| CONTINGENT LIABILITIES | NOTE 13 - CONTINGENT LIABILITIES
As of September 28, 2024,
the Company was a defendant in eight (8) lawsuits and is aware of certain other claims. The lawsuits generally fall into four (4) categories:
municipal litigation, breach of contract, unfair trade practices, and trademark litigation. Each is discussed in turn below. 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 four lawsuits of this type: the City
of Gary Estados Unidos Mexicanos v. Smith & Wesson, et al. The City of Buffalo The City of Rochester The City of Gary On March 15, 2024, Indiana
Governor Eric Holcomb signed into law HB 1235, which reserves to the State of Indiana the right to bring an action on behalf of a political
subdivision against a firearm or ammunition manufacturer, trade association, seller, or dealer, concerning certain matters. The new law
also prohibits a political subdivision from bringing or maintaining such an action. With the passage of this new law, the Company and
other defendants filed a Motion for Judgment on the Pleadings on March 18, 2024. On August 12, 2024, the Court denied Defendants’
motion. The Defendants then sought to certify the Order for appeal, which was granted. On October 2, 2024, Defendants filed a motion with
the Indiana Court of Appeals to accept jurisdiction over the interlocutory appeal, which is being briefed. On October 16, 2024, the trial
court entered an Order staying all proceeding pending the interlocutory appeal. Estados Unidos Mexicanos
v. Smith & Wesson Brands, Inc., et al. On November 22, 2021, Defendants
filed a motion to dismiss the Complaint, which was granted on September 30, 2022. Plaintiffs appealed to the First Circuit Court of Appeals
and, on January 22, 2024, the Court of Appeals reversed the District Court’s dismissal and remanded the case for further proceedings. The Defendants filed a Petition
for Writ of Certiorari seeking review by the United States Supreme Court. The Defendants also sought a stay of the proceedings pending
a decision on the Petition. The District Court denied the request for a stay and held that the Defendants should request that the First
Circuit recall its mandate or petition for a stay from the Supreme Court. On June 17, 2024, the Court heard argument on Ruger’s
(and other Defendants’) Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction. On August 7, 2024, the Court granted
the motions, dismissing Ruger and some of the other Defendants from the case. Subsequently, the Supreme Court granted the Defendants’
Petition for Writ of Certiorari. With the dismissal of Ruger and other Defendants on personal jurisdiction grounds, the remaining Defendants
will prosecute the appeal before the Supreme Court. 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. 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. Defendants moved to consolidate
the Buffalo Rochester National Shooting Sports Foundation, Inc. et al. v. James N.Y. Gen. Bus. Law Breach of Contract The Company is a defendant
in Jones v. Sturm, Ruger & Co., The Company moved to dismiss
the Amended Complaint. On March 27, 2024, the Court dismissed Plaintiffs’ negligence and unjust enrichment claims against the Company.
The Court denied the motion with respect to Plaintiffs’ breach of contract claim, concluding that development of additional information
is required to assess the applicability of the limitation of liability clause contained in the Company’s terms and conditions of
use. The case is proceeding accordingly. Unfair Trade Practices Estate of Suzanne Fountain
v. Sturm, Ruger & Co., Inc., 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., Estate of Suzanne
Fountain Ahmad Al Aliwi Al-Issa and Plaintiffs alleged 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 Stanisic The
matter was timely removed to the U.S. District Court for the District of Connecticut based upon the new allegations and federal question
jurisdiction. Plaintiffs moved to remand the case to state court and, following briefing and oral argument, the matter was remanded on
April 25, 2024. On June 12, 2024, Ruger filed
Motions to Dismiss the Connecticut state court cases based upon the doctrine of forum non conveniens Trademark
Litigation On
March 12, 2024, FN Herstal, et al. v. Sturm, Ruger & Company, Inc. he Complaint alleges
that the Company’s use of the initialism “SFAR” in connection with the marketing of its Small Frame Autoloading Rifle
infringes the Plaintiffs’ SCAR trademark. The Complaint alleges violations of the Lanham Act and the North Carolina Unfair and Deceptive
Trade Practices Act, as well as trademark infringement under North Carolina common law. The Company believes that the allegations are
meritless and is defending the action accordingly. 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 between July 10, 2000 and August 31, 2024, coverage is provided on an annual basis for losses exceeding
$5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments
or municipalities after July 10, 2000, which are excluded from coverage. Insurance coverage was not renewed with incumbent carriers effective
September 1, 2024. Rather, the Company established a wholly-owned captive insurance company for claims made on or after September 1, 2024. 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. 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. A range of reasonably possible
losses relating to unfavorable outcomes cannot be made. The dollar amount of damages claimed at December 31, 2023 and December 31, 2022
was de minimis |
