Sturm, Ruger & Company, Inc. (RGR) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the 2012 Sturm, Ruger Earnings Conference Call. My name is Lacey, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Michael Fifer, President and CEO. Please proceed.

Welcome to the Sturm, Ruger & Company Year-End 2012 Conference Call. Although this is obviously a call to discuss financial results, I want to take a moment to mention Sandy Hook. All of us at Ruger are deeply saddened by the horrible criminal events that took place in Newtown, Connecticut. Newtown is only a short distance from our headquarters, and we have employees who live around Newtown who have family, friends and acquaintances that were affected. Our thoughts and prayers go out to those families and to the victims of this terrible tragedy. Next, I'd like to ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements, which will be followed by a quick overview of 2012, including the fourth quarter, and then we can get right into your questions. Kevin?

Thanks, Mike. We want to remind everyone that statements made in the course of this presentation that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings including, but not limited to, the company's reports on Form 10-K for the year ended December 31, 2012, and Forms 10-Q for the first, second and third quarters of 2012. Copies of these documents may be obtained from the SEC or through the company's website at www.ruger.com. Furthermore, management disclaims all responsibility to update forward-looking statements. Mike?

Okay. Well, starting with our financial results. For 2012, net sales were $491.8 million, and fully diluted earnings were $3.60 per share. For the corresponding period in 2011, net sales were $328.8 million, and fully diluted earnings were $2.09 per share. This represents year-over-year sales growth of 50% and earnings growth of 77%. For the fourth quarter of 2012, net sales were $141.8 million, and fully diluted earnings were $1 per share. For the corresponding period in 2011, net sales were $93.2 million, and fully diluted earnings were $0.54 per share. This represents year-over-year sales growth for the fourth quarter of 52%, and earnings growth of 88%. Next, we'll talk about new products. Our new product introductions remained a strong driver of demand and were $182 million or 38% of firearm sales in 2012. As a reminder, we define new products as only those that were introduced in the past 2 years, and we include only major new product introductions and not minor line extensions. The major new products introduced in 2012 included: the Ruger American Rifle, the 10/22 Takedown rifle, the SR22 pistol, the 22/45 Lite pistol and the Single-Nine revolver. In addition to these new products, at the end of December 2012, we launched the SR45 pistol and the LC380 pistol. Next, we'll talk about sell-through. Demand for Ruger products in 2012 remained very strong as evidenced by the 63% growth in estimated sell-through of Ruger products from the independent wholesale distributors to retailers. We believe that the strong demand for our products was due to our continued practice of introducing innovative and exciting new products, our increased manufacturing capacity and greater product availability and the overall increase in the firearms industry, which was largely attributable to new shooters joining the ranks of nonowners and the current political environment. The 28% increase in National Instant Criminal Background Check System, or NICS, background checks as adjusted by the National Shooting Sports Foundation is indicative of this overall growth. 2012 was the fifth consecutive year that our growth and estimated sell-through from our independent distributors to retailers outpaced the growth in adjusted NICS checks. Next, we'll talk about inventory and production. In response to the strong demand and the new products that were launched in 2012, we increased our unit production by 52% from 2011. To achieve this increase in production in 2012, we reinvested $27 million, approximately 1/3 of the cash generated by operations, back into the company in the form of capital expenditures. These capital expenditures exceeded depreciation by approximately $13 million during the year, which represented a 7% increase to our capital equipment base. Our commitment to continuous improvement through the implementation of Lean business practices enabled us to leverage this investment to achieve the 52% increase in unit production. The company's finished goods inventory decreased slightly in 2012. Our efforts to rebuild safety stock have again been outstripped by increased demand. Despite the increased shipments, our distributors' inventories also decreased by 76,000 units in 2012. This is a compelling indication of a strong retail demand for our products. We believe that both Ruger and the independent wholesale distributors will benefit by having more finished goods inventory to allow for the rapid fulfillment of demand. Our observation of retailers and anecdotal reports from industry sources also indicate that the retailer shelves have less than normal amounts of inventory. Our goal is to replenish our finished goods inventory in future periods to levels that would better serve our customers. This replenishment, which could increase the value of finished goods inventory by as much as $15 million from the current level, is not likely to occur until retail demand for our products slows down. Next, we'll talk about bookings and backlog. In 2012, bookings were more than double 2011 bookings, and our backlog totaled 1.5 million units at December 31, 2012. Nonetheless, we do not use backlog as a key indicator when planning and operating the company's business. Instead, we focus on estimated sell-through of our products from the independent wholesale distributors to the retailers to run our business, including our target production rates. As I mentioned a few minutes ago, the estimated sell-through of our products from independent distributors to retailers increased 63% in 2012 as compared to 2011. Next, I'll talk about our balance sheet. Our balance sheet at December 31, 2012, was strong. Our cash and cash equivalents totaled $31 million, a decrease of $50 million from December 31, 2011, due to the $87 million special dividend paid in December. Our current ratio was 1.6:1, and we have no debt. We believe our cash on hand and the cash we anticipate generating from operations will be sufficient to fund our operations. However, out of an abundance of caution, we increased our credit facility from $25 million to $40 million earlier this month. The credit facility remains unused. At December 31, 2012, stockholders' equity was $95 million, which equates to a book value of $4.93 per share, of which $1.61 per share was cash and equivalents. In 2012, we generated $87 million of cash from operations. We reinvested $27 million of that back into the company in the form of capital expenditures. As I mentioned a few minutes ago, these capital investments allowed us to realize the 52% increase in production, which was instrumental to the achievement of our record financial results in 2012. Capital expenditures in 2013 will vary based on many factors, including the overall demand for our products, the timing of some of our ongoing new product initiatives and the extent to which replacement machinery and equipment may be required. Currently, we estimate that capital expenditures in 2013 will approximate $30 million. In 2012, we returned $111.5 million to our shareholders through the payment of dividends, including the $87 million special dividend paid in December. An additional $7.8 million in dividends will be paid to shareholders on March 22, 2013, as our Board of Directors recently declared a $0.404 per share quarterly dividend. As a reminder, our quarterly dividend approximates 40% of net income. In closing, I would like to thank our 1,500 dedicated employees without whom our accomplishments and the unprecedented financial results in 2012 would not have been possible. I also want to announce that we will be holding our second Analyst Day on Monday, April 29, at our Prescott, Arizona facility, with our 2013 Annual Meeting to follow on Tuesday, April 30, also in Prescott. Further details related to the Analyst Day will be available in mid-March. Those were the highlights of 2012. Now I would like to respond to your questions related to those results. Operator, can we have the first question?

[Operator Instructions] And our first question will come from the line of Brian Rafn with Morgan Dempsey Capital.

Give me a sense, you certainly had a great year and units up 1,697,800 versus 1.1 million, I think you said in the press release. You got there by August 15. How much of that, from a capacity standpoint, is machinery? And where are you on bringing up these minimill furnaces up at Newport?

We've continued to improve our labor efficiency. We have significant stretch goals each year to do so, and the employees have responded very well. So it's not all machinery by any means. It's a combination of both because if you think about it, we only increased our capital base by 13%, but we've got a 52% increase in production. So there's a lot of labor efficiency as well. And as you've heard me say in prior years, a busy factory is a happy factory. And they are very busy, working very hard, and they kind of enjoy it. Now your second question about the minimills, we still only have one that's fully functional running on 2 shifts, exceeding our initial goals. We are bringing in the equipment for a second one, but will initially deploy it in our legacy foundry where we've realized we can significantly improve some of its results by using techniques like a rollover furnace that we would otherwise employ at a minimill.

Let me ask you, Mike, in the past, you kind of talked about having the flexibility of going from the main integrated furnace down to some of the minimills. Given the voracious appetite for demand, guns and supply, might you modify that and run them in tandem with your main mill?

That's what we have been doing.

Right. Right. But you would continue to do that?

Yes. It's one of these difficult things where you have to get several minimills up and running before you can even think about turning off the main mill. So in theory, for at least some period of time, you would have excess capacity. However, in the current environment, we can use all the capacity we can get.

Yes, okay. Okay. How much -- given the efficiencies that you're talking about and given the demands and utilizations in that, how much floor space we were up to Newport, how much cell movements and floorspace and assembly line layouts are you doing? Are you pretty much set with your footprint?

Brian, there's probably 2 questions in there. One is, are we planning any physical expansion in Newport, and the answer is no. And then perhaps the second question is, would you recognize the place if you visited it again a year later, and the answer is no. In fact, we are continuously improving our layouts and moving things around as we continue to run Lean events and figure out ways to take more floor space out. We rapidly fill it with expanding capacity.

Okay. What are you running, Mike, on a shift basis and maybe over time between in Newport and Prescott?

Brian, why don't I answer that one and then let's, perhaps, let a few of the other guys chip in, too?

Sure.

We have been running pretty much flat out since December 2010. If you recall that in the summer of 2010, things seemed to slow down quite a bit, and they came roaring back somewhere late November, early December. And we've run pretty much flat out there. We try, whenever possible, to not get crazy with the overtime because then you run the risk of injuries and safety concerns and people just flat get worn out. So we're running reasonable amounts of overtimes.

And our next question will come from the line of Jim Barrett with CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Mike, on a -- in the fourth quarter, your gross margins were up 250 basis points year-over-year, but down 110 basis points sequentially even though the production increased sequentially by 6%. Can you explain why that occurred?

In specific, no, but in general, yes. And the answer is that the fourth quarter every year, the books remain open several weeks longer. And I think we, perhaps, do a more thorough job of getting every single fourth quarter expense fully expensed in the fourth quarter. If you look at every single year, you'll see that the fourth quarter generally dips just a little bit for any given volume. But it's just a function of closing the year out. James Barrett - CL King & Associates, Inc., Research Division: Okay. On a separate subject, are you experiencing any challenges in receiving a sufficient amount of components in order to meet the current demand?

Well, one of the real challenges is getting our suppliers, many of which are very small businesses, to keep up with our rapid growth over the last 5 years. And so we're reaching out more and more to try to help those guys. In some cases, we'll buy equipment and park it at their place. In some cases, we'll try to steer them towards Lean implementation at their own place. We're not near as good as I'd like to be in helping our suppliers. And in some cases, we outgrow the suppliers, but they're trying awfully hard to keep up with us. James Barrett - CL King & Associates, Inc., Research Division: And my final question, why didn't the company raise its credit facility by more than $15 million back a week or 2 ago?

Because simply, we're paying more in fees on the unused credit facilities than we're earning an interest on all the millions we have sitting in the bank and I don't think we need it. James Barrett - CL King & Associates, Inc., Research Division: And I assume, finally, you can raise that credit facility on fairly short notice given the quality of the balance sheet and the cash flows?

I'm sure we can, and I've always considered this as some big opportunity came along that required a lot of money well in excess of our credit line, that if we've got a good story to tell, that raising money would be really easy.

[Operator Instructions] And our next question will come from the line of Scott Hamann with KeyBanc Capital Markets.

Just, Mike, kind of taking a step back in terms of a very dynamic retail environment right now. How are you thinking about driving more efficiencies and getting more production in 2013 versus the kind of very high level where you are right now? I mean, should we continue to be able to expect some of these sequential increases in your production rates in '13? Or how are you thinking about that relative to what you're seeing out there on the retail environment now?

I'm going to try to split your question into 2 as well. The forward-looking part, I'm not going to answer at all. I'm not forecasting increases. I'm not forecasting percentages. I'm not telling you whether you can get sequential the same or not. So just completely forget that, guys. Now as to how we're going to manage the business, we're going to manage it the same way we've been doing all along here. We're going to continue to innovate on the product line side, and that will require more equipment, more space and more people as we bring on new products because we're not finding that the old product slow down and we're not able to free up from that. The second part is that we are fully committed to Lean methodologies in all our processes, and we conduct Lean events every week all year long and continue to be very successful at freeing up space, people, equipment and cash in doing that, and we'll just keep doing it.

Okay. And then just a second question in terms of the orders that you took here recently. Obviously, everyone is short on inventory right now. And at this point last year, I think you guys stopped taking orders in the spring because you thought that -- you didn't think you're going to be able to make them or whatever, but you seem to have taken a lot more orders this year. I'm just curious why maybe you didn't stop taking orders, or kind of how you're thinking about that backlog playing out?

I believe the question is, if I cut off orders after 1 million units last year, why didn't I do it this year? And the reason I didn't do it this year is that simply, people didn't understand what we were doing last year. People misinterpreted that we stopped taking orders from the wholesalers and assumed that we stopped production. And in fact, our press release on the matter was extremely clear, but I was shocked at the number of people who couldn't read plain English and got confused about what we did. So I'm not doing it again.

And our next question is a follow-up question from the line of Brian Rafn with Morgan Dempsey Capital.

Yes, Mike, your pace of new product launches have been fantastic the last few years. What is your sense as you look out 2013? Are you going to see about the same amount of product launches? And I think in your K you talk about having 89 guys in R&D development -- or developing. How many teams of design engineering teams do you have actually developing new product?

Guys, in general, I know you all want the most best forward-looking information you can get, and I'm not going to give it. All right? I'm just not going to do it. But I have just as many engineers as reported. In fact, perhaps more because I'm still trying to hire them. I have as many or more engineering teams than I had in years before, and we're fully committed to new products.

Okay. Well, let me ask you maybe a little different way. The cycle time, Mike, between design concept, prototyping and then getting your production inventory are -- is that, over the last 3 or 4 years, about the same time, 18 months, 24 months? Or are you getting any compression in that?

We've had a few notable successes, one of which I've explained to you before was the Ruger American Rifle, which from a clean whiteboard to the units on a production line was 12 months. We have a couple other ongoing projects that are going into the multiyear phase. So we are improving, but it takes time, and not every project is benefiting yet.

Okay. Are you looking at expanding any floor space out in Prescott? We focus a lot on Newport. Anything in brick and mortar or machinery out to Prescott?

We continue to expand within the facility in Prescott. Remember, we used to have a foundry in that facility, which we took out, and that has provided some extra floor space. And I don't anticipate any major building additions at either location.

Okay. You talk, Mike, $30 million in CapEx for, roughly, for 2013. How much of that is maintenance, and where is that going to maybe kind of be allocated between the 2 plants?

The old thumb rules that we've given before that roughly 1/3 is for sustaining and 2/3 is for new apply, and it will follow wherever the new products are. It's where it's going to go.

Okay. Okay. Do you have any sense either in -- given your footprints in Newport and Prescott, do you got any sense, Mike, in either dollars or units or what your capacity might be before you'd have to break out beyond your physical footprint?

I do. I'm not sure I want to discuss it.

Close to the vest. Okay.

It continues to amaze me in what they can do in terms of freeing up space. Look, we're in basically the same floor space we had 5, 6 years ago. I think our run rate today is 4x what it was then, and our employee base hasn't even doubled. The guys are doing a good job.

Okay. Okay. Anything relative to -- we talked certainly about the civilian market. Is there anything on the horizon, sales to the military or the police side?

No.

Okay. Your sense, and I know [ph] it's everybody's, I think the hot item in the AR15, you guys since the SR-556 has -- obviously, you're not going to comment on units, has the percentage mix of that SR-556 increased relative to total rifle sales 2010 to 2011 to 2012, or is it about the same?

Actually, it's probably declined, and the reason I tell you that is because we source a lot of components. For example, we have to get a forging for the lower receiver, and we don't make that ourselves. So in this kind of environment where you have a limited number of suppliers providing essentially similar component parts to all the manufacturers of these kind of guns, we're kind of last in line to be able to increase volume. On the other hand, some of our other rifle products that we make in-house that were much more vertically integrated, we are able to ramp up the volume on those. So our overall volume of 556s has not declined at all, but it has probably fallen as a percentage of our overall rifle sales. And frankly, it wasn't much to start with.

Okay. Okay. Let me ask you, you've talked in the past, Mike, about M&A and I've asked about accessories and that type of thing. I marvel at -- I got one of the SR-556s, and I probably spent double in actually tricking out with scopes and lasers and nightlights and that type of thing. Is that a viable market for you guys? I know you mentioned you wanted a needle-moving acquisition. I mean, there's just -- there's so much in stocks, in grips, in tripods, in telescopes and that type of thing. Is that a viable area for you guys? Or is it just not something you're interested in?

I think it definitely has an opportunity, but it's not one that we've been effective at realizing. We need, I think, probably more years in the AR platform business so that we were better recognized within the industry as a significant competitor with a good product line. And then, I think, people would be more receptive to Ruger expanding into the accessories market. Were we to just jump in it now when we have a basically a single SKU kind of product and not much volume. I'd say the vast majority of Americans who like AR platform guns have never even seen a Ruger; there's not that many of them out there. So I think it's a bit premature for us to leap into it, but you are right, that like a 1911 or like a 10/22 or like an AR platform there, one of those kinds of platform firearms that people can accessorize and have a grand old time doing it.

Yes. Right. Exactly. Exactly. You've talked, Mike, in the past backlog discipline, and you wanted to make sure that you didn't get over ordering in that. With the, again, the tremendous civilian arsenal buildup, what are you guys seeing and what is your sense on order bookings and the discipline? Or is that pretty strong and decent on a sell-through?

I think the discipline from the retail level placing orders on wholesalers is nonexistent. I mean, what I've observed at some of the distributor shows is you might have a guy with a $25,000 credit line ordering $250,000 worth of goods, frankly hoping he'd get the $25,000, but still placing truly absurd orders. I believe I heard anecdotally that a couple of the distributors at their shows booked more than $1 billion. They're just way, way in excess of anything they've ever booked before, way in excess of any annual volume they've ever enjoyed, and completely unrealistic in terms of the industry being able to increase capacity to supply those kind of numbers. So the retailers, by and large, ordered amounts way in excess of what they actual expect to get. And then in some cases, but not all, in some cases, the wholesalers reacted enthusiastically and placed large orders on us. But I think everybody sort of implicitly understands that it's really not all going to happen.

And our next question will come from the line of Ray Asmar with Summit Brokerage.

Gentlemen, can you talk a little bit about your smart gun? Obviously, you want to reduce the misuse of guns maybe through this RFID technology or maybe fingerprints. Because I would think if you took the lead that way, with everything that's going on in the political environment, you might look like heroes. Can you talk a little bit about if you're doing anything with that whole concept?

No.

And our next question will come from the line of -- a follow-up from Jim Barrett with CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Mike, as I recall, your back orders from wholesalers are not cancelable per company policy?

That is correct, and we have been reminding them of that. James Barrett - CL King & Associates, Inc., Research Division: Well then. So would the company adhere to that policy regardless if demand, for example, were to slow sooner and possibly more sharply than everyone might have thought with the plan to hold your wholesalers to that?

Jim, if there are any wholesalers listening, the answer is absolutely. If the wholesalers aren't on the phone, the answer is we'll use some common sense, as we did back in -- I think it was late '09 or spring of '10 when we canceled some of the Mini-14 orders that just were ridiculous. So we're trying to enforce the discipline and encourage the discipline. But at the end of the day, unfortunately, the distributors know that we're going to act responsibly and we're not going to stuff the channel because whatever investment they have in Ruger inventory, I want to make sure it's moving as fast as possible. James Barrett - CL King & Associates, Inc., Research Division: On a related point...

But Jim, let me get back. So that's why I said earlier, I really don't want people focused on the backlog and making assumptions about the business based on the backlog because frankly, we don't use the backlog to run the business. We use sell-through. That's the key metric. James Barrett - CL King & Associates, Inc., Research Division: Understood. Now on a related point, speaking of sell-through, how many weeks supply on the part of your distributors is sufficient in your view to service your retail customers adequately with good fill rates on your products?

I frankly like to see them act like wholesalers and have at least 8 weeks on hand. But by and large, these days they're acting more like order brokers, and I think they're cross-stocking all the inventory they receive from us. I don't think that actually goes in their warehouse. James Barrett - CL King & Associates, Inc., Research Division: Okay. And then my last question, and it really relates to your segment reporting, the corporate line is -- was profitable throughout the first 3 quarters of the year and then swung to a loss. Can you explain how we would forecast that line item or what explains the loss in Q4?

I can't. But Tom Dineen, if you'd like to take a stab at that.

I think, Jim, what you're likely looking at, we did take a write-down of a small investment that we had to the tune of round numbers, about $1 million in Q4. I think that fell into the corporate bucket.

And our next question will come from the line of Will Waller with M3 Funds.

In prior years, you guys have listed your backlog as of February 1 in your 10-K. I didn't see that this year, and I know you're taking the backlog numbers with a grain of salt. But is there any update as to what that number was on February 1 versus December 31?

No.

Okay. And then my second question is, as it relates to pricing, your products are selling in some of the online marketplaces for much higher than the retail price is. Has there been any thought, or is it kind of too shortsighted to think about potential pricing increases? And I'm guessing some of the prices of components have probably gone up or are going to go up. So from a pricing perspective, how are you looking at that?

Well, we generally do a price increase every January 1, whether it's needed or not, and that's been the practice of the entire industry. In rare occasions, and I think it's kind of on the order of like once every 10 years, there's also a July 1 price increase. So there is some history for that. We did not raise prices out of the ordinary in spite of what was going on at the retail level because frankly, we think people in the industry have a long memory. And those retailers who are gouging people are probably leaving a significant impression on those consumers. But remember, we don't sell to consumers; we sell to independent wholesalers, who then sell to the retailers. And perhaps, we have left money on the table by not taking advantage of the spike in demand. But I think it's a better long-term practice. We hope to be in the business for decades to come and not just a quick flash in the pan here, and I think there's some long memories.

And our next question comes from the line of Chris Harrell with Capco Asset Management.

I have a question about the LC380, the new product. Just wondering whether you view this as incremental, just sort of a moderately incremental progress, or whether this is sort of a meaningful addition to the lineup, and how the demand compares for it to the LC9 and the old LCP?

From a strictly engineering perspective, it's definitely incremental. But from a demand perspective, it appears to be very significant. It's fitting a market niche for folks who have, perhaps, not -- for people who perhaps don't have the strength to rack the slide on an LC9, or who are recoil sensitive. It's a little bit bigger and heavier than the LCP, and it's therefore easier to operate. And it was very, very warmly received at the distributor shows in January.

[Operator Instructions] And our next question is a follow-up question from the line of Brian Rafn with Morgan Dempsey Capital.

Yes, Mike, I'm wondering, as you develop new product, are you seeing any changes in the life cycle of sales of new products falling off quicker? There's a lot of noise out. There's a lot of launches, a lot of demand. I'm just wondering what you're seeing from the standpoint of units and dollar sales as you go out 1, 2, 3 years after a launch. And how much advertising support do you have to bring to a new product?

If you look back at what we talked about for capital expenditures each of the last 3, 4 years, and we would say, for example, we think we're going to spend $15 million this year on CapEx. And the year would finish, and we'd end up spending $19 million or $20 million. And the reason for that is that I constantly predict the new products will cannibalize the old, and that the initial first year demand will taper off and it doesn't happen very often. And so I've made plans to use equipment from existing lines on the next line as the volume of the existing line declines, and the volume of the existing lines haven't declined. So I haven't been able to repatriate equipment to the extent I thought I could, and so I end up having to acquire more equipment. So it's kind of a long answer, but we are not seeing the product life cycles that we expected to see where you would have enormous first year demand and then it would taper off significantly after that. We expect it, but we haven't observed it.

Okay. Okay. Pretty good answer. Let me ask you, in some of the new -- you talked about some of the shooting clubs up in the Ivy League colleges, the incremental demand for women in self-defense, in shooting and that type of thing. With some of these new incremental users, enthusiasts, do you have any sense -- and again, this is more philosophical, do you have any idea of how they might be in multiple gun unit ownership? Or do you get a sense they're just single gun owners? Because then obviously, you'd have the ability, the entire industry, to continue this type of unit volume.

I don't have a good feel for it. But I do hear from retailers that the number of new shooters is increasing significantly. It really hasn't tapered off at all; it's actually climbing. And that's a good thing for the industry because at least some portion of them, and we don't know what portion but some portion of them, will go beyond just that first self-defense gun and will realize just how much fun it is and start acquiring additional firearms.

Okay. In your K, you guys talked about installing a new ERP system. What specifically was that? Can you give a little highlight on that?

Yes. I think we started about 1.5 years ago and put in an Oracle system. And by and large, it's up and running at all locations. And we're sort of in that second phase where you were fine-tuning it and maybe doing some small add-ons to it.

Okay. And then just on -- what are you guys seeing in wage and salary, payroll inflation for 2013 and then maybe health care benefit cost?

We've given modest base salary increases every year, and would expect to do so again this year. And the significant increases in our compensation come from variable income, which for the employees in all cases is tied strictly to results. We pay out a fixed percentage of the earnings to the employees as profit-sharing. And even those employees who are eligible for annual bonuses, it's tied strictly to how earnings perform. As far as health care costs go, we've actually been extremely fortunate the past few years in terms of the number of really expensive cases we've had. If anything, I think we've had probably below average. If you looked over a 10-year window, I think the last couple of years had probably been a little on the lighter side. Typically, we'll have more than 1,000 people or families enrolled in our health care program. And some number, 8 to 10, consume almost all the dollars. In other words, insurance is working just the way it should. And even having just 2 less significant cases makes a big difference in your cost. So I think we've probably been a little bit lucky, and that is not something that can be forecast.

Yes. Okay. You talked a little bit about building up, Mike, your safety stock; pretty tough in this market with the demand. Are there any incremental specific pistols, revolvers that you might be able to? Or is everything really kind of at capacity? And then second question, what are you doing if you're doing anything at all with shotguns in 2013?

Okay. Talking about inventory. The issue is, how much should we have. And clearly, it's a lot more than we have had, and I believe that applies to our wholesale distributors as well. For example, had we all had an uncomfortably high level of inventory going into this winter, we would have sold all of it and then more. But we didn't. And so all we could sell was what we could make each week. And the people who've been in the industry over the decades have told me over and over again that you ought to have a lot more than you think because unfortunately, there are incidents, like Newtown or other ones, or like Obama getting elected, that create great political drive behind demand. And we clearly had almost no inventory at all and so really couldn't respond by emptying the warehouse. There wasn't anything in there to start with. The wholesalers did have a little bit and as you saw, their inventory went down 70,000 some units, which was a huge percentage of their overall inventory, shame on them. They should have had much more in inventory to take advantage of political opportunities. So I think your question was, can we in the near future increase inventory? The answer is not till demand slows down. And we have been since, I said like November, December '10, we have been basically selling every single thing we make, and it is flowing through the wholesalers to the retailers at about the same pace. And then your second question, I guess, was about shotguns. And we're hard at work on shotguns, and that's one of those projects that should have been a year and now is multiple years into the making. But I'm sure it will -- we'll bring them to market one day soon.

[Operator Instructions] And our next question is a follow-up question from the line of Jim Barrett with CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Mike, the sales by segment, specifically for rifles, was the growth linear through 2012? Or did rifles enjoy a spurt in demand in the fourth quarter, whether that be in shipments or in your orders?

Jim, I'm not completely sure I understand your question. But going back to what I just said, pretty much everything we've made, every day, every week, every month since late 2010, we've shipped promptly. None of the stuff is going into inventory and collecting dust on it at all. It's just flowing right through our warehouse and right out the door. So to try to figure out which products have advanced faster than others, the place to look is where we've introduced new products. That's the incremental volume, generally speaking. James Barrett - CL King & Associates, Inc., Research Division: Okay. So the American Rifle would explain why rifles went from 26% of your sales in '11 to 30% in '12 in broad strokes?

I think so. I'm trying to think through which products did better than others, and the Ruger American Rifle wasn't the only rifle where we increased volume. But it obviously went from 0 to whatever number it hit, so that was a significant piece. James Barrett - CL King & Associates, Inc., Research Division: And then a related question, could you remind me, broadly speaking, what are the gross margins on rifles versus pistols versus revolvers? Can you at least provide us some directional thoughts on that?

No. James Barrett - CL King & Associates, Inc., Research Division: Well, that's clear.

Ladies and gentlemen, this concludes the question-and-answer portion of our call. I will now turn the call back over to Michael Fifer for any closing comments.

Gentlemen and ladies, thank you very much for listening in. I appreciate your need for forward-looking information, and I appreciate your patience with my trying not to give it to you. I think the company has a good story. It's really a very, very simple one: We try to drive demand through innovation, and we try to free up assets, which are people, space, equipment and cash through the implementation of Lean methodologies, and it's been working pretty well and we're very hopeful that it will continue to work. And I look very much forward to seeing you at the Analyst Day in Prescott, Arizona. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may all disconnect. Good day, everyone.