The U.S. Firearms Industry
Small Arms Research Group (SARG)
J. Brauer, P. Hall, S. Markowski, M. Jonas, S. Koorey, D.
Kahraman, P. Basciano, M. Howard
COST meeting, Brussels, 17-19 March 2008
The U.S. Firearms Industry
 In the few minutes I have, I want to leave you with
four impressions regarding our ongoing research on
the U.S. firearms industry
 Preliminary research – meant to show what sorts of
research may be possible
 Research: company and industry research



Econ impact; (supply-side); demand-side;
Back to supply-side: profits, performance, proliferation
paper; 2 supply-chain papers;
Now: originators of firearms (picking up on Gabelnick, Haug,
Lumpe, Sept. 2006, SAS paper)
The U.S. Firearms Industry
 1. Location analysis; industry entry/exit
analysis; production clusters (GIS)
 2. Market concentration measures (BATF)
 3. Recent merger & acquisition activity (e.g.,
Cerberus Capital Management LP)
 4. Accounting/financial analysis (Ruger)
1. Location analysis (GIS)
 Discovery of clusters:
 U.K., Spain, Italy, France, Germany
 Economies of agglomeration
 LDCs: Pakistan? South Africa?
 Determinants of location:
 Water-power; electrification
 Transport: canals, railroads, major highways
 Determinants of industry entry/exit:
 Labor costs/OSHA regulatory costs
 Federal, state, local gun laws
2. Market concentration (BATF)
 BATF data (1980-2005/1998-2005):
 By pistols, revolvers, rifles, shotguns, other
 By “manufacturer” (FFL license holder and
establishment)
 For commercial and law enforcement sales (not
military sales)
 Rank order analysis (1998-2005):
 Concentration data (1998-2005):
Market concentration/ranks
Rifles Produced
2005
2004
2003
2002
2001
2000
1999
1998
REMINGTON ARMS CO, INC
1
3
1
3
1
3
3
3
STURM, RUGER & COMPANY, INC
2
1
2
1
3
1
1
1
SAVAGE ARMS, INC
3
4
5
5
5
4
5
5
ARGUS PUBLICATIONS INC
4
7
6
6
7
7
6
US REPEATING ARMS COMPANY
5
5
4
4
4
6
4
4
BUSHMASTER FIREARMS
6
8
9
8
8
9
6
10
THOMPSON CENTER ARMS CO INC
7
7
8
9
9
12
13
11
KEYSTONE SPORTING ARMS INC
8
9
10
10
12
14
17
15
O F MOSSBERG & SONS INC
9
12
DEFENSE PROCUREMENT MFG SERVICES INC
10
13
SPRINGFIELD INC
11
ROCK RIVER ARMS INC
12
17
14
KIMBER MFG INC
13
16
KEL TEC CNC INDUSTRIES INC
14
OLYMPIC ARMS INC
15
MARLIN FIREARMS COMPANY
25
21
17
19
18
19
19
13
13
15
15
14
16
18
19
21
18
16
16
19
19
18
18
20
18
18
2
3
2
2
2
2
2
22
Market concentration/ranks
Pistols Produced
2005
2004
2003
2002
2001
2000
1999
1998
SMITH & WESSON CORP
1
2
5
5
3
4
3
2
SPRINGFIELD INC
2
4
7
9
11
16
18
STURM, RUGER & COMPANY, INC
3
1
1
1
1
1
1
1
BEEMILLER INC
4
5
3
6
5
6
10
11
BERETTA U S A CORPORATION
5
4
2
2
4
3
2
3
KEL TEC CNC INDUSTRIES INC
6
6
9
9
6
8
11
13
KIMBER MFG INC
7
7
8
8
8
7
7
10
COBRA ENTERPRISES OF UTAH, INC
8
12
12
20
ARMS TECHNOLOGY INC
9
9
11
10
7
13
13
12
JIMENEZ, PAUL J
10
21
HASKELL MANUFACTURING INC
11
11
15
18
13
18
20
21
SAEILO, INC
12
12
13
15
12
20
23
19
COLT'S MANUFACTURING CO LLC
13
17
14
11
10
10
6
6
IBERIA FIREARMS INC
14
14
17
16
18
23
PHOENIX ARMS
15
15
16
13
19
12
12
8
Market concentration
 4-firm/8-firm: % out of all firms in the market
 HHI = Sum of squared market shares (Σsi2)
 For example,
 5 firms: 50% + 30% + 10% + 5% + 5% = 100%
 Top 4-firms: 95%
 HHI = 502 + 302 + 102 + 52 + 52 = 3,550
 (HHI min => 0; HHI max = 10,000)
 HHI = 1,000 => competitive
 HHI = 1,800+ non-competitive
Market concentration
Market concentration
3. Recent M&A activity (2007)
 Ceberus Capital Management LP
 CCM division (Heritage Arms LLC) bought
Remington; Bushmaster Firearms; DPMS



Bushmaster bought Cobb Mfg and formed the …
… Bushmaster Custom Shop by Iron Brigade
Remington bought Marlin Firearms


Remington already had the Parker trademark
Marlin already had the H&R 1871; New England
Firearms; and L.C. Smith trademarks
3. Recent M&A activity (2007)
 Cerberus Capital Management LP
 Based on 2004 BATF data, CCM would now hold
about 48% of the commercial and law
enforcement U.S. rifle market, 2.5 times that of the
next competitor (Ruger)
 In the military market, CCM appears set to
compete with Colt’s Defense and FN Herstal, FN
USA, FN Mfg. for M16/AR15-style rifles
3. Recent M&A activity (2007)
 Smith & Wesson Holding Corp. (handguns)
 Bought Thompson/Center Arms (longguns)
 Browning

U.S. Repeating Arms => Winchester Repeating Arms
=> part of FN Herstal (under Olin Corp license)
 Keystone Sporting Arms Inc
 Bought Rogue Rifle Co.
 O.F. Mossberg
 Already owned Maverick Arms
 Concluded co-production agreement with TASER
4. Accounting/financial analysis
 Sturm, Ruger, and Co., Inc. (“Ruger”):
 Established: 1949; on NYSE since 1990
 Electronic SEC filings back to 1995; with some
data going back to 1991 (quarterly data!)
 Earlier records should be available in paper form
 Others:



Smith & Wesson Holding Corp.
Remington Arms
Others? [e.g., Taser, ATK, Olin]
4. Accounting/financial analysis
 What can be calculated?
 %ΔEPS vs %ΔGDP: business cycle analysis
 Aggregate sales/submarket sales (pistols,
revolvers, rifles, shotguns)
 Profitability analysis: gross profit, EBIT, EBITDA,
net profit margins, return on assets, return on
equity; benchmarks
 Share analysis: P/E; P/BV; benchmarks
 Earnings management analysis
 Pricing analysis: inputs, labor, legal costs, etc.;
inventory costs; costs of goods sold (COGS)
 Etc.
The U.S. Firearms Industry
Thank you.
Contact: [email protected]
Questions?
Small Arms Research Group (SARG)
J. Brauer, P. Hall, S. Markowski, M. Jonas, S. Koorey, D.
Kahraman, P. Basciano, M. Howard
COST meeting, Brussels, 17-19 March 2008