18493_cvr_rev315percent 3/26/07 8:36 AM Page 1 STURM, RUGER & CO., INC. Sturm, Ruger & Company, Inc. Lacey Place, Southport, CT 06890 U.S.A. 2006 Annual Report www.ruger.com 18493_cvr_rev315percent 3/26/07 8:36 AM Page 2 To Our Shareholders: Stockholder Information 2006 was a year of significant transition at Ruger, and we are • The Ruger AlaskanTM double action revolver in the powerful Common Stock Data pleased to tell you that the Company ended the year with .44 Magnum caliber for protection in dangerous game country; The Company’s Common Stock is traded on the New York Stock Exchange under the symbol “RGR.” improvements in many areas. The changes started during the • Engraved, consecutively numbered New Vaquero single action year are beginning to yield real benefits for our shareholders, revolvers; and At February 1, 2007 the Company had 1,851 stockholders of record. customers, and employees. • A matched serial number, cased set of .357 and .44 Magnum The following table sets forth, for the periods indicated, the high and low sales prices for the Common 50th Anniversary “Flattop” single action revolvers. Stock as reported on the New York Stock Exchange and dividends paid on Common Stock. Our Board of Directors is now composed almost entirely of independent, highly experienced hands-on managers, including The Company’s balance sheet remains strong, even after repur- Dividends current and former CEOs. They bring a wealth and breadth of chasing essentially all of the Ruger family’s outstanding shares. High Low Per Share experience to the Board and are actively involved with the man- The Company reduced inventory in the latter half of 2006 by $25 agement of the Company. An example of this is the Executive million, fully funding the share repurchase. Inventory reduction 2006: Operations Committee of the Board formed in 2006, which continues to be a focus for 2007 as lean business practices are meets frequently with management to review both strategic adopted in more areas of the Company. We also are pursuing the Fourth Quarter . $ 10.78 $ 7.74 $ – direction as well as the plans and results of current operations sale of under-utilized non-manufacturing assets. Both efforts Third Quarter . 7.85 5.65 – and initiatives. This group is a tremendous resource for the should continue to convert assets to cash. Consequently, the Second Quarter . 7.78 5.56 – management team. Board of Directors has authorized management to repurchase Company shares under circumstances advantageous to the Com- First Quarter . 8.03 6.75 – Our CEO, Michael Fifer, who came on board in late September, pany. has been an outstanding engineer of change. He has added key people and skills to the management team, and shifted the man- We think Bill Ruger, Sr. would have been proud of how we are 2005: agement style from top-down to one that more fully engages all remaking this finest American firearms manufacturer. After all, it levels in decision-making and responsibility for performance. was he who said that our mission was to give the average Ameri- Fourth Quarter . $ 9.20 $ 6.54 $ – He has gone on to lead the management team in: can hunter and shooter the best value for his money, in well- Third Quarter . 11.19 8.43 0.10 designed rugged, reliable firearms that are affordable, due to intel- • Adopting lean practices throughout the Company; ligent up-to-date manufacturing methods. We remain true to his Second Quarter . 8.50 6.51 0.10 • Implementing new internal measurement systems; legacy, taking the best from the past, and making it even better. First Quarter . 8.83 6.89 0.10 • Changing compensation systems to emphasize performance; • Enhancing communications throughout the Company; We must never rest or become complacent. We have more compe- • Increasing the transparency of communications with tition than ever before from low-cost manufacturing sources all our shareholders by enhancing the content and “plain over the globe. While the threat of litigation and adverse legisla- Corporate Governance Information Our Corporate Code of Business Conduct and Ethics, Corporate Board Governance Guidelines, and charters for our Nominating and English” presentation of the MD&A section of our 10-Q tion today appears at a low ebb – which could change in an Corporate Governance, Audit, and Compensation Committees are posted on our Stockholder Relations section of our corporate website at and 10-K filings; instant – new shooters today face barriers to entry that their www.ruger.com. Simply click on “Corporate Governance Documents.” Written copies also may be obtained by telephoning our Corporate • Converting under-utilized assets to cash for the benefit ancestors would have scarcely imagined: increasingly urban envi- Secretary’s office at 203-259-7843, or by written request to the Corporate Headquarters at One Lacey Place, Southport, CT 06890. of our shareholders; ronments, posted hunting lands, computers consuming the free Shareholders, employees, or other persons wishing to anonymously report to the Board of Directors’ Audit Committee any suspected • Making the voice-of-the-customer a critical step in our time of our citizens, rapidly escalating costs of firearms, ammuni- accounting irregularities, auditing fraud, violations of our corporate Compliance Program, or violations of the Company’s Code of Business planning process for both new product development and tion, and accessories, and in some areas, hostile social and regula- Conduct and Ethics, may do so by telephoning 1-800-826-6762. This service is independently monitored 24 hours a day, 7 days a week. strategic direction; and tory pressures. Yet one glance at the faces of scholastic clay target • Changing the way we accept orders, forecast demand, and shooters at the Grand American, or the USA Shooting Team plan our production. (sponsored in part by Ruger), or the tens of thousands of enthusi- Annual Meeting Transfer Agent Corporate Address Principal Banks astic visitors to the annual Shooting, Hunting, and Outdoor Trade The Annual Meeting Computershare Investor To correspond with the Company Bank of America These changes have generated a sense of excitement in the Com- Show, will convince anyone of the immense interest, passion, and of Stockholders will Services, LLC or to request a copy of the Southport, CT pany and amongst our customers that Ruger is moving in a very enthusiasm for our chosen field of endeavor. be held on April 24, 2007 Attention: Annual Report on Form 10-K for positive direction. Morale is greatly improved. Demand and on- at the Trumbull Marriott, Shareholder 2006 free of charge, please visit Lake Sunapee Savings Bank time order fulfillment are up. Employees are fully engaged, and We invite all our interested shareholders to join us at our Annual 180 Hawley Lane, Communications our website www.ruger.com or Newport, NH we see nothing but opportunities ahead of us. Meeting of Shareholders to be held on April 24th, 2007, at the Trumbull, CT 06611 at 2 North LaSalle Street write to: Marriott Hotel in Trumbull, CT at 10:30 a.m. We are eager to hear 10:30 am. Chicago, IL 60690-5190 Corporate Secretary Sugar River Savings Bank Since last year, some notable new product introductions include: what you have to say about the new Ruger, and to share our Sturm, Ruger & Company, Inc. Newport, NH Facilities One Lacey Place ® vision for its future. • The new Ruger Hawkeye , an extensive improvement of our All Ruger firearms and investment castings are designed Southport, CT 06890 JPMorgan Chase Bank, N.A. famous M77® Mark II series of rifles; Sincerely, and manufactured by American workers at Ruger facilities Tel: 203.259.7843 Prescott, AZ ® • The new Ruger Hawkeye Alaskan and African models, in in Newport, NH and Prescott, AZ. Corporate Headquarters Fax: 203.256.3367 the new .375 Ruger caliber, with special features for profes- is located in Southport, CT. Independent Registered sional hunters from the Arctic to Africa; Vice Admiral James E. Service, U.S.N., (Ret.) Public Accounting Firm • The new Ruger Mini-14® Target Rifle, giving target shooters Chairman of the Board McGladrey & Pullen, LLP new standards of accuracy for shooting matches; Stamford, CT Sincerely, • The new Ruger Redhawk® double action revolver with a About This Cover 4” barrel; This pair of Ruger Gold Label® side-by-side shotguns feature extensive coverage in a fine TM TM • The new Ruger 22/45 Mark III Hunter Pistol with a 4” shaded floral scroll pattern with a crosshatched background. The pistol-grip stocks are barrel, which has the feel of a 1911 .45 caliber pistol at a Michael O. Fifer high grade, book-matched American walnut with a beautiful feathered crotch figure. They fraction of its cost; Chief Executive Officer were engraved by the Ruger Studio in Southport, CT and are now in a private collection. TABLE OF CONTENTS PART I Item 1. Business………………………………………………………………………………………………….. 1 Item 1A. Risk Factors……………………………………………………………………………………………… 7 Item 1B. Unresolved Staff Comments …………………………………………………………………………… 11 Item 2. Properties ………………………………………………………………………………………….…… 11 Item 3. Legal Proceedings .………………………………………………………………………………….…… 12 Item 4. Submission of Matters to a Vote of Security Holders …………………………………………………… 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ……………………………………………………………………… 13 Item 6. Selected Financial Data …………………………………………………………………………………. 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations……………………………………………………………………………