10-Q 1 rgr10q0322.htm 10-Q STURM, RUGER & COMPANY, INC.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

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

For the quarterly period ended April 2, 2022

or

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

For the transition period from __________ to __________

Commission file number 1-10435

STURM, RUGER & COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware

06-0633559

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer

identification no.)

 

One Lacey Place, Southport, Connecticut

06890

(Address of principal executive offices)

(Zip code)

(203) 259-7843

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

RGR

New York Stock Exchange

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

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

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

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

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

The number of shares outstanding of the issuer's common stock as of April 2, 2022: 17,610,202.



INDEX

STURM, RUGER & COMPANY, INC.

Page

Number

PART I.FINANCIAL INFORMATION

Item 1.Financial Statements (Unaudited)

3

Condensed consolidated balance sheets – April 2, 2022 and December 31, 2021

3

Condensed consolidated statements of income and comprehensive income – Three months ended April 2, 2022 and April 3, 2021

5

Condensed consolidated statement of stockholders’ equity – Three months ended April 2, 2022

6

Condensed consolidated statements of cash flows – Three months ended April 2, 2022 and April 3, 2021

7

Notes to condensed consolidated financial statements – April 2, 2022

8

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

18

Item 3.Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.Controls and Procedures

26

PART II.OTHER INFORMATION

Item 1.Legal Proceedings

27

Item 1A.Risk Factors

27

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

27

Item 3.Defaults Upon Senior Securities

27

Item 4.Mine Safety Disclosures

27

Item 5.Other Information

27

Item 6.Exhibits

28

SIGNATURES

29

2


Index

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

April 2, 2022

December 31, 2021

 

(Note)

Assets

 

 

 

Current Assets

 

Cash

$41,586

$21,044

Short-term investments

169,990

199,971

Trade receivables, net

69,347

57,036

 

Gross inventories (Note 4)

103,501

100,023

Less LIFO reserve

(52,674)

(51,826)

Less excess and obsolescence reserve

(3,913)

(4,347)

Net inventories

46,914

43,850

 

Prepaid expenses and other current assets

8,416

6,832

Total Current Assets

336,253

328,733

 

Property, plant and equipment

431,439

421,282

Less allowances for depreciation

(353,310)

(347,651)

Net property, plant and equipment

78,129

73,631

 

Deferred income taxes

93

536

Other assets

32,003

39,443

Total Assets

$446,478

$442,343

Note:

The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

3


Index

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)

(Dollars in thousands, except per share data)

April 2, 2022

December 31, 2021

(Note)

Liabilities and Stockholders’ Equity

 

Current Liabilities

Trade accounts payable and accrued expenses

$33,874

$36,400

Contract liabilities with customers (Note 3)

Product liability

503

795

Employee compensation and benefits

19,607

33,154

Workers’ compensation

6,956

6,760

Income taxes payable

5,237

Total Current Liabilities

66,177

77,109

 

Product liability accrual

100

97

Lease liability (Note 5)

2,248

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 – 24,343,323 issued, 17,633,425 outstanding

2021 – 24,306,486 issued, 17,596,588 outstanding

24,343

24,306

Additional paid-in capital

46,328

46,847

Retained earnings

452,872

438,098

Less: Treasury stock – at cost

2022 – 6,709,898 shares

2021 – 6,709,898 shares

(145,590)

(145,590)

Total Stockholders’ Equity

377,953

363,661

Total Liabilities and Stockholders’ Equity

$446,478

$442,343

Note:

The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

4


Index

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

Three Months Ended

April 2, 2022

April 3, 2021

Net firearms sales

$165,933

$183,603

Net castings sales

642

774

Total net sales

166,575

184,377

 

Cost of products sold

108,467

111,811

 

Gross profit

58,108

72,566

 

Operating expenses:

Selling

8,435

8,088

General and administrative

10,946

12,522

Total operating expenses

19,381

20,610

 

Operating income

38,727

51,956

 

Other income:

Interest income

31

8

Interest expense

(91)

(25)

Other income, net

852

451

Total other income, net

792

434

 

Income before income taxes

39,519

52,390

 

Income taxes

9,287

14,198

 

Net income and comprehensive income

$30,232

$38,192

 

Basic earnings per share

$1.72

$2.18

 

Diluted earnings per share

$1.70

$2.16

 

Weighted average number of common shares outstanding - Basic

17,610,202

17,559,624

 

Weighted average number of common shares outstanding - Diluted

17,806,457

17,718,481

 

Cash dividends per share

$0.86

$0.71

See notes to condensed consolidated financial statements.

5


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

30,232

30,232

Common stock issued – compensation plans

37

(37)

Vesting of RSUs

(2,154)

(2,154)

Dividends paid

(15,165)

(15,165)

Unpaid dividends accrued

(293)

(293)

Recognition of stock-based compensation expense

1,672

1,672

Balance at April 2, 2022

$24,343

$46,328

$452,872

$(145,590)

$377,953

See notes to condensed consolidated financial statements.

6


Index

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

Three Months Ended

April 2, 2022

April 3, 2021

Operating Activities

Net income

$30,232

$38,192

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

6,755

7,501

Stock-based compensation

1,672

3,381

Gain on sale of assets

(5)

(11)

Deferred income taxes

443

2,406

Changes in operating assets and liabilities:

Trade receivables

(12,311)

(15,289)

Inventories

(3,064)

323

Trade accounts payable and accrued expenses

(2,232)

(1,836)

Contract liability with customers

-

(84)

Employee compensation and benefits

(13,840)

(16,495)

Product liability

(289)

(108)

Prepaid expenses, other assets and other liabilities

6,163

530

Income taxes payable

5,237

9,260

Cash provided by operating activities

18,761

27,770

 

Investing Activities

Property, plant and equipment additions

(10,881)

(5,516)

Proceeds from sale of assets

-

11

Purchases of short-term investments

(29,992)

(146,992)

Proceeds from maturities of short-term investments

59,973

146,002

Cash provided by (used for) investing activities

19,100

(6,495)

 

Financing Activities

Remittance of taxes withheld from employees related to share-based compensation

(2,154)

(4,801)

Dividends paid

(15,165)

(12,484)

Cash used for financing activities

(17,319)

(17,285)

 

Increase in cash and cash equivalents

20,542

3,990

 

Cash and cash equivalents at beginning of period

21,044

20,147

 

Cash and cash equivalents at end of period

$41,586

$24,137

See notes to condensed consolidated financial statements.

7


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

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales typically represent no more than 5% of total sales. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Approximately 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.

8


Index

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.

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.

Reclassifications:

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

9


Index

NOTE 3 — REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

The impact of ASC 606 on revenue recognized during the three months ended April 2, 2022 and April 3, 2021 is as follows:

Three Months Ended

April 2, 2022

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

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.

10


Index

Inventories consist of the following:

April 2, 2022

December 31, 2021

Inventory at FIFO

Finished products

$15,677

$7,322

Materials and work in process

87,824

92,701

Gross inventories

103,501

100,023

Less: LIFO reserve

(52,674)

(51,826)

Less: excess and obsolescence reserve

(3,913)

(4,347)

Net inventories

$46,914

$43,850

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 assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of April 2, 2022:

Balance Sheet Line Item

April 2, 2022

Right-of-use assets

Other assets

$2,595

Operating lease liabilities

Current portion

Trade accounts payable and accrued expenses

$347

 

Noncurrent portion

Lease liabilities

2,248

Total operating lease liabilities

$2,595

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.

11


Index

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 April 2, 2022:

Remainder of 2022

$340

2023

454

2024

457

2025

340

2026

340

Thereafter

1,310

Total undiscounted future minimum lease payments

3,241

Less: Difference between undiscounted lease payments & the present value of future lease payments

(646)

Total operating lease liabilities

$2,595

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 April 2, 2022 is 9.9 years.

NOTE 6 — LINE OF CREDIT

On January 7, 2022, the Company entered into a $40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2024. Borrowings under this new facility bear interest at either 1) the Bloomberg short-Term Bank Yield Index – 1 month plus 150 basis points, or 2) a fluctuating rate per annum equal to the greater of (i) the Bank’s prime rate or (ii) the federal funds rate plus 50 basis points. The Company is also charged one-quarter of a percent (0.25%) per year on the unused portion. At April 2, 2022, the Company was in compliance with the terms and covenants of the credit facility. At April 2, 2022, there was no outstanding balance on the line of credit

The Company previously had a $40 million revolving line of credit with a different bank, which terminated on September 30, 2021. At the line of credit’s termination date, the Company was in compliance with the terms and covenants of the credit facility.

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 $1.3 million for both the three months ended April 2, 2022 and April 3, 2021. The Company plans to contribute approximately $4.0 million to the plan in matching employee contributions during the remainder of 2022.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $2.4 million for both the three months ended April 2, 2022 and April 3, 2021. The Company plans to contribute approximately $5.0 million in supplemental contributions to the plan during the remainder of 2022.

NOTE 8 — INCOME TAXES

The Company's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 23.5% and 27.1% for the three months ended April 3, 2022 and April 2, 2021, respectively.

Income tax payments for the three months ended April 3, 2022 and April 2, 2021 totaled $3.1 million and $0.2 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2017.

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

12


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

April 2, 2022

April 3, 2021

Numerator:

Net income

$30,232

$38,192

Denominator:

Weighted average number of common shares outstanding – Basic

17,610,202

17,559,624

 

Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans

196,255

158,857

 

Weighted average number of common shares outstanding – Diluted

17,806,457

17,718,481

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, of which 136,000 shares remain available for future grants as of April 2, 2022.

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 three-year vesting period. There were 81,774 restricted stock units issued during the three months ended April 2, 2022. Total compensation costs related to these restricted stock units are $6.0 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $1.7 million and $3.4 million for the three months ended April 2, 2022 and April 3, 2021, respectively.

13


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:

Three Months Ended

(in thousands)

April 2, 2022

April 3, 2021

Net Sales

Firearms

$165,933

$183,603

Castings

Unaffiliated

642

774

Intersegment

4,813

7,070

5,455

7,844

Eliminations

(4,813)

(7,070)

$166,575

$184,377

Income (Loss) Before Income Taxes

Firearms

$39,695

$52,486

Castings

(383)

(161)

Corporate

207

65

$39,519

$52,390

Depreciation

Firearms

$5,810

$6,718

Castings

578

711

$6,388

$7,429

Capital Expenditures

Firearms

$10,307

$3,677

Castings

574

1,839

$10,881

$5,516

April 2, 2022

December 31, 2021

Identifiable Assets

Firearms

$199,560

$188,290

Castings

13,396

13,889

Corporate

233,522

240,164

$446,478

$442,343

Goodwill

Firearms

$3,055

$3,055

Castings

209

209

$3,264

$3,264

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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 totaled $0.1 million for both the three months ended April 2, 2022 and April 3, 2021. One of the Company’s Directors also serves as a Director on the Board of the NRA.

NOTE 13 — CONTINGENT LIABILITIES

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

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 traditional product liability theories 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 lawsuits of this type. The City of Gary, filed in Indiana State Court in 1999, and Estados Unidos Mexicanos v. Smith & Wesson, et al., which was filed in August 2021.

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. The plaintiff did not file a Second Amended Complaint by the deadline.

In 2015, Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. The defendants 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.

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

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

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

The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019. The Petition was denied on November 26, 2019. The case was remanded to the trial court for further proceedings.

During the quarter ended April 3, 2021, the City initiated discovery and the 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 the 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, the 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.

Summary of Claimed Damages and Explanation of Product Liability Accruals

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

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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., an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis.

A range of reasonably possible losses relating to unfavorable outcomes cannot be made. However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $0.9 million and $1.1 million at December 31, 2021 and 2020, respectively, are set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

NOTE 14 — SUBSEQUENT EVENTS

On April 29, 2022, the Board of Directors authorized a dividend of $0.68 per share, for shareholders of record as of May 16, 2022, payable on May 31, 2022.

The Company has evaluated events and transactions occurring subsequent to April 2, 2022 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

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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. 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. In the first quarter of 2022, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions. The impact of the COVID-19 pandemic is fluid and continues to evolve, and, therefore, the Company cannot predict the extent to which its business, results of operations, financial condition, or cash flows will ultimately be impacted. Management continues to monitor and assess the situation and to prepare for potential implications for the Company’s business, supply chain and customer demand.

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

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

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

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

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

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

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

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

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

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

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

The Company believes it is currently well positioned to manage through this global crisis. At the end of the first quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling $212 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.

Results of Operations

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 21% in the first quarter of 2022 compared to the prior year period. For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 23%. 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 five quarters follow:

2022

2021

Q1

Q4

Q3

Q2

Q1

Estimated Units Sold from Distributors to Retailers (1)

411,200

458,200

457,400

583,300

518,900

Total adjusted NICS Background Checks (thousands) (2)

4,213

4,763

3,971

4,298

5,483

 

(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.

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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.

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 five 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.)

2022

2021

Q1

Q4

Q3

Q2

Q1

Units Ordered

381,600

373,000

218,800

453,400

790,300

Orders Received

$147.0

$119.2

$61.1

$158.3

$267.9

Average Sales Price of Units Ordered

$385

$320

$279

$349

$339

Ending Backlog

$420.5

$429.7

$471.7

$582.3

$612.3

Average Sales Price of Ending Unit Backlog

$384

$357

$354

$355

$346

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 Company decreased overall production in the first quarter of 2022 by 4% from the first quarter of 2021.

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Summary Unit Data

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

2022

2021

Q1

Q4

Q3

Q2

Q1

Units Ordered

381,600

373,000

218,800

453,400

790,300

Units Produced

521,300

512,100

525,200

575,400

541,900

Units Shipped

491,500

502,300

524,800

580,800

535,000

Average Sales Price of Units Shipped

$338

$334

$338

$343

$343

Ending Unit Backlog

1,094,600

1,204,500

1,333,800

1,639,800

1,767,200

Inventories

During the first quarter of 2022, the Company’s finished goods inventory increased by 29,800 units and distributor inventories of the Company’s products increased by 80,400 units.

Inventory data for the trailing five quarters follows:

2022

2021

Q1

Q4

Q3

Q2

Q1

Units — Company Inventory

50,400

20,600

10,900

10,400

15,700

Units — Distributor Inventory (1)

244,600

164,200

120,100

52,800

55,300

Total Inventory (2)

295,000

184,800

131,000

63,200

71,000

 

(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.

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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):

April 2, 2022

April 3, 2021

Change

% Change

Net firearms sales

$166.0

$183.6

$(17.6)

(9.6%)

Net castings sales

$0.6

$ 0.8

$(0.2)

(17.1%)

Total net sales

$166.6

$184.4

$(17.8)

(9.7%)

Cost of products sold

$108.5

$111.8

$(3.3)

(3.0%)

Gross profit

$58.1

$72.6

$(14.5)

(19.9%)

Gross margin

34.9%

39.4%

(4.5%)

(11.4%)

The decrease in total consolidated net sales and net firearms sales for the three months ended April 2, 2022 is attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021. Sales of new products, including the PC Charger, the MAX-9 pistol, the LCP MAX pistol, and the Marlin 1895 lever-action rifle represented $21.4 million or 13% of firearm sales in the first quarter of 2022. New product sales include only major new products that were introduced in the past two years. Several popular firearms that were considered new products in 2021, including the Wrangler revolver, the Ruger-5.7 pistol, and the LCP II in .22 LR pistol, have now been in production for over two years and are no longer included in new product sales for the first quarter of 2022.

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

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $19.4 million for the three months ended April 2, 2022, a decrease of $1.2 million or 6.0% from $20.6 million in the comparable prior year period. As a percentage of sales, selling, general, and administrative expenses increased slightly to 11.6% in the three months ended April 2, 2022 from 11.2% in the prior year period.

The decrease in these expenses was primarily attributable to decreased sales volume and incentive compensation expenses and the increase of expenses as a percentage of sales was attributable to the decrease in sales.

Other income, net

Other income, net of $0.8 million for the three months ended April 2, 2022, increased from $0.4 million for the three months ended April 3, 2021 as a result of increased royalty and miscellaneous income in 2022 compared to 2021.

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Income Taxes and Net Income

The Company’s 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 23.5% and 27.1% for the three months ended April 2, 2022 and April 3, 2021, respectively.

As a result of the foregoing factors, consolidated net income was $30.2 million for the three months ended April 2, 2022. This represents a decrease of 20.8% from $38.2 million in the comparable prior year period.

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 $46.3 million for the three months ended April 2, 2022, a decrease of 22.7% from $59.9 million in the comparable prior year period.

Non-GAAP Reconciliation — EBITDA

EBITDA

(Unaudited, dollars in thousands)

Three Months Ended

April 2, 2022

April 3, 2021

Net income

$30,232

$38,192

 

Income tax expense

9,287

14,198

Depreciation and amortization expense

6,755

7,501

Interest income

(31)

(8)

Interest expense

91

25

EBITDA

$46,334

$59,908

EBITDA margin

27.8%

32.5%

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Financial Condition

Liquidity

At the end of the first quarter of 2022, the Company’s cash and short-term investments totaled $211.6 million. Pre-LIFO working capital of $322.8 million, less the LIFO reserve of $52.7 million, resulted in working capital of $270.1 million and a current ratio of 5.1 to 1.

Operations

Cash provided by operating activities was $18.8 million for the three months ended April 2, 2022, compared to $27.8 million for the comparable prior year period. The decrease in cash provided in the three months ended April 2, 2022 is primarily attributable to the decrease in net income.

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 three months ended April 2, 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 three months ended April 2, 2022 totaled $10.9 million, an increase from $5.5 million in the comparable prior year period. In 2022, the Company expects to spend approximately $25 million on capital expenditures, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment. Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the projected amount. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

Dividends of $15.2 million were paid during the three months ended April 2, 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 April 29, 2022, the Company’s Board of Directors authorized a dividend of 68¢ per share to shareholders of record on May 16, 2022, payable on May 31, 2022. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.

The Company invests in United States Treasury instruments which mature within one year with available cash. At April 2, 2022, the Company’s investment in these instruments totaled $170.0 million.

The Company did not purchase any shares of its common stock in the three months ended April 2, 2022 and April 3, 2021. As of April 2, 2022, $86.7 million remained authorized for future stock repurchases.

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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 has no debt.

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.

Three of the Company’s smaller domestic distributors discontinued their firearms distribution operations in 2019. Currently there are 14 domestic distributors. Additionally, the Company has 44 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.

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 Annual Report on Form 10-K filed on February 23, 2022, 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.

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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 April 2, 2022.

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 April 2, 2022.

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

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

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

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PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

The Company has reported all cases instituted against it through December 31, 2021, 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 April 2, 2022.

During the three months ending April 2, 2022, the previously reported case of Fortner v. Sturm, Ruger & Co., Inc., was dismissed with prejudice.

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

27


Index

ITEM 6. EXHIBITS

(a)

Exhibits:

31.1

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

31.2

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

32.1

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

32.2

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

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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

28


Index

STURM, RUGER & COMPANY, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 2, 2022

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: May 4, 2022

S/

THOMAS A. DINEEN

Thomas A. Dineen

Principal Financial Officer,

Principal Accounting Officer,

Senior Vice President, Treasurer and

Chief Financial Officer

29