For the years ended December 31, 2004, 2003,2006, 2005, and 2002,2004, net sales attributable to the Company’s firearms operations were approximately, 86%$139.1 million, $132.8 million and $124.9 million or 83%, 88%86%, and 86%, respectively, of total net sales. The balance of the Company’s net sales for the aforementioned periods was attributable to its investment castings operations. Further information regarding industry segment data is incorporated by reference to pages 23 and 24 of the Company’s 2004 Annual Report to Stockholders.

Pistols—
A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip. The Company presently manufactures three different types of pistols: the Ruger Mark III .22 caliber in Standard, Competition, and Target models, the Ruger 22/45, and the P-Series centerfire autoloading pistols in various calibers, configurations, and finishes. Sales of pistols by the Company accounted for approximately $24.8$31.9 million, $26.4$32.5 million, and $25.8$24.8 million of revenues for the years 2004, 20032006, 2005 and 2002,2004, respectively.

Revolvers—
A revolver is a handgun whichthat has a cylinder that holds the ammunition in a series of chambers which are successively aligned with the barrel of the gun during each firing cycle. There are two general types of revolvers, single-action and double-action. To fire a single-action revolver, the hammer is pulled back to cock the gun and align the cylinder before the trigger is pulled. To fire a double-action revolver, a single trigger pull advances the cylinder and cocks and releases the hammer. The Company presently manufactures tenseven different types of single-action revolvers in a variety of calibers, configurations, and finishes: the New Model Single-Six, the New Model .32 Magnum Super Single-Six, the New Model Blackhawk, the New Model Super Blackhawk, theNew Vaquero, the Ruger Bisley the Old Army Cap & Ball, the New Bearcat, the Bisley Vaquero, Single-Six, Super Blackhawk, and Bisley Hunter revolvers. The Company presently manufactures four different types of double-action revolvers: the SP101, the GP100, the

Many of the basic metal component parts of the firearms manufactured by the Company are produced by the Company’s castings facilities through a process known as precision investment casting. See “Manufacturing-Investment Castings” for a description of the investment casting process. The Company initiated the use of this process in the production of component parts for firearms in 1953 and believes that its widespread use of investment castings in the firearms manufacturing process is unique among firearms manufacturers.1953. The Company believes that the investment casting process provides greater design flexibility and results in component parts which are generally close to their ultimate shape and, therefore, require less machining. Through the use of investment castings, the Company is ableendeavors to produce durable and less costly component parts for its firearms.

Third parties supply the Company with various raw materials for its firearms, such as fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle and shotgun stocks, various synthetic products and other component parts. TheseThere is a limited supply of these materials in the marketplace at any given time which can cause the purchase prices to vary based upon numerous market factors. The Company believes that it has adequate quantities of raw materials in inventory to provide

Firearms—
The Company’s firearms are primarily marketed through a network of selected licensed independent wholesale distributors who purchase the products directly from the Company. They resell to Federally-licensed retail firearms dealers who in turn resell to legally authorized end-users. All retail purchasers are subject to a point-of-sale background check by law enforcement. These end-users include sportsmen, hunters, law enforcement and other governmental organizations, and gun collectors. Each distributor carries the entire line of firearms manufactured by the Company for the commercial market. Currently, 1516 distributors service the domestic commercial market, with an additional 12 distributors servicing the domestic law enforcement market and two distributors servicing the Canadian market. Four of the Company’s distributors service both the domestic commercial market and the domestic law enforcement market. In 2006, Lipsey’s, Inc. accounted for 13% and 11% of net firearms sales and consolidated sales, respectively. AcuSport Corporation accounted for approximately 12%13%, 19%13%, and 17%12%, of net firearms sales and 10%, 17%11%, and 15%10% of consolidated net sales in 2004, 2003,2006, 2005, and 2002,2004, respectively. Jerry’s Sport Center accounted for approximately 13%12%, and 12%13%, of the Company’s net firearms sales of firearms and 11%10% and 11% of consolidated net sales in 20042005, and 2003,2004, respectively. Sports

Firearms—
Competition in the firearms industry is intense and comes from both foreign and domestic manufacturers. While some of these competitors concentrate on a single industry product category, such as rifles or pistols, several foreign competitors manufacture products in all four industry categories (rifles, shotguns, pistols, and revolvers). Some of these competitors are subsidiaries of larger corporations than the Company with substantially greater financial resources than the Company, which could affect the Company’s ability to compete with these competitors. The Company is the only domestic manufacturer which produces firearms in all four industry product categories and believes that it is the largest U.S. firearms manufacturer, according to BATF Data.compete. The principal methods of competition in the industry are product innovation, quality, and price. The Company believes that it can compete effectively with all of its present competitors based upon theinnovation, high quality, reliability, and performance of its products, and the competitiveness of its pricing.

The only case against the Company alleging liability for criminal shootings by third-parties to ever be permitted to go before a constitutional jury,Hamilton, et al. v. Accu-tek, et al., resulted in a defense verdict in favor of the Company on February 11, 1999. In that case, numerous firearms manufacturers and distributors had been sued, alleging damages as a result of alleged negligent sales practices and “industry-wide” liability. The Company and its marketing and distribution practices were exonerated from any claims of negligence in each of the seven cases decided by the jury. In subsequent proceedings involving other defendants, the New York Court of Appeals as a matter of law confirmed that 1) no legal duty existed under the circumstances to prevent or investigate criminal misuses of a manufacturer’s lawfully made products; and 2) liability of firearms manufacturers could not be apportioned under a market share theory. More recently, the New York Court of Appeals on October 21, 2003 declined to hear the appeal from the decision of the New York Supreme Court, Appellate Division, affirming the dismissal of New York Attorney General Eliot Spitzer’s public nuisance suit against the Company and other manufacturers and distributors of firearms. In its decision, the Appellate Division relied heavily onHamilton in concluding that it was “legally inappropriate,” “impractical,” “unrealistic” and “unfair” to attempt to hold firearms manufacturers responsible under theories of public nuisance for the criminal acts of others.

Of the lawsuits brought by municipalities or a state Attorney General, nineteentwenty have been dismissed. Sixteen of those cases are concluded:Atlanta — dismissal by intermediate Appellate Court, no further appeal;Bridgeport — dismissal affirmed by Connecticut Supreme Court;County of Camden — dismissal affirmed by U.S. Third Circuit Court of Appeals;Miami — dismissal affirmed by intermediate appellate court, Florida Supreme Court declined review;New Orleans — dismissed by Louisiana Supreme Court, United States Supreme Court declined review;Philadelphia — U.S. Third Circuit Court of Appeals affirmed dismissal, no further appeal;Wilmington — dismissed by trial court, no appeal;Boston — voluntary dismissal with prejudice by the City at the close of fact discovery;Cincinnati — voluntarily withdrawn after a unanimous vote of the city council;Detroit — dismissed by Michigan Court of Appeals, no appeal;Wayne County — dismissed by Michigan Court of Appeals, no appeal;New York State — Court of Appeals denied plaintiff’s petition for leave to appeal the Intermediate Appellate Court’s dismissal, no further appeal;Newark — Superior Court of New Jersey Law Division for Essex County dismissed the case with prejudice;City of Camden — dismissed on July 7, 2003, not reopened;Jersey City — voluntarily dismissed and not re-filed; andSt. Louis — Missouri Supreme Court denied plaintiffs’ motion to appeal Missouri Appellate Court’s affirmance of dismissal.dismissal;Chicago — Illinois Supreme Court denied plaintiffs’ petition for rehearing; andLos Angeles

The Indiana Court of Appeals affirmed the dismissal of theGary case by the trial court, but the Indiana Supreme Court reversed this dismissal and remanded the case for discovery proceedings on December 23, 2003.ClevelandGary andNew York City are open cases and theNew York City case is presently scheduled to begin trial in September, 2005.2009. The defendants filed a motion to dismiss pursuant to the Protection of Lawful Commerce in Arms Act (“PLCAA”). The state court judge held the PLCAA unconstitutional and the defendants filed a motion with the Indiana Court of Appeals asking it to accept interlocutory appeal on the issue, which appeal was accepted on February 5, 2007.

In theNAACP case, on May 14, 2003, an advisory jury returned a verdict rejecting the NAACP’s claims. On July 21, 2003, Judge Jack B. Weinstein entered an order dismissing theNAACP lawsuit, but this order contained lengthy dicta which defendants believe are contrary to law and fact. Appeals by both sides were filed, but plaintiffs withdrew their appeal. On August 3, 2004, the United States Court of Appeals for the Second Circuit granted the NAACP’s motion to dismiss the defendants’ appeal of Judge Weinstein’s order denying defendants’ motion to strike his dicta made in his order dismissing the NAACP’s case, and the defendants’ motion for summary disposition was denied as moot. The ruling of the Second Circuit effectively confirmed the decision in favor of defendants and brought this matter to a conclusion.

Legislation has been passed in approximately 34 states precluding suits of the type brought by the municipalities mentioned above, and similar federal legislation has been introducedabove. On the Federal level, the “Protection of Lawful Commerce in Arms Act” was signed by President Bush on October 26, 2005. The Act requires dismissal of suits against manufacturers arising out of the lawful sale of their products for harm resulting from the criminal or unlawful misuse of a firearm by a third party. The Company is pursuing dismissal of each action involving such claims, including the municipal cases described above. On February 1, 2007, plaintiff’s counsel in the U.S. Congress. It passedpreviously reportedArnold case advised that plaintiff intends to voluntarily dismiss the Housecase with prejudice. This will conclude this matter with no payment by a 2-to-1 bipartisan majoritythe Company.