INDEX

INDEX

STURM, RUGER & COMPANY, INC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

Note:

Note:

The consolidated balance sheetCondensed Consolidated Balance Sheet at December 31, 20162019 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)

(Dollars in thousands, except per share data)data)

Note:

Note:

The consolidated balance sheetCondensed Consolidated Balance Sheet at December 31, 20162019 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share)

NOTE 1 -— BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. Operating results for the nine months ended September 30, 201726, 2020 may not be indicative of the results to be expected for the full year ending December 31, 2017.2020. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.

NOTE 2 -— SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales typically represent approximatelyno more than 5% of total sales. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less thanApproximately 1% of sales are from the castings segment.

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition:

The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which became effective January 1, 2018. Substantially all product sales are sold FOB (free on board) shipping point. Customary payment terms are 2% 30 days, net 40 days. Generally, all performance obligations are satisfied when product is shipped and the customer takes ownership and assumes the risk of loss. In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which downstream customers are entitled to receive no charge products based on their purchases of certain of the Company’s products from the independent distributors. The fulfillment of these no charge products is the Company’s responsibility. In such instances, the Company allocates the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the firearms included in the promotional program, including the no charge firearms. Revenue is recognized proportionally as each performance obligation is satisfied, based on the relative customary price of each product. Customary prices are generally determined based on the prices charged to the independent distributors. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications:

Certain prior period balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements:

On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The new guidance requires that all deferred tax assets and liabilities be presented as a net noncurrent asset or liability on the balance sheet. Previously such items were presented as a net current asset or liability and a net noncurrent asset or liability. The new guidance was effective for fiscal years beginning after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2015-17 in the first quarter of 2017 and applied it retroactively to all prior periods presented in the financial statements. The impact of adopting this change in accounting principle on the December 31, 2016 balance sheet was to reduce current deferred tax assets and working capital by $8,859 and noncurrent deferred tax liabilities by $8,526 from the amounts previously reported for these items.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in the new compensation guidance is that all excess tax benefits and tax deficiencies (including tax benefits of dividends) on share-based compensation awards should be recognized in the Statement of Income as income tax expense. Previously such benefits or deficiencies were recognized in the Balance Sheet as adjustments to additional paid-in capital. The new guidance was effective in fiscal years beginning after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2016-09 in the first quarter of 2017. The impact of adopting this change in accounting principle reduced the Company’s effective tax rate by 2% for the period ending September 30, 2017. This did not have a material impact on the Company’s results of operations or financial position.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year, making it effective for annual reporting periods beginning after December 15, 2017. We plan to adopt the provisions of ASU 2014-09 on a modified retrospective basis. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated revenue. We continue to assess the overall impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), its long-awaited final standard on the accounting for leases. The most significant change in the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease

payments are generally recognized over the lease term on a straight-line basis. This change will resultresults in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S. GAAP. The new lease guidance iswas effective in fiscal years beginning after December 15, 2018 and interim periods thereafter. Early application is permitted for all entities. The Company is currently evaluatingadopted ASU 2016-02 effective January 1, 2019. As more fully discussed in Note 5, as a result of adopting ASU 2016-02, the effect that the standard will haveCompany recorded right-of-use assets totaling $2,253 million and lease liabilities of $2,285 million on its Condensed Consolidated Balance Sheets as of September 26, 2020. There was no impact on the consolidatedCondensed Consolidated Statements of Income, Condensed Consolidated Statements of Stockholders’ Equity, or Condensed Consolidated Statements of Cash Flows as a result of this adoption.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance requires financial statements.instruments measured at amortized cost basis to be presented at the net amount expected to be collected through application of the current expected credit losses model. The model requires an estimate of the credit losses expected over the life of an exposure or pool of exposures. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This pronouncement was effective for fiscal years beginning after December 15, 2019. The Company adopted the new guidance effective January 1, 2020. There was no impact on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Stockholders’ Equity, or Condensed Consolidated Statements of Cash Flows as a result of this adoption.

NOTE 3 -— REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, applied to those contracts for which all performance obligations were not completed as of that date. Under the modified retrospective method, results for reporting periods beginning after January 1, 2018 are presented using the guidance of ASC 606.

The impact of the adoption of ASC 606 on revenue recognized during the three and nine months ended September 26, 2020 and September 28, 2019 is as follows:

As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products. The Company expects the deferred revenue from this contract liability with customers to be recognized in the fourth quarter of 2020.

Practical Expedients and Exemptions

The Company has elected to account for shipping and handling activities that occur after control of the related product transfers to the customer as fulfillment activities that are recognized upon shipment of the goods.

NOTE 4 — INVENTORIES

Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation.

During the nine month period ended September 30, 2017,26, 2020, inventory quantities were reduced. If this reduction remains through year-end, it will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases. Although the effect of such a liquidation cannot be precisely quantified at the present time, management believes that if a LIFO liquidation occurs in 2017,2020, the impact may be material to the Company’s results of operations for the period but will not have a material impact on the financial position of the Company.

Inventories consist of the following:

NOTE 5 — LEASED ASSETS

The Company leases certain of its real estate and equipment. The Company has evaluated all its leases and determined that all are operating leases under the definitions of the guidance of ASU 2016-02. The Company’s lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

The Company adopted the provisions of ASU 2016-02 using the effective date method on January 1, 2019 and recorded right-of-use assets equal to the present value of the contractual liability for future lease payments. The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of September 26, 2020:

The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight line basis over the life of the lease.

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company uses its incremental borrowing rate enumerated in its revolving line of credit (see Note 6) to determine the present value of its operating lease liabilities. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Condensed Consolidated Balance Sheet as of September 26, 2020:

Certain of the Company’s lease agreements contain renewal options at the Company’s discretion. The Company does not recognize right-of-use assets or lease liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception of the lease or when a triggering event occurs. The Company’s weighted average remaining lease term for operating leases as of September 26, 2020 is 11.48 years.

NOTE 4 -6 — LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2018.September 30, 2021. Borrowings under this facility bear interest at the one-month LIBOR (1.787%rate (0.15% at September 30, 2017)26, 2020) plus 200150 basis points. The Company is charged three-eighthsone-quarter of a percent (0.375%(0.25%) per year on the unused portion. The facility includes certain terms and covenants, including the requirement that the Company to maintain a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) for the preceding four quarters in any quarter that the Company draws on the line of credit. During the first quarter of 2020, the Company made a $1 million draw from the facility while it was not in compliance with this covenant. The draw was subsequently repaid prior to the end of the first quarter. The Company notified the lender and was granted a waiver on June 30, 2020. At September 30, 201726, 2020 and December 31, 2016,2019, the Company was in compliance with the terms and covenants of the credit facility, which remains unused.facility. At September 26, 2020, there was no outstanding balance on the line of credit.

NOTE 5 -7 — EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $0.7$0.8 million and $2.5$2.4 million for the three and nine months ended September 30, 2017,26, 2020, respectively, and $0.8$0.7 million and $2.5

$2.6 million for the three and nine months ended October 1, 2016,September 28, 2019, respectively. The Company plans to contribute approximately $0.7$0.8 million to the plan in matching employee contributions during the remainder of 2017.2020.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.2 million and $4.4$3.9 million for the three and nine months ended September 30, 2017,26, 2020, respectively, and $1.4$1.0 million and $4.5$3.9 million for the three and nine months ended October 1, 2016,September 28, 2019, respectively. The Company plans to contribute approximately $1.2 million in supplemental contributions to the plan during the remainder of 2017.2020.

NOTE 6 -8 — INCOME TAXES

The Company's 2017Company’s 2020 and 20162019 effective tax rates differ from the statutory federal tax rate due principally to state income taxes partially offset by tax benefits related to the American Jobs Creation Act of 2004.taxes. The Company’s effective income tax rate was 30.3%24.7% and 34.0%25.2% for the three and nine months ended September 30, 2017.26, 2020, respectively. The Company’s effective income tax rate inwas 24.4% and 25.2% for the three and nine months ended October 1, 2016 was 34.8% and 35.7%,September 28, 2019, respectively. This reduction is primarily the result of the Company’s adoption of ASU 2016-09 on January 1, 2017, as previously discussed in the Recent Accounting Pronouncements section of Note 2.

Income tax payments for the three and nine months ended September 30, 201726, 2020 totaled $1.3$18.2 million and $18.6$22.3 million, respectively. Income tax payments for the three and nine months ended October 1, 2016September 28, 2019 totaled $13.5$0.3 million and $34.4$11.8 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2015.

2017.

The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable. The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position.

NOTE 7 -9 — EARNINGS PER SHARE

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:

The dilutive effect of outstanding options and restricted stock units is calculated using the treasury stock method. There were no stock options that were anti-dilutive and therefore not included in the diluted earnings per share calculation.

NOTE 8 -10 — COMPENSATION PLANS

In May 2017, the Company’s shareholders approved the 2017 Stock Incentive Plan (the “2017 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives. Vesting requirements are determined by the Compensation Committee of the Board of Directors.The Company has reserved 750,000 shares for issuance under the 2017 SIP, of which 727,000352,000 shares remain available for future grants as of September 30, 2017.26, 2020.

In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 SIP”), which had similar provisions as the 2017 SIP. The 2007 SIP plan expired April 24, 2017. The Company had reserved 2,550,000 shares for issuance under the 2007 SIP, of which 2,181,000 shares were issued.

Compensation costs related to all share-based payments recognized in the statements of operations aggregated $1.0 million and $2.6 million for the three and nine months ended September 30, 2017, respectively, and $0.8 million and $2.2 million for the three and nine months ended October 1, 2016, respectively.

Stock Options

A summary of changes in options outstanding under the 2007 SIP is summarized below:

The aggregate intrinsic value (mean market price at September 30, 2017 less the weighted average exercise price) of options outstanding under the 2007 SIP was approximately $0.5 million.

Restricted Stock Units

Beginning in 2009, theThe Company began grantinggrants performance-based and retention-based restricted stock units to senior employees in lieu of incentive stock options.employees. The vesting of thesethe performance-based awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors. Beginning in 2011,Directors and a three yearthree-year vesting period was addedperiod. The retention-based awards are subject only to the performance criteria, which had the effect of requiring both the achievement of the corporate performance objectives and the satisfaction of thethree-year vesting period.

There were 125,400109,112 restricted stock units issued during the nine months ended September 30, 2017.26, 2020. Total compensation costs related to these restricted stock units are $5.1$6.5 million. These

Compensation costs are being recognized ratably over the vesting period of three years. Total compensation cost related to all outstanding restricted stock units was $1.0recognized in the statements of income aggregated $1.7 million and $2.6$4.4 million for the three and nine months ended September 30, 2017,26, 2020, respectively, and $0.8$1.6 million and $2.2$4.8 million for the three and nine months ended October 1, 2016,September 28, 2019, respectively.

NOTE 9 -11 — OPERATING SEGMENT INFORMATION

The Company has two2 reportable segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a select number of independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding parts.

Selected operating segment financial information follows:

NOTE 10 –12 — RELATED PARTY TRANSACTIONS

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities, including the 2016 “Ruger $5 Million Match Campaign” and the 2015-16 “2.5 Million Gun Challenge”.activities. Payments made to the NRA in the three and nine months ended September 30, 2017 were insignificant. The Company paid26, 2020 totaled $0.2 million and $0.4 million, respectively. Payments made to the NRA $1.0 million and $3.0 million in the three and nine months ended October 1, 2016.September 28, 2019 totaled $0.4 million and $0.7 million, respectively. One of the Company’s Directors also serves as a Director on the Board of the NRA.

The Company has contracted with Symbolic, Inc. (“Symbolic”) to assist in its marketing efforts. During the three and nine months ended September 30, 2017, the Company paid Symbolic $0.3 million and $1.3 million, respectively, which amounts included $0.3 million and $0.8 million, respectively, for the reimbursement of expenses paid by Symbolic on the Company’s behalf. During the three and nine months ended October 1, 2016, the Company paid Symbolic $0.4 million and $1.5 million, respectively, which amounts included $0.2 million and $0.7 million, respectively, for the reimbursement of expenses paid by Symbolic on the Company’s behalf. Symbolic’s principal and founder was named the Company’s Vice President of Marketing in June 2017, and remains a partner of Symbolic.

NOTE 11 -13 — CONTINGENT LIABILITIES

As of September 30, 2017,26, 2020, the Company was a defendant in four (4)five (5) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: traditional product liability litigation, patentnon-product litigation, and municipal litigation,litigation. Each is discussed in turn below.

Traditional Product Liability Litigation

Two of the four lawsuits mentioned above involve claimsa claim for damages related to an allegedly defective productsproduct due to theirits design and/or manufacture. TheseThe lawsuits stem from specific incidents of personal injury and are based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

The Company management believes that the allegations in these cases are unfounded, that the incidents wereare unrelated to the design or manufacture of the firearm,firearms involved, and that there should be no recovery against the Company.

Non-Product Litigation

Patent Litigation

Davies Innovations, Inc.Primus Group LLC v. Sturm, Ruger & Company, Inc.Smith and Wesson, et al. is a patent litigation suit originallyputative class action filed in the United States District Court for the Southern District of Texas, Galveston Division. UponOhio on August 8, 2019. Plaintiff alleges that the defendants’ lawful sale of modern sporting rifles violates the Racketeer Influenced Corrupt Organizations Act and seeks a temporary restraining order (“TRO”) and permanent injunction. On August 20, 2019, the court denied plaintiff’s request for a TRO. On September 3, 2019, defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). On September 16, 2019, plaintiff filed an Amended Complaint. On October 9, 2019, the court dismissed plaintiff’s Amended Complaint, with prejudice. Plaintiff filed a Notice of Appeal on October 15, 2019 and sought two extensions of time to file its initial brief. Plaintiff’s subsequent motion to hold the appeal in abeyance was granted, though the court also ordered plaintiff to file periodic status reports. Plaintiff filed a series of status reports and eventually requested that the appeal be reactivated. Pursuant to the scheduling order in place currently, the matter should be briefed fully by the Company, the caseDecember 9, 2020.

FN Herstal S.A. v. Sturm, Ruger & Co., Inc. was transferred tofiled in the United States District Court for the Eastern District of New Hampshire.Virginia on March 6, 2020. The suit isComplaint alleges injury and economic loss based upon alleged patent infringement as the plaintiff claims that certain features of the Ruger SR-556federal and SR-762 modern sporting rifles infringe its patent. The complaint seeks a judgment ofstate trademark infringement and unspecified monetary damages including costs, feesunfair competition. These allegations arise from the Company’s use and treble damages.

Pursuantefforts to seek registration of “Ruger-57” in connection with the Company's Motion for Summary Judgment, filed on February 15, 2017, the Court dismissed the plaintiff’s claimlaunch of literal infringement, but allowed the case to proceed to discovery on alternate theories.

a pistol bearing that mark. The Company management believes that the suit lacks any merit and has filed an Answer denying all material allegations in this case are unfounded, that thereand Counterclaims seeking cancellation of certain of Plaintiff’s registered trademarks. Discovery has been initiated and is no infringement of plaintiff’s patent, that plaintiff’s patent is invalid, and there should be no recovery against the Company.ongoing.

Municipal Litigation

Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third-parties.

third parties.

There is only one remaining lawsuit of this type, filed by the City of Gary in Indiana State Court in 1999. The complaint in that case seeks damages, among other things, for the costs ofmedical care,,police and emergency services, public health services,,and other services as well as punitive damages. In addition,,nuisance abatement and/or injunctive relief is sought to change thethe design,,manufacture,,marketing marketing and distribution practices of thethe various defendants. The suit alleges,,among other claims,,negligence in the design of products,,public nuisance,,negligent distribution and marketing,,negligence per se and deceptive advertising. The case does not allege a specific

injury to a specific individual as a result of the misuse or use of any of the Company's products.

After a long procedural history,,the case was scheduled for trial on June 15,,2009. The case was not tried on that date and was largely dormant until a status conference was held on July 27,,2015. At that time,,the court entered a scheduling order setting deadlines for plaintiff to file a Second Amended Complaint,,for defendants to answer,,and for defendants to file dispositive motions. The plaintiff did not file a Second Amended Complaint by the deadline.

In 2015,,Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. The defendants have filed a joint motion for judgment on the pleadings, asserting immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce in Arms Act inapplicableinapplicable to the City's claims. The motion was fully briefed by the parties.

On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court inKS&E Sports v.v. Runnels, which presentspresented related issues. The Indiana Supreme Court decidedKS&E Sports on April 24,,2017,,and theCity of Gary court lifted the stay. TheCity of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of theKS&E Sports decision on defendants'defendants' motion for judgment on the pleadings.pleadings.

A hearing on the motion for judgment on the pleadings is set forwas held on December 12, 2017. On January 2, 2018, the court issued an order granting defendants’ motion for judgment on the pleadings, but denying defendants’ request for attorney’s fees and costs. On January 8, 2018, the court entered judgment for the defendants. The City filed a Notice of Appeal on February 1, 2018. Defendants cross-appealed the order denying attorney’s fees and costs.

Briefing in the Indiana Court of Appeals was completed on the City’s appeal and Defendants’ cross appeal on September 10, 2018. The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that Manufacturer Defendants’ conduct was unlawful. However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief.

The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019. The Petition was denied on November 26, 2019. The case was remanded to the trial court for further proceedings, though there has been no activity since then.

Summary of Claimed Damages and Explanation of Product Liability Accruals

Punitive damages,,as well as compensatory damages, are demanded in certain of the lawsuits and claims. In many instances,,the plaintiff does not seek a specified amount of money,,though aggregate amounts ultimately sought may exceed product liability accruals and applicable insurance coverage. For product liability claims made after July 10, 2000,,coverage is provided on an annual basis for losses exceeding $5 million per claim,,or an aggregate maximum loss of $10 million annually,,except for certain new claims which might be brought by governments or municipalities after July 10,,2000,,which are excluded from coverage.

The Company management monitors the status of known claims and the product liability accrual,,which includes amounts for asserted and unasserted claims. While it is not possible to forecast the outcome of litigation or the timing of costs,,in the opinion of management,,after consultation with special and corporate counsel, it is not probable and is unlikely that litigation,,including punitive damage claims,,will have a material adverse effect on the financial position of the Company,Company, but may have a material impact on the Company’sCompany’s financial results and cash flows for a particular period.

Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims. Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case. A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case.

Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience. Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs.

In most cases, an accrual is established only for estimated legal defense costs. Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future. Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims;i.e., an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis.

A range of reasonably possible losses relating to unfavorable outcomes cannot be made. However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $0.1 million and $0.1 million at December 31, 20162019 and 2015,2018, respectively, are set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

NOTE 12 -14 — SUBSEQUENT EVENTS

On October 27, 2017,September 29, 2020, the United States Bankruptcy Court for the Northern District of Alabama approved the Company’s offer to purchase certain of the assets used to manufacture Marlin firearms from Remington Outdoor Company, Inc. for $30 million in cash.

On September 30, 2020, the Company entered into the Second Amendment to Credit Agreement its bank, which extended the termination date of the Company’s line of credit agreement to September 30, 2021 and modified a financial covenant.

October 23, 2020, the Board of Directors authorized a dividend of 21¢56¢ per share, for shareholders of record as of November 15, 2017,13, 2020, payable on November 30, 2017.

27, 2020.

The Company has evaluated events and transactions occurring subsequent to September 30, 201726, 2020 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

Company Overview

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales typically represent approximatelyno more than 5% of total sales. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less thanApproximately 1% of sales are from the castings segment.

Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year. This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Impact of Covid-19

The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020. The COVID-19 pandemic has created significant uncertainty and adversely impacted many industries throughout the global economy. In the first nine months of 2020, the Company did not experience a significant adverse impact on its business resulting from government restrictions on the movement of people, goods, and services. The impact of the COVID-19 pandemic is fluid and continues to evolve, and, therefore, the Company cannot predict the extent to which its business, results of operations, financial condition, or cash flows will ultimately be impacted. Management continues to monitor and assess the situation and to prepare for potential implications for the Company’s business, supply chain and customer demand.

From a liquidity perspective, the Company believes it is currently well positioned to manage through this global crisis. At the end of the third quarter of 2020, the Company was debt-free, and had cash and short-term investments totaling $133.6 million and an unused $40.0 million revolving credit facility.

The Company has taken many proactive steps to maintain the health and safety of its employees and to mitigate the impact on its business. These actions include:

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Providing all hourly employees with an additional two weeks of paid time off,

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Encouraging employees to work remotely, wherever possible, and implementing social distancing throughout each manufacturing facility, including in every manufacturing cell,

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Communicating with and assisting employees with potential health issues,

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Restricting visitor access to avoid introducing new people to the factory environment,

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Implementing additional cleaning, sanitizing and other health and safety processes to maintain a clean and safe workplace, and

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Manufacturing and donating personal protective equipment to local hospitals, health care facilities, and police and fire departments in its local communities.

The costs of these actions are expected to total approximately $3.5 million in 2020, of which approximately $0.9 million and $2.4 million was recognized during the three and nine months ended September 26, 2020, respectively. The Company has also experienced expense reductions and deferrals in certain areas of our business, including reductions or delays in sponsorships and advertising, reduced conference and trade show participation costs, and reduced travel expenditures. These expense reductions and deferrals approximate $1.1 million and $2.2 million for the three and nine months ended September 26, 2020, respectively.

The Company has been able to keep all of its facilities safe and open with only limited restrictions on operations. While certain parts of the economy have begun to reopen as restrictions have been lifted, it is possible that additional restrictions will be put in place in the future which could adversely impact the Company’s business for an indeterminate period.

Since the latter stages of the first quarter of 2020, there has been a significant increase in consumer demand for firearms, as evidenced by the increase in adjusted National Instant Criminal Background Check System (“NICS”) checks. This increased demand may be attributable, in part, to COVID-19. The sustainability of this increased consumer demand, and the ultimate impact of COVID-19 on consumer demand, cannot be predicted at this time.

The ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. See Part II, Item 1A. Risk Factors, for an additional discussion of risk related to COVID-19.

Results of Operations

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 25% and 16%increased 50% in three andthe first nine months ended September 30, 2017 fromof 2020 compared to the comparable prior year periods.period. For the same periods, the National Instant Criminal Background Check System (“NICS”)period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 16%increased 68%. These substantial increases may be attributable to increased public concern about personal protection and 10%. The decreasehome defense in estimated sell-through of the Company’s products from the independent distributors to retailers is attributablereaction to:

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Some political and public leaders calling for a reduction in funding and limitations on law enforcement activities,

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Recent protests, demonstrations, and civil unrest in many cities throughout the United States, and

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The continuing COVID-19 pandemic.

Sales of new products, including the Mark IV pistols,Wrangler, the Ruger-57, the LCP II pistol,in .22 LR, the PC Charger, and the Precision Rifle,AR-556 pistol, represented $118.8$87.9 million or 30%24% of firearm sales in the first nine months of 2017.2020. New product sales include only major new products that were introduced in the past two years.

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow: