UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

~~(Mark One)~~

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the quarterly period ended~~ ~~October 1, 2022~~

For the quarterly period ended September 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the transition period from __________ to __________~~

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~~
(Exact name of registrant as specified in its charter)

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

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

(203)259-7843

(~~Registrant’s~~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 October ~~17, 2022:~~ ~~17,666,534~~20, 2023: 17,722,682

INDEX

STURM, RUGER & COMPANY, INC.

	~~Page~~ ~~Number~~
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed consolidated balance sheets – ~~October 1, 2022~~September 30, 2023 and December 31, ~~2021~~2022	3

	Condensed consolidated statements of income and comprehensive income – Three and nine months ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~	5

	Condensed consolidated statement of stockholders’ equity – Nine months ended ~~October 1, 2022~~September 30, 2023	6

	Condensed consolidated statements of cash flows – Nine months ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~	7

	Notes to condensed consolidated financial statements – ~~October 1, 2022~~September 30, 2023	8

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2628

Item 4.	Controls and Procedures	2628
~~PART II.OTHER INFORMATION~~
~~Item 1.Legal Proceedings~~	27
~~Item 1A.~~PART II.~~Risk Factors~~	27OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2729

Item 3.	Defaults Upon Senior Securities	2729

Item 4.	Mine Safety Disclosures	2729
~~Item 5.Other Information~~	27
Item 6.5.~~Exhibits~~	28Other Information	30
~~SIGNATURES~~	29
Item 6.	Exhibits	31

SIGNATURES		32

~~Index~~

PART I. FINANCIAL INFORMATION

~~ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)~~

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

October 1, 2022
December 31, 2021

(Note)
Assets

Current Assets

Cash
$
49,853
$
21,044
Short-term investments
165,308
199,971
Trade receivables, net
61,362
57,036

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

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

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

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

	September 30, 2023			December 31, 2022
				(Note)

Assets

Current Assets
Cash	$	13,559		$	65,173
Short-term investments		106,451			159,132
Trade receivables, net		59,899			65,449

Gross inventories (Note 4)		150,021			129,294
Less LIFO reserve		(64,969	)		(59,489	)
Less excess and obsolescence reserve		(5,781	)		(4,812	)
Net inventories		79,271			64,993

Prepaid expenses and other current assets		14,780			7,091
Total Current Assets		273,960			361,838

Property, plant and equipment		458,332			447,126
Less allowances for depreciation		(388,531	)		(370,273	)
Net property, plant and equipment		69,801			76,853

Deferred income taxes		10,167			6,109
Other assets		46,422			39,963
Total Assets	$	400,350		$	484,763

~~Note:~~Note:

The Condensed Consolidated Balance Sheet at December 31, ~~2021~~2022 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.

~~Index~~

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)

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

data)

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

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

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

Contingent liabilities (Note 13)
—
—

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

	September 30, 2023			December 31, 2022
				(Note)

Liabilities and Stockholders’ Equity

Current Liabilities
Trade accounts payable and accrued expenses	$	29,736		$	35,658
Dividends payable		—			88,343
Contract liabilities with customers (Note 3)		1,436			1,031
Product liability		406			235
Employee compensation and benefits		23,142			30,160
Workers’ compensation		6,467			6,469
Income taxes payable		—			1,171
Total Current Liabilities		61,187			163,067

Employee compensation		1,484			1,846
Product liability accrual		46			73
Lease liability (Note 5)		2,328			3,039

Contingent liabilities (Note 13)		—			—


Stockholders’ Equity
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued		—			—
Common Stock, par value $1:
Authorized shares – 40,000,000
2023 – 24,437,020 issued,
17,722,682 outstanding
2022 – 24,378,568 issued,
17,664,230 outstanding		24,437			24,378
Additional paid-in capital		45,828			45,075
Retained earnings		410,852			393,097
Less: Treasury stock – at cost
2023 – 6,714,338 shares
2022 – 6,714,338 shares		(145,812	)		(145,812	)
Total Stockholders’ Equity		335,305			316,738
Total Liabilities and Stockholders’ Equity	$	400,350		$	484,763

~~Note:~~Note:

See notes to condensed consolidated financial statements.

~~Index~~

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net firearms sales
$
138,771
$
177,529
$
444,615
$
560,578
Net castings sales
619
717
2,003
2,116
Total net sales
139,390
178,246
446,618
562,694

Cost of products sold
100,521
113,444
306,087
346,569

Gross profit
38,869
64,802
140,531
216,125

Operating expenses:
Selling
8,763
7,753
25,828
24,290
General and administrative
10,247
10,323
30,927
33,484
Total operating expenses
19,010
18,076
56,755
57,774

Operating income
19,859
46,726
83,776
158,351

Other income:
Interest income
730
11
951
31
Interest expense
(88
)
(114
)
(205
)
(164
)
Other income, net
490
1,401
2,092
2,462
Total other income, net
1,132
1,298
2,838
2,329

Income before income taxes
20,991
48,024
86,614
160,680

Income taxes
2,602
12,822
17,236
42,902

Net income and comprehensive income
$
18,389
$
35,202
$
69,378
$
117,778

Basic earnings per share
$
1.04
$
2.00
$
3.93
$
6.70

Diluted earnings per share
$
1.03
$
1.98
$
3.90
$
6.64

Weighted average number of commonshares outstanding - Basic
17,668,435
17,596,588
17,643,473
17,582,009

Weighted average number of commonshares outstanding - Diluted
17,825,797
17,778,177
17,770,120
17,749,897

Cash dividends per share
$
0.47
$
1.00
$
2.01
$
2.57

	Three Months Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022

Net firearms sales	$	120,368		$	138,771		$	411,114		$	444,615
Net castings sales		525			619			2,036			2,003
Total net sales		120,893			139,390			413,150			446,618

Cost of products sold		96,165			100,521			311,788			306,087

Gross profit		24,728			38,869			101,362			140,531

Operating expenses:
Selling		8,669			8,763			27,702			25,828
General and administrative		9,733			10,247			31,898			30,927
Total operating expenses		18,402			19,010			59,600			56,755

Operating income		6,326			19,859			41,762			83,776

Other income:
Interest income		1,454			730			4,147			951
Interest expense		(122	)		(88	)		(177	)		(205	)
Other income, net		431			490			1,082			2,092
Total other income, net		1,763			1,132			5,052			2,838

Income before income taxes		8,089			20,991			46,814			86,614

Income taxes		658			2,602			8,848			17,236

Net income and comprehensive income	$	7,431		$	18,389		$	37,966		$	69,378

Basic earnings per share	$	0.42		$	1.04		$	2.14		$	3.93

Diluted earnings per share	$	0.42		$	1.03		$	2.13		$	3.90

Weighted average number of common shares outstanding - Basic		17,722,682			17,668,435			17,705,280			17,643,473

Weighted average number of common shares outstanding - Diluted		17,889,089			17,825,797			17,828,710			17,770,120

Cash dividends per share	$	0.36		$	0.47		$	6.10		$	2.01

See notes to condensed consolidated financial statements.

~~Index~~

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

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
Net income and comprehensive income
69,378
69,378
Common stock issued – compensation plans
72
(72
)
—
Vesting of RSUs
(3,371
)
(3,371
)
Dividends paid
(35,474
)
(35,474
)
Unpaid dividends accrued
(634
)
(634
)
Recognition of stock-based compensation expense
5,053
5,053
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

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total

Balance at December 31, 2022	$	24,378	$	45,075		$	393,097		$	(145,812	)	$	316,738

Net income and comprehensive income							37,966						37,966

Common stock issued – compensation plans		59		(59	)								—

Vesting of RSUs				(2,156	)								(2,156	)

Dividends paid							(19,462	)					(19,462	)

Unpaid dividends accrued							(749	)					(749	)

Recognition of stock-based compensation expense				2,968									2,968

Balance at September 30, 2023	$	24,437	$	45,828		$	410,852		$	(145,812	)	$	335,305

See notes to condensed consolidated financial statements.

~~Index~~

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

Nine Months Ended
October 1, 2022
October 2, 2021
Operating Activities
Net income
$
69,378
$
117,778
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
20,120
22,001
Stock-based compensation
5,053
6,672
Gain on sale of assets
15
(111
)
Deferred income taxes
(1,908
)
1,519
Changes in operating assets and liabilities:
Trade receivables
(4,326
)
(13,985
)
Inventories
(17,655
)
(10,038
)
Trade accounts payable and accrued expenses
(5,315
)
1,720
Contract liability with customers
-
(84
)
Employee compensation and benefits
(11,774
)
(6,569
)
Product liability
(340
)
(161
)
Prepaid expenses, other assets and other liabilities
(2,985
)
(4,282
)
Income taxes payable
-
2,544
Cash provided by operating activities
50,263
117,004

Investing Activities
Property, plant and equipment additions
(17,206
)
(15,617
)
Proceeds from sale of assets
41
135
Purchases of short-term investments
(200,378
)
(376,979
)
Proceeds from maturities of short-term investments
235,041
332,990
Cash provided by (used for) investing activities
17,498
(59,471
)

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

Increase in cash and cash equivalents
28,809
7,530

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

Cash and cash equivalents at end of period
$
49,853
$
27,677

	Nine Months Ended
	September 30, 2023			October 1, 2022

Operating Activities
Net income	$	37,966		$	69,378
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		19,576			20,120
Stock-based compensation		2,968			5,053
(Gain) loss on sale of assets		(4	)		15
Deferred income taxes		(4,058	)		(1,908	)
Changes in operating assets and liabilities:
Trade receivables		5,550			(4,326	)
Inventories		(14,278	)		(17,655	)
Trade accounts payable and accrued expenses		(5,967	)		(5,315	)
Contract liability with customers		405			—
Employee compensation and benefits		(8,129	)		(11,774	)
Product liability		144			(340	)
Prepaid expenses, other assets and other liabilities		(15,704	)		(2,985	)
Income taxes payable		(1,171	)		—
Cash provided by operating activities		17,298			50,263

Investing Activities
Property, plant and equipment additions		(11,637	)		(17,206	)
Proceeds from sale of assets		5			41
Purchases of short-term investments		(141,410	)		(200,378	)
Proceeds from maturities of short-term investments		194,091			235,041
Cash provided by investing activities		41,049			17,498

Financing Activities
Remittance of taxes withheld from employees related to share-based compensation		(2,156	)		(3,371	)
Repurchase of common stock		—			(107	)
Dividends paid		(107,805	)		(35,474	)
Cash used for financing activities		(109,961	)		(38,952	)

(Decrease) increase in cash and cash equivalents		(51,614	)		28,809

Cash and cash equivalents at beginning of period		65,173			21,044

Cash and cash equivalents at end of period	$	13,559		$	49,853

See notes to condensed consolidated financial statements.

~~Index~~

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 three and nine months ended ~~October 1, 2022~~September 30, 2023 may not be indicative of the results to be expected for the full year ending December 31, ~~2022.~~2023. 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.~~2022.

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%99% of sales are from firearms. Export sales ~~typically represent no more than 5% of total sales, although they~~ accounted for 7%approximately 7% of total sales for the nine month ~~period~~periods ended ~~October 1, 2022. Export sales accounted for~~ 5~~% of total sales for the three month period ended~~September 30, 2023 and 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%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”). 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.

The Company’s short-term investments consist of United States Treasury instruments, which mature within one year, and 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, based on the amortized cost of the 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.

~~Business Combination:~~

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.~~

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.

~~Index~~

NOTE 3 —- REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

The impact of ASC 606 on revenue recognized during the three and nine months ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~ is as follows:

	Three Months Ended					Nine Months Ended
	September 30, 2023			October 1, 2022		September 30, 2023			October 1, 2022

Contract liabilities with customers at beginning of period	$	100		$	—	$	1,031		$	—

Revenue deferred		1,468			—		1,680			—

Revenue recognized		(132	)		—		(1,275	)		—

Contract liabilities with customers at end of period	$	1,436		$	—	$	1,436		$	—

Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2,
2021
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~~expects the ~~shipment~~remaining deferred revenue from this contract liability with customers to be recognized in the fourth quarter of ~~any free products arising from such sales promotion programs since April 3, 2021.~~2023.

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.

Inventories consist of the following:

October 1, 2022
December 31, 2021
Inventory at FIFO
Finished products
$
23,116
$
7,322
Materials and work in process
97,627
92,701
Gross inventories
120,743
100,023
Less: LIFO reserve
(54,390
)
(51,826
)
Less: excess and obsolescence reserve
(4,848
)
(4,347
)
Net inventories
$
61,505
$
43,850

	September 30, 2023			December 31, 2022
Inventory at FIFO
Finished products	$	31,907		$	23,573
Materials and work in process		118,114			105,721
Gross inventories		150,021			129,294
Less: LIFO reserve		(64,969	)		(59,489	)
Less: excess and obsolescence reserve		(5,781	)		(4,812	)
Net inventories	$	79,271		$	64,993

~~Index~~

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,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~~right-of- use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of ~~October 1, 2022:~~September 30, 2023:

	Balance Sheet Line Item	October 1, 2022		Balance Sheet Line Item	September 30, 2023
Right-of-use assets	Other assets	$	2,416	Other assets	$	2,926

Operating lease liabilities

Current portion	Trade accounts payable and accrued expenses	$	340	Trade accounts payable and accrued expenses	$	598

Noncurrent portion	Lease liabilities		2,076	Lease liabilities		2,328

Total operating lease liabilities		$	2,416		$	2,926

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 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 ~~October 1, 2022:~~September 30, 2023:

Remainder of 2022	$	166
2023		449
Remainder of 2023				$	200
2024		449			808
2025		340			702
2026		340			705
2027					229
Thereafter		1,310			1,120
Total undiscounted future minimum lease payments		3,054			3,764
Less: Difference between undiscounted lease payments & the present value of future lease payments		(638	)		(838	)
Total operating lease liabilities	$	2,416		$	2,926

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 ~~October 1, 2022~~September 30, 2023 is ~~9.4~~8.1 years.

~~Index~~

NOTE 6 —- LINE OF CREDIT

On January 7, 2022, the Company entered into a $40$40 million unsecured revolving line of credit agreement with a bank that expires January 7, ~~2024~~.2025. 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~~%(0.25%) per year on the unused portion. At ~~October 1, 2022,~~September 30, 2023, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused.

NOTE 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 $~~0.9~~$1.0 million and $~~3.1~~$3.7 million for the three and nine months ended September 30, 2023, respectively, and $0.9 million and $3.1 million for the three and nine months ended October 1, 2022, ~~respectively, and $0.9~~ ~~million and $3.1~~ ~~million for the three and nine months ended October 2, 2021,~~ respectively. The Company plans to contribute approximately $~~0.9~~$1.0 million to the plan in matching employee contributions during the remainder of ~~2022.~~2023.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $~~1.5~~$1.6 million and $~~5.4~~$5.3 million for the three and nine months ended September 30, 2023, respectively, and $1.5 million and $5.4 million for the three and nine months ended October 1, 2022, ~~respectively, and $1.6~~ ~~million and $5.6~~ ~~million for the three and nine months ended October 2, 2021,~~ respectively. The Company plans to contribute approximately $~~1.5~~$1.6 million in supplemental contributions to the plan during the remainder of ~~2022.~~2023.

NOTE 8 —- INCOME TAXES

The Company's ~~2022~~2023 and ~~2021~~2022 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 ~~12.3~~%8.1% and ~~19.9~~%18.9% for the three and nine months ended ~~October 1, 2022,~~September 30, 2023, respectively. The Company’s effective income tax rate was ~~26.7~~%12.4% and 19.9% for ~~both~~the three and nine months October 1, 2022, respectively. The lower effective income tax rates for the three and nine months ended ~~October 2, 2021. The decrease in~~September 30, 2023 resulted from the ~~2022 effective tax rates was primarily attributable to research and development~~recognition of higher than anticipated tax credits ~~some of which related to amended returns from prior years. The impact related to research~~that were noted when the Company filed its 2022 Federal and ~~development~~state income tax ~~credits on~~returns.

Income tax payments for the ~~effective tax rate is expected to decline in future years.~~

three and nine months ended September 30, 2023 totaled $7.3 million and $23.8 million, respectively. Income tax payments for the three and nine months ended October 1, 2022 totaled $~~6.0~~$6.0 million and $~~26.6~~$26.6 million, respectively. ~~Income tax payments for the three and nine months ended October 2, 2021 totaled $13.8~~ ~~and $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.~~2018.

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.

~~Index~~

NOTE 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:

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021		September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Numerator:
Net income	$	18,389	$	35,202	$	69,378	$	117,778	$	7,431	$	18,389	$	37,966	$	69,378

Denominator:
Weighted average number of common shares outstanding – Basic		17,668,435		17,596,588		17,643,473		17,582,009		17,722,682		17,668,435		17,705,280		17,643,473

Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		157,362		181,589		126,647		167,888		166,407		157,362		123,430		126,647

Weighted average number of common shares outstanding – Diluted		17,825,797		17,778,177		17,770,120		17,749,897		17,889,089		17,825,797		17,828,710		17,770,120

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 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 reserved 750,000 shares for issuance under the 2017 SIP.

In June 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan (the “2023 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 1,000,000 shares for issuance under the 2023 SIP, of which ~~121,000~~869,000 shares remain available for future grants as of ~~October 1, 2022.~~September 30, 2023. Any shares remaining from the 2017 SIP will be available for future grants under the terms of the 2023 SIP. As of September 30, 2023, 121,034 shares remained unawarded from the 2017 SIP. Since the shareholder approval of the 2023 SIP, no additional awards have been or will be granted under the 2017 SIP. Previously granted and outstanding awards under the 2017 SIP will remain subject to the terms of the 2017 SIP.

Restricted Stock Units

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~~ a three-year vesting period. There were ~~96,893~~113,862 restricted stock units issued during the nine months ended ~~October 1, 2022.~~September 30, 2023. Total compensation costs related to these restricted stock units are $~~7.0~~$6.1 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $~~1.7~~$1.6 million and $~~5.1~~$5.0 million for the three and nine months ended September 30, 2023, respectively, and $1.7 million and $5.1 million for the three and nine months ended October 1, 2022, ~~respectively, and $1.6~~ ~~million and $6.7~~ ~~million for the three and nine months ended October 2, 2021,~~ respectively.

~~Index~~

NOTE 11 —- OPERATING SEGMENT INFORMATION

The Company has two 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:

(in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
Net Sales
Firearms	$	120,368		$	138,771		$	411,114		$	444,615
Castings
Unaffiliated		525			619			2,036			2,003
Intersegment		7,947			4,453			25,307			13,781
		8,472			5,072			27,343			15,784
Eliminations		(7,947	)		(4,453	)		(25,307	)		(13,781	)
	$	120,893		$	139,390		$	413,150		$	446,618

Income (Loss) Before Income Taxes
Firearms	$	6,108		$	21,339		$	43,637		$	88,130
Castings		420			(1,029	)		(1,178	)		(2,754	)
Corporate		1,561			681			4,355			1,238
	$	8,089		$	20,991		$	46,814		$	86,614

Depreciation
Firearms	$	5,676		$	5,815		$	17,027		$	17,430
Castings		553			574			1,661			1,736
	$	6,229		$	6,389		$	18,688		$	19,166

Capital Expenditures
Firearms	$	6,674		$	2,324		$	11,456		$	15,971
Castings		90			552			181			1,235
	$	6,764		$	2,876		$	11,637		$	17,206

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

	September 30, 2023		December 31, 2022
Identifiable Assets
Firearms	$	230,340	$	223,301
Castings		10,137		11,910
Corporate		159,873		249,552
	$	400,350	$	484,763
Goodwill
Firearms	$	3,055	$	3,055
Castings		209		209
	$	3,264	$	3,264

NOTE 12 —- RELATED PARTY TRANSACTIONS

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 nine months ended ~~October 1, 2022~~September 30, 2023 totaled $~~0.2~~$0.1 million and $~~0.4~~$0.4 million, respectively. Payments made to the NRA in the three and nine months ended October ~~2, 2021~~1, 2022 totaled $~~0.1~~$0.2 million and $~~0.3~~$0.4 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~~month periods ended ~~October 1, 2022~~September 30, 2023 totaled $~~0.1~~$0.1 million and $~~0.2~~$0.3 million, respectively. Payments made to the NSSF in the three and nine months ended October ~~2, 2021~~1, 2022 totaled $~~0.1~~$0.1 million and $~~0.3~~$0.2 million, respectively. One of the Company’s Directors also serves on the Board of the NSSF.

~~Index~~

NOTE 13 —- CONTINGENT LIABILITIES

As of ~~October 1, 2022,~~September 30, 2023, the Company was a defendant in ~~three (3)~~eight (8) lawsuits and is aware of certain other such claims. The lawsuits fall into ~~two~~three categories: ~~traditional product liability~~municipal litigation, negligence, and ~~municipal litigation.~~unfair trade practices. Each is discussed in turn below.

~~Traditional Product Liability Litigation~~

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 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

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~~four lawsuits of this type: ~~The~~ the City of Gary ~~case,~~, filed in Indiana State Court in ~~1999, and~~ 1999; Estados Unidos Mexicanos v. Smith & Wesson, et al., ~~which was~~ filed in the U.S. District Court for the District of Massachusetts in August ~~2021.~~2021; The City of Buffalo, filed in the Supreme Court of the State of New York for Erie County on December 20, 2022; and The City of Rochester, filed in the Supreme Court for the State of New York for Monroe County on December 21, 2022, each of which is described in more detail below.

The City of Gary

~~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.~~

~~Index~~

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' 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 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 the 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.

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

~~Estados Unidos Mexicanos~~

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~~defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government's complaint based on the 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.Government’s complaint. On September 30, 2022, the court entered an order granting ~~the Defendants' joint Rule 12(b)(6)~~defendants’ motion. ~~The Company's Rule 12(b)(2) motion was denied as moot, without prejudice. The~~On October 26, 2022, plaintiff filed a Notice of Appeal and the matter is being briefed before the First Circuit Court of Appeals. Oral argument was held on July 24, 2023.

On December 20, 2022, the City of Buffalo, New York filed a lawsuit captioned The City of Buffalo v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Erie County, New York. The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well as common law public nuisance. Generally, plaintiff alleges that the criminal misuse of firearms in the City of Buffalo is the result of the manufacturing, sales, marketing, and distribution practices of the defendants. Defendants timely removed the matter to the U.S. District Court for the Western District of New York.

On December 21, 2022, the City of Rochester, New York filed a lawsuit captioned The City of Rochester v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Monroe County, New York. The allegations essentially mirror those in The City of Buffalo, discussed in the preceding paragraph. Defendants timely removed the matter to the U.S. District Court for the Western District of New York.

Defendants moved to consolidate the The City of Buffalo and The City of Rochester cases for pretrial purposes only. Defendants also moved to stay the cases pending a decision by the Second Circuit Court of Appeals in National Shooting Sports Foundation, Inc. et al. v. James, which challenges the constitutionality of the recently enacted N.Y. Gen. Bus. Law §§ 898-a–e. On June 8, 2023, the court granted defendants’ motions and the cases were consolidated for pretrial purposes and stayed.

Negligence

Rossiter v. Sturm, Ruger, et al. is a lawsuit arising out of a slip and fall accident by a contract security officer in December 2019. The Complaint was filed in the Superior Court for Sullivan County, New Hampshire on December 13, 2022 and names Pine Hill Construction, a snow removal contractor, as a co-defendant. The Company has tendered the defense of this matter to its insurance carrier and is assisting as required.

The Company was named in two purported class action lawsuits arising out of a data breach at Freestyle Solutions, Inc., the vendor who hosted the Company’s ShopRuger.com website at the time of the breach. Jones v. Sturm, Ruger & Co., was filed in the U.S. District Court for Connecticut on October ~~26,~~4, 2022 and Copeland v. Sturm, Ruger & Company, et al. was filed in the U.S. District Court for New Jersey on October 27, 2022.Copeland also named Freestyle Solutions, Inc. as a defendant. By agreement of the parties, Copeland was dismissed, without prejudice, and consolidated with Jones in the pending Connecticut case. On January 20, 2023, five plaintiffs filed an Amended Complaint naming the Company and Freestyle Software, Inc. as defendants. The Complaint alleges causes of action for negligence, breach of implied warranties, and unjust enrichment. The Company filed a Motion to Dismiss on a variety of grounds. The matter has been briefed fully, and a decision is pending.

Unfair Trade Practices

Estate of Suzanne Fountain v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford and arises out of the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. On that date, plaintiff’s decedent, Suzanne Fountain, was murdered by 21-year-old Ahmad Al Aliwi Al-Issa. The Complaint alleges that the Company’s advertising and marketing of the Ruger AR-556 pistol violate the Connecticut Unfair Trade Practices Act and were a substantial factor in bringing about the wrongful death of Suzanne Fountain.

Estate of Neven Stanisic et al. v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford on behalf of five plaintiffs. Like Estate of Suzanne Fountain, the claims arise from the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. Plaintiffs’ decedents were murdered by Ahmad Al Aliwi Al-Issa and plaintiffs allege that the Company’s advertising and marketing of the Ruger AR-556 pistol violate the Connecticut Unfair Trade Practices Act and were a substantial factor in causing the wrongful death of plaintiffs’ decedents.

The Fountain and Stanisic cases have been consolidated for discovery purposes only and transferred by the court to the Complex Litigation Docket. Plaintiffs sought leave to file an amended complaint, essentially abandoning their negligent marketing allegations and advancing a new theory predicated upon alleged violations of the Gun Control Act and National Firearms Act. Over the Company’s objections, plaintiffs were permitted to file the amended complaint. The matter was timely removed to the U.S. District Court for the District of Connecticut based upon federal question jurisdiction.

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$5 million per claim, or an aggregate maximum loss of $10$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 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.

~~Index~~

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~~$1.1 million at December 31, 2021, ~~and 2020, respectively, are~~is 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. At December 31, 2022, the total amount claimed specifically in these cases was de minimis.

NOTE 14 —- SUBSEQUENT EVENTS

On October ~~28, 2022,~~27, 2023, the Board of Directors authorized a dividend of 41¢17¢ per share, for shareholders of record as of November ~~16, 2022,~~15, 2023, payable on November ~~30, 2022.~~29, 2023.

~~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 ~~October 1, 2022~~September 30, 2023 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.

~~Index~~

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 no more than 5% of total sales, although they did account~~accounted for approximately 7% of total sales for the nine month ~~period~~periods ended ~~October 1, 2022. Export sales accounted for 5% of total sales for the three month period ended~~September 30, 2023 and 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.

~~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 created significant uncertainty and adversely impacted many industries throughout the global economy. During the nine month period ended 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 and believes it remains well positioned to continue to manage through this global crisis. At the end of the third quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling $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.

~~Index~~

Results of Operations

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased ~~29%~~8% in the first nine months of ~~2022~~2023 compared to the prior year period. For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased ~~14%~~7%. ~~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.~~ Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow:

								2023						2022
	2022			2021				Q3		Q2		Q1		Q4		Q3		Q2		Q1
	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Estimated Units Sold from Distributors to Retailers (1)	343,500	354,300	411,200	458,200	457,400	583,300	518,900		307,400		323,000		391,500		397,800		343,500		354,300		411,200

Total adjusted NICS Background Checks (thousands) (2)	3,764	3,917	4,213	4,763	3,971	4,298	5,483		3,284		3,654		4,168		4,531		3,764		3,917		4,213


(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.

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.

~~Index~~

Orders Received and Ending Backlog

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 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.)

															2023						2022
	2022						2021								Q3		Q2		Q1		Q4		Q3		Q2		Q1
	Q3		Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered		295,600		250,600		381,600		373,000		218,800		453,400		790,300		176,300		258,100		408,000		156,000		295,600		250,600		381,600

Orders Received	$	124.3	$	98.9	$	147.0	$	119.2	$	61.1	$	158.3	$	267.9	$	58.8	$	102.1	$	156.2	$	81.0	$	124.3	$	98.9	$	147.0

Average Sales Price of Units Ordered	$	421	$	395	$	385	$	320	$	279	$	349	$	339	$	334	$	396	$	383	$	519	$	421	$	395	$	385

Ending Backlog	$	377.6	$	389.6	$	420.5	$	429.7	$	471.7	$	582.3	$	612.3	$	234.8	$	293.7	$	327.3	$	314.4	$	377.6	$	389.6	$	420.5

Average Sales Price of Ending Unit Backlog	$	427	$	405	$	384	$	357	$	354	$	355	$	346	$	510	$	496	$	488	$	486	$	427	$	405	$	384

Production

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~~Consequently, the Company’s overall production in the first nine months of ~~2022~~2023 decreased by ~~19%~~18% from the first nine months of ~~2021.~~2022.

~~Index~~

Summary Unit Data

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

															2023						2022
	2022						2021								Q3		Q2		Q1		Q4		Q3		Q2		Q1
	Q3		Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered		295,600		250,600		381,600		373,000		218,800		453,400		790,300		176,300		258,100		408,000		156,000		295,600		250,600		381,600

Units Produced		382,800		431,800		521,300		512,100		525,200		575,400		541,900		324,500		387,400		381,000		397,300		382,800		431,800		521,300

Units Shipped		373,800		382,600		491,500		502,300		524,800		580,800		535,000		308,400		336,400		384,900		393,100		373,800		382,600		491,500

Average Sales Price of Units Shipped	$	371	$	366	$	338	$	334	$	338	$	343	$	343	$	390	$	422	$	387	$	378	$	371	$	366	$	338

Ending Unit Backlog		884,400		962,600		1,094,600		1,204,500		1,333,800		1,639,800		1,767,200		460,000		592,100		670,400		647,300		884,400		962,600		1,094,600

~~Inventories:~~Inventories

During the third quarter of ~~2022,~~2023, the Company’s finished goods inventory increased by ~~8,900~~16,100 units and distributor inventories of the Company’s products increased by ~~30,300~~1,000 units.

Inventory unit data for the trailing seven quarters follows:

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

	2023						2022
	Q3		Q2		Q1		Q4		Q3		Q2		Q1

Company Inventory		176,100		160,000		108,900		112,800		108,600		99,700		50,400
Distributor Inventory (1)		306,200		305,200		291,800		298,400		303,100		272,800		244,600

Total Inventory (2)		482,300		465,200		400,700		411,200		411,700		372,500		295,000


(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.

~~Index~~

Net Sales, Cost of Products Sold, and Gross Profit

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

October 1,
2022
October 2,
2021
Change
% Change
Net firearms sales
$
138.8
$
177.5
$
(38.7
)
(21.8%)

Net castings sales
0.6
0.7
(0.1
)
(13.5%)

Total net sales
139.4
178.2
(38.8
)
(21.8%)

Cost of products sold
100.5
113.4
(12.9
)
(11.4%)

Gross profit
$
38.9
$
64.8
$
(25.9
)
(40.0%)

Gross margin
27.9
%
36.4
%
(8.5
%)
(23.4%)

	September 30, 2023		October 1, 2022		Change			% Change
Net firearms sales	$	120.4	$	138.8	$	(18.4	)		(13.3%	)

Net castings sales		0.5		0.6		(0.1	)		(15.2%	)

Total net sales		120.9		139.4		(18.5	)		(13.3%	)

Cost of products sold		96.2		100.5		(4.3	)		(4.3%	)

Gross profit	$	24.7	$	38.9	$	(14.2	)		(36.4%	)

Gross margin		20.5%		27.9%		(7.4%	)		(26.5%	)

Sales of new products, including the LCP MAX pistol, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, Super Wrangler revolver, and the Security-380 pistol, represented $27.2 million or 22.9% of firearm sales in the three months ended September 30, 2023. New product sales include only major new products that were introduced in the past two years.

The decreased gross profit for the three months ended September 30, 2023 is attributable to the decrease in sales, unfavorable deleveraging of fixed costs resulting from decreased production, increased promotional costs, inflationary cost increases in materials, commodities, services, wages, energy, fuel and transportation, and a product mix shift toward products with relatively lower margins that remain in relatively stronger demand.

The decrease in gross margin for the three months ended September 30, 2023 is attributable the aforementioned factors, partially offset by increased pricing.

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


	October 1, 2022			October 2, 2021			Change			% Change	September 30, 2023		October 1, 2022		Change			% Change
Net firearms sales	$	444.6		$	560.6		$	(116.0	)	(20.7%)	$	411.1	$	444.6	$	(33.5	)		(7.5%	)

Net castings sales		2.0			2.1			(0.1	)	(5.3%)		2.1		2.0		0.1			1.6%

Total net sales		446.6			562.7			(116.1	)	(20.6%)		413.2		446.6		(33.4	)		(7.5%	)

Cost of products sold		306.1			346.6			(40.5	)	(11.7%)		311.8		306.1		5.7			1.9%

Gross profit	$	140.5		$	216.1		$	(75.6	)	(35.0%)	$	101.4	$	140.5	$	(39.1	)		(27.9%	)

Gross margin		31.5	%		38.4	%		(6.9	%)	(18.0%)		24.5%		31.5%		(7.0%	)		(22.2%	)

The decrease in total consolidated net sales and net firearms sales for the three and nine months ended ~~October 1, 2022~~September 30, 2023 is attributable to decreased consumer demand for firearms, ~~from~~as evidenced by the ~~unprecedented levels of the surge that began in 2020 and remained for most of 2021.~~adjusted NICS checks. Sales of new products, including the ~~PC Charger,~~ MAX-9 pistol (during the first quarter only), LCP MAX pistol, Marlin ~~1895~~ lever-action rifles, LC Carbine, ~~and~~ Small-Frame Autoloading Rifle, Super Wrangler revolver, and the Security-380 pistol, represented ~~$54.9~~$90.5 million or ~~13%~~22.7% of firearm sales in the first nine months of ~~2022.~~2023. 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, Ruger-5.7 pistol, and 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.

~~Index~~

The decreased gross profit for the ~~three and~~ nine months ended ~~October 1, 2022~~September 30, 2023 is attributable to the decrease in sales, ~~and~~ inflationary cost increases in materials, commodities, services, wages, energy, fuel and ~~transportation.~~transportation, unfavorable deleveraging of fixed costs resulting from decreased production, a product mix shift toward products with relatively lower margins that remain in relatively stronger demand, and increased promotional costs.

The decrease in gross margin for the ~~three and~~ nine months ended ~~October 1, 2022~~September 30, 2023 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,~~factors, partially offset by increased ~~pricing, resulted in lower margins.~~pricing.

Selling and General and Administrative Expenses

Selling and general and administrative expenses ~~were $19.0 million~~data for the three months ended ~~October 1, 2022, an increase of $0.9 million or 5.2% from $18.1 million~~(dollars in the comparable prior year period. As a percentage of sales, selling, general, and administrative expenses increased to 13.6% in the three months ended October 1, 2022 from 10.1% in the prior year period. Selling, general and administrative expenses were $56.8 million for the nine months ended October 1, 2022, a decrease of $1.0 million or 1.8% from $57.8 million in the comparable prior year period. As a percentage of sales, selling, general, and administrative expenses increased to 12.7% in the nine months ended October 1, 2022 from 10.3% in the prior year period.millions):

	September 30, 2023		October 1, 2022		Change			% Change
Selling expenses	$	8.7	$	8.8	$	(0.1	)		(1.1%	)

General and administrative expenses		9.7		10.2		(0.5	)		(5.0%	)

Total operating expenses	$	18.4	$	19.0	$	(0.6	)		(3.2%	)

The ~~increase~~decrease in ~~these~~selling expenses for the three months ended ~~October 1, 2022~~September 30, 2023 was primarily attributable to the decreased shipping costs as a result of the decrease in sales for the period, partially offset by increased advertising and promotional activity.

The decrease in general, and administrative expenses for the three months ended September 30, 2023 was primarily attributable to decreased professional service costs and decreased incentive compensation.

Selling and general and administrative expenses data for the nine months ended (dollars in millions):

	September 30, 2023		October 1, 2022		Change		% Change
Selling expenses	$	27.7	$	25.8	$	1.9		7.3%

General and administrative expenses		31.9		30.9		1.0		3.1%

Total operating expenses	$	59.6	$	56.7	$	2.9		5.0%

The increase in selling expenses for the nine months ended September 30, 2023 was primarily attributable to the resumption of trade show participation costs, travel expenditures, and advertising, ~~that~~some of which had been deferred ~~during the height of the~~in 2022 due to COVID-19 restrictions, partially offset by decreased sales ~~volume~~volume.

The increase in general, and ~~decreased incentive compensation expenses. For~~administrative expenses for the nine months ended ~~October 1, 2022, the decrease in these expenses~~September 30, 2023 was primarily attributable to ~~decreased sales volume and decreased incentive compensation expenses,~~increased professional service costs, 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.decreased incentive compensation.

Other ~~income, net~~Income

Other income ~~net of $1.1 million and $2.8 million~~data for ~~the three and nine months ended October 1, 2022, respectively, decreased from $1.3 million and increased from $2.3 million for the three and nine months ended October 2, 2021, respectively. For~~ the three months ended ~~October 1, 2022,~~(dollars in millions):

	September 30, 2023		October 1, 2022		Change		% Change

Other income	$	1.8	$	1.1	$	0.7		55.7%

The increase in other income for the ~~decrease is~~three months ended September 30, 2023 was the result of ~~decreases~~increases 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~~decreased royalty and miscellaneous income.

Other income data for the nine months ended (dollars in ~~2022 compared to 2021.~~millions):

~~Income Taxes~~

	September 30, 2023		October 1, 2022		Change		% Change

Other income	$	5.1	$	2.8	$	2.3		78.0%

The increase in other income for the nine months ended September 30, 2023 was the result of increases in interest income, partially offset by decreased royalty and ~~Net Income~~miscellaneous income.

The Company's ~~2022~~2023 and ~~2021~~2022 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 ~~12.3%~~8.1% and 18.9% for the three and nine months ended September 30, 2023, respectively. The Company’s effective income tax rate was 12.4% and 19.9% for the three and nine months ended October 1, 2022, respectively. The Company’s effective income tax rate was 26.7% for both the three and nine months ended 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 $18.4 million and $69.4 million for the three and nine months ended October 1, 2022. This represents a decrease of 47.8% and 41.1% from $35.2 million and $117.8 million in the comparable prior year periods.

~~Index~~

Non-GAAP Financial Measures

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 ~~$27.0~~$13.3 million for the three months ended ~~October 1, 2022,~~September 30, 2023, a decrease of ~~51.2%~~50.8% from ~~$55.4~~$27.0 million in the comparable prior year period.

For the nine months ended ~~October 1, 2022~~September 30, 2023 EBITDA was ~~$106.0~~$62.4 million, a decrease of ~~42.0%~~41.1% from ~~$182.8~~$106.0 million in the comparable prior year period.

Non-GAAP Reconciliation —– EBITDA

EBITDA

(Unaudited, dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022

Net income	$	7,431		$	18,389		$	37,966		$	69,378

Income tax expense		658			2,602			8,848			17,236
Depreciation and amortization expense		6,530			6,656			19,576			20,120
Interest income		(1,454	)		(730	)		(4,147	)		(951	)
Interest expense		122			88			177			205
EBITDA	$	13,287		$	27,005		$	62,420		$	105,988
EBITDA margin		11.0%			19.4%			15.1%			23.7%

Three Months Ended
Nine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Net income
$
18,389
$
35,202
$
69,378
$
117,778

Income tax expense
2,602
12,822
17,236
42,902
Depreciation and amortization expense
6,656
7,250
20,120
22,001
Interest income
(730
)
(11
)
(951
)
(31
)
Interest expense
88
114
205
164
EBITDA
$
27,005
$
55,377
$
105,988
$
182,814
EBITDA margin
19.4
%
31.1
%
23.7
%
32.5
%

Financial Condition

Liquidity and Capital Resources

At the end of the third quarter of ~~2022,~~2023, the Company’s cash and short-term investments totaled ~~$215.2~~$120.0 million. Pre-LIFO working capital of ~~$338.9~~$277.8 million, less the LIFO reserve of ~~$54.4~~$65.0 million, resulted in working capital of ~~$284.5~~$212.8 million and a current ratio of ~~5.8~~4.5 to 1.

Operations

Cash provided by operating activities was ~~$50.3~~$17.3 million for the nine months ended ~~October 1, 2022,~~September 30, 2023, compared to ~~$117.0~~$50.3 million for the comparable prior year period. The decrease in cash provided in the nine months ended ~~October 1, 2022~~September 30, 2023 is primarily attributable to the decrease in net income ~~reduced annual incentive compensation,~~ and the increase in ~~inventory~~prepaid expenses and other assets in the nine months ended ~~October 1, 2022.~~September 30, 2023, partially offset by the decrease in accounts receivable in the nine months ended September 30, 2023.

~~Index~~

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 nine months ended 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.

Investing and Financing

Capital expenditures for the nine months ended ~~October 1, 2022~~September 30, 2023 totaled ~~$17.2~~$11.6 million, ~~an increase~~a decrease from ~~$15.6~~$17.2 million in the comparable prior year period. In ~~2022,~~2023, the Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total approximately ~~$25~~$20 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 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.~~cash and cash equivalents.

Dividends of ~~$35.5~~$107.8 million were paid during the nine months ended ~~October 1,~~September 30, 2023. This included $88.3 million paid in January 2023 for a $5.00 per share special dividend declared by the Board of Directors in November 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 October ~~28, 2022,~~27, 2023, the Company’s Board of Directors authorized a dividend of ~~41¢~~17¢ per share to shareholders of record on November ~~16, 2022,~~15, 2023, payable on November ~~30, 2022.~~29, 2023. 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.

As of September 30, 2023, the Company had $88.1 million of United States Treasury instruments which mature within one year. The Company also invests available cash in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one ~~year with available cash.~~year. At ~~October 1, 2022,~~September 30, 2023, the Company’s investment in ~~these instruments~~this money market fund totaled ~~$165.3~~$18.4 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 induring the nine months ended ~~October 2, 2021.~~September 30, 2023. As of ~~October 1, 2022,~~September 30, 2023, $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,~~2025, was unused at ~~October 1, 2022.~~September 30, 2023.

~~Index~~

Other Operational Matters

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 1415 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.

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 Company has taken many proactive steps to maintain the health and safety of its employees and to mitigate the impact on its business. During the nine month period ended September 30, 2023, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions. The Company cannot predict the extent to which its business, results of operations, financial condition, or cash flows will ultimately be impacted by COVID-19.

Adjustments to Critical Accounting Policies

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s ~~2021~~2022 Annual Report on Form 10-K filed on February ~~23, 2022,~~22, 2023, or the judgments affecting the application of those estimates and assumptions.

Forward-Looking Statements and Projections

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.

~~Index~~

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 ~~October 1, 2022.~~

September 30, 2023.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 ~~October 1, 2022.~~September 30, 2023.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~October 1, 2022,~~September 30, 2023, 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 ~~October 1, 2022,~~September 30, 2023, 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 ~~October 1, 2022~~September 30, 2023 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.

~~Index~~

~~PART II. OTHER INFORMATION~~

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The nature of the legal proceedings against the Company is discussed at Note13to the financial statements, which are included in this Form 10-Q.

The Company has reported all cases instituted against it through July ~~2, 2022,~~1, 2023, 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 ~~October 1, 2022.~~

September 30, 2023.

ITEM 1A.

RISK FACTORS

During the three months ended ~~October 1, 2022,~~September 30, 2023, 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.~~

2022.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Share repurchase activity during the three months ended October 1, 2022 was as follows. These purchases were funded with cash on hand.~~

~~Issuer Purchases of Equity Securities~~

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

Not applicable

~~(1)~~

On July 29, 2014, the Company announced a program to repurchase up to $100 million of the Company’s common stock, subject to certain conditions, in the open market or in privately negotiated transactions. As of October 1, 2022, $13,400,000 of the $100,000,000 had been utilized. The remaining $86,600,000 represents the authorized amount available to repurchase shares under the program as of October 1, 2022.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.

OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2023, none of the Company’s Section 16 officers or directors adopted or terminated contracts, instructions, or written plans for the purchase or sale of Company securities.

Due to an administrative oversight, a plan for the purchase and sale of the Company’s securities which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”) was adopted during the three months ended July 1, 2023 by a Section 16 officer of Company securities was not reported in the Form 10-Q filed with respect to such period. The details of such Rule 10b5-1 Plan are as follows:

Name	Title	Action	Date Adopted	Expiration Date	Aggregate # of Securities to be Purchased/Sold
Michael W. Wilson (1)	Vice President of Operations for New Product Development, Product Engineering and Mayodan Manufacturing	Adoption of Rule 10b5-1 Plan	May 22, 2023	December 31, 2023	2,919

(1)

Michael W. Wilson, an officer of the Company, entered into a Rule 10b5-1 Plan on May 22, 2023. Mr. Wilson’s Rule 10b5-1 Plan provides for the potential sale of up to 2,919 shares of the Company’s common stock. The Rule 10b5-1 Plan expires on December 31, 2023, or upon the earlier completion of all authorized transactions under such Rule 10b5-1 Plan.

None of the Company’s directors or Section 16 officers adopted or terminated a “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K during the three months ended September 30, 2023.

~~Index~~

ITEM 6.

EXHIBITS

~~ITEM 6.EXHIBITS~~

~~(a)~~

(a)

Exhibits:

~~31.1~~

31.1

Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002*

~~31.2~~

31.2

Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002*

~~32.1~~

32.1

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002**

~~32.2~~

32.2

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002**

~~101.INS~~

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~~

101.SCH

XBRL Taxonomy Extension Schema ~~Document~~

Document*

~~101.CAL~~

101.CAL

XBRL Taxonomy Extension Calculation Linkbase ~~Document~~

Document*

~~101.DEF~~

101.DEF

XBRL Taxonomy Extension Definition Linkbase ~~Document~~

Document*

~~101.LAB~~

101.LAB

XBRL Taxonomy Extension Label Linkbase ~~Document~~

Document*

~~101.PRE~~

101.PRE

XBRL Taxonomy Extension Presentation Linkbase ~~Document~~

Document*

~~104~~

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~Index~~

*Filed herewith

**Furnished herewith

STURM, RUGER & COMPANY, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED ~~OCTOBER 1, 2022~~SEPTEMBER 30, 2023

SIGNATURES

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.

		STURM, RUGER & COMPANY, INC.




Date: November ~~2, 2022~~ 1, 2023		S/THOMAS A. DINEEN
		Thomas A. Dineen
		Principal Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Chief Financial Officer

iso4217:USD xbrli:shares