WWW.IBISWORLD.COM & in the US October 2012 1

Bite the bullet: Continued conflict will support revenue, but subsiding fears will limit growth

IBISWorld Report 33299a Guns & Ammunition Manufacturing in the US October 2012 Nima Samadi

2 About this Industry 14 International Trade 32 Industry Assistance 2 Industry Definition 16 Business Locations 2 Main Activities 33 Key Statistics 2 Similar Industries 18 Competitive Landscape 33 Industry Data 2 Additional Resources 18 Market Share Concentration 33 Annual Change 18 Key Success Factors 33 Key Ratios 3 Industry at a Glance 18 Cost Structure Benchmarks 20 Basis of Competition 34 Jargon & Glossary 4 Industry Performance 21 Barriers to Entry 4 Executive Summary 22 Industry Globalization 4 Key External Drivers 5 Current Performance 23 Major Companies 8 Industry Outlook 23 Inc. 9 Industry Life Cycle 25 Freedom Group Inc.

11 Products & Markets 28 Operating Conditions 11 Supply Chain 28 Capital Intensity 11 Products & Services 29 & Systems 12 Demand Determinants 30 Revenue Volatility 13 Major Markets 30 Regulation & Policy

www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 2 About this Industry

Industry Definition This industry manufactures small launchers), small arms arms (including shotguns, , ammunition, other ammunition and revolvers, pistols, machine guns and ordnance and accessories.

Main Activities The primary activities of this industry are Machine guns manufacturing Shotguns manufacturing Rifles manufacturing Revolvers manufacturing Pistols manufacturing magazines manufacturing Small arms ammunition manufacturing Ammunition (except small arms) manufacturing manufacturing Mines manufacturing

The major products and services in this industry are Small arms Small arms ammunition Other ammunition Other ordnance and accessories

Similar Industries 32592 Manufacturing in the US Manufacturers of blasting caps, detonating caps and safety fuses.

33641b Space & Manufacturing in the US Guided are similar to the industry’s ordnance products, such as mortars, rocket launchers and howitzers.

Additional Resources For additional information on this industry www.atf.gov Bureau of Alcohol, Tobacco, and Explosives www.nra.org National Association www.nssf.org National Shooting Sports Foundation WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 3 Industry at a Glance Guns & Ammunition Manufacturing in 2012

Key Statistics Revenue Annual Growth 07-12 Annual Growth 12-17 Snapshot $11.7bn 5.7% 3.5% Profit Exports Businesses $992.8m $4.4bn 465

Revenue vs. employment growth Federal funding for defense Market Share Alliant 20 10 Techsystems Inc. 15 5 12.7% 10 0 Freedom Group 5 Inc. 6.4% −5 % change % 0 change %

−5 −10

−10 −15 Year 04 06 08 10 12 14 16 18 Year 05 07 09 11 13 15 17 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 23 Products and services segmentation (2012)

Key External Drivers Federal funding for defense 22% Other ordnance and accessories 27% Trade-weighted index Small arms Local and investment World price of steel rate

25% Other ammunition 26% p. 4 Small arms ammunition

SOURCE:SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM

Industry Structure Life Cycle Stage Growth Regulation Level Medium Revenue Volatility Medium Technology Change Medium Capital Intensity Medium Barriers to Entry Medium Industry Assistance Medium Industry Globalization High Concentration Level Low Competition Level High

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33 WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 4 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Executive The Guns and Ammunition state and local law enforcement agencies Summary Manufacturing industry has grown also grew during the five years to 2012, strongly during the five years to 2012. due to the sustained threat of . The industry was in decline until the start Meanwhile, civilian gun spiked due of the decade, when the 9/11 terrorist to concerns about potential law changes attacks renewed demand for industry by the Obama administration and fears products. In addition, political over a possible increase in crime due to uncertainties combined with a the poor economy. foundering economy contributed to With demand for industry products unprecedented industry growth during surging over the past five years, domestic the five years to 2012. Over the period, manufacturers have been unable to revenue is expected to grow at a rate of completely satisfy domestic demand, so 5.7% per year on average, with revenue consumers have increasingly relied on increasing 8.2% in 2012 to $11.7 billion. imports to fill that gap. In fact, over the five years to 2012, imports grew at an average rate of 3.6% per year to $2.8 Growth will let up slightly, as fears about billion. The and , in particular, have benefited rising crime and stricter laws subside from the ’ renewed love of guns. This trend is expected to continue in During the past five years, the in the future, with net exports declining from Iraq and Afghanistan ushered in a about $1.6 billion in 2012 to $1.3 billion in substantial increase in the amount of 2017. Despite the industry growth that spending by the government, occurred from 2007 to 2012, growth is resulting in an increase in purchases of expected to moderate over the next five the industry’s military-related products. years due to subsiding fears about Enduring conflicts in these regions and potential rising crime rates and gun law US troop surges caused the amount of changes. During the five years to 2017, revenue earned from the sales of these revenue is projected to grow at a rate of products to grow. The budgets of federal, 3.5% per year on average to $13.9 billion.

Key External Drivers Federal funding for defense and ammunition due to fears about their The US government and, specifically, its own safety. This driver is expected to Department of Defense are major decrease during 2013. purchasers of industry products. As the amount of expenditure allocated for Trade-weighted index these items increases, sales and revenue The trade-weighted index (TWI) typically grow as well. Government measures the strength of the US dollar funding for defense is influenced by relative to the currencies of countries fears of terrorism. As the fear of with which it trades. Because exports terrorism increases, the government account for a moderate portion of increases funding of federal, state and industry revenue and imports account for local law enforcement agencies to a growing portion of domestic demand, protect against or respond to these the TWI can significantly affect sales threats. This factor results in more gun volumes. This driver is expected to and ammunition purchases. Consumers increase during 2013, indicating a also increase their purchases of firearms potential threat to the industry. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 5

Industry Performance

Key External Drivers Local and state government investment manufactured. Demand is usually continued Growth in government spending on state sufficient to overcome any price and local agencies generally coincides increases imposed; therefore, revenue with increased funding of law typically increases when steel prices rise. enforcement. When law enforcement This driver is expected to increase during funding increases, gun and ammunition 2013 and is a potential opportunity for purchases grow as well. This driver is the industry. expected to decrease slowly during 2013. Crime rate World price of steel As the crime rate or the fear of it Purchases of raw materials, such as steel, increases, people purchase more guns form a large component of the average and ammunition for self-protection. firm’s cost structure. The ability for Therefore, a rising crime rate positively manufacturers to pass on price increases affects the industry. This driver is depends upon the specific product being expected to decrease slowly during 2013.

Federal funding for defense Trade-weighted index

10 90

5 85

0 80

−5 Index % change % 75 −10

−15 70 Year 05 07 09 11 13 15 17 Year 04 06 08 10 12 14 16 18

SOURCE: WWW.IBISWORLD.COM

The Guns and Ammunition Manufacturing aggressive growth during the five years to Current industry has experienced strong growth 2012, though, due to the United States’ Performance over the past five years. Despite the involvement in sustained military economic fallout generated by the global conflicts abroad. Other driving factors financial crisis, guns and ammunition have include an increased need for local, state proved to be items that many people and federal law enforcement because of believe they cannot live without. the threat of terrorism and heightened The industry experienced revenue consumer demand due to uncertainty growth during the recession from 2007 regarding federal gun law changes. As a through 2009, but revenue dipped 2.5% result of these factors, revenue is in 2010 to $10.5 billion as consumers’ expected to grow at an average annual recessionary fears about rising crime and rate of 5.7% to $11.7 billion in the five more restrictive gun control laws years to 2012, with an increase of 8.2% subsided. The industry experienced expected to occur from 2011 to 2012. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 6

Industry Performance

War and government Prior to the 9/11 terrorist attacks and the Revenue vs. exports expenditure ensuing US military deployment, most manufacturers of warfare products were in 30 a state of decline. The wars in Iraq and Afghanistan ushered in a substantial increases in military spending by the 20 government, resulting in additional purchases of the industry’s products. 10

Enduring conflicts within these regions and change % US troop surges have caused the amount of 0 industry revenue earned from the sale of guns and ammunition to increase. −10 Federal, government and local law Year 04 06 08 10 12 14 16 18 enforcement agencies’ budgets also Revenue Exports grew during the past five years due to SOURCE: WWW.IBISWORLD.COM the sustained risk of terrorism. The responsibilities of federal, state and declining consumer and business local departments have expanded to sentiment, though recessionary include terrorist attack prevention and pressures indirectly influence the response preparedness. Along with government’s capacity to spend. For increased responsibilities, these instance, the recession caused agencies also received greater funding, unemployment to rise substantially, some of which was parlayed into gun decreasing government tax and income and ammunition purchases. In 2009 tax revenue. This factor will eventually and 2010, law enforcement agencies reduce military and law enforcement also received additional funding from spending, though the government has the stimulus package. maintained its elevated level of funding Government spending habits are for these departments and services relatively distanced from the effects of during the past five years.

Private-sector While most Americans have cut back on As a result, they are purchasing firearms demand their purchases of cars, clothing and and ammunition at record rates. The other luxuries, purchases of firearms number of FBI National Instant and ammunition have managed to Criminal Background Checks (NICS) remain stable or even grow during the have risen every year since 2002 and hit past few years. an all-time high in 2011, indicating that Although gun and ammunition sales consumer interest in gun has rates are driven by a number of factors, not begun to wane. From 2008 to 2011, the recent spike is mainly attributable to the number of background checks has fears about the possibility of tougher risen at an average annual rate of 9.0% gun-control legislation from the Obama per year and over the first nine months administration. With another of 2012, the number of background presidential election looming in checks rose 12.5% compared to the same November, gun enthusiasts are working period in 2011. themselves into a frenzy over what Fears about increasing crime another four years under the Obama and civil disorder due to the administration may hold for gun laws. economic downturn have also WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 7

Industry Performance

Private-sector influenced civilian gun purchases. still grown, ostensibly providing demand While crime has not risen during people with a sense of continued the past five years, guns sales have during uncertain times.

International trade Domestic consumers have increasingly turned to imports to satisfy their rapidly Consumers are increasingly growing demand for guns and ammunition. With demand for industry looking to imports to products surging during the past five satisfy demand for guns years, domestic manufacturers have struggled to keep up. The United States is a net exporter of industry products, about 39.0% of total exports in 2012. though the gap between industry imports Canada is a large buyer of US exports in and exports has been closing. In 2012, the this industry due to the North American industry will export about $1.6 billion Free Trade Agreement (NAFTA) and its more than it imports. The industry gets a geographic proximity to the United States. large portion of its imports from , the United Kingdom and are Austria and , due to the popularity of the Unites States’ largest customers for the Glock and Beretta brands, respectively. ammunition and ordnance products. Germany and the United Kingdom are the Industry exports are expected to grow at a most popular sources of imports of rate of 6.1% per year on average to $4.4 ammunition and ordnance products. Over billion over the five years to 2012. the five years to 2012, imports are Overall, profitability has increased due expected to grow at an average rate of to rising demand for guns and 3.6% per year to $2.8 billion. ammunition; however, the increasing Over the period, exports are also level of import penetration into the US expected to grow at a faster pace than market has tempered this growth. The imports. Canada, the United Kingdom and rising presence of imports limits the purchase the majority of the extent that domestic producers can industry’s firearm exports, accounting for increase prices and profit margins.

Consolidation are rampant economies of scale and are attempting to within the industry. Within the five years gain a competitive advantage through to 2012, private-equity firm Cerberus acquisition and growth. went on an acquisition spree for In 2012, IBISWorld estimates that 69 manufacturers prior to gun and people on average are employed per ammunition Freedom industry establishment, earning $61,379 Group’s initial public offering. Gun each. From 2007 to 2012, the number of manufacturers Smith & Wesson, and establishments is expected to grow at an Sturm, Ruger & Company Inc. have also average annual rate of 1.6% to 510, with acquired a number of companies over the the number of employees increasing at an past few years to expand the breadth of average annual rate of 1.8% to 35,165. products they offer. The trend toward Over this period, wages are estimated to consolidation indicates that major increase at an average annual rate of players are realizing the benefits of 4.2% to $2.2 billion. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 8

Industry Performance

The Guns and Ammunition Industry Manufacturing industry’s trajectory over As the US withdraws from Outlook the next five years will largely depend on the Middle East, military the United States’ continued involvement in foreign conflicts and perceptions about spending will slow the future of firearms legislation. While revenue surged during the five years to continues to wind down combat 2012, it is forecast to move more in line operations in Iraq and Afghanistan. On with historical growth rates from 2012 to the other hand, the threat of terrorism will 2017. Revenue is expected to increase likely persist for years to come, resulting 4.3% increase in 2013 to $12.2 billion. in continued funding of federal, state and From 2012 to 2017, IBISWorld forecasts local law enforcement to expand terrorism that revenue will grow at an annualized prevention and response capabilities. rate of 3.5% per year to $13.9 billion. After record growth in civilian small Lower government spending arms and ammunition sales during the domestically and abroad have, and will past few years, demand is expected to continue to, dampen industry demand. moderate over the next five years. As the Federal, state and local law enforcement economy continues to recover, fears agencies are projected to cut back on about increased crime due to the spending as stimulus funding dries up and recession and concerns about changes to budgetary constraints return. Military gun laws will begin to subside, causing spending abroad is also forecast to decline this segment’s uncharacteristically fast over the next five years as the US growth rate to slow.

International trade, The Guns and Ammunition more moderate pace and the industry is establishments and Manufacturing industry faces challenges forced to compete with foreign imports. employment ahead, many of which are part of long- IBISWorld projects the number of term trends within the industry. establishments will grow, however, Domestic producers have dealt with because of sustained demand for guns rising import competition for years; some and ammunition. Market share is also have moved production offshore to expected to shift in favor of the industry’s emerging economies with cheaper labor larger participants, though mostly or acquired foreign weapons through acquisitions. These operators manufacturers. Import competition will have sizable manufacturing facilities with continue in the future, with imports lower production costs, enabling them to satisfying a growing portion of domestic capture an increasing portion of the demand. Over the five years to 2017, market at the expense of smaller players. imports are forecast to grow at a rate of Over the next five years, the number of 5.4% per year to $3.6 billion. Exports are establishments is projected to grow 1.0% forecast to grow at an average annual rate per year on average to 535, while of 2.3% in the same period to $5.0 employment is forecast to grow 0.1% per billion. Despite import and export year on average to 35,426 people. As a growth, imports are forecast to far result, the average number of employees outpace exports in the future. per establishment is forecast to decline Profitability is projected to decline from 69 in 2012 to 66 in 2017, while the slightly over the next five years as average wage will increase from $61,379 demand and revenue growth slows to a in 2012 to $71,267 in 2017. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 9

Industry Performance Life Cycle Stage Revenue is outpacing GDP growth Industry firms are undergoing consolidation Import growth is occurring is improving existing products rather than creating new markets

20 Maturity QualityGrowth Company High growth in economic KeyFeaturesofaGrowthIndustry consolidation; importance; weaker companies level of economic close down; developed Revenue grows faster than the economy importance stable technology and markets Many new companies enter the market Rapid technology & process change 15 Growing customer acceptance of product Rapid introduction of products & brands %Growthinshareofeconomy

10

QuantityGrowth Many new companies; minor growth in economic importance; substantial 5 technology change

Guns&AmmunitionManufacturing ExplosivesManufacturing 0 SecurityServices MetalPipe&TubeManufacturing SportingStores SpaceVehicle&Missile Manufacturing

–5 Decline Shrinking economic importance

–10 –10 –5 0 5 10 15 20 %Growthinnumberofestablishments

SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 10

Industry Performance

Industry Life Cycle After years of maturity, the industry has of small companies to expand their entered a new phase of growth. Due to a product lines. Large players within this number of factors, including a industry have observed the spike in  This industry resurgence of demand from the military demand and have been scrambling to is Growing and civilian sectors, industry revenue has expand their product lines to surged over the last five years and it is accommodate growing customer bases. expected to continue growing over the IBISWorld estimates the number of firms next five years. From 2007 to 2017, will grow at an average rate of 1.3% per industry value added (IVA), which year over the five years to 2012. With measures an industry’s contribution to demand for industry products rising so GDP, is expected to grow at an annual quickly, consumers have increasingly rate of 4.6% per year, compared with been relying on imports to satisfy GDP growth over the same period of domestic demand. Imports have grown 1.8%. Over the past five years and next from $2.3 billion in 2007 to $2.8 billion five years, revenue growth is expected to in 2012. far outpace GDP growth. While the industry is constantly Over the past five years, significant innovating existing products, its core players have engaged in a multitude of products and major markets have mergers and acquisitions, including essentially been established and its Freedom Group’s recent acquisition participants are mostly focused on spree and both Smith & Wesson’s and winning market share from competing Sturm, Ruger & Company’s acquisitions countries and companies. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 11 Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

Supply Chain KEY BUYING INDUSTRIES 45111 Sporting Goods Stores in the US This industry sells rifles, other firearms, and ammunition. 56161 Security Services in the US The industry purchases firearms and ammunition.

KEY SELLING INDUSTRIES 32592 Explosives Manufacturing in the US Smokeless powder is utilized in the manufacture of small arms ammunition. 33121 Metal Pipe & Tube Manufacturing in the US Iron and steel pipes and tubes are used in the manufacture of gun barrels. 33142 , & Extruding in the US Copper and copper-base shapes and forms (except castings, , and fabricated metal products) are used in the manufacturing of small arms ammunition. 33152 Nonferrous Metal Foundry Products Manufacturing in the US Small arms ammunition manufacturers use in their manufacturing processes aluminum and aluminum-base alloy castings (rough and semifinished).

Products & Services The Guns and Ammunition cylinders and clips, firearms, gun manufacturing industry can be broken magazines, machine guns, pistols, down into four distinct product segments: recoil mechanisms, revolvers, rifles, small arms, small arms ammunition, shotguns and submachine guns. Over ammunition (excluding small arms), and the five years to 2012, revenue from other ordinance and accessories. this segment is expected to grow at a rate of 4.9% per year. Small arms Small arms manufacturers produce Ammunition ammunition carts, gun barrels, The ammunition segment (including belts, gun clips, gun small arms and other) includes

Products and services segmentation (2012)

22% Other ordnance and accessories 27% Small arms

25% Other ammunition 26% Small arms ammunition

Total $11.7bn SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 12

Products & Markets

Products & Services ammunition, ammunition loading and weaponry and includes aircraft continued assembly plants, arming and fusing and antiaircraft , antitank rocket, devices, bomb loading and assembly , field artillery, gun turrets, plants, bomb cluster adaptors, bombs, howitzers, mortars, naval artillery, rocket canisters, bomb caps, depth charges, projectors, tampions, line throwing guns, ammunition detonators, grenades, artillery, tubes, mines, missile warheads and flamethrowers and gun turrets. This shells. Small arms ammunition revenue segment is expected to grow at a rate of is expected to grow at rate of 14.8% per 7.2% per year over the five years to 2012. year, while ammunition sales excluding Ammunition producers are generally small arms are expected to grow at a distinct from manufacturers of small rate of 12.6% per year over the five years arms, although the geographic to 2012. of producers is similar. In general, an increase in the sale of Ordnance firearms results in complementary Ordnance manufacturing involves more purchases of ammunition.

Demand With unemployment levels rising over companies manufacturing firearms and Determinants the course of 2009 and maintaining into ammunition for hunting purposes, 2012, both consumer confidence and seasonality also affects demand. Firearms disposable income levels have fallen. and ammunition sales experience a jump Declining incomes have generally in demand during the core fall hunting reduced consumers’ ability to purchase season (September to December). big-ticket luxury items. If consumers Crime rates and perceptions of safety doubt their ability to maintain their also influence gun and ammunition current income levels into the future due purchases. When crime rates go up, to economic uncertainty, they will reduce people tend to purchase more firearms their consumption. However, this has not and ammunition for protection. Even been observed within the Guns and without an actual rise in crime rates, Ammunition Manufacturing industry. gun purchases can increase when People have increased their gun and people anticipate an increase in crime. ammunition purchases despite rising In times of high unemployment, people unemployment and declining income. expected crime to increase (though The federal and state are there is no actual connection between the largest purchasers of small arms, the two), which results in an increase in ammunition and ordnance products. US industry sales. involvement in military engagements The level of industry imports also increases demand for these industry affects demand for domestically products. For example, the escalation of produced industry products. Imports military hostilities in Iraq and have been on the rise for the last decade, Afghanistan resulted in additional with the United States importing $456.0 defense spending and a jump in demand million more industry products in 2012 for the industry’s warfare products. For than it did in 2007. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 13

Products & Markets

Major Markets Major market segmentation (2012)

15% Law enforcement

25% The military 60% Civilians

Total $11.7bn SOURCE: WWW.IBISWORLD.COM

Civilian certain companies, such as Alliant The three major markets for industry Techsystems, that produce guns and purchases are civilians, military and law ammunition, ordnance and accessories enforcement. Civilians constitute the primarily for military customers. The largest market for guns and ammunition military market also purchases about purchases. Guns and ammunition 10.0% of the firearms designed for the purchases by civilians are made through consumer market by mainstream gun stores, sporting goods stores and companies, such as Smith & Wesson some large stores like Walmart. and Sturm, Ruger & Company. Over This market segment has experienced the past five years, revenue from the surprisingly strong growth over the last military market segment has increased, five years. Despite the fact that most though not at the blazing rate of the Americans have cut back on their civilian market. The wars in Iraq and purchases of luxury items, purchases of Afghanistan ushered in a substantial firearms and ammunition have surged. increase in the amount of military The spike in sales is attributable to fears spending by the government, resulting surrounding the possibility of the Obama in additional purchases of the administration enacting tougher gun industry’s related products. The control legislation. Another factor military market makes up 25.0% of influencing civilian gun purchases has industry revenue. been fears about increasing crime and civil disorder due to the economic Law enforcement downturn. Although there is no evidence Law enforcement is the third-largest of any such link, guns still provide people market for industry products. This with a sense of security during times of market purchases industry products uncertainty. The civilian market makes directly from manufacturers and up 60.0% of industry revenue. wholesalers, in addition to retail stores. Historically this segment has had steady Military revenue growth, though as of late law The second-largest market for industry enforcement agencies have received products is the military. There are additional funding in response to the WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 14

Products & Markets

Major Markets increased threat of terrorism and from purchases from this market segment. The continued the stimulus package. This has translated law enforcement market makes up 15.0% into more arms and ammunition of industry revenue.

International Trade Domestic consumers have increasingly turned to imports to satisfy their rapidly Industry trade balance growing demand for guns and 6000 Level & Trend ammunition. With demand for industry Exports in the products surging over the last five years, 4000 industry are High domestic manufacturers have struggled and Increasing to keep up with growing demand. Many 2000 customers have turned to imports to 0 Imports in the satisfy their needs. The United States is a million $ net exporter of industry products. In industry are −2000 Mediu m and 2007, the industry exported nearly $1.0 Increasin g billion more than it imported, though −4000 that number is expected to rise to over Year 04 06 08 10 12 14 16 18 $1.6 billion in 2012. The industry gets a Exports Imports Balance large portion of its firearm imports from SOURCE: WWW.IBISWORLD.COM Austria and Italy, due to the popularity of

Exports To... Imports From... 9% Australia

10% Israel 57% Other 7% 7% Brazil Italy 62% 12% 10% Other Japan Germany

15% United 12% Kingdom United Kingdom

Year: 2012 Total $4.4bn Total $2.8bn SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 15

Products & Markets

International Trade the Glock and Beretta brands. Germany by Canada, United Kingdom and continued and the United Kingdom are the most Australia, who together will purchase popular sources of imports of about 39.0% of total exports in 2012. ammunition and ordnance products. Canada is a large purchaser of US exports Over the five years to 2012, imports are in this industry due to its geographic expected to grow at a rate of 3.6% per proximity to the United States and year to $2.8 billion. The top import NAFTA. Israel, United Kingdom and origins for the industry as a whole Japan are the Unites States’ largest include United Kingdom, Germany, Italy customers for ammunition and ordnance and Brazil. products. Industry exports are expected Over the five years to 2012 exports are to grow at a rate of 6.1% per year to $4.4 also expected grow strongly due to rising over the five years to 2012. The top international demand for domestically export destinations for the industry as a produced products. The majority of the whole include United Kingdom, Japan, industry’s firearm exports are purchased Israel and Australia. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 16

Products & Markets

Business Locations 2012

West AK 0.0 New

ME Great Mid- 1.1 Lakes Atlantic 1 2 NY 3 WA ND 3.2 4 MT 0.0 5 1.3 3.7 MN 1.9 WI Rocky 5.1 MI PA 6 SDPlains 3.2 5.4 OR 2.2 7 2.2 Mountains ID IA OH 9 8 1.7 WY 1.1 3.9 1.1 IN VA NE IL 0.6 WV 0.9 2.6 1.5 1.7 KY West NV 1.9 1.7 NC UT MO 1.1 2.2 CO KS 2.6 1.5 0.9 TN 3.9 SC CA 0.6 6.3 OK AR Southeast 1.1 1.7 GA AL 1.7 AZ MS 1.5 5.3 NM 1.1 0.2 Southwest LA TX 0.4 FL 7.8 3.9

West HI 0.0 AdditionalStates(as marked on map) Industryestablishments(%) 1 VT 2 NH 3 MA 4 RI  Lessthan3% 0.9 1.3 1.7 0.0  3%tolessthan10%  10%tolessthan20% 5 CT 6 NJ 7 DE 8 MD 9 DC 2.8 1.1 0.0 0.4 0.0  20%ormore

SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 17

Products & Markets

The location of manufacturing Business Locations Establishments vs. population establishments is generally influenced by their proximity to major markets, as well 30 as material and supply industries. Manufacturing establishments also tend

to be highly correlated with population 20 density. IBISWorld estimates that in

2012 the industry will be concentrated in % the Southeast, Great Lakes and West 10 regions of the United States, due to their proximity to major supply industries as well as population centers. These regions 0 combined will account for 51.0% of West industry establishments. Plains Southeast IBISWorld forecasts that in 2012, the Southwest Great Lakes Great Mid-Atlantic Southeast region will account for an England New

estimated 21.0% of industry Mountains Rocky establishments. This is the most Industry establishments populous region in the United States. The Population high percentage of establishments in this SOURCE: WWW.IBISWORLD.COM region indicates manufacturers’ desire to be near their customer base and lower This is mostly due to Texas, which transportation costs. housed 7.8% of industry establishments The Great Lakes region will account (most in the United States). This region for an estimated 15.4% of industry also has easy access to the Gulf of Mexico establishments in 2012. The Great Lakes for shipping exports. region is a manufacturing hub in the Among ammunition manufacturers, United States, with many large , Pennsylvania, South Dakota manufacturing industries located there. and Missouri have a high concentration This region also has a large presence of of establishments. Wisconsin, Texas, steel and other metal refineries. During Pennsylvania, Montana, Connecticut and the last two decades of the 20th century, have the most gun Ohio became the second leading steel manufacturing establishments, while producer. Industry products require California, Ohio, Texas and Wisconsin various metal inputs. have a high proportion of establishments The Southwest region will account for servicing the ordnance and other 14.4% of industry establishments in 2012. accessories segment. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 18 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Market Share The Guns and Ammunition by claiming larger portions of market Concentration Manufacturing industry consists of a share. From the beginning of 2007 to the large number of small to medium firms. end of 2012, revenue per manufacturing The wide variety of products produced in plant has increased from $18.8 million to Level this industry and the diverse buying $22.9 million. Over the same period, Concentration in markets make it difficult for individual companies and their manufacturing this industry is Low firms to grab a large portion of industry plants have both increased. market share. At the product level, the global small Over time, the industry’s arms industry is becoming concentration has been increasing. simultaneously more concentrated and Within the last five years, major players more dispersed. Consolidation is such as the Freedom Group have accelerating, reflecting broader trends in undergone acquisition sprees. Smith & the larger defense industry. At the same Wesson and Sturm, Ruger & Company time, the global small arms market have also acquired small gun appears to be fragmenting as more manufacturers to expand their product companies develop the capacity to lines. The recent increase in acquisitions produce small arms. The result is more indicates that companies are making a suppliers, and more products, chasing a concerted effort to increase profitability growing base of consumers.

Key Success Factors Having a loyal customer base Having a good technical There is a distinct competitive advantage knowledge of the product in cultivating and maintaining strong Having a good technical knowledge of the IBISWorld identifies long-term customer relationship. product is a key success factor within this 250 Key Success industry group because firms must Factors for a Access to high quality inputs provide strong , and business. The most Companies within this industry group technical support to clients. important for this must be able to source a variety of raw materials, both from within the United Establishment of brand names industry are: States and overseas. Strong brand recognition is considered to be a major basis of competition. Effective quality control In providing high-quality products and Control of distribution arrangements services, firms must maintain detailed The cultivation, maintenance and control and extensive quality assurance of downstream distribution channels are programs. a distinct advantage.

Cost Structure The Guns and Ammunition Profit Benchmarks Manufacturing industry has been making Industry profit is based on earnings the gradual shift toward higher levels of before interest and taxes recorded by capital investment in manufacturing industry operators. Profit will vary automation with the goal of creating between players depending on the size of more efficient and profitable enterprises. the manufacturing facility that they WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 19

Competitive Landscape

Cost Structure operate, with larger operators generally such as steel, copper tubing, aluminum Benchmarks benefiting from economies of scale. and iron castings. Fluctuations in the continued IBISWorld estimates that in 2012, the prices of these materials not only affect industry will obtain profit equivalent to firms’ profitability, but also their revenue. 8.6% of an average firm’s revenue. In many cases, companies are able to Overall, industry profitability has pass a significant portion of raw increased due to rising demand for material price increases through to industry products. However, growth has customers in the form of product price been moderated by the increasing level of increases or surcharges. This causes import penetration into the US market. increases of prices to Imports have grown over the last five translate into higher firm revenue. Most years. The rising presence of imports firms enter into fixed-price contracts, so limits the extent to which domestic short-term fluctuations in raw material producers can increase prices and profit prices have little impact on profitability. margins. However, the persistent higher raw material prices experienced during the Purchases last five years have placed increasing One of the largest expenses of the average upward pressure on the cost structure firms cost structure is purchases. These of industry participants. mainly consist of the cost of raw The increasing price of raw materials materials that are used during the has contributed to growth in purchases manufacturing process. Commonly used costs for firms in this industry. The main manufacturing inputs include metals reason for the increase in raw material

Sectorvs.IndustryCosts

AverageCostsof allIndustriesin IndustryCosts sector(2012) (2012) 100 ■ 8.5 Profit 8.7 ■Wages 10.6 ■Purchases 80 18.5 ■Depreciation ■ ■Rent&Utilities ■Other 60 60.9 52.5 40 Percentage of revenue of Percentage

20 2.9 2.0 4.0 1.5 3.2 6.5 11.7 8.5 0 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 20

Competitive Landscape

Cost Structure costs over the past five years has been 2012, labor costs are forecast to total Benchmarks ’s increasing demand for raw about $2.2 billion. IBISWorld estimates continued materials. Raw materials were on the rise that in 2012, wage costs incurred by the before the recession, fell when its impact industry will account for 18.5% of an was the greatest, and have been slowly average firm’s revenue. creeping their way back up since then. Across product segments, Depreciation manufacturing costs associated with raw The cost of depreciation will invariably material expenditure fluctuate due to the fluctuate between operators depending differences in the size and density of the on their size and the amount of capital product being manufactured. The expenses involved. The cost of new complexity, quality and quantity of raw plant and equipment used to materials used are also factors manufacture industry products is influencing cost. Shortages and changes significant and periodic product in the price of raw materials are common innovation necessitates regular (availability and cost are influenced by, investment in new capital. In 2012, among other factors, political stability in depreciation is estimated to account for exporting nations). In 2012, purchases 4.0% of an average firm’s revenue. are estimated to account for 52.5% of an average firm’s revenue. Other Other expenditure includes Wages communications, legal, accounting; while The industry has a high level of capital advertising and marketing expenses intensity compared to other industries. make up 1.5% of revenue. In 2012, other Despite this, labor costs are high relative expenses are expected to equal about to other manufacturing industries. Over 8.5% of industry revenue.

Basis of Competition There is an assortment of competitive occurs while maintaining a standard level factors that encourage competition of product quality. within Guns and Ammunition There are also other competitive Level & Trend Manufacturing industry. Factors like differentiation strategies used within the Competition in medium barriers to entry increase the industry. These include quality, this industry is threat of competition from firms outside brand recognition, effective and timely Hig h and the trend the industry, while low levels of product distribution and technical support. The is Increasing differentiation encourage direct introduction of new and improved competition among industry players on product and the acquisition of the basis of price. product lines at different price points is While players in this industry compete a key to maintaining and increasing primarily based on product pricing, other product and market share. In factors such as product innovation and technologically advanced segments, branding are also important for some (R&D) is product segments. Price competition is important in developing new products particularly evident in product segments and ensuring products are up-to-date where the pace of product development and evolving. Product image, has virtually ground to a halt. This is the performance, quality and innovation are case for the majority of industry the primary competitive factors in the products. However, price competition firearms industry, with price and WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 21

Competitive Landscape

Basis of Competition customer service also being important. in the industry have a high R&D continued Price, service, quality and product component. As a result, technical innovation are the primary competitive excellence rather than price can be more factors in the ammunition industry. important to remaining competitive in Products manufactured and developed this industry.

Barriers to Entry While there are few explicit barriers to entry, there are some factors that may BarrierstoEntrychecklist Level Level & Trend deter entry. A significant financial Competition High investment is required to acquire,  Concentration Low Barriers to Entry maintain and update plant and in this industry are Life Cycle Stage Growth equipment. This cost may deter some Capital Intensity Medium Mediu m and Steady firms from entering the industry. Technology Change Medium Machinery operators also need to be Regulation & Policy Medium trained, but these costs are relatively Industry Assistance Medium insignificant. The rising level of unemployment in the United States has SOURCE: WWW.IBISWORLD.COM lowered some of the difficulty in obtaining a workforce with the required skills. entering the industry as a result of the R&D is necessary for product customer loyalty that the more innovation. In order to effectively prominent industry participants have, compete, an entrant should be committed including Remington, Smith & Wesson to spending a significant amount on and Ruger. R&D. Additionally, many incumbent Guns and ammunition manufacturers firms in this industry have developed must overcome the need for specialized strong relationships with upstream labor and machinery, and high research suppliers and downstream markets, and development costs. New entrants making it difficult for other firms to break must have higher research and in. This may be a deterrent to some firms development budgets. In addition, the entering the industry. hazardous nature of the products (small For certain product segments, arms, ordnance, ammunition) increases establishing a brand for their product a firm’s costs as they need to adhere to represents a barrier to entry. This may additional regulation. To the extent that require funds to be spent on advertising these regulatory costs increase industry in order to establish a market presence. participation costs, they pose a barrier Firms are likely to experience difficulty to entry. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 22

Competitive Landscape

Industry Globalization is on the rise within the Kingdom are the most popular sources of Globalization Guns and Ammunition Manufacturing imports of ammunition and ordnance industry. Although the level of foreign products. Over the five years to 2012, ownership in domestic firms is low, some imports are expected to grow at a rate of Level & Trend US-based firms have begun investing in 3.6% per year. The top import origins for Globalization in and purchasing foreign weapons and the industry as a whole include United this industry is ammunition manufacturers. Domestic Kingdom, Germany, Italy and Brazil. Hig h and the trend consumers have also increasingly turned Over the five years to 2012 exports are is Increasing to imports to satisfy their rapidly growing also expected grow at faster rate than demand for guns and ammunition. In the imports due to rising international beginning of 2007, imports accounted for demand for domestically manufactured about 29.8% of domestic demand. By the products. The majority of the industry’s end of 2012, imports will account for firearm exports are purchased by Canada, 27.9% for domestic demand. With United Kingdom and Australia, who demand for industry products surging together will purchase about 39% of total over the last five years, domestic exports in 2012. Canada is a large manufacturers have struggled to keep up purchaser of US exports in this industry with growing demand. The United States due to NAFTA and its geographic is a net exporter of industry products. In proximity to the United States. Israel, 2007, the industry exported nearly $1.0 United Kingdom and Japan are the billion more than it imported, though Unites States’ largest customers for that number is expected to rise to $1.6 ammunition and ordnance products. billion in 2012. Industry exports are expected to grow at The industry gets a large portion of its a rate of 6.1% per year over the five years firearm imports from Austria and Italy, to 2012. The top export destinations for due to the popularity of the Glock and the industry as a whole include United Beretta brands. Germany and the United Kingdom, Japan, Israel, and Australia.

International trade is a TradeGlobalization GoingGlobal:Guns&Ammunition major determinant of Manufacturing2000-2012 an industry’s level of 200 Export Global 200 Export Global globalization. Exports offer growth opportunities for fi rms. 150 150 However there are legal, economic and political risks 100 Guns& 100 associated with dealing in Ammunition foreign countries. Manufacturing 2000 Exports/Revenue Import competition can Exports/Revenue 50 50 bring a greater risk for 2012 companies as foreign 0 Local Import 0 Local Import producers satisfy domestic 0 40 80 120 160 0 40 80 120 160 demand that local fi rms Imports/DomesticDemand Imports/DomesticDemand would otherwise supply. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 23 Major Companies Alliant Techsystems Inc. | Freedom Group Inc. | Other Companies

Major players (Market share) Freedom Group Inc. 6.4% 80.9% Other

Alliant Techsystems Inc. 12.7% SOURCE: WWW.IBISWORLD.COM

Player Performance Alliant Techsystems Inc. (ATK) is a supply the army’s small-caliber Minneapolis-based aerospace and ammunition needs. ATK has also reached Alliant Techsystems defense company with about 14,500 agreement with the US army on a four- employees and operations in 22 states. year supply contract as the primary Inc.  ATK is a former subsidiary of Honeywell supplier of small-caliber ammunition to Market share: 12.7% Inc. ATK conducts its business in three the Department of Defense. operating segments: ATK Armament In addition, ATK develops and Systems, ATK Mission Systems and ATK manufactures a family of medium-caliber Space Systems. The business segment chain-gun systems that provides that pertains to the Guns and armament solutions for US and allied Ammunition manufacturing industry is combat , helicopters and naval ATK Armament Systems. vessels. These products are used on the ATK Armament Systems develops and , Light Armored produces military ammunition and gun Vehicle, Expeditionary Fighting Vehicle systems, commercial products, tactical and Apache helicopter. ATK supplies accessories and propellants and more than 15,000 medium-caliber gun energetics. It also operates the US army systems to the US military and 20 allied ammunition plants in Independence, MO nations, including Poland, Finland, and Radford, VA. Denmark, the , Switzerland, ATK manufactures a variety of small- Norway and the . caliber training and tactical ammunition Besides ammunition and gun systems, rounds. ATK has a production contract to ATK Armament Systems manufactures

AlliantTechsystemsInc.(USarmamentsystemssegment)– financialperformance Revenue NetIncome Year* ($ million) (% change) ($ million) (% change) 2007-08 1,270.0 15.7 120.1 24.1 2008-09 1,279.9 0.8 147.6 22.9 2009-10 1,515.4 18.4 144.6 -2.0 2010-11 1,553.4 2.5 182.1 25.9 2011-12 1,359.3 -12.5 212.6 16.7 2012-13** 1,483.7 9.2 261.7 23.1

*YearendMarch;**Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 24

Major Companies

Player Performance solid extruded propellant for more than to grow 9.2% in fiscal 2013. Fiscal 2012 continued 25 types of military ammunition and revenue fell 12.5% based on declines in rocket systems. Major production small-caliber systems sales, primarily programs include propellant for medium- due to lower international and caliber and tank ammunition, artillery modernization sales volume, as well as systems, and air and ground declines in integrated systems launched rockets. which were driven by lower volumes About 65.0% of ATK’s sales are to US across multiple medium-caliber gun and government customers, with the ammunition programs. remaining 35.0% of sales coming from In contrast, internationally, segment commercial and other foreign customers. revenue grew in fiscal 2009 and 2010 due ATK’s total sales equaled $4.6 billion in to rises in small-caliber systems sales as fiscal 2012, with ATK Armament demand rose for small-caliber System’s portion equaling $1.6 billion. ammunition; non-standard ammunition and weapon sales; and facility Financial performance modernization project sales. Revenue Over the five years to fiscal 2013, ATK grew 2.5% to $1.8 billion in fiscal 2011, Armament Systems US sales are with segment income growing 25.9%. expected to grow at a rate of 3.2% per Segment revenue also increased 18.4% in year to $1.5 billion, with revenue forecast fiscal 2010.

AlliantTechsystemsInc.(armamentsystemssegment)– financialperformance Revenue EBIT Year* ($ million) (% change) ($ million) (% change) 2007-08 1,476.7 15.7 139.6 24.0 2008-09 1,488.3 0.8 171.6 22.9 2009-10 1,762.1 18.4 168.1 -2.0 2010-11 1,806.3 2.5 211.7 25.9 2011-12 1,580.6 -12.5 247.2 16.8 2012-13** 1,725.2 9.1 304.3 23.1

*YearendMarch;**Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 25

Major Companies

Player Performance FreedomGroupInc.(USsegment)–financialperformance Freedom Group Inc.  Revenue NetIncome Market share: 6.4% Year ($ million) (% change) ($ million) (% change) Industry Brand Names 2007 338.7 562.8 -7.8 N/C Remington 2008 625.2 84.6 -25.4 225.6 Bushmaster 2009 760.0 21.6 48.4 N/C Dakota Arms 2010 667.7 -12.1 -6.8 N/C Parker Gunmakers 2011 708.3 6.1 -6.1 -10.3 Marlin Firearms 2012* 745.3 5.2 N/A N/C

*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

Freedom Group is a Remington, NC- of both firearms and ammunition. It has based manufacturer of guns, ammunition nine manufacturing facilities with more and other firearm-related accessories. It than 3,000 employees and delivers is one of the leading firearms, products throughout the United States ammunition and related products and to more than 80 countries. The companies in the world, with top Freedom group claims to be the largest commercial market positions across all of manufacturer of commercial firearms, the major product categories in the with number one market share in United States, the largest firearms and domestic shotgun sales, commercial ammunition market globally. It is AR-style rifle sales. They also boast more America’s oldest and largest caliber offerings than any other manufacturer of firearms and manufacturer, top market share in lever ammunition with a history dating back to sales, rimfire rifles and bolt action 1816. It serves the hunting, shooting rifles. Freedom group sells more than sports, law enforcement and military end two billion rounds of ammunition markets under some of the most globally products annually. recognized brands, including Remington, In 2009, Freedom Group added Marlin, Bushmaster and DPMS. Freedom Dakota Arms, S&K, Marnes and group is the only major US manufacturer Advanced Armament to its already

FreedomGroupInc.–financialperformance Revenue NetIncome Year ($ million) (% change) ($ million) (% change) 2007 384.9 562.5 -8.9 N/C 2008 722.5 87.7 -29.4 230.3 2009 848.7 17.5 54.0 N/C 2010 744.3 -12.3 -7.6 N/C 2011 775.0 4.1 -6.7 -11.8 2012* 812.5 4.8 N/A N/C

*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 26

Major Companies

Player Performance diverse portfolio of companies. In expected to grow an average of 17.1% per continued October 2009, Cerberus Capital year to $745.3 million. took Freedom Group Revenue is forecast to grow in 2012 at public with a $200.0 million initial a muted rate of 4.8% to $812.5 million. public offering. Revenue rose in 2011 (4.1% to $775.0 million) mostly due to increased shotgun Financial performance and sales, offset by decreased Over the five years to 2012, Freedom ammunition sales. Purchases from the Group revenue is expected to grow an consumer segment are expected to average of 16.1% per year to $812.5 experience the most significant declines million, largely due to acquisitions. Over as fears about potential changes in gun that same period, US-specific revenue is laws abate.

Other Companies Smith & Wesson States, and is the largest US exporter of Estimated market share: 4.6% . It manufactures these Springfield, MA-based Smith & Wesson products at its Springfield headquarters is one of the world’s leading and at facilities in Houlton, ME and manufacturers of firearms. Horace Smith Rochester, NH. In 2007, it acquired the and Daniel B. Wesson founded the Thompson/Center Arms Company. company in 1852. The company Over the five years to fiscal 2013, manufactures an array of pistols, Smith & Wesson revenue is expected to revolvers, tactical rifles, hunting rifles, increase 12.6% per year, with revenue black powder firearms, handcuffs and forecast to grow 30.2% to $417.4 firearm-related products and accessories million in fiscal 2013. In fiscal 2012, for sale to a variety of customers, revenue grew 20.4% on the back of high including gun enthusiasts, collectors, sales of polymer handguns and modern hunters, sportsmen, competitive sporting rifles. However, in fiscal 2011, shooters, protection-focused individuals, revenue fell 4.4% to $342.2 million, law enforcement and security agencies, with the company posting a net loss of officers and military agencies in the $82.8 million. This was due to lower United States and throughout the world. order levels from their firearm business It is the largest manufacturer of as ordering returned to more normal handguns and handcuffs in the United levels after a strong rise in consumer

Smith&Wesson–financialperformance Revenue Netincome Year* ($ million) (% change) ($ million) (% change) 2007-08 295.9 25.1 9.1 -30.0 2008-09 335.0 13.2 -64.2 N/C 2009-10 357.9 6.8 32.5 N/C 2010-11 342.2 -4.4 -82.8 N/C 2011-12 412.0 20.4 16.1 N/C 2012-13** 536.6 30.2 N/A N/C

*YearendApril;**Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 27

Major Companies

Other Companies demand that occurred after the the United States and most product continued November 2008 presidential election. content is domestic. The company has That said, fiscal 2010 was a strong year 1,164 full-time employees. for the company and revenue increased Over the five years to 2012, revenue 21.3%. Growth in revenue was driven by is expected to grow at an average rate of increased firearm sales of tactical rifles 23.9% per year, with revenue forecast to and new Walther products. grow 39.0% to $457.1 million in 2012. In 2011, revenue increased 28.8% due Sturm, Ruger & Company Inc. to strong demand for the new products Estimated market share: 3.9% the company launched in 2011, Sturm, Ruger & Company Inc. is a including the new LC9 pistol, the Southport, CT-based designer and SR1911 pistol, the SR40c pistol, the manufacturer of firearms. The company Gunsite Scout rifle, the Single-Ten has been in the business since 1949 and revolver, and the SP-101 double-action offers products in four industry product revolver chambered in 22LR. categories including rifles, shotguns, In 2010, revenue declined 5.8% to pistols and revolvers. Sturm, Ruger & $255.2 million as demand waned Company’s firearms are sold through a compared to the strong growth it select number of independent wholesale experienced in the prior year. Firearms distributors, principally to the sales decreased 5.9% with unit shipments commercial sporting market. About also falling 2.5% in 2010. A shift in 99.0% of the company’s total sales were product mix toward firearms with lower from the firearms segment, and about unit sales prices resulted in the relatively 1.0% came from investment castings. lower percentage decrease in unit Sturm, Ruger & Company’s design and shipments compared to the percentage manufacturing operations are located in decrease in sales.

Sturm,Ruger&CompanyInc.–financialperformance Revenue NetIncome Year ($ million) (% change) ($ million) (% change) 2007 156.5 -6.6 10.3 836.4 2008 181.5 16.0 8.7 -15.5 2009 271.0 49.3 27.5 216.1 2010 255.2 -5.8 28.3 2.9 2011 328.8 28.8 40.0 41.3 2012* 457.1 39 N/A N/C

*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 28 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance

Capital Intensity The Guns and Ammunition Manufacturing industry requires a Capital intensity substantial amount of capital Capital units per labor unit Level investment. The cost of new plant and 0.5 The level of capital equipment is significant and product intensity is Medium innovation necessitates periodic 0.4 investment in new technology. On the 0.3 other hand, a substantial amount of skilled labor is also needed to 0.2 manufacture industry products. In 2012, 0.1 IBISWorld estimates that the industry 0.0 will spend nearly five times as much on Economy Manufacturing Guns & labor than it will on capital investment. Ammunition Manufacturing The purchase and assembly Dotted line shows a high level of capital intensity requirements of ammunition and SOURCE: WWW.IBISWORLD.COM firearms manufacturers demand a higher-than-average level of labor input. years, although wages and The industry has trended toward employment have increased between mechanization over the last five 2007 and 2012. Manufacturers can

ToolsoftheTrade:GrowthStrategiesforSuccess

NewAgeEconomy InvestmentEconomy Recreation,PersonalServices, Information,Communications, Healthand. Firms ,FinanceandReal benefi t from personal wealth so Estate.To increase revenue stable macroeconomic conditions fi rms need superior debt are imperative. Brand awareness management, a stable and niche labor skills are key to macroeconomic environment product differentiation. and a sound investment plan. CapitalIntensive

SpaceVehicle &Missile Guns&AmmunitionManufacturing

LaborIntensive Manufacturing Security ExplosivesManufacturing TraditionalServiceEconomy OldEconomy Services Sporting MetalPipe&TubeManufacturing Wholesaleand Retail. Reliant Goods andManufacturing. on labor rather than capital to Stores Traded goods can be produced sell goods. Functions cannot using cheap labor abroad. be outsourced therefore fi rms To expand fi rms must merge must use new technology or acquire others to exploit or improve training to economies of scale, or specialize increase revenue growth. in niche, high-value products.

ChangeinShareoftheEconomy SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 29

Operating Conditions

Capital Intensity lower production costs by making investments in equipment, though continued one-time or periodic (depending on demand for a higher has the rate of technology change) increased employment and wages.

Technology Product development is essential to auto-loading weapons with advanced & Systems maintaining market share and market- operating systems enhance product leader status. This requires R&D. Applied viability. Additionally, providing Level research is directed at particular specialized, high-performance objectives (e.g. searching for new or ammunition that offers hunters’ better The level of alternative materials for a product) and on-game performance at all ranges also Technology Change the ability to expand businesses across enhances product and brand viability. is Medium product lines or geographic markets. In general, the introduction of computer Manufacturing technology has lowered the industry’s Although the types and extent of labor intensity but raised the minimum technology within this industry varies skills required. across product segments, there are some common technological issues. For Product technology instance, there are intensive The functional design of small arms has manufacturing operations that use remained relatively stable with computer numerically controlled incremental improvements in metallurgy, machinery to manufacture products. ammunition and manufacturing Companies in the industry make use of technologies. Recent product automated handling and assembly development initiatives have focused on technology (including robotics) to improving the products capability and perform repetitive tasks, thus promoting safety. Recent technological manufacturing efficiencies. While being developments have included relatively expensive to set up and install, enhancements to the overall lethality of once the machinery is working, an military small arms through increased increase in the total output of parts accuracy, penetration and . produced reduces the unit cost as fixed Firms in this industry focus on product costs are spread across the company. development and introducing new Much of the technology in use is in the products that satisfy the need for public domain, but there are some specialized, high-performance firearms. proprietary processes used in the For example, providing new products manufacturing of goods produced by this such as lightweight and soft recoiling industry that are patented. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 30

Operating Conditions

Revenue Volatility This industry has a moderate level of level of volatility in most years since volatility as represented by the 6.1% 2000. Firms are also subject to the average annual fluctuation in industry volatility associated with changes in Level revenue in the last five years. Volatility the price of purchased inputs, such as The level of has increased in response to surging zinc, steel and other input materials. Volatility is Medium demand for industry products, though These associated costs are passed on this industry has exhibited a moderate to consumers.

A higher level of revenue VolatilityvsGrowth volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term strategic decisions, such as 100 the time frame for capital investment. 10 When a fi rm makes poor Guns&Ammunition investment decisions it Manufacturing may face underutilized 1

capacity if demand Revenuevolatility*(%) suddenly falls, or capacity 0.1 Stagnant BlueChip constraints if it rises –30 –10 10 30 50 70 quickly. Fiveyearannualizedrevenuegrowth(%)

* Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM

Regulation & Policy Firms are subject to various federal, state regulations are one of the reasons that and local laws and regulations relating to companies are now looking to Level & Trend the protection of the environment. These manufacture in countries with fewer laws and regulations impose limitations environmental regulations. The level of on the discharge of materials into the The industry’s products have their own Regulation is environment and require firms to obtain set of regulations. These are design Mediu m and the and operate in compliance with standards, which specify dimensions, trend is Steady government regulations. As a result of tolerances or other physical government regulation in this industry, characteristics of products; and most companies have developed performance standards, which provide a extensive environmental, health and voluntary method of rating products. safety policies and procedures that Government control and regulation include the proper handling, storage and regarding the manufacture and trade of disposal of hazardous materials. firearms and ammunition is much more Although manufacturers design their stringent. Numerous reports, including equipment and manufacturing process to the “Annual Firearms Manufacturing and comply with these standards, the Exportation Report,” must be completed regulations have nonetheless increased by manufacturers within this industry. the price of the equipment as well as the In addition, there are an assortment of cost of production. The higher costs laws and regulations governing arms associated with these environmental exports that industry participants must WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 31

Operating Conditions

Regulation & Policy abide by. Such laws and regulations handguns and long guns, replaced the continued include the of five-day waiting period. On September 1976 (as amended), which establishes 13, 1994, the Crime Bill banned so-called procedures for sales and transfers of “assault weapons.” This ban expired by military equipment and related services, operation of law on September 13, 2004. and the Foreign Assistance Act of 1961, Various states and cities have adopted or which provides for economic and military proposed their own version of the ban. assistance to foreign governments. Other Bills have been introduced in laws and regulations include the Congress to establish, and to consider Legislation of Foreign Relations Through the feasibility of establishing, a 2005 (which includes Arms Export nationwide database recording so-called Control Act, Foreign Assistance Act, Gun “ballistic images” of ammunition fired Control Act, National Firearms Act and from new guns. Should such a several other pieces of legislation); the mandatory database be established, the International Traffic in Arms Regulations cost to firms in these industries and (ITAR), which establishes the rules of their customers could be significant, operation used to control the import and depending on the type of firearms and export of defense articles and services; ballistic information included in the and the Export Administration database. To date, only two states have Regulations, which are rules for the established such registries. export of dual use (both civil and Some states are considering military) goods and technology. mandating certain design features on safety grounds, most of which would be Specific regulations applicable only to handguns. IBISWorld The manufacture, sale and purchase of expects that hunter safety issues may firearms are subject to extensive federal, affect sales of firearms, ammunition and state and local governmental regulation. other shooting-related products. In the The basic federal laws are the National northeastern United States, for Firearms Act, the Federal Firearms Act, example, some communities permit and the . These deer hunters to use only shotguns laws generally prohibit the private (which have a shorter average range ownership of fully automatic weapons than rifles) to minimize the possibility and place certain restrictions on the of shooting accidents in more densely interstate sale of firearms unless certain populated areas. licenses are obtained. From time to time, Bills have been introduced in Congress congressional committees review in the past several years that may proposed bills relating to the regulation potentially affect the manufacture and of firearms. These proposed bills sale of handgun ammunition, including generally seek either to restrict or ban the bills to regulate the manufacture, import sale and, in some cases, the ownership of and sale of any projectile that is capable various types of firearms. Several states of penetrating body armor, to impose a currently have laws in effect similar to tax and import controls on bullets the aforementioned legislation. designed to penetrate bullet-proof vests. Until November 30, 1998, the Brady There have also been bills introduced Law mandated a nationwide five-day that seek to prohibit the manufacture, waiting period and background check transfer or importation of .25-caliber, prior to the purchase of a handgun. As of .32-caliber and 9-millimeter handgun November 30, 1998, the National Instant ammunition, to increase the tax on Check System, which applies to both handgun ammunition, to impose a WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 32

Operating Conditions

Regulation & Policy special occupational tax and registration increase the tax on certain handgun continued requirements on manufacturers of ammunition, such as 9-millimeter, handgun ammunition, and to drastically .25-caliber and .32-caliber bullets.

Industry Assistance Tariffs As of October 1, 2005, any pistol, There are numerous tariffs levied on revolver or firearm that was products made within the industry. The manufactured, produced or imported Level & Trend majority of industry products imported by a person who manufactures, The level of Industry into the United States incur a normal produces or imports less than an Assistance is trade relations (NTR) duty of between aggregate of 50 such articles during Mediu m and the 0% and 4.3%. A non-NTR duty rate of the calendar year is exempt from trend is Steady between 27.5% and 45% applies to all Federal Firearms and Ammunition imports of products from a small number Excise Tax. of countries that do not enjoy NTR duty status, such as Cuba, North Korea, Iran, Industry associations Iraq and Libya. In some cases, free trade Industry associations that represent importation agreements are in place. firms in this industry include the To export their products, US-based National Association of Manufacturers firms must register with the Bureau of (NAM), the Sporting Arms & Industry and Security (BIS) which is Ammunition Manufacturers Association responsible for implementing and (SAAMA), the National Rifle Association enforcing the Export Administration (NRA) and the National Association of Regulations (EAR), which regulate the Firearms Retailers (NAFR). These export and re-export of most commercial associations represent the interests of items into and out of the United States. firms in this industry by facilitating These regulations do not control all technology councils and conferences and goods, services and technologies as other providing networking opportunities, US government agencies regulate more industry information, resources, specialized exports, such as the regulatory information, education and Department of Defense. standards advice. WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 33 Key Statistics

Industry Data Industry Revenue Value Added Establish- Exports Imports Wages Domestic ($m) ($m) ments Enterprises Employment ($m) ($m) ($m) Demand Crime Rate 2003 7,300.3 4,965.0 413 392 27,222 2,110.3 1,300.5 1,454.1 6,490.5 4,074 2004 7,808.3 5,407.1 420 396 27,612 2,624.3 1,571.5 1,486.0 6,755.5 3,986 2005 7,225.0 4,807.9 430 402 29,624 2,501.0 1,633.5 1,601.7 6,357.5 3,911 2006 8,396.1 5,225.2 451 422 31,092 3,174.9 2,009.4 1,731.3 7,230.6 3,818 2007 8,834.1 5,653.8 470 435 32,109 3,306.1 2,347.2 1,755.7 7,875.2 3,731 2008 9,822.6 6,384.7 480 443 33,412 3,190.0 2,454.6 1,918.8 9,087.2 3,669 2009 10,737.8 7,086.9 485 445 34,156 3,450.6 2,914.3 2,094.8 10,201.5 3,466 2010 10,465.0 6,655.8 490 450 34,569 3,959.5 2,783.1 2,022.3 9,288.6 3,346 2011 10,798.9 6,831.7 501 458 34,892 4,449.8 2,480.7 2,106.7 8,829.8 3,335 2012 11,679.7 7,408.4 510 465 35,165 4,438.5 2,803.2 2,158.4 10,044.4 3,309 2013 12,184.8 7,783.2 516 468 35,268 4,514.9 3,016.1 2,212.9 10,686.0 3,266 2014 12,612.0 8,170.9 520 470 35,512 4,716.6 3,192.0 2,339.1 11,087.4 3,207 2015 12,820.7 8,162.9 525 473 35,389 4,819.7 3,348.5 2,325.8 11,349.5 3,162 2016 13,240.6 8,461.6 530 475 35,056 4,888.3 3,522.7 2,443.9 11,875.0 3,127 2017 13,863.4 8,825.4 535 478 35,426 4,978.8 3,641.5 2,524.7 12,526.1 3,099 Sector Rank 112/195 60/195 119/195 108/195 97/195 58/183 102/183 81/195 131/183 N/A Economy Rank 461/706 306/706 603/705 574/705 487/706 70/226 112/226 421/706 153/226 N/A

Annual Change Industry Establish- Domestic Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand Crime rate (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2004 7.0 8.9 1.7 1.0 1.4 24.4 20.8 2.2 4.1 -2.2 2005 -7.5 -11.1 2.4 1.5 7.3 -4.7 3.9 7.8 -5.9 -1.9 2006 16.2 8.7 4.9 5.0 5.0 26.9 23.0 8.1 13.7 -2.4 2007 5.2 8.2 4.2 3.1 3.3 4.1 16.8 1.4 8.9 -2.3 2008 11.2 12.9 2.1 1.8 4.1 -3.5 4.6 9.3 15.4 -1.7 2009 9.3 11.0 1.0 0.5 2.2 8.2 18.7 9.2 12.3 -5.5 2010 -2.5 -6.1 1.0 1.1 1.2 14.7 -4.5 -3.5 -8.9 -3.5 2011 3.2 2.6 2.2 1.8 0.9 12.4 -10.9 4.2 -4.9 -0.3 2012 8.2 8.4 1.8 1.5 0.8 -0.3 13.0 2.5 13.8 -0.8 2013 4.3 5.1 1.2 0.6 0.3 1.7 7.6 2.5 6.4 -1.3 2014 3.5 5.0 0.8 0.4 0.7 4.5 5.8 5.7 3.8 -1.8 2015 1.7 -0.1 1.0 0.6 -0.3 2.2 4.9 -0.6 2.4 -1.4 2016 3.3 3.7 1.0 0.4 -0.9 1.4 5.2 5.1 4.6 -1.1 2017 4.7 4.3 0.9 0.6 1.1 1.9 3.4 3.3 5.5 -0.9 Sector Rank 7/195 19/195 45/195 39/195 107/195 136/183 19/183 63/195 4/183 N/A Economy Rank 33/706 73/706 221/705 205/705 449/706 158/226 30/226 267/706 9/226 N/A

Key Ratios Imports/ Revenue per Share of the IVA/Revenue Demand Exports/Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2003 68.01 20.04 28.91 268.18 19.92 65.91 53,416.35 0.04 2004 69.25 23.26 33.61 282.79 19.03 65.74 53,817.18 0.04 2005 66.55 25.69 34.62 243.89 22.17 68.89 54,067.65 0.04 2006 62.23 27.79 37.81 270.04 20.62 68.94 55,683.13 0.04 2007 64.00 29.80 37.42 275.13 19.87 68.32 54,679.37 0.04 2008 65.00 27.01 32.48 293.98 19.53 69.61 57,428.47 0.05 2009 66.00 28.57 32.14 314.38 19.51 70.42 61,330.37 0.06 2010 63.60 29.96 37.84 302.73 19.32 70.55 58,500.39 0.05 2011 63.26 28.09 41.21 309.50 19.51 69.64 60,377.74 0.05 2012 63.43 27.91 38.00 332.14 18.48 68.95 61,379.21 0.05 2013 63.88 28.22 37.05 345.49 18.16 68.35 62,745.26 0.06 2014 64.79 28.79 37.40 355.15 18.55 68.29 65,867.88 0.06 2015 63.67 29.50 37.59 362.28 18.14 67.41 65,720.99 0.05 2016 63.91 29.66 36.92 377.70 18.46 66.14 69,714.17 0.05 2017 63.66 29.07 35.91 391.33 18.21 66.22 71,266.87 N/A Sector Rank 5/195 80/183 26/183 112/195 48/195 63/195 41/195 60/195 Economy Rank 49/706 91/226 34/226 275/706 334/706 93/705 173/706 306/706

Figures are inflation-adjusted 2012 dollars. Rank refers to 2012 data. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Guns & Ammunition Manufacturing in the US October 2012 34

Jargon & Glossary

Industry Jargon AMMUNITION Primers that are fired from guns, ORDNANCE Ammunition, explosives and similar explosive military items like grenades and bombs and warfare devices. any materials that are thrown in fight. TAMPION Wooden plug, or a metal, canvas, rubber or plastic cover for the muzzle of a gun.

IBISWorld Glossary BARRIERS TO ENTRY Barriers to entry can be High, INDUSTRY CONCENTRATION IBISWorld bases Medium or Low. High means new companies struggle to concentration on the top four firms. Concentration is enter an industry, while Low means it is easy for a firm identified as High, Medium or Low. High means the top to enter an industry. four players account for over 70% of revenue; Medium CAPITAL/LABOR INTENSITY An indicator of how much is 40 –70% of revenue; Low is less than 40%. capital is used in production as opposed to labor. Level is INDUSTRY REVENUE The total sales revenue of the stated as High, Medium or Low. High is a ratio of less industry, including sales (exclusive of excise and sales than $3 of wage costs for every $1 of depreciation; tax) of goods and services; plus transfers to other firms Medium is $3 – $8 of wage costs to $1 of depreciation; of the same business; plus subsidies on production; plus Low is greater than $8 of wage costs for every $1 of all other operating income from outside the firm (such depreciation. as commission income, repair and service income, and CONSTANT PRICES The dollar figures in the Key rent, leasing and hiring income); plus capital done Statistics table, including forecasts, are adjusted for by rental or . Receipts from interest royalties, inflation using 2012 as the base year. This removes the dividends and the sale of fixed tangible assets are impact of changes in the purchasing power of the dollar, excluded. leaving only the ‘real’ growth or decline in industry INDUSTRY VALUE ADDED The market value of goods metrics. The inflation adjustments in IBISWorld’s and services produced by an industry minus the cost of reports are made using the US Bureau of Economic goods and services used in the production process, Analysis’ implicit GDP price deflator. which leaves the gross product of the industry (also DOMESTIC DEMAND The use of goods and services called its Value Added). within the US; the sum of imports and domestic INTERNATIONAL TRADE The level is determined by: production minus exports. Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; EARNINGS BEFORE INTEREST AND TAX (EBIT) High is over 20%. Imports/Domestic Demand: Low is IBISWorld uses EBIT as an indicator of a company’s 0 –5%; Medium is 5 –35%; and High is over 35%. profitability. It is calculated as revenue minus expenses, LIFE CYCLE All industries go through periods of Growth, excluding tax and interest. Maturity and Decline. An average life cycle lasts 70 EMPLOYMENT The number of working proprietors, years. Maturity is the longest stage at 40 years with partners, permanent, part-time, temporary and casual Growth and Decline at 15 years each. employees, and managerial and executive employees. NON-EMPLOYING ESTABLISHMENT Businesses with ENTERPRISE A division that is separately managed and no paid employment and payroll are known as keeps management accounts. The most relevant non-employing establishments. These are mostly set-up measure of the number of firms in an industry. by self employed individuals. ESTABLISHMENT The smallest type of accounting unit VOLATILITY The level of volatility is determined by the within an Enterprise; usually consists of one or more percentage change in revenue over the past five years. locations in a state or territory of the country in which it Volatility levels: Very High is greater than ±20%; High operates. Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility EXPORTS The total sales and transfers of goods is less than ±3%. produced by an industry that are exported. WAGES The gross total wages and salaries of all IMPORTS The value of goods and services imported employees of the establishment. with the amount payable to non-residents. www.ibisworld.com | 1800-330-3772 | [email protected]

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