Financial Data (Dollars in thousands, except per share data)
Year Ended December 31, 2001 2000 1999 1998 1997 Net firearms sales...... $147,622 $166,415 $188,564 $144,898 $141,863 Net castings sales...... 26,708 36,239 53,100 66,682 67,520 Total net sales ...... $174,330 $202,654 $241,664 $211,580 $209,383 Cost of products sold ...... $134,449 $144,503 $170,650 $157,048 $146,143 Gross profit ...... 39,881 58,151 71,014 54,532 63,240 Income before income taxes ...... 22,199 44,474 55,483 39,372 46,639 Income taxes...... 8,702 17,434 21,749 15,946 18,889 Net income ...... 13,497 27,040 33,734 23,426 27,750 Basic and diluted earnings per share ...... 0.50 1.00 1.25 0.87 1.03 Cash dividends per share ...... $0.80 $0.80 $0.80 $0.80 $0.80
December 31, 2001 2000 1999 1998 1997 Working capital ...... $115,275 $123,020 $118,593 $102,395 $ 97,551 Total assets ...... 204,378 215,665 211,585 196,734 199,794 Total stockholders’ equity ...... 164,340 172,358 166,826 154,564 152,920 Book value per share ...... $6.11 $6.40 $6.20 $5.74 $5.68 Return on stockholders’ equity ...... 8.0% 15.9% 21.0% 15.2% 18.5% Current ratio ...... 5.3 to 1 5.8 to 1 5.2 to 1 5.1 to 1 4.5 to 1 Common shares outstanding...... 26,910,700 26,910,700 26,910,700 26,910,700 26,922,800 Number of stockholders of record ...... 2,064 2,011 2,046 1,974 1,971 Number of employees ...... 1,547 1,814 1,952 2,130 1,978
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. Ruger Stock Performance vs the Standard & Poor’s 500 Index
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Ruger (NYSE:RGR) 40%
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DecJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec 2000 2001 4 Management’s Discussion & Analysis of Financial Condition & Results of Operations
Introduction Selling, general and administrative expenses increased The Company’s sales are comprised of the sales of 4.8% to $20.9 million in 2001 from $19.9 million in 2000 due firearms and investment castings. The Company is the only to costs related to a voluntary firearms lock exchange U.S. firearms manufacturer which offers products in all four program that began during the first quarter of 2001 and industry product categories – rifles, shotguns, pistols, and increased personnel-related expenses. revolvers. Investment castings manufactured are of titanium, Other income-net decreased from $6.2 million in 2000 steel, nickel and cobalt alloys. to $3.2 million in 2001 primarily reflecting a gain on the sale Results of Operations of non-manufacturing real estate in the second quarter of Year ended December 31, 2001, as compared to year ended 2000 and decreased earnings on short-term investments as December 31, 2000: a result of declining interest rates in 2001. Consolidated net sales of $174.3 million were achieved The effective income tax rate remained consistent at by the Company in 2001 representing a decrease of $28.4 39.2% in 2001 and 2000. million or 14.0% from net sales of $202.7 million in 2000. As a result of the foregoing factors, consolidated net Firearms segment net sales decreased by $18.8 million income in 2001 decreased to $13.5 million from $27.0 million or 11.3% to $147.6 million in 2001 from $166.4 million in in 2000, representing a decrease of $13.5 million or 50.0%. the prior year. Firearms unit shipments for 2001 decreased Year ended December 31, 2000, as compared to year ended 12.6% from 2000, as pistol, rifle and shotgun shipments December 31, 1999: declined. The unit decrease reflected a decline in overall Consolidated net sales of $202.7 million were achieved market demand during the first six months of the year, by the Company in 2000 representing a decrease of $39.0 partially offset by a resurgence in demand during the latter million or 16.1% from net sales of $241.7 million in 1999. half of the year. Pistol demand may have been enhanced by Firearms segment net sales decreased by $22.2 million a consumer-driven sales incentive program which was in or 11.8% to $166.4 million in 2000 from $188.6 million in the effect from August through December 2001. In 2001, the prior year. Firearms unit shipments for 2000 decreased Company instituted a sales incentive program for its dis- 18.8% from 1999. The unit decrease reflected weakened tributors which allowed them to earn rebates of up to 5% overall market demand and the absence of the Company’s if certain annual overall sales targets were achieved. This Fiftieth Anniversary commemorative models, which were program replaced a similar sales incentive program in 2000. available exclusively in 1999. In 2000, shipments of all four Casting segment net sales decreased 26.3% to $26.7 major product categories, pistols, revolvers, shotguns, and million in 2001 from $36.2 million in 2000 as a result of lower rifles, decreased from 1999. unit volume. The downturn in castings sales was due to Casting segment net sales decreased 31.8% to $36.2 weakened demand for both steel and titanium castings. The million in 2000 from $53.1 million in 1999 as a result of lower Company continues to actively pursue potential investment unit volume. This was primarily attributable to a decrease in castings applications and customers in a variety of titanium the shipment of titanium golf club heads. A long-term con- and steel markets. tract with Callaway Golf Company, Inc. (“Callaway Golf”) Consolidated cost of products sold for 2001 was $134.4 was substantially completed during the fourth quarter of million compared to $144.5 million in 2000, representing a 1999. Shipments to Callaway Golf in 2000 were minimal. decrease of 7.0%. This decrease of $10.1 million was pri- Consolidated cost of products sold for 2000 was $144.5 marily attributable to decreased sales in both the firearms million compared to $170.7 million in 1999, representing a and investment castings segments. decrease of 15.3%. This decrease of $26.2 million was pri- Gross profit as a percentage of net sales decreased to marily attributable to decreased sales in both the firearms and 22.9% in 2001 from 28.7% in 2000. This erosion is due to investment castings segments and decreased product liability decreased sales in 2001, partially offset by pricing increases expenses. for selected models effective December 1, 2000 and 2001. Gross profit as a percentage of net sales decreased to
5 Management’s Discussion & Analysis of Financial Condition & Results of Operations (Continued)
28.7% in 2000 from 29.4% in 1999. This erosion was due to these materials in the marketplace at any given time which decreased sales in 2000, partially offset by pricing increases can cause the purchase prices to vary based upon numerous for selected models effective December 1, 2000 and market factors. The Company believes that it has adequate reduced product liability costs compared to 1999. quantities of raw materials in inventory to provide ample Selling, general and administrative expenses increased time to locate and obtain additional items at a reasonable slightly to $19.9 million in 2000 from $19.3 million in 1999 cost without interruption of its manufacturing operations. due to increased national advertising initiatives incurred in However, if market conditions result in a significant pro- the first half of 2000. longed inflation of certain prices, the Company’s results Other income-net increased from $3.8 million in 1999 to could be adversely affected. $6.2 million in 2000 primarily reflecting a gain on the sale of Capital expenditures during the past three years aver- non-manufacturing real estate in the second quarter of 2000. aged $5.0 million per year. In 2002, the Company expects to The effective income tax rate remained consistent at spend approximately $8 million on capital expenditures to 39.2% in 2000 and 1999. continue to upgrade and modernize equipment at each of its As a result of the foregoing factors, consolidated net manufacturing facilities. The Company finances, and intends income in 2000 decreased to $27.0 million from $33.7 million to continue to finance, all of these activities with funds pro- in 1999, representing a decrease of $6.7 million or 19.8%. vided by operations. Financial Condition In 2001 the Company paid dividends of $21.5 million. At December 31, 2001, the Company had cash, cash This amount reflects the regular quarterly dividend of $.20 equivalents and short-term investments of $67.8 million, per share paid in March, June, September, and December working capital of $115.3 million and a current ratio of 5.3 to 1. 2001. On January 24, 2002, the Company declared a regular Cash provided by operating activities was $23.0 million, quarterly dividend of $.20 per share payable on March 15, $17.4 million, and $56.7 million in 2001, 2000, and 1999, 2002. Future dividends depend on many factors, including respectively. The increase in cash provided in 2001 is princi- internal estimates of future performance and the Company’s pally the result of a modest decrease in inventories in 2001 need for cash. compared to the increase in inventories of $13.8 million in Historically, the Company has not required external 2000, partially offset by lower net income in 2001. financing. Based on its cash flow and unencumbered assets, The Company follows an industry-wide practice of offer- the Company believes it has the ability to raise substantial ing a “dating plan” to its firearms customers on selected amounts of short-term or long-term debt. The Company products, which allows the purchasing distributor to buy the does not anticipate any need for external financing in 2002. products commencing in December, the start of the The sale, purchase, ownership, and use of firearms are Company’s marketing year, and pay for them on extended subject to many thousands of federal, state and local govern- terms. Discounts are offered for early payment. The dating mental regulations. The basic federal laws are the National plan provides a revolving payment plan under which pay- Firearms Act, the Federal Firearms Act, and the Gun Control ments for all shipments made during the period December Act of 1968. These laws generally prohibit the private owner- through February must be made by April 30. Shipments ship of fully automatic weapons and place certain restrictions made in subsequent months must be paid for within approx- on the interstate sale of firearms unless certain licenses are imately 90 days. Dating plan receivable balances were $12.2 obtained. The Company does not manufacture fully automatic million and $10.7 million at December 31, 2001 and 2000, weapons, other than for the law enforcement market, and respectively. The Company has reserved the right to dis- holds all necessary licenses under these federal laws. From continue the dating plan at any time and has been able to time to time, congressional committees review proposed finance this plan from internally generated funds provided by bills relating to the regulation of firearms. These proposed operating activities. bills generally seek either to restrict or ban the sale and, in The Company purchases its various raw materials from some cases, the ownership of various types of firearms. a number of suppliers. There is, however, a limited supply of Several states currently have laws in effect similar to the
6 aforementioned legislation. The only case against the Company alleging liability for Until November 30, 1998, the “Brady Law” mandated a criminal shootings by third parties ever to be permitted to go nationwide five-day waiting period and background check before a jury, Hamilton et. al. v. Accu-tek et. al., resulted in a prior to the purchase of a handgun. As of November 30, defense verdict in favor of the Company on February 11, 1998, the National Instant Check System, which applies to 1999. In that case, numerous firearms manufacturers and both handguns and long guns, replaced the five-day waiting distributors had been sued, alleging damages as a result of period. The Company believes that the “Brady Law” has not alleged negligent sales practices and “industry-wide” liability. had a significant effect on the Company’s sales of firearms, The Company and its marketing and distribution practices nor does it anticipate any impact on sales in the future. The were exonerated from any claims of negligence in each of “Crime Bill” took effect on September 13, 1994, but none the seven cases decided by the jury. The Court upheld the of the Company’s products were banned as so-called verdict of the jury and dismissed each case as to the “assault weapons.” To the contrary, all the Company’s then- Company in its later opinion. The three defendants found manufactured commercially-sold long guns were exempted liable filed a notice of appeal from the Court’s decision. On by name as “legitimate sporting firearms.” The Company August 16, 2000, the U.S. Second Circuit Court of Appeals remains strongly opposed to laws which would restrict the certified certain questions involving the appeal to the rights of law-abiding citizens to lawfully acquire firearms. Appellate Division of the New York State Supreme Court for The Company believes that the lawful private ownership of resolution. Oral argument on those certified questions was firearms is guaranteed by the Second Amendment to the heard in the New York Appellate Division on February 8, United States Constitution (a position adopted by the U.S. 2001. On April 26, 2001, the Appellate Division of the New Court of Appeals for the Fifth Circuit in the case of U.S. v. York State Supreme Court responded to the U.S. Second Emerson on October 16, 2001) and that the widespread Circuit Court of Appeals’ certified questions. The questions private ownership of firearms in the United States will con- involved whether firearms manufacturers have a legal duty tinue. However, there can be no assurance that the regula- to prevent criminal misuses of their lawfully-sold products tion of firearms will not become more restrictive in the and whether any liability of the firearms manufacturers future and that any such restriction would not have a material should be apportioned by a market share theory. The New adverse effect on the business of the Company. York State Appellate Division answered both questions in the The Company is a defendant in numerous lawsuits negative. On August 30, 2001, the United States Court of involving its products and is aware of certain other such Appeals for the Second Circuit vacated and remanded the claims. The Company has expended significant amounts of case with instructions for the trial court to enter a final judg- financial resources and management time in connection ment of dismissal. The trial court finally dismissed the case with product liability litigation. Management believes that, in on its merits on September 17, 2001. every case, the allegations are unfounded, and that the On October 7, 1999 a lawsuit brought against the shootings and any results therefrom were due to negligence Company and numerous firearms manufacturers and distrib- or misuse of the firearm by third parties or the claimant, and utors by the mayor of Cincinnati, City of Cincinnati v. Beretta that there should be no recovery against the Company. U.S.A. Corp. et. al., was dismissed. This was the first dis- Defenses further exist to the suits brought by cities, munici- missal of one of the lawsuits which have been filed by cer- palities, counties, and State Attorneys General based, tain cities, municipalities and counties. The Ohio Court of among other reasons, on established state law precluding Appeals affirmed this decision on August 11, 2000. Such recovery by municipalities for essential government services, lawsuits filed by the cities of Bridgeport (affirmed by the the remoteness of the claims, the types of damages sought Connecticut Supreme Court on October 1, 2001), Miami to be recovered, and limitations on the extraterritorial authority (affirmed by the District Court of Appeal Third District on which may be exerted by a city, municipality, county or state February 14, 2001, review denied by the Florida Supreme under state and federal law, including State and Federal Court on October 26, 2001), Chicago, Camden County Constitutions. (affirmed by the U.S. Third Circuit Court of Appeals on
7 Management’s Discussion & Analysis of Financial Condition & Results of Operations (Continued)
November 16, 2001), Philadelphia, (affirmed by the U.S. Third probable and is unlikely that litigation, including punitive dam- Circuit Court of Appeals on January 11, 2002) and Gary, and age claims, will have a material adverse effect on the financial that filed by the State of New York have been completely dis- position of the Company, but may have a material impact on missed, and those filed by the cities of Wilmington, and the Company’s financial results for a particular period. Newark have been partially dismissed. The Atlanta suit was In the normal course of its manufacturing operations, dismissed on February 13, 2002. The Cleveland suit has the Company is subject to occasional governmental pro- withstood an initial motion to dismiss in the trial court, and in ceedings and orders pertaining to waste disposal, air emis- New Orleans the Court declared legislation passed to prohibit sions and water discharges into the environment. The such suits unconstitutional. However, on April 3, 2001, the Company believes that it is generally in compliance with Louisiana Supreme Court reversed this decision, finding the applicable environmental regulations and the outcome of statute to be constitutional, and it dismissed the case. The such proceedings and orders will not have a material Detroit/Wayne County case was also partially dismissed, and adverse effect on its business. the Michigan legislature has also passed legislation preclud- The Company expects to realize its deferred tax assets ing such suits, as have at least twenty-seven other states. through tax deductions against future taxable income or The Boston case and the California city (consolidated into one carry back against taxes previously paid. case) claims have been permitted to proceed into the discov- Inflation’s effect on the Company’s operations is most ery phase. Appeals of all trial court decisions are pending or immediately felt in cost of products sold because the will be filed when appropriate. Motions to dismiss other such Company values inventory on the LIFO basis. Generally lawsuits are pending or will be filed when timely. under this method, the cost of products sold reported in the The Company’s management reviews every lawsuit and financial statements approximates current costs, and thus claim at the outset and is in contact with independent and reduces distortion in reported income. The use of historical corporate counsel on an ongoing basis. The provision for cost depreciation has a beneficial effect on cost of products product liability claims is based upon many factors, which sold. The Company has been affected by inflation in line with vary for each case. These factors include the type of claim, the general economy. nature and extent of injuries, historical settlement ranges, Forward-Looking Statements and Projections jurisdiction where filed, and advice of counsel. An accrual is The Company may, from time to time, make forward- established for each lawsuit and claim, when appropriate, looking statements and projections concerning future expec- based on the nature of each such lawsuit or claim. tations. Such statements are based on current expectations Amounts are charged to product liability expense in the and are subject to certain qualifying risks and uncertainties, period in which the Company becomes aware that a claim such as market demand, sales levels of firearms, anticipated or, in some instances a threat of claim, has been made when castings sales and earnings, the need for external financing potential losses or costs of defense can be reasonably esti- for operations or capital expenditures, the results of pending mated. Such amounts are determined based on the litigation against the Company including lawsuits filed by Company’s experience in defending similar claims. mayors, attorneys general and other governmental entities Occasionally, charges are made for claims made in prior and membership organizations, and the impact of future periods because the cumulative actual costs incurred for that firearms control and environmental legislation, any one or claim, or reasonably expected to be incurred in the future, more of which could cause actual results to differ materially exceed amounts already provided. Likewise credits may be from those projected. Readers are cautioned not to place taken if cumulative actual costs incurred for that claim, or undue reliance on these forward-looking statements, which reasonably expected to be incurred in the future, are less speak only as of the date made. The Company undertakes than amounts previously provided. no obligation to publish revised forward-looking statements While it is not possible to forecast the outcome of litigation to reflect events or circumstances after the date such forward- or the timing of costs, in the opinion of management, after looking statements are made or to reflect the occurrence of consultation with independent and corporate counsel, it is not subsequent unanticipated events.
8 Award Winning New Ruger Productward Winner