Industry News: June 2003
By Robert M. Hausman
While ATF Won’t Restore Gun Rights, it will Restore Explosive Privileges
For over ten years, the Bureau of Alcohol, Tobacco & Firearms has been prohibited by Congress from processing requests of convicted felons and certain others for the restoration of their firearms rights. However, the agency is actively processing requests for relief from disabilities for explosives privileges.
A four-page form, ATF F 5400.29 (12-2002), which asks for such information as conviction and arrest records, names of character references, and medical records, is offered by ATF for those seeking to have their explosives privileges restored.
In a 9-0 ruling, the U.S. Supreme Court, in U.S. v. Bean, recently ruled that prohibited persons must go through ATF to have their gun rights restored, even though ATF is prohibited from processing such requests. The case involves former Texas firearms retailer, Thomas Lamar Bean, who inadvertently entered Mexico with some shotshells in his vehicle. Caught by Mexican border guards, Bean was convicted in Mexico of what was then a felony (the offense has since been reduced to a misdemeanor).
The decision, written by Justice Clarence Thomas, said the Supreme Court would only hear Bean’s case if ATF “denied” his processing request. ATF never actually “denied” Bean’s request and did not process it, as ATF has neither funding nor authority to do so. In a 1999 letter to Bean’s attorney, ATF wrote that since October 1992, the agency’s funding appropriation has “prohibited the expending of any funds to investigate or act upon applications for relief from federal firearms disabilities.” The letter further advised Bean’s attorney to “contact our office about obtaining restoration of federal firearms privileges for your client if and when Congress acts to remove the restriction currently imposed.” Bean had argued that ATF’s inability to act constituted a denial, but the Supreme Court rejected that argument. Attorneys believe that a permanent restriction on processing gun rights restoration requests, such as currently exists, should be rewritten by Congress into law to constitute a denial, to effect a remedy.
De Facto Handgun Ban in Maryland
Maryland’s new gun law is bringing the industry woes. The law, requiring all new handguns sold in the state to have an “integrated mechanical safety” is causing a handgun shortage. The mandate assigns responsibility for compliance mainly with the state’s retailers. A de facto handgun ban is expected to begin January 1, as all handguns sold in the state of Maryland are required to contain an “integrated mechanical safety,” capable of preventing the firearm from being discharged unless deactivated.
“Many popular handgun models are no longer available for sale due to this new law,” comments Sanford Abrams, vice president of the Maryland Licensed Firearms Dealers Association. “We fully understand the need for safety, but these handguns were already approved, with respect to safety, by the Maryland Handgun Roster Board. Many of the affected models were approved by the Board as far back as 1988 (the year of the Board’s inception).
Some manufacturers have notified Abrams that they are working on integrated safety systems, but in most cases there is no word as to when these new systems will become available. Although retailers are allowed to install approved aftermarket devices, many handgun models are not compatible with these devices. In addition, consumers can expect to pay between $50 and $100 additionally for retailer installed safety systems, effectively raising the price of new handguns by 15% to 20%.
Thus, far, the Handgun Roster Board has approved the “integrated mechanical safety device” systems of: Taurus, Springfield Armory, Heckler & Koch, Saf-T-Trigger, Ghost Block (for Glock), and Aldo Uberti (one model only). The Board refused to approve the safety system contained in Bond Arms derringers. Thus, newly made Bond Arms handguns are banned from sale in Maryland, even though they were adjudged safe enough to be approved by the Board nearly four years ago. “Maryland’s consumers are mostly unaware that many of the handgun models they plan to purchase are no longer available,” Abrams commented. “We are seeing many surprised customers.”
As is usual with most anti-gun laws, police are exempted from the need to have “integrated mechanical safety devices” in the handguns they purchase, which gives rise to some food for thought, Abrams points out. “Why don’t the police want these safety devices on their service firearms? Do the police know something we do not?”
The total effect of the new law will not be felt for several months, as current dealer inventories run out and shortages of certain handgun models become evident. Abrams sees little chance of relief from the Maryland General Assembly, though he thinks that “historical reproduction” handguns stand a chance of being exempted from the new law. To aid beleaguered retailers, wholesaler RSR Group, will note on the invoice for handgun shipments to Maryland the date RSR received the handgun from the factory so that retailers will know whether or not they have to install an aftermarket safety device, according to Abrams.
Ruger’s Sales, Income Drop in 3rd Quarter
Sturm, Ruger & Co., Inc. reports third quarter net sales of $38 million compared to $41.1 million in the third quarter of 2001. Net income for the quarter ended 30 September 2002 totaled $1.4 million or 5 cents per share versus $2.7 million or 10 cents per share in the comparable quarter of 2001. For the nine months ended 30 September 2002, net sales were $126.3 million and net income was $8.8 million or 33 cents per share. For the corresponding period in 2001, net sales were $122.7 million and net income was $8.6 million or 32 cents per share.
In commenting on the firearms business, chairman William B. Ruger, Jr., said, “The 15% decline in third quarter shipments reflects both a demand softness in that quarter and unusually strong demand in the third quarter of 2001. For the nine months ending September 30th, however, shipments are 5% ahead of last year. Shipment of several of our “classic” models, such as the 10/22 rifles, single-action revolvers, rimfire pistols, and centerfire pistols have increased over the prior year. Demand for our new Ruger Model 77/17 bolt-action rifle in .17 HMR remains strong and our new Gold Label side-by-side shotgun has been the subject of much interest. A fall hunting rebate program was put into effect August 1st.”
Turning to the castings segment, Ruger acknowledged facing stiff competition from abroad while explaining the disappointing results from this segment. “Although quarterly castings sales increased by 5%, the investment castings segment continues to suffer from sluggish economic conditions, as evidenced by the year-to-date sales decline of 17%. While these short-term results are clearly unacceptable, we are thoroughly revamping this once flourishing segment. I am confident we have the expertise and ability to successfully challenge foreign competition in the American market,” Ruger disclosed.
The gunmaker’s success in the courtroom continues as on 20 September 2002, the Indiana Court of Appeals affirmed the 12 January 2001 dismissal of the City of Gary’s complaint as to all firearms manufacturers on all counts. Senior executive vp/general counsel Stephen L. Sanetti commented, “We continue to steadily make progress in the remaining lawsuits. As again evidenced by this latest decision in Indiana, when established law is appropriately applied and politics is removed from the equation, we are vindicated.”
For the three months ended 30 September, firearms sales came to $32, 210,000 or 84.7% of total sales, compared to $35,609,000 or 86.6% of sales in the same quarter in 2001. For the nine months ending 30 September firearms sales totaled $108,366,000 or 85.8% of sales, compared to $100,989,000 or 82.3% of sales in the corresponding period in 2001.
In the castings segment, sales were $5,830,000 (15.3%) in 2002’s third quarter, versus $5,529,000 (13.4%) in 2001’s third quarter. For 2002’s first nine months, castings lent $17,898,000 (14.2%) to the sales total, versus $21,681,000 or 17.7% of the total, for the same nine months in 2001.
Smith & Wesson
Smith & Wesson Holding Corp., parent of Smith & Wesson Corp., has reported revenues for the quarter ending 31 October 2002 of $23.5 million and net income of $252,000 resulting in an earnings-per-share of 1 cent. In the same period last year, the firm reported revenues of $19.9 million with a net loss of $426,000 resulting in a loss-per-share of 2 cents. The results reflect an 18% increase in net sales along with a 159% increase in net profit.
Mitchell Saltz, S&W’s chairman and CEO, said, “We are very pleased with the financial progress being made as we regain leadership status from the growth of our firearms sector. We are expanding our product portfolio, increasing our licensing fee revenue and maximizing the S&W brand. All of these efforts, reflected in our strategic plan set in May 2001, are successfully contributing to our planned financial growth.”
Revenues for the six months ending 31 October 2002 were $44 million reflecting a 41.3% increase over the comparable period last year. S&W achieved operating income of $625,000 for the six months, which represents a strong increase from an operating loss of $3.9 million for the same period in 2001. EBITDA for the six months of the fiscal year was $1.8 million compared to a loss of $2.7 million for the corresponding period last year. EBITDA is revenue minus expenses (excluding tax, interest, depreciation and amortization). EBITDA is often used to analyze a company’s relative profitability within an industry as it eliminates the effects of financing.
Damian Larson, CFO noted, “The sales growth and realization of profitability this quarter results from the execution of our growth strategies, a focus on minimizing discretionary expenses, and the reallocation of cash flow to opportunities that better position the company for improved returns on investment.”
The company continues to capitalize on opportunities associated with the S&W brand. S&W has introduced new products including binoculars, spotting scopes, and rifle and handgun scopes intended for the law enforcement, domestic consumer and international markets. During the first six months of its fiscal year, the company awarded five new exclusive licensing agreements for armored vests, gun vaults and safes, personal/home security products, and bicycles as well as golf clubs. The gunmaker’s stock began trading on the AMEX in November under the stock symbol SWB.
S&W Holding Corp. has retained Christensen, a capital markets advisory firm, to spearhead S&W’s development of relations with investors. Christensen combines investor relations, financial public relations and capital market intelligence to help global clients achieve and maintain fair valuation for their stock.
American Ammo Issues Debenture
On 4 October 2002, American Ammunition, Inc. issued an 8% convertible debenture in the face amount of $250,000 and a warrant to La Jolla Cove Investors, which allows La Jolla to purchase shares of common stock equal to ten times the number of shares of common stock issued to La Jolla on conversion of the debenture.
The debenture bears interest at 8% and matures two years from the date of issuance. The debenture is convertible into common stock at the option of La Jolla, at the lesser of $1.00 per share or 80% of the average of the five lowest volume weighted average price days during the twenty trading days before the date of La Jolla’s election to convert. The warrant is exercisable at the same price.
Powders Exempt From HSA Law
Black and smokeless powder are exempt from purchase license requirements contained within the Safe Explosive Act portion of the Homeland Security Act when purchased in small quantities. Smokeless powder is considered an “ammunition component” rather than an “explosive” and black powder is not considered an explosive when sold in quantities less than 50 pounds.
Mississippi Gets Tort Reform
Mississippi has become the 30th state to enact tort liability reform, which prohibits frivolous municipal lawsuits, according to the National Rifle Association, which lobbied for the measure. The state Senate passed the bill (HB-19) in early December and it was quickly signed into law by Gov. Ronnie Musgrove.
S.G.S. Importers International, Inc. is appointed the exclusive representative for Houston Products in North America. The line includes holsters and accessories for law enforcement, security, concealed carry and the sporting market. Quality, price and profitability make the line of interest to stocking retailers.
Safer America is a new retail concept that has opened a few blocks from the former site of the World Trade Center in New York City offering emergency-preparedness gear. The idea originated with co-founder Frederic Samama, who wanted to purchase a gas mask to keep at his Manhattan apartment. “I couldn’t find a reliable source - it’s good to speak to someone, to ask how it works,” said Samama who left his job as a bond trader to start the store. He plans two additional Manhattan stores.
Hodgdon’s Annual Manual is a new newsstand publication that is expected to reach more enthusiasts, as it will be offered for a fraction of the cost of the usual hardbound reloading book. The publication contains 42 new rifle and pistol cartridges such as the Remington Ultra Mags and Short Action Mags as well as Winchester’s new .270 and .300 Short Magnums. Included are wildcat and historical cartridges such as 22-K Hornet, and the 6.5mm-06, as well as shotshell data. The manual will also be available for sale by firearms retailers.
The author publishes two of the small arms industry’s most widely read trade newsletters. The International Firearms Trade covers the world firearms scene, and The New Firearms Business covers the domestic market. Visit www.FirearmsGroup.com. He may be reached at: FirearmsB@aol.com.
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