29309_SturmRuger_AR 4/20/06 3:00 PM Page 1 Sturm, Ruger & Company, Inc. 2005 Annual Report 29309_SturmRuger_AR 4/20/06 3:00 PM Page 2 Contents 1 To Our Shareholders 3 Awards 4 New Products 5 Selected Financial Data 6 Management’s Discussion and Analysis 12 Financial Information 22 Auditors’ Report 23 Management’s Report on Internal Control 24 Auditors’ Report on Internal Control IBC Stockholder Information About our Covers Our front cover shows one of our newest product introduc- in recognition of the many new products and model tions, the Ruger M77® MKII Target Grey® Model Stainless variations designed to meet the requirements of today’s Frontier Rifle.With its compact 16.5 inch barrel, forward- hunters and sport shooters. mounted scope rib, and trim laminated stock, this new Our back cover celebrates the fact that Sturm, Ruger is stainless steel hunting rifle is ideal for easy carrying and one of the last American manufacturers in one of the first quick shooting in deep, damp woods. American industries.We treasure the freedoms protected by Also on our front cover is the vaunted Shooting Industry our Constitution and Bill of Rights, and honor the American Academy of Excellence Award, naming the Company its way of life in all its diversity and richness. No other firearms 2005 Manufacturer of the Year. It was awarded after a manufacturer offers as many American-made products as secret-ballot vote by hundreds of members of the Academy, Sturm, Ruger. 29309_SturmRuger_AR 4/20/06 3:00 PM Page 1 To Our Shareholders 1 2005 was another disappointing year, although sincere appreciation. not without bright spots which point to an We achieved the Shooting Industry’s encouraging future. It is clear from the many Academy of Excellence Award as “2005 Manufac- awards won by the Company for its consistent turer of the Year”due to the innovation shown new product innovation that we enjoy unprece- by our forty-two new products and model dented support in the marketplace. It is equally variations.We won the National Association of clear that meeting the substantial demand for Sporting Goods Wholesalers’highest award for quality Ruger products is an ongoing, vexing consistently rising to the challenge of today’s challenge. market through diversity of product, customer It became apparent early in the year that service, delivery, innovation, and profitability. some of our newest and most modern Field & Stream magazine presented us with their automated production equipment was simply “Best of the Best”Award for our new rifles not up to the tasks demanded of it. Frustrating chambered for the new .204 Ruger cartridge, delays became the norm, with production only and the Ruger Gold Label shotgun was awarded in fits and starts for two of the products most in the Golden Bullseye Award as “The 2005 demand; our 50th Anniversary New Model American Rifleman Shotgun of the Year.” This “Flattop“ Blackhawk and our New Vaquero. award is given to products “remarkable in terms Diligent study of the situation revealed short- of innovation, reliability, safety, and providing comings in both equipment and personnel. shooters and hunters genuine value for their These were decisively and aggressively hard-earned dollar.” addressed, but shipments suffered throughout With all this hard-earned recognition, we the year. know that our high-quality Ruger firearms repre- I am pleased to report that many needed sent precisely what are wanted by American improvements have been implemented, shooting enthusiasts.To facilitate their availability although much remains to be done. Frank in the marketplace and to further enhance their Bonaventura,who was the manager of Southport desirability, we have unilaterally instituted a bold manufacturing operations, has been retained new sales policy. Combined with increased as a consultant to help guide our Newport manu- facturing efforts. He has worked closely with me production of quality products, we believe this for many years, and his energy and zest for the job new sales initiative will point the way to a are contagious. A new spirit of upward move- successful year. ment is palpable in the Newport firearms manu- Legislatively, 2005 saw the enactment of “ The facturing division, and we have augmented our Protection of Lawful Commerce in Arms Act.”It existing staff with outstanding manufacturing tal- codifies what has become strong case law in our ent. Due to the hard work of these and hundreds favor. During the last seven years we have of other hard-working employees, I feel very confi- soundly defeated the efforts of over thirty cities dent in the future of this division. and counties to hold us liable for the acts of A bright spot throughout 2005 was our criminals, over which we obviously have no Prescott Division. Under the direction of Our control.While this new law should occasion the Newly-Appointed Vice President of Prescott dismissal of those few city lawsuits that remain, Operations Robert Stutler, this division was able the law is being challenged by those who would to quickly respond to unprecedented demand for continue to waste taxpayer and industry resources. our new MK III and P345® series of pistols, increas- The new law merely restates fundamental fairness ing their production three times during the year. and common sense—manufacturers of lawfully Our Prescott foundry also showed significantly sold, non-defective products should not be held improved results.These efforts merit our legally responsible for the acts of criminals. www.ruger.com 29309_SturmRuger_AR 4/20/06 3:00 PM Page 2 To Our Shareholders 2 (Continued) What the new law does not do, despite the This joins our newly announced stainless steel misrepresentations of its opponents, is to give M77 MKII Frontier Bolt Action Rifle and new ver- blanket immunity from lawsuits. If a firearm is sions of our famous Ruger 10/22 Rifle and Red sold by a licensed retail firearms dealer in Label Over-and-Under Shotguns, which have knowing violation of law or regulation, penalties been very well received. Combined with increased for the retailer do (and should) exist. If we sell production of the many new models announced a defective firearm, we can still be held civilly during the last eighteen months and our genuine liable in a product liability lawsuit. Such liability cost-containment efforts, we believe that the provisions have no fears for us, as a responsible Company is poised for growth. manufacturer of quality products for responsible We now must strive to make our Company even citizens. Indeed, our product liability claims stronger in the years ahead. Great opportunities remain at an historic low level, and none of our abound. We owe our customers and our employ- products manufactured and sold during the last ees our very best efforts to grow and prosper as thirty-three years has ever been found to be America’s premier firearms manufacturer. “defective”in design, manufacture, or warnings We invite our shareholders to join us for our by any court or jury in the nation.This speaks Annual Meeting, to be held in Westport, well of our commitment to quality, safety, and Connecticut on May 24, 2006. consumer education. On February 28, 2006, CEO & Chairman, Sincerely, William B. Ruger, Jr. retired from the Company, ending a long and notable career in the firearms industry.While there will no longer be a Ruger at the head of our Company, our shareholders may rest assured that their ideals of quality and Stephen L. Sanetti value will be honored and enhanced by those President and of us who carry on the best Ruger traditions. Interim Chief Executive Officer (see box at right) The year past was marred by the death after a brief illness of Director Townsend Hornor, a loyal friend and steadfast member of our Board of Directors for over 33 years. His perceptive wit and sound advice were always appreciated. On a RetirementWilliam B. Ruger,of Jr positive note, we welcome to our board Mr. John William B. Ruger, Jr. Cosentino. He has a very intensive manufacturing background and is well versed in the most up-to- On February 28, 2006, date processes, and is a perfect fit for our Board. William B. Ruger, Jr. retired as Chairman of the Board He has already made significant contributions to and Chief Executive Officer our efforts to improve our productive capacity, of Sturm, Ruger & Co., Inc. and we welcome him wholeheartedly. after 42 years of dedicated service. Mr. This new Board took the rather bold step of Ruger’s intellect and insights will be missed. suspending our dividend at its October meeting. We wish him a well-earned and personally We trust this will be a temporary situation as we satisfying retirement, and we sincerely thank turn the Company back to sustainable, increased the entire Ruger family for their extraordinary profitability. New products for 2006 include a efforts during the last 56 years to create and product which has been repeatedly requested by build a successful foundation for our future single action revolver enthusiasts, our 50th Year successes. .44 Magnum “Flattop”New Model Blackhawk. www.ruger.com 29309_SturmRuger_AR 4/20/06 3:00 PM Page 3 Sturm, Ruger Honored for Design Excellence 3 and Industry Leadership in 2005 Field & Stream magazine's“Best of the Best” award went to Sturm, Ruger in February, 2005 for our new rifles chambered in the new .204 Ruger Cartridge, described as “some of the most exciting things to hit the market in years.” The Shooting Industry Academy of Excellence Award for “2005 Manufacturer of the Year” went to the Company in April, 2005, honoring extraordinary product design and service to the industry.The secret ballot award was given to Sturm, Ruger “for continued dedication to providing quality American-made products that meet the varying needs of responsible gun owners.