Sturm Ruger & Co Inc 10-Q for FY2023 Q3
Sturm Ruger & Co Inc (RGR)
About this 10-Q
Sturm Ruger & Co Inc filed this 10-Q on November 1, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $120.89M
- down 13.3% from $139.39M a year earlier
- Net income
- $7.43M
- down 59.6% from net income of $18.39M a year earlier
- Diluted EPS
- $0.42
- down 59.2% from $1.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of | (I.R.S. employer | |
| incorporation or organization) | identification no.) | |
| (Address of principal executive offices) | (Zip code) |
(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 |
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.
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).
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.
☐ 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 20, 2023:
INDEX
STURM, RUGER & COMPANY, INC.
| PART I. | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements (Unaudited) | |
| Condensed consolidated balance sheets – September 30, 2023 and December 31, 2022 | 3 | |
| Condensed consolidated statements of income and comprehensive income – Three and nine months ended September 30, 2023 and October 1, 2022 | 5 | |
| Condensed consolidated statement of stockholders’ equity – Nine months ended September 30, 2023 | 6 | |
| Condensed consolidated statements of cash flows – Nine months ended September 30, 2023 and October 1, 2022 | 7 | |
| Notes to condensed consolidated financial statements – September 30, 2023 | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
| Item 4. | Controls and Procedures | 28 |
| PART II. | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 29 |
| Item 1A. | Risk Factors | 29 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
| Item 3. | Defaults Upon Senior Securities | 29 |
| Item 4. | Mine Safety Disclosures | 29 |
| Item 5. | Other Information | 30 |
| Item 6. | Exhibits | 31 |
| SIGNATURES | 32 | |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STURM, RUGER & COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
| September 30, 2023 | December 31, 2022 | |||||||
| (Note) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Trade receivables, net | ||||||||
| Gross inventories (Note 4) | ||||||||
| Less LIFO reserve | ( | ) | ( | ) | ||||
| Less excess and obsolescence reserve | ( | ) | ( | ) | ||||
| Net inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment | ||||||||
| Less allowances for depreciation | ( | ) | ( | ) | ||||
| Net property, plant and equipment | ||||||||
| Deferred income taxes | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
Note:
The Condensed Consolidated Balance Sheet at December 31, 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.
3
STURM, RUGER & COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
(Dollars in thousands, except per share data)
| September 30, 2023 | December 31, 2022 | |||||||
| (Note) | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Trade accounts payable and accrued expenses | $ | $ | ||||||
| Dividends payable | ||||||||
| Contract liabilities with customers (Note 3) | ||||||||
| Product liability | ||||||||
| Employee compensation and benefits | ||||||||
| Workers’ compensation | ||||||||
| Income taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Employee compensation | ||||||||
| Product liability accrual | ||||||||
| Lease liability (Note 5) | ||||||||
| Contingent liabilities (Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Authorized shares 50,000; none issued | — | — | ||||||
| Common Stock, par value $ | ||||||||
| Authorized shares – | ||||||||
| 2023 – | ||||||||
| 2022 – | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Less: Treasury stock – at cost | ||||||||
| 2023 – 6,714,338 shares | ||||||||
| 2022 – | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
Note:
The Condensed Consolidated Balance Sheet at December 31, 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.
4
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 | |||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||
| Net firearms sales | $ | $ | $ | $ | ||||||||||||
| Net castings sales | ||||||||||||||||
| Total net sales | ||||||||||||||||
| Cost of products sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Total other income, net | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income taxes | ||||||||||||||||
| Net income and comprehensive income | $ | $ | $ | $ | ||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||
| Weighted average number of common shares outstanding - Basic | ||||||||||||||||
| Weighted average number of common shares outstanding - Diluted | ||||||||||||||||
| Cash dividends per share | $ | $ | $ | $ | ||||||||||||
See notes to condensed consolidated financial statements.
5
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, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income and comprehensive income | ||||||||||||||||||||
| Common stock issued – compensation plans | ( | ) | ||||||||||||||||||
| Vesting of RSUs | ( | ) | ( | ) | ||||||||||||||||
| Dividends paid | ( | ) | ( | ) | ||||||||||||||||
| Unpaid dividends accrued | ( | ) | ( | ) | ||||||||||||||||
| Recognition of stock-based compensation expense | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
See notes to condensed consolidated financial statements.
6
STURM, RUGER & COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
| Nine Months Ended | ||||||||
| September 30, 2023 | October 1, 2022 | |||||||
| Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| (Gain) loss on sale of assets | ( | ) | ||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Trade receivables | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Trade accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Contract liability with customers | ||||||||
| Employee compensation and benefits | ( | ) | ( | ) | ||||
| Product liability | ( | ) | ||||||
| Prepaid expenses, other assets and other liabilities | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Cash provided by operating activities | ||||||||
| Investing Activities | ||||||||
| Property, plant and equipment additions | ( | ) | ( | ) | ||||
| Proceeds from sale of assets | ||||||||
| Purchases of short-term investments | ( | ) | ( | ) | ||||
| Proceeds from maturities of short-term investments | ||||||||
| Cash provided by investing activities | ||||||||
| Financing Activities | ||||||||
| Remittance of taxes withheld from employees related to share-based compensation | ( | ) | ( | ) | ||||
| Repurchase of common stock | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Cash used for financing activities | ( | ) | ( | ) | ||||
| (Decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See notes to condensed consolidated financial statements.
7
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 September 30, 2023 may not be indicative of the results to be expected for the full year ending December 31, 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, 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
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
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.
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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.
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.
NOTE 3 - REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
| 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 | $ | $ | $ | $ | ||||||||||||
| Revenue deferred | ||||||||||||||||
| Revenue recognized | ( | ) | ( | ) | ||||||||||||
| Contract liabilities with customers at end of period | $ | $ | $ | $ | ||||||||||||
9
As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products. The Company expects the remaining deferred revenue from this contract liability with customers to be recognized in the fourth quarter of 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.
| September 30, 2023 | December 31, 2022 | |||||||
| Inventory at FIFO | ||||||||
| Finished products | $ | $ | ||||||
| Materials and work in process | ||||||||
| Gross inventories | ||||||||
| Less: LIFO reserve | ( | ) | ( | ) | ||||
| Less: excess and obsolescence reserve | ( | ) | ( | ) | ||||
| Net inventories | $ | $ | ||||||
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.
10
| Balance Sheet Line Item | September 30, 2023 | |||||
| Right-of-use assets | Other assets | $ | ||||
| Operating lease liabilities | ||||||
| Current portion | Trade accounts payable and accrued expenses | $ | ||||
| Noncurrent portion | Lease liabilities | |||||
| Total operating lease liabilities | $ | |||||
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.
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total undiscounted future minimum lease payments | ||||
| Less: Difference between undiscounted lease payments & the present value of future lease payments | ( | ) | ||
| Total operating lease liabilities | $ |
Certain of the Company’s
lease agreements contain renewal options at the Company’s discretion. The Company does not recognize right-of-use assets or lease
liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal
option at the inception of the lease or when a triggering event occurs. The Company’s weighted average remaining lease term for
operating leases as of September 30, 2023 is
NOTE 6 - LINE OF CREDIT
On January 7, 2022, the Company
entered into a $
11
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 $
In addition, the Company provided
supplemental discretionary contributions to the 401(k) plan totaling $
NOTE 8 - INCOME TAXES
The Company's 2023 and 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
Income tax payments for the three
and nine months ended September 30, 2023 totaled $
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 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.
12
NOTE 9 - EARNINGS PER SHARE
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding – Basic | ||||||||||||||||
| Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans | ||||||||||||||||
| Weighted average number of common shares outstanding – Diluted | ||||||||||||||||
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
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
13
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 a three-year vesting period. There were
Compensation costs related to
all outstanding restricted stock units recognized in the statements of income aggregated $
NOTE 11 - OPERATING SEGMENT INFORMATION
The Company has
| (in thousands) | Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||
| Net Sales | ||||||||||||||||
| Firearms | $ | $ | $ | $ | ||||||||||||
| Castings | ||||||||||||||||
| Unaffiliated | ||||||||||||||||
| Intersegment | ||||||||||||||||
| Eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | $ | $ | $ | |||||||||||||
| Income (Loss) Before Income Taxes | ||||||||||||||||
| Firearms | $ | $ | $ | $ | ||||||||||||
| Castings | ( | ) | ( | ) | ( | ) | ||||||||||
| Corporate | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Depreciation | ||||||||||||||||
| Firearms | $ | $ | $ | $ | ||||||||||||
| Castings | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Capital Expenditures | ||||||||||||||||
| Firearms | $ | $ | $ | $ | ||||||||||||
| Castings | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
14
| September 30, 2023 | December 31, 2022 | |||||||
| Identifiable Assets | ||||||||
| Firearms | $ | $ | ||||||
| Castings | ||||||||
| Corporate | ||||||||
| $ | $ | |||||||
| Goodwill | ||||||||
| Firearms | $ | 3,055 | $ | 3,055 | ||||
| Castings | ||||||||
| $ | $ | |||||||
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 September 30, 2023 totaled $
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 month periods ended September 30, 2023 totaled $
NOTE 13 - CONTINGENT LIABILITIES
As of September 30, 2023, the Company was a defendant in eight (8) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: municipal litigation, negligence, and unfair trade practices. 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, filed in Indiana State Court in 1999; Estados Unidos Mexicanos v. Smith & Wesson, et al., filed in the U.S. District Court for the District of Massachusetts in August 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 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, during the quarter ended April 3, 2021, the City initiated discovery and the manufacturer defendants reciprocated. Discovery is ongoing.
15
Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc., et al. was filed by the Country of Mexico and names seven defendants, mostly U.S.-based firearms manufacturers, including the Company. The Complaint advances a variety of legal theories including negligence, public nuisance, unjust enrichment, restitution, and others. Plaintiff essentially alleges that Defendants design, manufacture, distribute, market and sell firearms in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels for criminal activities. Plaintiff seeks injunctive relief and monetary damages. On November 22, 2021, defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government’s complaint. On September 30, 2022, the court entered an order granting defendants’ motion. 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.
16
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 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 $
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 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.
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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 $
NOTE 14 - SUBSEQUENT EVENTS
On October 27, 2023,
the Board of Directors authorized a dividend of
The Company has evaluated events and transactions occurring subsequent to 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.
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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 accounted for approximately 7% of total sales for the nine month periods 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.
Results of Operations
Demand
The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 8% in the first nine months of 2023 compared to the prior year period. For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 7%. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow:
| 2023 | 2022 | |||||||||||||||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
| Estimated Units Sold from Distributors to Retailers (1) | 307,400 | 323,000 | 391,500 | 397,800 | 343,500 | 354,300 | 411,200 | |||||||||||||||||||||
| Total adjusted NICS Background Checks (thousands) (2) | 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. |
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| (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.
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 | |||||||||||||||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
| Units Ordered | 176,300 | 258,100 | 408,000 | 156,000 | 295,600 | 250,600 | 381,600 | |||||||||||||||||||||
| Orders Received | $ | 58.8 | $ | 102.1 | $ | 156.2 | $ | 81.0 | $ | 124.3 | $ | 98.9 | $ | 147.0 | ||||||||||||||
| Average Sales Price of Units Ordered | $ | 334 | $ | 396 | $ | 383 | $ | 519 | $ | 421 | $ | 395 | $ | 385 | ||||||||||||||
| Ending Backlog | $ | 234.8 | $ | 293.7 | $ | 327.3 | $ | 314.4 | $ | 377.6 | $ | 389.6 | $ | 420.5 | ||||||||||||||
| Average Sales Price of Ending Unit Backlog | $ | 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. Consequently, the Company’s overall production in the first nine months of 2023 decreased by 18% from the first nine months of 2022.
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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 | |||||||||||||||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
| Units Ordered | 176,300 | 258,100 | 408,000 | 156,000 | 295,600 | 250,600 | 381,600 | |||||||||||||||||||||
| Units Produced | 324,500 | 387,400 | 381,000 | 397,300 | 382,800 | 431,800 | 521,300 | |||||||||||||||||||||
| Units Shipped | 308,400 | 336,400 | 384,900 | 393,100 | 373,800 | 382,600 | 491,500 | |||||||||||||||||||||
| Average Sales Price of Units Shipped | $ | 390 | $ | 422 | $ | 387 | $ | 378 | $ | 371 | $ | 366 | $ | 338 | ||||||||||||||
| Ending Unit Backlog | 460,000 | 592,100 | 670,400 | 647,300 | 884,400 | 962,600 | 1,094,600 | |||||||||||||||||||||
Inventories
During the third quarter of 2023, the Company’s finished goods inventory increased by 16,100 units and distributor inventories of the Company’s products increased by 1,000 units.
Inventory unit data for the trailing seven quarters follows:
| 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. |
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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):
| 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):
| September 30, 2023 | October 1, 2022 | Change | % Change | |||||||||||||
| Net firearms sales | $ | 411.1 | $ | 444.6 | $ | (33.5 | ) | (7.5% | ) | |||||||
| Net castings sales | 2.1 | 2.0 | 0.1 | 1.6% | ||||||||||||
| Total net sales | 413.2 | 446.6 | (33.4 | ) | (7.5% | ) | ||||||||||
| Cost of products sold | 311.8 | 306.1 | 5.7 | 1.9% | ||||||||||||
| Gross profit | $ | 101.4 | $ | 140.5 | $ | (39.1 | ) | (27.9% | ) | |||||||
| Gross margin | 24.5% | 31.5% | (7.0% | ) | (22.2% | ) | ||||||||||
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The decrease in total consolidated net sales and net firearms sales for the three and nine months ended September 30, 2023 is attributable to decreased consumer demand for firearms, as evidenced by the adjusted NICS checks. Sales of new products, including the MAX-9 pistol (during the first quarter only), LCP MAX pistol, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, Super Wrangler revolver, and the Security-380 pistol, represented $90.5 million or 22.7% of firearm sales in the first nine months of 2023. New product sales include only major new products that were introduced in the past two years.
The decreased gross profit for the nine months ended September 30, 2023 is attributable to the decrease in sales, inflationary cost increases in materials, commodities, services, wages, energy, fuel and 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 nine months ended September 30, 2023 is attributable to the aforementioned factors, partially offset by increased pricing.
Selling and General and Administrative Expenses
Selling and general and administrative expenses data for the three months ended (dollars in 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 decrease in selling expenses for the three months ended 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.
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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, some of which had been deferred in 2022 due to COVID-19 restrictions, partially offset by decreased sales volume.
The increase in general, and administrative expenses for the nine months ended September 30, 2023 was primarily attributable to increased professional service costs, partially offset by decreased incentive compensation.
Other Income
Other income data for the three months ended (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 three months ended September 30, 2023 was the result of increases in interest income, partially offset by decreased royalty and miscellaneous income.
Other income data for the nine months ended (dollars in millions):
| 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 miscellaneous income.
The Company's 2023 and 2022 effective tax rates differ from the statutory federal tax rate due principally to research and development tax credits, state income taxes and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 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.
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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 $13.3 million for the three months ended September 30, 2023, a decrease of 50.8% from $27.0 million in the comparable prior year period.
For the nine months ended September 30, 2023 EBITDA was $62.4 million, a decrease of 41.1% from $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% | ||||||||||||
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Financial Condition
Liquidity and Capital Resources
At the end of the third quarter of 2023, the Company’s cash and short-term investments totaled $120.0 million. Pre-LIFO working capital of $277.8 million, less the LIFO reserve of $65.0 million, resulted in working capital of $212.8 million and a current ratio of 4.5 to 1.
Operations
Cash provided by operating activities was $17.3 million for the nine months ended September 30, 2023, compared to $50.3 million for the comparable prior year period. The decrease in cash provided in the nine months ended September 30, 2023 is primarily attributable to the decrease in net income and the increase in prepaid expenses and other assets in the nine months ended September 30, 2023, partially offset by the decrease in accounts receivable in the nine months ended September 30, 2023.
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. 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 September 30, 2023 totaled $11.6 million, a decrease from $17.2 million in the comparable prior year period. In 2023, the Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total approximately $20 million. 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 and cash equivalents.
Dividends of $107.8 million were paid during the nine months ended 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 27, 2023, the Company’s Board of Directors authorized a dividend of 17¢ per share to shareholders of record on November 15, 2023, payable on November 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. At September 30, 2023, the Company’s investment in this money market fund totaled $18.4 million.
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The Company did not purchase any shares of its common stock during the nine months ended September 30, 2023. As of 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, 2025, was unused at September 30, 2023.
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 15 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 2022 Annual Report on Form 10-K filed on February 22, 2023, or the judgments affecting the application of those estimates and assumptions.
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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.
| 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 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 September 30, 2023.
Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of 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 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 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.
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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.
| 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 July 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 September 30, 2023.
| ITEM 1A. | RISK FACTORS |
During the three months ended 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, 2022.
| 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
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| 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 |
| (1) |
None of the Company’s directors or Section 16 officers
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| 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) |
*Filed herewith
**Furnished herewith
31
STURM, RUGER & COMPANY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED 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 1, 2023 | S/THOMAS A. DINEEN | |
|
Thomas A. Dineen Principal Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Chief Financial Officer | ||
32
EXHIBIT 31.1
CERTIFICATION
I, Christopher J. Killoy, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”); |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
| d) | Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: November 1, 2023
S/CHRISTOPHER J. KILLOY
Christopher J. Killoy
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Thomas A. Dineen, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”); |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
| d) | Disclosed in this Report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over
financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: November 1, 2023
S/THOMAS A. DINEEN
Thomas A. Dineen
Senior Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Killoy, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. |
| Date: November 1, 2023 | S/CHRISTOPHER J. KILLOY |
| Christopher J. Killoy | |
| Chief Executive Officer |
A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Dineen, Senior Vice President, Treasurer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company. |
| Date: November 1, 2023 | S/THOMAS A. DINEEN |
| Thomas A. Dineen | |
| Senior Vice President, Treasurer and | |
| Chief Financial Officer |
A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.