INDUSTRY NEWS: MARCH 2005

By Robert Hausman

2004 Election Results = No New Federal Gun Laws for 4 Years

The Republican sweep of the 2004 elections, with the party not only regaining the presidency, but also increasing its majority in the U.S. House and Senate, translates into dim prospects for the imposition of new federal firearm restrictions during the next several years.

This was an election that brought the gun issue to the forefront, more so than ever before. Not only did the masquerade of presidential hopeful Senator John Kerry of Massachusetts not fool the voters (by his donning a Timberland jacket and blaze orange cap during campaign rallies while talking about enjoying going deer hunting by “crawling around in the woods on his belly”), but Senate Minority Leader Tom Daschle’s defeat (who similarly presented himself as being pro-gun but who had a mostly anti-gun voting record) was defeated in his re-election bid by South Dakota voters. Democrat Daschle was the first Senate leader to be defeated at a re-election in 50 years. And the election results left the Democratic Party scrambling to provide reasons to the press on why they still can be considered a viable political party with a future.

The election went so well that the National Rifle Association reports its Political Victory Fund (PVF) earned a 95% success rate of endorsed congressional candidates winning their races.

Of the 251 candidates endorsed by the NRA for the U.S. House of Representatives, 241 won. And 14 of the 18 NRA-PVF endorsed U.S. Senate candidates won their races. For candidates and issues for which an NRA-ILA Grassroots Election Workshop was conducted, an 81% success rate was achieved.

“I really hope that national Democratic leaders stop taking this party off the cliff and look at the heartland and the wreckage this issue has caused,” commented NRA executive vice president Wayne LaPierre. “They have to start putting up candidates who support gun rights and have a voting record to match their photo-ops.”

The election outcome continues a strong winning streak for NRA-PVF endorsed candidates. In 2000, NRA had an 85% success rate, followed by an 89% success rate in 2002. These numbers illustrate the strength of gun owners as a voting bloc each election cycle.

“We’ve seen a real political sea change in this country since Al Gore’s defeat in 2000,” added NRA-ILA executive director Chris W. Cox. “A number of anti-gun candidates attempted to hide their gun control agendas to get elected. Fortunately, savvy gun owners saw through misleading campaign tactics and voted for true pro-gun candidates.”

The Winners

Top pro-gun Senate winners are: John Thune (S.D.); Mel Martinez (Fla.); Jim DeMint (S.C.); Johnny Isakson (Ga.); Richard Burr (N.C.); David Vitter (La.); Tom Coburn (Okla.); Lisa Murkowski (Alaska); Jim Bunning (Ky.) and Arlen Specter (Pa.). Pro-gun incumbent Representatives re-elected include Rick Renzi (AZ-1); John Porter (NV-3); Bob Beauprez (CO-7); Pete Sessions (TX-32); Katherine Harris (FL-13); John Hostettler (IN-8) and Shelley Moore Capito (WV-2).

In state elections, 9 of 11 NRA-PVF-endorsed Gubernatorial candidates and 100% of NRA-PVF endorsed Attorneys General prevailed on Election Day.

A Loser

One of the biggest victories for the industry was the defeat of anti-gun Senate Minority Leader Tom Daschle, who was the architect of the defeat of legislation to end the politically-motivated wave of lawsuits against the firearms industry. Through parliamentary maneuvers, Daschle secured enough anti-gun (and unrelated) amendments to the underlying measure to ensure it was voted down by an overwhelming majority.

Aping the deceptive political strategy unsuccessfully utilized by the top of his party’s ticket, Daschle campaigned back home in South Dakota as being pro-gun, trying to distance himself from his long anti-gun voting record in Washington. The strategy failed, just as it did for John Kerry. NRA’s PVF ran ads and distributed hundreds of thousands of pieces of literature in South Dakota demonstrating that Daschle’s phony pro-gun campaign rhetoric was not matched by his votes in the Senate. And as happened to Senator Kerry, voters rightly judged that actions speak louder than words.

Replacing Sen. Daschle is former U.S. Representative John Thune, a Republican who amassed a solid pro-gun voting record while serving in the U.S. House. As the NRA noted, Daschle’s strings, that for too long were pulled by the likes of Senators Ted Kennedy (D-Mass.) and Hillary Clinton (D-NY), have now been cut.

Second Chance Files Chapter 11 Bankruptcy

Second Chance Body Armor has filed for Chapter 11 bankruptcy protection after struggling for over a year to resolve problems associated with its use of Zylon fibers in its line of bullet-resistant vests that have since been discontinued.

Several legal actions have been filed against the company by various agencies and states’ attorneys general over its Zylon vests, which had been marketed as the Ultima and Ultimax families, when it was found that Zylon fibers deteriorated faster than initially expected. The company announced its concerns over the fiber more than a year ago.

Zylon was developed by Toyobo Corp. of Japan. Toyobo has said it warned Second Chance about the degradation problem. However, Second Chance has filed a lawsuit against Toyobo, asserting that Toyobo has been wrongly claiming that the only problem with Zylon is how Second Chance used it in its vests’ production.

While Second Chance fights the lawsuits, it filed for Chapter 11 protection to allow it to keep operating. On October 20th, the U.S. Bankruptcy Court in Grand Rapids, Michigan issued favorable rulings that will allow the company to keep its doors open, while reaching a consensus agreement with its chief lender.

Sturm, Ruger Breaks Even in Third Quarter

Sturm, Ruger & Company, Inc. reports third quarter 2004 net sales of $35.4 million, compared to $36.8 million in the third quarter of 2003. The company reported break-even results for the third quarter of 2004 compared to net income of $3.9 million or 14 cents per share in the third quarter of 2003.

For the nine months ended September 30, 2004, net sales were $108.3 million and net income was $3.4 million or 13 cents per share. For the corresponding period in 2003, net sales were $109.8 million and net income was $9.4 million or 35 cents per share.

Included in the results of the third quarter and nine months ended September 30, 2003, was the pretax gain of $5.9 million or 13 cents per share after-tax from the sale of certain non-manufacturing real estate in Arizona, known as the Single-Six Ranch.

Firearms Shipments Decline

Chairman William B. Ruger, Jr. commented on the firearms results, “Although firearms shipments declined from the prior year due to continuing softness in the overall firearms market which adversely impacted our established product shipments, demand for our new products is encouraging. We continue to address shortfalls in new product supply by adding additional machining centers and by altering our production mix to better satisfy consumer demand, while demonstrating fiscal prudence in the management of our inventories.

“We will again introduce an abundance of innovative new firearms for 2005 during the NASGW show and plan on announcing additional new offerings at the SHOT Show and NRA Show to be held in the first half of 2005,” Ruger continued. “These additional new products will add to the record number of new products we introduced in 2004.”

Turning his remarks to the investment castings business, Ruger said, “We are encouraged by the 38% increase in castings sales this quarter and remain determined to succeed in this market. Further exploration of steel and titanium capabilities, coupled with a successful venture into new markets, is essential to achieve a satisfactory level of profitability in this segment.”

As of September 30, 2004, the gunmaker remained debt-free, with $37 million of cash and short-term investments. Its new sales year begins December 1st.

In a review of the company’s legal front, Stephen L. Sanetti, president and chief operating officer said, “The third quarter brought more success in the product liability arena. On July 27, 2004, the Missouri Court of Appeals affirmed the trial court’s dismissal of the St. Louis municipal lawsuit against the company and other firearms industry members. Also, on September 30, 2004, Judge Irene Berger granted summary judgement in favor of the company in a West Virginia case which sought to hold it liable for the resale of a pistol by a retail firearms dealer to a lawful purchaser who delivered the pistol to an unauthorized criminal user. As the judge stated, to hold a manufacturer liable for such a sale would be ‘a real stretch’. The expiration of the federal ban on so-called ‘assault weapons’ on September 13th should have little impact on the company, as all of the company’s autoloading rifles were exempted since 1994 from that now-expired ban by name as ‘legitimate sporting firearms’.”

The company has just completed its 2005 Ruger Sportswear and Accessories catalog, which introduced many new offerings. In addition to new leather goods and other shooting accessories, a new line of Ruger-brand knives was introduced through a partnership with W.R. Case & Sons Cutlery Co.

On September 10, 2004, the company sold the property and building that housed its Uni-Cast division prior to Uni-Cast’s sale in 2000. The sale had resulted in a pretax gain of $0.8 million.

For the three months ended September 30, 2004, firearms sales were $29,063,000 or 82.1% of sales, compared to $32,237,000 or 87.6% of sales in the third quarter of 2003. Castings sales were $6,317,000 or 17.9% of sales in 2004’s third quarter versus $4,583,000 or 12.4% of sales in the third quarter last year.

Gross profit during the third quarter of 2004 was $4,998,000 versus $5,718,000 in the corresponding quarter of 2003. Net income for 2004’s third quarter showed a loss of $20,000 versus a gain of $3,852,000 in the same quarter of 2003.

There were no earnings-per-share for the third quarter this year compared to an earning of 14 cents during the third quarter of 2003. Cash dividends per share were 10 cents in 2004’s third quarter and 20 cents during 2003’s third quarter.

Nine Month Results

For the nine months ended September 30, 2004, firearms sales were $92,798,000 or 85.7% of sales, compared to $95,876,000 or 87.4% of sales for the first nine months of 2003. Castings sales amounted to $15,531,000 or 14.3% of sales in 2004’s first nine months versus $13,877,000 or 12.6% of sales in 2003.

Gross profit for the nine months of 2004 was $21,971,000 versus $24,662,000 in 2003. Net income for the nine months of 2004 was $3,397,000 compared to $9,414,000 in the first nine months of 2003.

Earnings-per-share during 2004’s first nine months came to 13 cents compared to 35 cents in 2003. Cash dividends per share during 2004’s first nine months were 50 cents versus 60 cents in 2003. As of September 30, 2004, Sturm, Ruger had $3,801,000 in cash and cash equivalents, trade receivables of $17,385,000 and inventories worth $50,310,000.

Sturm Ruger Honored by NYSE

On October 22nd, William B. Ruger, Jr. rang The Closing Bell, officially signaling the end of the New York Stock Exchange’s trading day at 4:00 P.M. The company had held its board of director’s meeting at the exchange that day.

NYSE president, Catherine Kinney, Sturm, Ruger’s board members and other executives were standing under the Ruger banner bearing the company’s motto, “Arms Makers for Responsible Citizens” during the ceremony televised on cable television business programs.

“As the only firearms company listed on the NYSE, we feel that participating in this event not only provided favorable visibility for the company, but also for the American firearms industry as a whole,” Ruger said.

Appeals Court Grants Rehearing in D.C. Suit

A rehearing of matters related to the Washington, D.C. municipal suit against the firearms industry was ordered October 19th, by the Washington, D.C. Court of Appeals. In so doing, the appeals court vacated a prior court’s judgement of April 29, 2004, which had dismissed the city’s claim against firearms manufacturers, but let stand certain individuals’ claims against the manufacturers of firearms allegedly used in criminal assaults against plaintiffs under Washington, D.C.’s “Strict Liability Act,” subject to proof of causation. The court scheduled a rehearing of the entire matter en banc (in full court) by the Court of Appeals to be heard early in 2005.

The trial court originally dismissed the case in 2002, with the trial judge holding that the plaintiffs failed to state a cause of action at common law and that the D.C. strict liability law was unconstitutional. On April 29th of this year, the D.C. Court of Appeals upheld the dismissal of the city’s case, but found the strict liability law to be constitutional as to individual plaintiffs.

Both sides had filed petitions for rehearing of issues they believed had been decided erroneously, or in the alternative, for a rehearing en banc. The court chose to grant the latter, and further ordered full briefing and oral argument on all issues at the rehearing next year.

The author is the publisher of the small arms industry’s two most widely read professional trade newsletters, The New Firearms Business, which covers the domestic U.S. industry, and The International Firearms Trade, which covers the industry from a global perspective. His firm also makes available mailing lists of FFL-holders to aid firms direct marketing efforts. He may be reached at: FirearmsB@aol.com