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Industry News: December 2000

By Robert Hausman

“After eight consecutive quarters of firearms sales growth, I regret to report a reduction in shipments this quarter,” said William B. Ruger, chairman of Sturm, Ruger & Co., Inc., in announcing his firm’s second quarter 2000 decline in sales and earnings.

Second quarter net sales came to $48.9 million, compared to $63 million in the second quarter of 1999. Net income for the quarter ended June 30, 2000, totaled $5.9 million, or 22 cents per share, versus $7.5 million, or 28 cents per share in the comparable quarter of 1999.

For the six months ended June 30, 2000, net sales were $108.8 million and net income was $15 million or 56 cents per share. For the corresponding period in 1999, net sales were $125.9 million and net income was $15.9 million or 59 cents per share.

“The second quarter of 1999,” Ruger noted, “benefited from strong demand for our limited edition Fiftieth Anniversary commemorative models which were available exclusively in 1999 and a pricing increase on selected models effective July 1, 1999.

“While we are hopeful firearm market conditions will improve quickly, we are taking this opportunity to replenish inventories which were depleted during the recent period of unusually high demand. I am pleased to report an enthusiastic response to the recent introduction of our new Ruger Deerfield Carbine. This long term customer support reinforces our commitment to continued new product development.”

Turning his attention to the municipal lawsuits afflicting the industry, Ruger said, “During the quarter, we continued to defend against unwarranted municipal litigation filed by some 30 cities and counties. Punitive and conspiratorial actions by certain administration officials, state Attorneys General, and city mayors which would circumvent appropriate competitive bidding laws for law enforcement firearms contracts by monitoring that such sales go only to one favored manufacturer (Smith & Wesson), forced us to join with the National Shooting Sports Foundation and seven primary law-enforcement gun manufacturers to seek an injunction against these officials’ illegal and unconstitutional practices in federal court.”

Founded in 1949, since 1950, Sturm, Ruger has never failed to show an annual profit and has never required financing from outside sources.

ATF News

In a newly released report, Following the Gun: Enforcing Federal Laws Against Firearms Traffickers, the Bureau of Alcohol, Tobacco & Firearms (ATF) documents 1,530 criminal investigations involving firearms traffickers it initiated from July 1996 through December 1998. The targets of the investigations allegedly diverted a total of over 84,000 firearms from legal to illegal commerce. While most trafficking investigations were begun by traditional case methods, one in every five were triggered by information provided by FFL-holders through tips or mandatory reporting to ATF of lost or stolen firearms.

Although FFL-holders were involved in under 10% of the trafficking investigations, they were associated with the largest number of diverted firearms-over 40,000, nearly half the total. Gun shows accounted for the second highest number of trafficked guns, some 26,000.

Straw purchasing was the most common channel in the investigations and involved nearly 26,000 guns. Unlicensed sellers were a focus of about a fifth of the trafficking investigations, involving almost 23,000 guns. Cases involving firearms stolen from residences and licensed dealers were associated with over 9,000 trafficked firearms.

A “handful” of investigations involved thefts of firearms from common carriers. ATF is proposing a regulation requiring FFLs to report guns missing in shipments. At present, it is unclear if the sender of the gun, or the receiver, is required to report missing firearm shipments.

A program placing greater scrutiny on retailers who sell “inordinate” numbers of firearms later traced to crimes by ATF, has resulted in two retailers being caught in ATF “strawman” sting investigations recently.

In the first case, the owner of Baltimore Gunsmith, Larry DiMartino, has sued ATF over the loss of his Federal Firearms License. The Fells Point, MD, store has been in business since 1904. The suit accuses ATF of acting as, “investigator, charging party, prosecutor and deciding entity,” during an administrative hearing last February. The government declined to comment on the suit but said they went after the store after a proliferation of guns traced to the shop turned up at city crime scenes.

In his 20-page defense of the store, attorney Benjamin Lipsitz, argues the government tricked the owners during several undercover stings. “Firearms dealers are not yet required to keep behind their counters crystal balls, mind readers or polygraph machines to discern the intentions of prospective customers or the truthfulness of statements made to them by prospective firearms purchasers,” he wrote. A court-ordered reversal of the April license denial is sought. The store remains open pending its appeal.

In the second case, a federal grand jury has slapped a 37-count indictment on two owners and an employee of a Colorado pawnshop, charging they illegally sold firearms to “straw buyers,” then falsified records of the sales.

Named in all counts are Gregory Golyansky, and his brother Leonid, proprietors of ABC Loan on East Colfax avenue in Aurora, CO, as well as a pawnshop worker and the store itself. The pawnshop was the subject of a federal investigation from September 1996 through July 1998, during which ATF agents conducted several undercover stings involving the sale of 107 firearms, mostly handguns costing under $100.

The store’s attorney, Stephen Peters, said, “This is a sad day for justice. My clients are law-abiding citizens who left the former Soviet Union to live in a democratic society. They look forward to their day in court and to vindicating their interest in this case.”

Few Brady Rejections

A government study shows some 2.4% of the 22 million applicants for firearms purchases have been rejected since the inception of the Brady Act. Nearly three-quarters of the 536,000 rejections occurring between February 29, 1994 and December 31, 1999 were due to the finding of a felony conviction or indictment, according to ATF. Yet, as the NRA has long complained, only a fraction have been prosecuted for attempting to purchase a firearm. Most are charged with gun possession crimes as part of an indictment for commission of a violent or drug trafficking offense.

During 1998, 41% of the 135 cases U.S. Attorneys referred for prosecution involved a defendant prohibited from owning firearms who attempted to buy a gun from a licensed dealer and in 36% from sources other than dealers. In 24% of these cases, the defendant participated in other unlawful activities (aside from attempting to purchase a firearm), which gave incentive to the U.S. Attorney to bring a criminal action.

Between 1992 and 1998, an average of 70 defendants were charged each year with a regulatory offense associated with the sale or distribution of firearms. These offenses included those involving unlawful transportation by use of a common carrier, record-keeping violations, and offenses related to the licensing, taxation, and registration of firearms.

Almost three-quarters of persons convicted as straw purchasers and others unlawfully receiving or transferring firearms were sentenced to a term of imprisonment. For straw purchasers, the average term imposed was 26 months. For others, the average prison term was 35 months.

Licensed dealers are not a major source of crime guns. A government survey conducted during 1997, found that the majority of firearms used by federal prison inmates were not purchased from licensed dealers. Some 68% of the inmates who had used a gun in commission of a crime obtained it either from a source such as burglary, a drug dealer, a fence, the black market, or from a friend or family member. About a quarter of the inmates reported they purchased or traded for the firearm directly from a retail store. The rest got the gun from a pawnshop (4%), flea market (2%), or from a gun show (2%). An additional 9% obtained the firearm through other means.

U.S. Justice Dept. figures show dealers overall are a law-abiding group. Those charged with distribution of firearms to a person not present in a business establishment (as required by federal law), climbed from 12 such instances in 1992 to 101 cases in 1997, and dropped to 73 the next year. License holders charged with a record-keeping violation dropped from 41 in 1992 to 27 in 1998. Also, not one retailer has been charged with distribution of firearms in violation of the Brady Act’s former five day waiting period.

In a statistic representing a large area of contention between shooting sports retailers and the federal government, no persons were charged with theft of a firearm from a retailer during the years 1992 through 1998, according to government figures. Preliminary data for 1999, however, indicate 7 persons had been charged with this offense.

In other news, the Los Angeles City Council is considering two proposals affecting ammunition sales. The first would outlaw ammo sales in the city. The second, would require a background check for every prospective ammunition purchaser.

Olympic Arms, Inc., which suffered the effects of an early June fire that reportedly did millions of dollars in damage, is back in operation. The fire, which was confined to one of the company’s buildings, put the gunmaker out of operation for a week. Operations have been shifted to other buildings and are now reported back to normal.

Alliant Techsystems, Inc., of Hopkins, MN, is continuing to develop the next-generation military rifle under a four-year, $95 million contract from the U.S. Army. Alliant is evaluating a variety of design concepts during the Program Definition and Risk Reduction phase of the Objective Individual Combat Weapon (OICW).

The OICW is intended to give infantrymen the capability to engage and defeat targets behind cover, thanks to a new 20mm air-burst round accurate to 1,000 meters. The arm is also equipped with a 5.56mm carbine for engaging targets in close-quarter-battle conditions.

The Alliant Techsystem’s OICW team includes Brashear Ltd., of Pittsburgh, PA, which is making the arm’s fire-control system, and Heckler & Koch which is designing the overall arm. Alliant is the OICW system integrator and is responsible for developing the high-explosive ammunition.

The OICW idea was born in the early 1980’s, as Army officials tried to solve the range and accuracy limitations of infantry arms. The project grew into the Joint Service Small Arms Master Plan, a combined effort to address the small arms needs of all the military services.

The OICW program was begun in 1994, when three competing contractor groups were chosen to develop designs for the new arm. In 1998, Alliant Techsystems was awarded an initial $8.5 million contract as prime contractor. The six prototypes the Army has tested cost a whopping $20,000 each, not including the fire control system. Service officials project the total cost of the fielded OICW system will eventually be brought down to between $10,000 and $12,000 each. About 40,000 OICW systems will be needed to re-arm all the active infantry units.

During live-fire tests, the OICW was capable of accurately hitting targets at a range of 1,000 meters. So far, the Marine Corps has contributed about $3 million toward development of the concept and is thinking of the OICW as a replacement for the M-16/M-203 rifle/grenade launcher combination.

The OICW prototype, equipped with a battery, loaded 30-round 5.56mm magazine, and a six-round magazine of 20mm rounds, weighs 18.6 pounds. This does not include the thermal sight module, or the upgrade to an eight-round 20mm magazine as called for in the infantry’s requirements documents. The Army wants a 14-pound arm. A fully-loaded M-16 A2 weighs just 8.8 pounds.

Army officials want the OICW to replace the Modular Weapon System, consisting of an M-4 carbine with laser pointer, thermal sight and a detachable M-203 grenade launcher. That entire package weighs 21 pounds.

Firearms Training Systems (FATS) Inc., of Suwanee, GA, is working with Matra BAe Dynamics of London, England and Bofors AB, of Karlskoga, Sweden, to compete for Britain’s next-generation anti-tank weapon program. The combined value of the projects is about $1.1 million.

Chicago police superintendent Terry Hillard has ordered his city’s 13,500 sworn officers to accept gun locks as part of a new program. The officers are being encouraged to use the locks to secure their service guns and other arms while at home. The department spent about $60,000 for the Master-brand, cable-style gun locks.

The Firearms Trade is a biweekly newsletter covering the firearms industry from a marketing and regulatory perspective. If your business involves the sale of firearms, you cannot afford not to become a subscriber. For a sample copy and subscription information, drop a note to: P.O. Box 98, St. Johnsbury, VT 05819 or via E-mail: rmh@together net.


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