UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~July 2,~~October 1, 2022
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________

Commission file number 1-10435

STURM, RUGER & COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-0633559
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

One Lacey Place, Southport, Connecticut	06890
(Address of principal executive offices)	(Zip code)

(~~203~~) (203)259-7843

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	RGR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer's common stock as of ~~July 15,~~October 17, 2022: ~~17,668,670~~17,666,534.

INDEX

STURM, RUGER & COMPANY, INC.

	Page Number
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)	3
Condensed consolidated balance sheets – ~~July 2,~~October 1, 2022 and December 31, 2021	3
Condensed consolidated statements of income and comprehensive income – Three and ~~six~~nine months ended ~~July 2,~~ October 1, 2022 and ~~July 3,~~October 2, 2021	5
Condensed consolidated statement of stockholders’ equity – ~~Six~~Nine months ended ~~July 3,~~October 1, 2022	6
Condensed consolidated statements of cash flows – ~~Six~~Nine months ended ~~July 2,~~October 1, 2022 and ~~July 3,~~October 2, 2021	7
Notes to condensed consolidated financial statements – ~~July 2,~~October 1, 2022	8
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.Quantitative and Qualitative Disclosures About Market Risk	2726
Item 4.Controls and Procedures	2726
PART II.OTHER INFORMATION
Item 1.Legal Proceedings	2827
Item 1A.Risk Factors	2827
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	2827
Item 3.Defaults Upon Senior Securities	2827
Item 4.Mine Safety Disclosures	2827
Item 5.Other Information	2827
Item 6.Exhibits	2928
SIGNATURES	3029

Index

PART I. FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL~~

ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

	July 2, 2022	December 31, 2021	October 1, 2022			December 31, 2021
		(Note)					(Note)
Assets

Current Assets
Cash	$43,539	$21,044	$	49,853		$	21,044
Short-term investments	165,000	199,971		165,308			199,971
Trade receivables, net	56,243	57,036		61,362			57,036

Gross inventories (Note 4)	114,863	100,023		120,743			100,023
Less LIFO reserve	(53,532)	(51,826)		(54,390	)		(51,826	)
Less excess and obsolescence reserve	(4,186)	(4,347)		(4,848	)		(4,347	)
Net inventories	57,145	43,850		61,505			43,850

Prepaid expenses and other current assets	12,150	6,832		12,998			6,832
Total Current Assets	334,077	328,733		351,026			328,733

Property, plant and equipment	434,790	421,282		437,170			421,282
Less allowances for depreciation	(359,566)	(347,651)		(365,555	)		(347,651	)
Net property, plant and equipment	75,224	73,631		71,615			73,631

Deferred income taxes	291	536		2,444			536
Other assets	34,140	39,443		35,817			39,443
Total Assets	$443,732	$442,343	$	460,902		$	442,343

The Condensed Consolidated Balance Sheet at December 31, 2021 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.

	July 2, 2022	December 31, 2021	October 1, 2022			Decembe 31 2021
		(Note)					(Note)
Liabilities and Stockholders’ Equity

Current Liabilities
Trade accounts payable and accrued expenses	$27,306	$36,400	$	31,374		$	36,400
Contract liabilities with customers (Note 3)	0—			—			—
Product liability	441	795		434			795
Employee compensation and benefits	20,643	33,154		22,014			33,154
Workers’ compensation	6,105	6,760		6,380			6,760
Total Current Liabilities	54,495	77,109		60,202			77,109

Product liability accrual	118	97		118			97
Lease liability (Note 5)	2,162	1,476		2,076			1,476

Contingent liabilities (Note 13)	0—			—			—


Stockholders’ Equity
Common Stock, non-voting, par value $1:
Authorized shares 50,000; 00none issued	0—
Authorized shares 50,000; none issued				—			—
Common Stock, par value $1:
Authorized shares – 40,000,000
2022 – 24,378,568 issued, 17,668,670 outstanding
2022 – 24,378,568 issued, 17,666,534 outstanding
2021 – 24,306,486 issued, 17,596,588 outstanding	24,378	24,306		24,378			24,306
Additional paid-in capital	46,760	46,847		48,457			46,847
Retained earnings	461,409	438,098		471,368			438,098
Less: Treasury stock – at cost
2022 – 6,709,898 shares
2022 – 6,712,034 shares
2021 – 6,709,898 shares	(145,590)			(145,697	)		(145,590	)
Total Stockholders’ Equity	386,957	363,661		398,506			363,661
Total Liabilities and Stockholders’ Equity	$443,732	$442,343	$	460,902		$	442,343

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended		Six Months Ended		Three Months Ended						Nine Months Ended
	July 2, 2022	July 3, 2021	July 2, 2022	July 3, 2021	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Net firearms sales	$139,911	$199,447	$305,844	$383,049	$	138,771		$	177,529		$	444,615		$	560,578
Net castings sales	742	625	1,384	1,400		619			717			2,003			2,116
Total net sales	140,653	200,072	307,228	384,449		139,390			178,246			446,618			562,694

Cost of products sold	97,099	121,315	205,566	233,126		100,521			113,444			306,087			346,569

Gross profit	43,554	78,757	101,662	151,323		38,869			64,802			140,531			216,125

Operating expenses:
Selling	8,630	8,449	17,065	16,537		8,763			7,753			25,828			24,290
General and administrative	9,734	10,639	20,680	23,161		10,247			10,323			30,927			33,484
Total operating expenses	18,364	19,088	37,745	39,698		19,010			18,076			56,755			57,774

Operating income	25,190	59,669	63,917	111,625		19,859			46,726			83,776			158,351

Other income:
Interest income	190	12	221	20		730			11			951			31
Interest expense	(26)	(25)	(117)	(50)		(88	)		(114	)		(205	)		(164	)
Other income, net	750	610	1,602	1,061		490			1,401			2,092			2,462
Total other income, net	914	597	1,706	1,031		1,132			1,298			2,838			2,329

Income before income taxes	26,104	60,266	65,623	112,656		20,991			48,024			86,614			160,680

Income taxes	5,347	15,882	14,634	30,080		2,602			12,822			17,236			42,902

Net income and comprehensive income	$20,757	$44,384	$50,989	$82,576	$	18,389		$	35,202		$	69,378		$	117,778

Basic earnings per share	$1.18	$2.52	$2.89	$4.70	$	1.04		$	2.00		$	3.93		$	6.70

Diluted earnings per share	$1.17	$2.50	$2.87	$4.66	$	1.03		$	1.98		$	3.90		$	6.64

Weighted average number of commonshares outstanding - Basic	17,652,148	17,590,305	17,631,060	17,574,798		17,668,435			17,596,588			17,643,473			17,582,009

Weighted average number of commonshares outstanding - Diluted	17,799,707	17,766,868	17,762,765	17,735,910		17,825,797			17,778,177			17,770,120			17,749,897

Cash dividends per share	$0.68	$0.86	$1.54	$1.57	$	0.47		$	1.00		$	2.01		$	2.57

	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Total	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total
Balance at December 31, 2021	$24,306	$46,847	$438,098	$(145,590)	$363,661	$	24,306	$	46,847		$	438,098		$	(145,590	)	$	363,661
Net income and comprehensive income			50,989		50,989							69,378						69,378
Common stock issued – compensation plans	72	(72)			0—		72		(72	)								—
Vesting of RSUs		(3,371)			(3,371)				(3,371	)								(3,371	)
Dividends paid			(27,170)		(27,170)							(35,474	)					(35,474	)
Unpaid dividends accrued			(508)		(508)							(634	)					(634	)
Recognition of stock-based compensation expense		3,356			3,356				5,053									5,053
Balance at July 2, 2022	$24,378	$46,760	$461,409	$(145,590)	$386,957
Repurchase of 2,136 shares of common stock															(107	)		(107	)
Balance at October 1, 2022						$	24,378	$	48,457		$	471,368		$	(145,697	)	$	398,506

	Six Months Ended		Nine Months Ended
	July 2, 2022	July 3, 2021	October 1, 2022			October 2, 2021
Operating Activities
Net income	$50,989	$82,576	$	69,378		$	117,778
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	13,464	14,751		20,120			22,001
Stock-based compensation	3,356	5,043		5,053			6,672
Gain on sale of assets	(56)	(58)		15			(111	)
Deferred income taxes	245	1,854		(1,908	)		1,519
Changes in operating assets and liabilities:
Trade receivables	793	(18,183)		(4,326	)		(13,985	)
Inventories	(13,295)	(2,910)		(17,655	)		(10,038	)
Trade accounts payable and accrued expenses	(9,662)	1,686		(5,315	)		1,720
Contract liability with customers	0—	(84)		-			(84	)
Employee compensation and benefits	(13,019)	(9,429)		(11,774	)		(6,569	)
Product liability	(333)	(116)		(340	)		(161	)
Prepaid expenses, other assets and other liabilities	(103)	(2,050)		(2,985	)		(4,282	)
Income taxes payable	0—	3,119		-			2,544
Cash provided by operating activities	32,379	76,199		50,263			117,004

Investing Activities
Property, plant and equipment additions	(14,330)	(11,464)		(17,206	)		(15,617	)
Proceeds from sale of assets	16	73		41			135
Purchases of short-term investments	(199,992)	(271,984)		(200,378	)		(376,979	)
Proceeds from maturities of short-term investments	234,963	242,997		235,041			332,990
Cash provided by (used for) investing activities	20,657	(40,378)		17,498			(59,471	)

Financing Activities
Remittance of taxes withheld from employees related to share-based compensation	(3,371)	(4,801)		(3,371	)		(4,801	)
Repurchase of common stock				(107	)		-
Dividends paid	(27,170)	(27,606)		(35,474	)		(45,202	)
Cash used for financing activities	(30,541)	(32,407)		(38,952	)		(50,003	)

Increase in cash and cash equivalents	22,495	3,414		28,809			7,530

Cash and cash equivalents at beginning of period	21,044	20,147		21,044			20,147

Cash and cash equivalents at end of period	$43,539	$23,561	$	49,853		$	27,677

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~~. 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 ~~three~~nine months ended ~~July 2,~~October 1, 2022 may not be indicative of the results to be expected for the full year ending December 31, 2022. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 no more than 5%5% of total sales, although they accounted for 7% of total sales for the ~~six~~nine month period ended ~~July 2,~~October 1, 2022. Export sales accounted for 5% of total sales for the three month period ended October 1, 2022. 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. Approximately 1% of sales are from the castings segment.

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

The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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.

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.

The Company’s short-term investments consist of investments in a bank-managed money market fund that invests exclusively in United States Treasury obligations and is valued at the net asset value ("NAV") daily closing price, as reported by the ~~Fund,~~fund, based on the amortized cost of the ~~Fund’s~~fund’s securities. The NAV is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.

On November 23, 2020, the Company acquired substantially all of the assets used to manufacture Marlin Firearms from the Remington Outdoor Company, Inc. and each of the subsidiaries of the Remington Outdoor Company, Inc. for a purchase price of $28.3 million in cash. The transaction was funded by the Company with cash on hand and has been accounted for in accordance with ASC 805 - Business Combinations, which requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired, using the bottom up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets was recorded as goodwill. The Company’s estimates of fair value were based upon assumptions believed to be reasonable, yet were inherently uncertain. During the measurement period, which did not exceed one year from the date of acquisition, the Company recorded adjustments totaling $2.2 million to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments were recorded in the year ended December 31, 2021.

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.

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

The impact of ASC 606 on revenue recognized during the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 and ~~July 3,~~October 2, 2021 is as follows:

	~~Three Months Ended~~	~~Six Months Ended~~
~~Contract liabilities with customers at beginning of period~~	$0—	$0—	$0—	$84
~~Revenue deferred~~	0—	0—	0—	0—
~~Revenue recognized~~	0—	0—	0—	(84)
~~Contract liabilities with customers at end of period~~	$0—	$0—	$0—	$0—

	Three Months Ended
Contract liabilities with customers at beginning of period	$	—	$	—	$	—	$	84
Revenue deferred		—		—		—		—
Revenue recognized		—		—		—		(84	)
Contract liabilities with customers at end of period	$	—	$	—	$	—	$	—

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 has not been responsible for the shipment of any free products arising from such sales promotion programs since April 3, 2021.

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.

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.

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, Leases (Topic 842). The Company’s lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

Under the provisions of ASU 2016-02, the Company records 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 ~~July 2,~~October 1, 2022:

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.

	~~Balance Sheet Line Item~~	~~July 2, 2022~~
~~Right-of-use assets~~	~~Other assets~~	$~~2,498~~
~~Operating lease liabilities~~
~~Current portion~~	~~Trade accounts payable and accrued expenses~~	$~~336~~

~~Noncurrent portion~~	~~Lease liabilities~~	$~~2,162~~
~~Total operating lease liabilities~~		$~~2,498~~

	Balance Sheet Line Item	October 1, 2022
Right-of-use assets	Other assets	$	2,416
Operating lease liabilities
Current portion	Trade accounts payable and accrued expenses	$	340

Noncurrent portion	Lease liabilities		2,076
Total operating lease liabilities		$	2,416

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company calculates an incremental borrowing rate 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 ~~July 2,~~October 1, 2022:

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 ~~July 2,~~October 1, 2022 is ~~9.7~~9.4 years.

On January 7, 2022, the Company entered into a $40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2024. Borrowings under this new facility bear interest at either 1) the Bloomberg short-Term Bank Yield Index – 1 month plus 150 basis points, or 2) a fluctuating rate per annum equal to the greater of (i) the Bank’s prime rate or (ii) the federal funds rate plus 50 basis points. The Company is also charged one-quarter of a percent (0.25%) per year on the unused portion. At ~~July 2,~~October 1, 2022, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused.

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 $0.9 million and $~~2.3~~3.1 million for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively, and $0.9 million and $~~2.2~~3.1 million for the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021, respectively. The Company plans to contribute approximately $~~2.0~~0.9 million to the plan in matching employee contributions during the remainder of 2022.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.5 million and $~~3.9~~5.4 million for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively, and $1.6 million and $~~4.0~~5.6 million for the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021, respectively. The Company plans to contribute approximately $~~3.0~~1.5 million in supplemental contributions to the plan during the remainder of 2022.

The Company's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes, and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was ~~20.5~~12.3% and ~~22.3~~19.9% for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively. The Company’s effective income tax rate was ~~26.4% and~~ 26.7% for both the three and ~~six~~nine months ended ~~July 3, 2021, respectively.~~October 2, 2021. The decrease in the 2022 effective tax rates was primarily attributable to research and development tax ~~credits.~~credits, some of which related to amended returns from prior years. The impact related to research and development tax credits on the effective tax rate is expected to decline in future years.

Income tax payments for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 totaled $~~17.6~~6.0 million and $~~20.7~~26.6 million, respectively. Income tax payments for the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021 totaled $~~22.6~~13.8 and $~~22.8~~36.3 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 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.

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.

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 reserved 750,000 shares for issuance under the 2017 SIP, of which 121,000 shares remain available for future grants as of ~~July 2,~~October 1, 2022.

The Company grants performance-based and retention-based restricted stock units to senior employees. The vesting of the performance-based awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors and a three-year vesting period. The retention-based awards are subject only to the three-year vesting period. There were 96,893 restricted stock units issued during the ~~six~~nine months ended ~~July 2,~~October 1, 2022. Total compensation costs related to these restricted stock units are $7.0 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $1.7 million and $~~3.4~~5.1 million for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively, and $~~1.7~~1.6 million and $~~5.0~~6.7 million for the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021, respectively.

The Company has 2two 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.

Three Months Ended
Six Months Ended
(in thousands)
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Net Sales
Firearms
$139,911
$199,447
$305,844
$383,049
Castings
Unaffiliated
742
625
1,384
1,400
Intersegment
4,515
7,151
9,328
14,221
5,257
7,776
10,712
15,621
Eliminations
(4,515)
(7,151)
(9,328)
(14,221)
$140,653
$200,072
$307,228
$384,449

Income (Loss) Before Income Taxes
Firearms
$27,096
$61,316
$66,791
$113,802
Castings
(1,342)
(1,170)
(1,725)
(1,331)
Corporate
350
120
557
185
$26,104
$60,266
$65,623
$112,656
Depreciation
Firearms
$5,805
$6,466
$11,615
$13,184
Castings
584
712
1,162
1,423
$6,389
$7,178
$12,777
$14,607
Capital Expenditures
Firearms
$3,383
$5,270
$13,647
$8,947
Castings
109
678
683
2,517
$3,492
$5,948
$14,330
$11,464

July 2, 2022
December 31,
2021
Identifiable Assets
Firearms
$196,624
$188,290
Castings
13,228
13,889
Corporate
233,880
240,164
$443,732
$442,343
Goodwill
Firearms
$3,055
$3,055
Castings
209
209
$3,264
$3,264

	Three Months Ended	Six Months Ended
Net Sales
Firearms	$139,911	$199,447	$305,844	$383,049
Castings
Unaffiliated	742	625	1,384	1,400
Intersegment	4,515	7,151	9,328	14,221
	5,257	7,776	10,712	15,621
Eliminations	(4,515)	(7,151)	(9,328)	(14,221)
	$140,653	$200,072	$307,228	$384,449

Income (Loss) Before Income Taxes
Firearms	$27,096	$61,316	$66,791	$113,802
Castings	(1,342)	(1,170)	(1,725)	(1,331)
Corporate	350	120	557	185
	$26,104	$60,266	$65,623	$112,656
Depreciation
Firearms	$5,805	$6,466	$11,615	$13,184
Castings	584	712	1,162	1,423
	$6,389	$7,178	$12,777	$14,607
Capital Expenditures
Firearms	$3,383	$5,270	$13,647	$8,947
Castings	109	678	683	2,517
	$3,492	$5,948	$14,330	$11,464

			July 2, 2022	December 31, 2021
Identifiable Assets
Firearms			$196,624	$188,290
Castings			13,228	13,889
Corporate			233,880	240,164
			$443,732	$442,343
Goodwill
Firearms			$3,055	$3,055
Castings			209	209
			$3,264	$3,264

~~Index~~

	Three Months Ended						Nine Months Ended
(in thousands)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Net Sales
Firearms	$	138,771		$	177,529		$	444,615		$	560,578
Castings
Unaffiliated		619			717			2,003			2,116
Intersegment		4,453			5,774			13,781			19,995
		5,072			6,491			15,784			22,111
Eliminations		(4,453	)		(5,774	)		(13,781	)		(19,995	)
	$	139,390		$	178,246		$	446,618		$	562,694

Income (Loss) Before Income Taxes
Firearms	$	21,339		$	48,139		$	88,130			$161,941
Castings		(1,029	)		(753	)		(2,754	)		(2,084	)
Corporate		681			638			1,238			823
	$	20,991		$	48,024		$	86,614			$160,680

Depreciation
Firearms	$	5,815		$	6,466		$	17,430			$19,650
Castings		574			712			1,736			2,135
	$	6,389		$	7,178		$	19,166			$21,785

Capital Expenditures
Firearms	$	2,324		$	3,734		$	15,971			$12,681
Castings		552			419			1,235			2,936
	$	2,876		$	4,153		$	17,206			$15,617

							October 1, 2022				December 31, 2021
Identifiable Assets
Firearms							$	205,411		$	188,290
Castings								12,723			13,889
Corporate								242,768			240,164
							$	460,902		$	442,343

Goodwill
Firearms							$	3,055		$	3,055
Castings								209			209
							$	3,264		$	3,264

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities. Payments made to the NRA in the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 totaled $~~0.1~~0.2 million and $~~0.2~~0.4 million, respectively. Payments made to the NRA in the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021 totaled $~~0.2~~0.1 million and $~~0.2~~0.3 million, respectively. One of the Company’s Directors also serves as a Director on the Board of the NRA.

The Company is a member of the National Shooting Sports Foundation (“NSSF”), the firearm industry trade association. Payments made to the NSSF in the three and nine months ended October 1, 2022 totaled $0.1 million and $0.2 million, respectively. Payments made to the NSSF in the three and nine months ended October 2, 2021 totaled $0.1 million and $0.3 million, respectively. One of the Company’s Directors also serves on the Board of the NSSF.

As of ~~July 2,~~October 1, 2022, the Company was a defendant in three (3) lawsuits and is aware of certain other such claims. The lawsuits fall into two categories: traditional product liability litigation and municipal litigation. Each is discussed in turn below.

One lawsuit mentioned above involves a claim for damages related to an allegedly defective product due to its design and/or manufacture. The lawsuit stems from a specific incident of personal injury and is based on a traditional product liability ~~theories~~theory such as strict liability, negligence, and/or breach of warranty.

The Company management believes that the allegations in this case are unfounded, that the incident is unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company.

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. There are two lawsuits of this type: ~~the~~The City of Gary case, filed in Indiana State Court in 1999, and Estados Unidos Mexicanos v. Smith & Wesson, et al., which was filed in August 2021.

The City of Gary Complaint seeks damages, among other things, for the costs of medical 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 the design, manufacture, marketing and distribution practices of the 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. 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. Defendants 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 inapplicable to the City's claims.

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

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

Briefing in the Indiana Court of Appeals was completed on the ~~City’s~~City's appeal and ~~Defendants’~~Defendants' cross appeal on September 10, 2018. The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the ~~City’s~~City's negligent design and warnings count on the basis that the City had not alleged that the Manufacturer ~~Defendants’~~Defendants' conduct was unlawful. However, the court reversed dismissal of the ~~City’s~~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.

During the quarter ended April 3, 2021, the City initiated discovery and the Manufacturer Defendants reciprocated. Discovery is ongoing.

Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc., et al. was filed by the Country of Mexico and names seven defendants, mostly U.S.-based firearms manufacturers, including the Company. The Complaint advances a variety of legal theories including negligence, public nuisance, unjust enrichment, restitution, and others. Plaintiff essentially alleges that Defendants design, manufacture, distribute, market and sell firearms in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels for criminal activities. Plaintiff seeks injunctive relief and monetary damages.

On November 22, 2021, Defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican ~~Government’s~~Government's complaint based on the ~~Plaintiff’s~~Government's lack of Article III standing, Protection of Lawful Commerce in Arms Act immunity, and lack of proximate cause. The Company, along with other non-Massachusetts defendants, also filed a Rule 12(b)(2) motion to dismiss based on lack of specific personal jurisdiction. The motions were fully briefed and the court heard oral argument on April 12, 2022. On September 30, 2022, the court entered an order granting the Defendants' joint Rule 12(b)(6) motion. The ~~court has not yet issued its decision~~Company's Rule 12(b)(2) motion was denied as moot, without prejudice. The plaintiff filed a Notice of Appeal on ~~the motions to dismiss.~~October 26, 2022.

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, but may have a material impact on the ~~Company’s~~Company's financial results 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 $0.9 million and $1.1 million at December 31, 2021 and 2020, 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.

On ~~August 3,~~October 28, 2022, the Board of Directors authorized a dividend of 4741¢ per share, for shareholders of record as of ~~August 17,~~November 16, 2022, payable on ~~August 31,~~November 30, 2022.

On October 3, 2022 the Company purchased a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina for $8.3 million for use in its manufacturing and warehousing operations.

On October 4, 2022, a purported class action complaint was filed against the Company in the U.S. District Court for the District of Connecticut. The Complaint is styled as Mark Jones, Individually and on Behalf of All Others Similarly Situated v. Sturm, Ruger & Company., Inc. and alleges damages arising from a reported data breach of the third-party software vendor that owns and manages the server hosting ShopRuger.com. The Complaint alleges negligence, breach of implied contract, and unjust enrichment and seeks a variety of damages.

The Company has evaluated events and transactions occurring subsequent to ~~July 2,~~October 1, 2022 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.

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 no more than 5% of total sales, although they did account for 7% of total sales for the ~~six~~nine month period ended ~~July 2,~~October 1, 2022. Export sales accounted for 5% of total sales for the three month period ended October 1, 2022. 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 than 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.

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 created significant uncertainty and adversely impacted many industries throughout the global economy. During the ~~six~~nine month period ended ~~July 2,~~October 1, 2022, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions. 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.

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:~~

~~Providing all employees with additional paid time off for COVID-19-related purposes since 2020,~~

~~Offering cash~~business and ~~other incentives for employees who receive COVID-19 vaccinations,~~

~~Holding multiple onsite COVID-19 vaccination clinics at our manufacturing facilities,~~

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

~~Confidentially communicating with and assisting employees with potential health issues and positive case contact tracing through our dedicated facility nurses,~~

~~Restricting visitor access to minimize the introduction of new people to the factory environment,~~

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

~~Delivering multiple face coverings and other personal protective equipment to employees and mandating their use in our facilities, from time to time,~~

~~Giving employees access to free COVID-19 testing through our facility nurses, and~~

~~Issuing periodic guidance, tools, and reminders to all associates to encourage them to engage in safe and responsible behaviors.~~

~~The Company~~ believes it ~~is currently~~remains well positioned to continue to manage through this global crisis. At the end of the ~~second~~third quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling ~~$209~~$215 million.

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.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased ~~31%~~29% in the first ~~half~~nine months of 2022 compared to the prior year period. For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased ~~17%~~14%. These decreases are attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021. The second quarter of 2021 had the highest quarterly distributor unit sell-through in the Company’s history, which led to the significant year-over-year decrease in distributor sell-through in the current quarter. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing ~~six~~seven quarters follow:

The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (“CCW”) permit application checks as well as checks on active CCW permit databases. The adjusted NICS checks represent less than half of the total NICS checks.

Adjusted NICS data can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels. The Company generally does not use the orders received or ending backlog for planning production levels.

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing ~~six~~seven quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, semi-monthly to plan production levels. The Company’s overall production in the first ~~half~~nine months of 2022 decreased by ~~15%~~19% from the first ~~half~~nine months of 2021.

Firearms unit data for the trailing ~~six~~seven quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

During the ~~second~~third quarter of 2022, the Company’s finished goods inventory increased by ~~49,300~~8,900 units and distributor inventories of the Company’s products increased by ~~28,200~~30,300 units.

Net sales, cost of products sold, and gross profit data for the three months ended (dollars in millions):


	July 2, 2022	July 3, 2021	Change	% Change	October 1, 2022			October 2, 2021			Change			% Change
Net firearms sales	$139.9	$199.5	$(59.6)	(29.9%)	$	138.8		$	177.5		$	(38.7	)	(21.8%)

Net castings sales	0.8	0.6	0.2	18.5%		0.6			0.7			(0.1	)	(13.5%)

Total net sales	140.7	200.1	(59.4)	(29.7%)		139.4			178.2			(38.8	)	(21.8%)

Cost of products sold	97.1	121.3	(24.2)	(20.0%)		100.5			113.4			(12.9	)	(11.4%)

Gross profit	$ 43.6	$ 78.8	$(35.2)	(44.7%)	$	38.9		$	64.8		$	(25.9	)	(40.0%)

Gross margin	31.0%	39.4%	(8.4%)	(21.3%)		27.9	%		36.4	%		(8.5	%)	(23.4%)

Net sales, cost of products sold, and gross profit data for the ~~six~~nine months ended (dollars in millions):


	July 2, 2022	July 3, 2021	Change	% Change	October 1, 2022			October 2, 2021			Change			% Change
Net firearms sales	$305.8	$383.0	$(77.2)	(20.2%)	$	444.6		$	560.6		$	(116.0	)	(20.7%)

Net castings sales	1.4	1.4	-	(1.1%)		2.0			2.1			(0.1	)	(5.3%)

Total net sales	307.2	384.4	(77.2)	(20.1%)		446.6			562.7			(116.1	)	(20.6%)

Cost of products sold	205.5	233.1	(27.6)	(11.8%)		306.1			346.6			(40.5	)	(11.7%)

Gross profit	$101.7	$151.3	$(49.6)	(32.8%)	$	140.5		$	216.1		$	(75.6	)	(35.0%)

Gross margin	33.1%	39.4%	(6.3%)	(16.0%)		31.5	%		38.4	%		(6.9	%)	(18.0%)

The decrease in total consolidated net sales and net firearms sales for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 is attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021. Sales of new products, including the PC Charger, ~~the~~ MAX-9 pistol, ~~the~~ LCP MAX pistol, ~~and the~~ Marlin 1895 lever-action rifles, LC Carbine, and Small-Frame Autoloading Rifle represented ~~$33.8~~$54.9 million or ~~11%~~13% of firearm sales in the first ~~half~~nine months of 2022. New product sales include only major new products that were introduced in the past two years. Several popular firearms that were considered new products in 2021, including the Wrangler revolver, ~~the~~ Ruger-5.7 pistol, and ~~the~~ LCP II in .22 LR pistol, have now been in production for over two years and are no longer included in new product sales for 2022.

The decreased gross profit for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 is attributable to the decrease in sales and inflationary cost increases in materials, commodities, services, energy, fuel and transportation.

The decrease in gross margin for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022 is attributable to unfavorable deleveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting from decreased sales and production and decreased labor efficiencies. In addition to unfavorable deleveraging of fixed costs, the aforementioned inflationary cost increases, partially offset by increased pricing, resulted in lower margins.

Selling, general and administrative expenses were ~~$18.4~~$19.0 million for the three months ended ~~July 2,~~October 1, 2022, ~~a decrease~~an increase of ~~$0.7~~$0.9 million or ~~3.8%~~5.2% from ~~$19.1~~$18.1 million in the comparable prior year period. As a percentage of sales, selling, general, and administrative expenses increased to ~~13.1%~~13.6% in the three months ended ~~July 2,~~October 1, 2022 from ~~9.5%~~10.1% in the prior year period. Selling, general and administrative expenses were ~~$37.7~~$56.8 million for the ~~six~~nine months ended ~~July 2,~~October 1, 2022, a decrease of ~~$2.0~~$1.0 million or ~~4.9%~~1.8% from ~~$39.7~~$57.8 million in the comparable prior year period. As a percentage of sales, selling, general, and administrative expenses increased to ~~12.3%~~12.7% in the ~~six~~nine months ended ~~July 2,~~October 1, 2022 from 10.3% in the prior year period.

The increase in these expenses for the three months ended October 1, 2022 was primarily attributable to the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the height of the COVID-19 restrictions, partially offset by decreased sales volume and decreased incentive compensation expenses. For the nine months ended October 1, 2022, the decrease in these expenses was primarily attributable to decreased sales volume and decreased incentive compensation expenses, partially offset by the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the height of the COVID-19 restrictions. The increase of expenses as a percentage of sales was attributable to the decrease in sales and higher freight expenses.

Other income, net of ~~$0.9~~$1.1 million and ~~$1.7~~$2.8 million for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively, decreased from $1.3 million and increased from ~~$0.6 million and $1.0~~$2.3 million for the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021, ~~as a~~respectively. For the three months ended October 1, 2022, the decrease is the result of decreases in royalty and miscellaneous income, partially offset by increased interest income in 2022 compared to 2021. For the nine months ended October 1, 2022, the increase is the result of increased interest income, partially offset by reduced royalty and miscellaneous income in 2022 compared to 2021.

The Company's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was ~~20.5%~~12.3% and ~~22.3%~~19.9% for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022, respectively. The Company’s effective income tax rate was ~~26.4% and~~ 26.7% for both the three and ~~six~~nine months ended ~~July 3,~~October 2, 2021, respectively. The decrease in the 2022 effective tax rates was primarily attributable to research and development tax credits, some of which related to amended prior year income tax returns. The impact related to research and development tax credits on the effective tax rate is expected to decline in future years. The substantial reduction in the effective tax rate for the three months ended October 1, 2022 was primarily due to a favorable provision-to-return adjustment related to research and development credits.

As a result of the foregoing factors, consolidated net income was ~~$20.8~~$18.4 million and ~~$51.0~~$69.4 million for the three and ~~six~~nine months ended ~~July 2,~~October 1, 2022. This represents a decrease of ~~53.2%~~47.8% and ~~38.3%~~41.1% from ~~$44.4~~$35.2 million and ~~$82.6~~$117.8 million in the comparable prior year periods.

In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information to investors. These non-GAAP financial measures may not be comparable to similarly titled financial measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance.

EBITDA is defined as earnings before interest, taxes, and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense, and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income to arrive at EBITDA. The Company calculates EBITDA margin by dividing EBITDA by total net sales.

EBITDA was ~~$32.6~~$27.0 million for the three months ended ~~July 2,~~October 1, 2022, a decrease of ~~51.7%~~51.2% from ~~$67.5~~$55.4 million in the comparable prior year period.

For the ~~six~~nine months ended ~~July 2,~~October 1, 2022 EBITDA was ~~$79.0~~$106.0 million, a decrease of ~~38.0%~~42.0% from ~~$127.4~~$182.8 million in the comparable prior year period.

At the end of the ~~second~~third quarter of 2022, the Company’s cash and short-term investments totaled ~~$208.5~~$215.2 million. Pre-LIFO working capital of ~~$333.1~~$338.9 million, less the LIFO reserve of ~~$53.5~~$54.4 million, resulted in working capital of ~~$279.6~~$284.5 million and a current ratio of ~~6.1~~5.8 to 1.

Cash provided by operating activities was ~~$32.4~~$50.3 million for the ~~six~~nine months ended ~~July 2,~~October 1, 2022, compared to ~~$76.2~~$117.0 million for the comparable prior year period. The decrease in cash provided in the ~~six~~nine months ended ~~July 2,~~October 1, 2022 is primarily attributable to the decrease in net ~~income.~~income, reduced annual incentive compensation, and the increase in inventory in the nine months ended October 1, 2022.

Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts. In the ~~six~~nine months ended ~~July 2,~~October 1, 2022, the Company’s manufacturing operations were impacted by limited deliveries of raw materials. A limited supply of these materials in the marketplace can result in increases to purchase prices and adversely affect production levels. If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Capital expenditures for the ~~six~~nine months ended ~~July 2,~~October 1, 2022 totaled ~~$14.3~~$17.2 million, an increase from ~~$11.4~~$15.6 million in the comparable prior year period. In 2022, the Company expects ~~to spend approximately $25 million on~~ capital expenditures ~~much of which will relate~~related to ~~tooling and fixtures for~~ new product introductions and upgrades to ~~upgrade~~our manufacturing equipment and ~~modernize~~facilities to total approximately $25 million. In addition to these investments, in the fourth quarter of 2022 the Company purchased a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina for $8.3 million for use in its manufacturing ~~equipment.~~and warehousing operations. Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the projected amount. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

Dividends of ~~$27.2~~$35.5 million were paid during the ~~six~~nine months ended ~~July 2,~~October 1, 2022. The Company has financed its dividends with cash provided by operations and current cash. The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share. The Company’s practice is to pay a dividend of approximately 40% of net income.

On ~~August 3,~~October 28, 2022, the Company’s Board of Directors authorized a dividend of ~~47¢~~41¢ per share to shareholders of record on ~~August 17,~~November 16, 2022, payable on ~~August 31,~~November 30, 2022. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.

The Company invests in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one year with available cash. At ~~July 2,~~October 1, 2022, the Company’s investment in these instruments totaled ~~$165.0~~$165.3 million.

During the three months ended October 1, 2022, the Company purchased 2,136 shares of its common stock for $0.1 million in the open market. The average price per share purchased was $49.97. These purchases were funded with cash on hand. The Company did not purchase any shares of its common stock in the ~~six~~nine months ended ~~July~~October 2, ~~2022 and July 3,~~ 2021. As of ~~July 2,~~October 1, 2022, ~~$86.7~~$86.6 million remained authorized for future stock repurchases.

Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt. The Company’s unsecured $40 million credit facility, which expires on January 7, 2024, was unused at ~~July 2,~~October 1, 2022.

In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms serial number tracking and control, waste disposal, air emissions and water discharges into the environment. The Company believes that it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company. If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have a material adverse impact on the Company.

The Company has 14 independent distributors that service the domestic commercial market. Additionally, the Company has 45 and 25 distributors servicing the export and law enforcement markets, respectively.

The Company self-insures a significant amount of its product liability, workers’ compensation, medical, and other insurance. It also carries significant deductible amounts on various insurance policies.

The Company expects to realize its deferred tax assets through tax deductions against future taxable income.

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2021 Annual Report on Form 10-K filed on February 23, 2022, or the judgments affecting the application of those estimates and assumptions.

The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, the impact of future firearms control and environmental legislation, the impact of COVID-19, and accounting estimates, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

The interest rate market risk implicit to the Company at any given time is typically low, as the Company does not have significant exposure to changing interest rates on invested cash. There has been no material change in the Company’s exposure to interest rate risks during the three months ended ~~July 2,~~October 1, 2022.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (the “Disclosure Controls and Procedures”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~July 2,~~October 1, 2022.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~July 2,~~October 1, 2022, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

The Company’s Chief Executive Officer and Chief Financial Officer have further concluded that, as of ~~July 2,~~October 1, 2022, there have been no material changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~July 2,~~October 1, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. The Company has not experienced any material impact to its internal controls over financial reporting as a result of the COVID-19 pandemic.

The effectiveness of any system of internal controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that the Disclosure Controls and Procedures will detect all errors or fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system will be attained.

The nature of the legal proceedings against the Company is discussed at Note 13 to the financial statements, which are included in this Form 10-Q.

The Company has reported all cases instituted against it through ~~April~~July 2, 2022, and the results of those cases, where terminated, to the SEC on its previous Form 10-Q and 10-K reports, to which reference is hereby made.

There were no lawsuits formally instituted against the Company during the three months ending ~~July 2,~~October 1, 2022.

During the three months ended ~~July 2,~~October 1, 2022, there were no material changes in the Company’s risk factors from the information provided in Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

~~Not applicable~~Share repurchase activity during the three months ended October 1, 2022 was as follows. These purchases were funded with cash on hand.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Remainder of 2022	$250	$	166
2023	449		449
2024	449		449
2025	340		340
2026	340		340
Thereafter	1,310		1,310
Total undiscounted future minimum lease payments	3,138		3,054
Less: Difference between undiscounted lease payments & the present value of future lease payments	(640)		(638	)
Total operating lease liabilities	$2,498	$	2,416

	2022		2021				2022			2021
	Q2	Q1	Q4	Q3	Q2	Q1	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Estimated Units Sold from Distributors to Retailers (1)	354,300	411,200	458,200	457,400	583,300	518,900	343,500	354,300	411,200	458,200	457,400	583,300	518,900
Total adjusted NICS Background Checks (thousands) (2)	3,917	4,213	4,763	3,971	4,298	5,483	3,764	3,917	4,213	4,763	3,971	4,298	5,483

	2022		2021				2022						2021
	Q2	Q1	Q4	Q3	Q2	Q1	Q3		Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered	250,600	381,600	373,000	218,800	453,400	790,300		295,600		250,600		381,600		373,000		218,800		453,400		790,300
Orders Received	$98.9	$147.0	$119.2	$61.1	$158.3	$267.9	$	124.3	$	98.9	$	147.0	$	119.2	$	61.1	$	158.3	$	267.9
Average Sales Price of Units Ordered	$395	$385	$320	$279	$349	$339	$	421	$	395	$	385	$	320	$	279	$	349	$	339
Ending Backlog	$389.6	$420.5	$429.7	$471.7	$582.3	$612.3	$	377.6	$	389.6	$	420.5	$	429.7	$	471.7	$	582.3	$	612.3
Average Sales Price of Ending Unit Backlog	$405	$384	$357	$354	$355	$346	$	427	$	405	$	384	$	357	$	354	$	355	$	346

	2022		2021				2022						2021
	Q2	Q1	Q4	Q3	Q2	Q1	Q3		Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered	250,600	381,600	373,000	218,800	453,400	790,300		295,600		250,600		381,600		373,000		218,800		453,400		790,300
Units Produced	431,800	521,300	512,100	525,200	575,400	541,900		382,800		431,800		521,300		512,100		525,200		575,400		541,900
Units Shipped	382,600	491,500	502,300	524,800	580,800	535,000		373,800		382,600		491,500		502,300		524,800		580,800		535,000
Average Sales Price of Units Shipped	$366	$338	$334	$338	$343		$	371	$	366	$	338	$	334	$	338	$	343	$	343
Ending Unit Backlog	962,600	1,094,600	1,204,500	1,333,800	1,639,800	1,767,200		884,400		962,600		1,094,600		1,204,500		1,333,800		1,639,800		1,767,200

	2022		2021				2022						2021
	Q2	Q1	Q4	Q3	Q2	Q1	Q3		Q2		Q1		Q4		Q3		Q2		Q1
Units — Company Inventory	99,700	50,400	20,600	10,900	10,400	15,700		108,600		99,700		50,400		20,600		10,900		10,400		15,700
Units — Distributor Inventory (1)	272,800	244,600	164,200	120,100	52,800	55,300		303,100		272,800		244,600		164,200		120,100		52,800		55,300
Total Inventory (2)	372,500	295,000	184,800	131,000	63,200	71,000		411,700		372,500		295,000		184,800		131,000		63,200		71,000

	~~Three Months Ended~~		~~Six Months Ended~~
	~~July 2,~~ ~~2022~~	~~July 3,~~ ~~2021~~	~~July 2,~~ ~~2022~~	~~July 3,~~ ~~2021~~
~~Contract liabilities with customers at beginning of period~~	$0—	$0—	$0—	$84
~~Revenue deferred~~	0—	0—	0—	0—
~~Revenue recognized~~	0—	0—	0—	(84)
~~Contract liabilities with customers at end of period~~	$0—	$0—	$0—	$0—


(1)	The estimates for each period were calculated by taking the beginning inventory at the distributors, plus shipments from the Company to distributors during the period, less the ending inventory at distributors. These estimates are only a proxy for actual market demand as they:


	• Rely on data provided by independent distributors that are not verified by the Company, • Do not consider potential timing issues within the distribution channel, including goods-in-transit, and • Do not consider fluctuations in inventory at retail.

(2)	NICS background checks are performed when the ownership of most firearms, either new or used, is transferred by a Federal Firearms Licensee. NICS background checks are also performed for permit applications, permit renewals, and other administrative reasons.


(1)	Distributor ending inventory is provided by the Company’s independent distributors. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors.

(2)	This total does not include inventory at retailers. The Company does not have access to data on retailer inventories of the Company’s products.

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
Third Quarter 2022
July 3 to July 30	—	—	—
July 31 to August 27	—	—	—
August 28 to October 1	2,136	$49.97	2,136
Total	2,136	$49.97	2,136	$86,600,000

(a)	Exhibits:
31.1	Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	STURM, RUGER & COMPANY, INC.
Date: ~~August 3,~~November 2, 2022	S/	THOMAS A. DINEEN
	Thomas A. Dineen
	Principal Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Chief Financial Officer