SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 0-4776
STURM, RUGER & COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
1 Lacey Place, Southport, Connecticut
(Address of Principal Executive Offices)
06-0633559
(I.R.S. Employer
Identification No.)
06890
(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
Common Stock, $1 par value
Trading Symbol(s)
RGR
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or shorter such period of time that the registrant was required to file such reports), and (2) has been
subject to such filing 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, a smaller reporting company,
or an emerging growth company. See definition of “accelerated filer,” “large 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2022:
Common Stock, $1 par value - $1,112,555,000
The number of shares outstanding of the registrant's common stock as of February 15, 2023: Common Stock, $1 par value –17,596,600 shares
Portions of the registrant’s Proxy Statement relating to the 2023 Annual Meeting of Stockholders to be held June 1, 2023 are incorporated by
reference into Part III (Items 10 through 14) of this Report.
DOCUMENTS INCORPORATED BY REFERENCE.
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TABLE OF CONTENTS
PART I
Item 1.
Business.…………………………………..……………………………………………………………
4
Item 1A.
Risk Factors……………………………………………………………………………………………. 11
Item 1B.
Unresolved Staff Comments…………………………………………………………………………...
15
Item 2.
Properties.………………………………………………………………………………………………
16
Item 3.
Legal Proceedings....…………………………………………………………………………………...
17
Item 4.
Mine Safety Disclosures………………………………………………..................................................
17
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.……………………………………………………………………....
Item 6.
[Reserved]………………………………………………………………………………...
18
20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations………….
21
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk………………………………………....
43
Item 8.
Financial Statements and Supplementary Data………………………………………………………...
44
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ………...
77
Item 9A.
Controls and Procedures.…………………………………………………………………………….....
77
Item 9B.
Other Information.……………………………………………………………………………………...
78
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections………………………………...
78
PART III
Item 10.
Directors, Executive Officers and Corporate Governance……………………………………………..
78
Item 11.
Executive Compensation.……………………………………………………………………………....
78
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.…………………………………………………………………………………………….....
79
Item 13.
Certain Relationships and Related Transactions and Director Independence………………………….
79
Item 14.
Principal Accountant Fees and Services….…………………………………………………………....
80
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PART IV
Item 15.
Exhibits and Financial Statement Schedules.……………………………………………......................
81
Signatures…... ………………………………………………………………………………………………………….
Exhibit Index.. ………………………………………………………………………………………………………….
Financial Statement Schedule... ………………………………………………………………………………………...
Exhibits……... ……………………………………………………………………………………………………….....
84
85
87
89
EXPLANATORY NOTE:
In this Annual Report on Form 10-K, Sturm, Ruger & Company, Inc. and Subsidiary (the “Company”) makes 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, and accounting estimates, any
one or more of which could cause actual results to differ materially from those projected. Words such as “expect,” “believe,”
“anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar meaning, typically
identify such forward-looking statements. 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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PART I
ITEM 1—BUSINESS
Company Overview
Sturm, Ruger & Company, Inc. and Subsidiary (the “Company”) is principally engaged in the
design, manufacture, and sale of firearms to domestic customers. Virtually all of the Company’s
sales for the year ended December 31, 2022 were from the firearms segment, with less than 1%
from the castings segment. Export sales represent approximately 6% of firearms sales. The
Company’s design and manufacturing operations are located in the United States and almost all
product content is domestic.
The Company has been in business since 1949 and was incorporated in its present form under the
laws of Delaware in 1969. The Company primarily offers products in three industry product
categories – rifles, pistols, and revolvers. The Company’s firearms are sold through independent
wholesale distributors, principally to the commercial sporting market.
The Company manufactures and sells investment castings made from steel alloys and metal
injection molding (“MIM”) parts for internal use in the firearms segment and has minimal sales to
outside customers. The castings and MIM parts are sold to outside customers, either directly or
through manufacturers’ representatives.
On November 23, 2020, the Company acquired substantially all of the Marlin Firearms assets. The
agreement to purchase these assets emanated from the Remington Outdoor Company, Inc.
bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of
Alabama on September 30, 2020. The purchase price of approximately $28.3 million was paid
with available cash on hand. Shipments of Ruger-made, Marlin lever action rifles commenced
late in the fourth quarter of 2021.
For the years ended December 31, 2022, 2021, and 2020, net sales attributable to the Company's
firearms operations were $593.3 million, $728.1 million and $565.9 million. The balance of the
Company's net sales for the aforementioned periods was attributable to its castings operations.
Firearms Products
The Company presently manufactures firearm products, under the “Ruger” name and trademark,
in the following industry categories:
Rifles
Single-shot
Autoloading
Bolt-action
Modern sporting
Pistols
Rimfire autoloading
Centerfire autoloading
Revolvers
Single-action
Double-action
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In addition, the Company manufactures lever-action rifles under the “Marlin” name and trademark.
Most firearms are available in several models based upon caliber, finish, barrel length, and other
features.
Rifles
A rifle is a long gun with spiral grooves cut into the interior of the barrel to give the bullet a
stabilizing spin after it leaves the barrel. Net sales of rifles by the Company accounted for $305.4
million, $317.5 million, and $234.3 million of total net sales for the years 2022, 2021, and 2020,
respectively.
Pistols
A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which
typically is fed ammunition from a magazine contained in the grip. Net sales of pistols by the
Company accounted for $184.7 million, $278.4 million, and $198.1 million of revenues for the
years 2022, 2021, and 2020, respectively.
Revolvers
A revolver is a handgun that has a cylinder that holds the ammunition in a series of chambers
which are successively aligned with the barrel of the gun during each firing cycle. There are two
general types of revolvers, single-action and double-action. To fire a single-action revolver, the
hammer is pulled back to cock the gun and align the cylinder before the trigger is pulled. To fire
a double-action revolver, a single trigger pull advances the cylinder and cocks and releases the
hammer. Net sales of revolvers by the Company accounted for $70.0 million, $84.4 million, and
$79.1 million of revenues for the years 2022, 2021, and 2020, respectively.
Accessories
The Company also manufactures and sells accessories and replacement parts for its firearms.
These sales accounted for $33.2 million, $47.8 million, and $54.1 million of total net sales for the
years 2022, 2021, and 2020, respectively.
Castings Products
Net sales attributable to the Company’s casting operations (excluding intercompany transactions)
accounted for $2.6 million, $2.6 million, and $3.0 million, for 2022, 2021, and 2020, respectively.
These sales represented less than 1% of total net sales in each of 2022, 2021, and 2020.
Manufacturing
Firearms
The Company produces one model of pistol, all of its revolvers and some of its rifles at the
Newport, New Hampshire facility. One model of revolver and most of the Company’s pistols are
produced at the Prescott, Arizona facility. Some rifle models and pistol models are produced at
the Mayodan, North Carolina facility.
Many of the basic metal component parts of the firearms manufactured by the Company are
produced by the Company's castings segment through processes known as precision investment
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casting. The Company also uses many MIM parts in its firearms. See "Manufacturing- Investment
Castings and Metal Injected Moldings" below for a description of these processes. The Company
believes that investment castings and MIM parts provide greater design flexibility and result in
component parts which are generally close to their ultimate shape and, therefore, require less
machining than processes requiring machining a solid billet of metal to obtain a part. Through the
use of investment castings and MIM parts, the Company endeavors to produce durable and less
costly component parts for its firearms.
All assembly, inspection, and testing of firearms manufactured by the Company are performed at
the Company's manufacturing facilities. Every firearm, including every chamber of every revolver
manufactured by the Company, is test-fired prior to shipment.
Investment Castings and Metal Injection Moldings
To produce a product by the investment casting method, a wax model of the part is created and
coated (“invested”) with several layers of ceramic material. The shell is then heated to melt the
interior wax, which is poured off, leaving a hollow mold. To cast the desired part, molten metal is
poured into the mold and allowed to cool and solidify. The mold is then broken off to reveal a
near net shape cast metal part.
Metal injection molding is a three part powder metallurgy process by which a feedstock consisting
of finely powdered metal and binders is processed through injection molding, debinding, and
sintering equipment to produce steel, stainless steel, and alloy parts of complex shape and
geometry. This process allows for high volume production while eliminating many of the wastes
of traditional metal working methods, yielding net shape and near net shape parts.
Marketing and Distribution
Firearms
The Company's firearms are primarily marketed through a network of federally licensed,
independent wholesale distributors who purchase the products directly from the Company. They
resell to federally licensed, independent retail firearms dealers who in turn resell to legally
authorized end users. All retail purchasers are subject to a point-of-sale background check by law
enforcement. These end users include sportsmen, hunters, people interested in self-defense, law
enforcement and other governmental organizations, and gun collectors. Each domestic distributor
carries the entire line of firearms manufactured by the Company for the commercial market.
Currently, 15 distributors service the domestic commercial market, with an additional 25
distributors servicing the domestic law enforcement market and 45 distributors servicing the export
market.
In 2022, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Lipsey’s - 23%; Davidson’s - 23%; and Sports South - 21%.
In 2021, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Lipsey’s - 21%; Sports South - 19%; and Davidson’s - 19%.
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In 2020, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Sports South - 22%; Lipsey’s - 22%; and Davidson’s - 18%.
The Company employs 15 employees who service these distributors and call on retailers and law
enforcement agencies. Because the ultimate demand for the Company's firearms comes from end
users rather than from the independent wholesale distributors, the Company believes that the loss
of any distributor would not have a material, long-term adverse effect on the Company, but may
have a material adverse effect on the Company’s financial results for a particular period. The
Company considers its relationships with its distributors to be satisfactory.
The Company also exports its firearms through a network of selected commercial distributors and
directly to certain foreign customers, consisting primarily of law enforcement agencies and foreign
governments. Foreign sales were 6% of the Company’s consolidated net sales for the year ended
December 31, 2022, and no more than 5% of the Company's consolidated net sales for each of the
years ended December 31, 2021 and 2020.
The Company does not consider its overall firearms business to be predictably seasonal; however,
orders of many models of firearms from the distributors tend to be stronger in the first quarter of
the year and weaker in the third quarter of the year.
Investment Castings and Metal Injection Moldings
The castings segment provides castings and MIM parts for the Company’s firearms segment. In
addition, the castings segment produces some products for a number of customers in a variety of
industries.
Competition
Firearms
Competition in the firearms industry is intense and comes from both foreign and domestic
manufacturers. While some of these competitors concentrate on a single industry product category
such as rifles or pistols, several competitors manufacture products in all four industry categories
(rifles, shotguns, pistols, and revolvers). The principal methods of competition in the industry are
product innovation, quality, availability, brand, and price. The Company believes that it can
compete effectively with all of its present competitors.
Investment Castings and Metal Injection Moldings
There are a large number of investment castings and MIM manufacturers, both domestic and
foreign, with which the Company competes. Competition varies based on the type of investment
castings products and the end use of the product. Companies offering alternative methods of
manufacturing such as wire electric discharge machining (EDM) and advancements in computer
numeric controlled (CNC) machining also compete with the Company’s castings segment. Many
of these competitors are larger corporations than the Company with substantially greater financial
resources than the Company, which could affect the Company’s ability to compete with these
competitors. The principal methods of competition in the industry are quality, price, and
production lead time.
7
Human Capital
The Company is an equal opportunity employer dedicated to the attraction, development, and
retention of our employees by providing a preferred work environment that promotes and
celebrates our core values of Integrity, Respect, Innovation and Teamwork. Our goal is to develop,
motivate, retain and reward passionate and dedicated employees.
As of February 1, 2023, the Company employed approximately 1,880 full-time employees,
approximately 28% of whom had at least ten years of service with the Company.
The Company attracts candidates and retains employees by offering competitive compensation
packages, which include:
Base wages,
Profit sharing,
Medical and welfare benefits,
Holidays and other “paid time off” (PTO), and
401(k) plan participation and matching program.
The Company believes its compensation packages:
Provide a base level of compensation to reflect an individual’s role and responsibilities,
Recognize and reward employees for the Company’s success, and
Provide for the safety, security and well-being of employees.
Our primary vehicle for human capital development is Ruger University, which has a mission to:
Enhance the understanding of our industry, Company and culture,
Strengthen the technical, interpersonal and leadership skills of each employee, and
Allow employees to positively change their own lives while creating value for all Ruger
stakeholders.
In addition to providing a competitive compensation package and emphasizing the development
of employees, the Company retains its employees by maintaining a safe, responsible, and preferred
workplace. The Company is committed to conducting business in conformance with the highest
ethical standards and in compliance with all applicable legal and regulatory requirements. The
“Code of Business Conduct and Ethics” and the “Corporate Compliance Program” are two active
programs that guide the Company’s practices to achieve these goals.
In addition, since the beginning of the global outbreak of the Coronavirus disease 2019 (“COVID-
19”) in March 2020, the Company continues to take multiple proactive steps to promote the health
and safety of its employees and maintain a clean, safe, and preferred workplace.
To assess and improve employee retention and engagement, the Company surveys employees on
an annual basis with the assistance of a third-party consultant, and takes actions to address areas
of employee concern and build on the competencies that are important for our future success.
8
Research and Development
In 2022, 2021, and 2020, the Company spent approximately $9.6 million, $11.7 million, and $8.0
million, respectively, on research and development activities relating to new products and the
improvement of existing products. Research and development expenses are included in costs of
products sold. As of February 1, 2023, the Company had approximately 57 employees whose
primary responsibilities were research and development activities.
Patents and Trademarks
The Company owns various United States and foreign patents and trademarks which have been
secured over a period of years and which expire at various times. It is the policy of the Company
to apply for patents and trademarks whenever new products or processes deemed commercially
valuable are developed or marketed by the Company. The Company deems its patents and
trademarks to be valuable and therefore works to police and protect them.
Environmental Matters
The Company is committed to achieving high standards of environmental quality and product
safety, and strives to provide a safe and healthy workplace for its employees and others in the
communities in which it operates. The Company has programs in place that monitor compliance
with various environmental regulations. However, in the normal course of its manufacturing
operations the Company is subject to governmental proceedings and orders pertaining to waste
disposal, air emissions, and water discharges into the environment. These regulations are
integrated into the Company’s manufacturing, assembly, and testing processes. The Company
believes that it is generally in compliance with applicable environmental regulations and that the
outcome of any environmental proceedings and orders will not have a material adverse effect on
the financial position of the Company, but could have a material adverse effect on the financial
results for a particular period.
9
Information about our Executive Officers
Set forth below are the names, ages, and positions of the executive officers of the Company.
Officers serve at the discretion of the Board of Directors of the Company.
Name
Age
Position With Company
Christopher J. Killoy
Thomas A. Dineen
Thomas P. Sullivan
Kevin B. Reid, Sr.
Shawn C. Leska
64
54
62
62
51
President and Chief Executive Officer
Senior Vice President, Treasurer, and Chief Financial
Officer
Senior Vice President of Operations
Vice President, General Counsel, and Corporate Secretary
Vice President, Sales
Christopher J. Killoy became President & Chief Executive Officer on May 9, 2017. Previously he
served as President and Chief Operating Officer since January 1, 2014. Prior to that he served as
Vice President of Sales and Marketing since November 27, 2006. Mr. Killoy originally joined the
Company in 2003 as Executive Director of Sales and Marketing, and subsequently served as Vice
President of Sales and Marketing from November 1, 2004 to January 25, 2005.
Thomas A. Dineen became Senior Vice President on July 10, 2017. Previously he served as Vice
President since May 24, 2006. Prior to that he served as Treasurer and Chief Financial Officer
since May 6, 2003 and had been Assistant Controller since 2001. Mr. Dineen joined the Company
as Manager, Corporate Accounting in 1997.
Thomas P. Sullivan became Senior Vice President of Operations on July 1, 2017. Mr. Sullivan
joined the Company as Vice President of Newport Operations for the Newport, New Hampshire
Firearms and Pine Tree Castings divisions on August 14, 2006.
Kevin B. Reid, Sr. became Vice President and General Counsel on April 23, 2008. Previously he
served as the Company’s Director of Marketing from June 4, 2007. Mr. Reid joined the Company
in July 2001 as an Assistant General Counsel.
Shawn C. Leska became Vice President, Sales on November 6, 2015. Mr. Leska joined the
Company in 1989 and has served in a variety of positions in the sales department. Most recently,
Mr. Leska served as Director of Sales since 2011.
Where You Can Find More Information
The Company is subject to the informational requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and accordingly, files its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K, and
other information with the Securities and Exchange Commission (the “SEC”). As an electronic
filer, the Company's public filings are maintained on the SEC's Internet site that contains reports,
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proxy and information statements, and other information regarding issuers that file electronically
with the SEC. The address of that website is http://www.sec.gov.
The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Definitive Proxy Statements, Current Reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act accessible free of charge
through the Company's Internet site after the Company has electronically filed such material with,
or furnished it to, the SEC. The address of that website is http://www.ruger.com. However, such
reports may not be accessible through the Company's website as promptly as they are accessible
on the SEC’s website.
Additionally, the Company’s corporate governance materials, including its Corporate Governance
Guidelines, the charters of the Audit, Compensation, Nominating and Corporate Governance, Risk
Oversight and Capital Policy committees, and the Code of Business Conduct and Ethics may also
be found under the “Investor Relations” subsection of the “Corporate” section of the Company’s
Internet site at http://www.ruger.com/corporate. A copy of the foregoing corporate governance
materials is available upon written request to the Corporate Secretary at Sturm, Ruger & Company,
Inc., 1 Lacey Place, Southport, Connecticut 06890.
ITEM 1A—RISK FACTORS
The Company’s operations could be affected by various risks, many of which are beyond its
control. Based on current information, the Company believes that the following identifies the most
significant risk factors that could adversely affect its business. Past financial performance may
not be a reliable indicator of future performance and historical trends should not be used to
anticipate results or trends in future periods.
In evaluating the Company’s business, the following risk factors, as well as other information in
this report, should be carefully considered.
Changes in government policies and firearms legislation could adversely affect the
Company’s financial results.
The sale, purchase, ownership, and use of firearms are subject to thousands of federal, state and
local governmental regulations. The basic federal laws are the National Firearms Act, the Federal
Firearms Act, and the Gun Control Act of 1968. Federal law generally prohibits the private
ownership of fully automatic weapons manufactured after 1986 and places certain restrictions on
the interstate sale of firearms unless certain licenses are obtained. The Company does not
manufacture fully automatic weapons and holds all necessary licenses under these federal laws. If
the scope of the National Firearms Act is expanded to regulate firearms currently regulated by the
Gun Control Act, it could make acquisition of commonly owned and used firearms more expensive
and complicated for consumers, which could have a material adverse impact on demand for
Company products. Several states currently have laws in effect similar to the aforementioned
legislation.
In 2005, Congress enacted the Protection of Lawful Commerce in Arms Act (“PLCAA”). The
PLCAA was enacted to address abuses by cities and agenda-driven individuals who wrongly
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sought to make firearms manufacturers liable for legally manufactured and lawfully sold products
if those products were later used in criminal acts. The Company believes the PLCAA merely
codifies common sense and long standing tort principles. If the PLCAA is repealed or efforts to
circumvent it are successful and lawsuits similar to those filed by cities and agenda-driven
individuals in the late 1990s and early 2000s are allowed to proceed, it could have a material
adverse impact on the Company.
Currently, federal and several states’ legislatures are considering additional legislation relating to
the regulation of firearms. These proposed bills are numerous and extremely varied, but many
seek either to restrict or ban the sale and, in some cases, the ownership of various types of firearms.
Other legislation seeks to require new technologies, such as microstamping and so-called “smart
gun” technology, which are not proven, reliable or feasible. Such legislation became effective in
California in 2013, which has limited our ability to sell certain products in California. If similar
legislation is enacted in other states, or at the Federal level, it could effectively ban or severely
limit the sale of affected firearms. There also are legislative proposals to limit magazine capacity.
The Company believes that the lawful private ownership of firearms is guaranteed by the Second
Amendment to the United States Constitution and that the widespread private ownership of
firearms in the United States will continue. However, there can be no assurance that the regulation
of firearms will not become more restrictive in the future and that any such restriction would not
have a material adverse effect on the business of the Company. Numerous bills regulating the
ownership of firearms have been proposed at the state and federal levels, and these bills propose a
wide variety of restrictions including, for example, limiting the number of firearms that may be
purchased in a specified time, increasing the age for ownership, imposing additional licensing or
registration requirements, creating additional restrictions on certain, common firearm features, and
levying new taxes on firearms and/or ammunition.
The Company’s results of operations could be further adversely affected if legislation with
diverse requirements is enacted.
With literally thousands of laws being proposed at the federal, state and local levels, if even a small
percentage of these laws are enacted and they are incongruent, the Company could find it difficult,
expensive or even practically impossible to comply with them, impeding new product development
and distribution of existing products.
The COVID-19 pandemic could have a significant adverse impact on the Company’s
operations, financial results, cash flow, and financial condition.
The COVID-19 pandemic created significant uncertainty and adversely impacted many industries
throughout the global economy. Thus far, the Company has been able to mitigate the impact of
COVID-19 through its proactive measures. The extent to which it impacts the Company’s
operations, financial results, cash flow, and financial condition is difficult to predict and dependent
upon many factors over which the Company has no control. These factors include, but are not
limited to, the duration and severity of the pandemic; government restrictions on businesses and
individuals; potential significant adverse impacts on the Company’s employees, customers,
suppliers, or service providers; the impact on U.S. and global economies and the timing and rate
of economic recovery; and potential adverse effects on the financial markets, any of which could
negatively impact the Company.
12
The Company’s results of operations could be adversely affected by litigation.
The Company faces risks arising from various asserted and unasserted litigation matters. These
matters include, but are not limited to, assertions of allegedly defective product design or
manufacture, alleged failure to warn, purported class actions against firearms manufacturers,
generally seeking relief such as medical expense reimbursement, property damages, and punitive
damages arising from accidents involving firearms or the criminal misuse of firearms, and those
lawsuits filed on behalf of municipalities alleging harm to the general public. Various factors or
developments can lead to changes in current estimates of liabilities such as final adverse judgment,
significant settlement or changes in applicable law. A future adverse outcome in any one or more
of these matters could have a material adverse effect on the Company’s financial results. See Note
21 to the financial statements which are included in this Annual Report on Form 10-K.
The Company relies upon relationships with financial institutions.
The Company utilizes the services of numerous financial institutions, including banks, insurance
carriers, transfer agents, and others. Anti-gun politicians, gun-control activists, and others may
target these institutions and attempt to pressure them into ceasing to do business with the
Company, or to use financial relationships to impose unacceptable and improper restrictions on
the Company’s business, which could have a material adverse impact on our business, operating
results, and financial condition.
Our insurance may be insufficient to protect us from claims or losses.
We maintain insurance coverage with third-party insurers. However, not every risk or liability is
or can be protected by insurance, and, for those risks we insure, the limits of coverage we purchase
or that are reasonably obtainable in the market may not be sufficient to cover all actual losses or
liabilities incurred. Moreover, there is a risk that commercially available liability insurance will
not continue to be available to us at a reasonable cost, if at all. If liability claims or losses exceed
our current or available insurance coverage, our business and prospects may be harmed.
The Company’s results of operations could be adversely affected by a decrease in demand
for Company products.
If demand for the Company’s products decreases significantly, the Company would be unable to
efficiently utilize its capacity, and profitability would suffer. Decreased demand could result from
a macroeconomic downturn, or could be specific to the firearms industry as a result of social,
political, or other factors. If the decrease in demand occurs abruptly, the adverse impact would be
even greater.
The financial health of our independent distributors is critical to our success.
Over 90% of our sales are made to 15 federally licensed, independent wholesale distributors. We
review our distributors’ financial statements and have credit insurance for many of them.
However, our credit evaluations of distributors and credit insurance may not be completely
effective, especially if interest rate increases continue to exact an additional financial strain. If
one or more independent distributors experience financial distress or liquidity issues, our sales
could be adversely affected and we may not be able to collect our accounts receivable on a timely
basis, which would have an adverse impact on our operating results and financial condition.
13
The Company must comply with various laws and regulations pertaining to workplace safety
and environment, environmental matters, and firearms manufacturing.
In the normal course of its manufacturing operations, the Company is subject to numerous federal,
state and local laws and governmental regulations, and governmental proceedings and orders.
These laws and regulations pertain to matters like workplace safety and environment, firearms
serial number tracking and control, waste disposal, air emissions and water discharges into the
environment. Noncompliance with any one or more of these laws and regulations could have a
material adverse impact on the Company.
Misconduct of our employees or contractors could cause us to lose customers and could have
a significant adverse impact on our business and reputation.
Misconduct, fraud or other improper activities by our employees or contractors could have a
material adverse impact on our business and reputation. Such misconduct could include the failure
to comply with federal, state, local or foreign government procurement regulations, regulations
regarding the protection of personal information, laws and regulations relating to antitrust and any
other applicable laws or regulations.
Product quality and performance is important to the Company’s success.
The Company has a long history of producing rugged, reliable firearms for the commercial market.
While we believe our record of designing, manufacturing, and selling high-quality products
demonstrates our commitment to safety and quality, we have occasionally identified design and/or
manufacturing issues with respect to some firearms and, as a result, issued a product safety bulletin
or initiated a product recall. Depending upon the volume of products we have shipped into the
market, any future recall or safety bulletin could harm our reputation, cause us to lose business,
and cause us to incur significant support and repair costs.
Business disruptions at one of the Company’s manufacturing facilities could adversely affect
the Company’s financial results.
The Newport, New Hampshire, Prescott, Arizona, Mayodan, North Carolina, and Earth City,
Missouri facilities are critical to the Company’s success. These facilities house the Company’s
principal production, research, development, engineering, design, and shipping operations. Any
event that causes a disruption of the operation of any of these facilities for even a relatively short
period of time could have a material adverse effect on the Company’s ability to produce and ship
products and to provide service to its customers.
We rely on our information and communications systems in our operations. Security
breaches and other disruptions could adversely affect our business and results of operations.
Cyber-security threats are significant and evolving and include, among others, malicious software,
attempts to gain unauthorized access to data, and other electronic security breaches that could lead
to disruptions in mission critical systems, unauthorized release of confidential or otherwise
protected information and corruption of data. In addition to security threats, we are also subject
to other systems failures, including network, software or hardware failures, whether caused by us,
third-party service providers, natural disasters, power shortages, terrorist attacks or other events.
The unavailability of our information or communications systems, the failure of these systems to
perform as anticipated or any significant breach of data security could cause loss of data, disrupt
our operations, lead to financial losses from remedial actions, require significant management
14
attention and resources, and negatively impact our reputation among our customers and the public,
which could have a negative impact on our financial condition, results of operations and liquidity.
The lack of available raw materials or component parts could disrupt or even cease the
Company’s manufacturing operations. Even if manufacturing operations are not disrupted,
increased costs of raw materials and component parts could adversely affect the Company’s
financial results.
Third parties supply the Company with various raw materials for its firearms and castings, such as
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. There
is a limited supply of these materials in the marketplace at any given time, which can cause the
purchase prices to vary based upon numerous market factors. 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.
We rely primarily on third parties for transportation of the products we manufacture as well
as delivery of our raw materials.
Any increase in the cost of the transportation of our raw materials or products, as a result of
increases in fuel or labor costs, higher demand for logistics services, consolidation in the
transportation industry or otherwise, may adversely affect our results of operations. If any of these
providers were to fail to deliver raw materials to us in a timely manner, we may be unable to
manufacture and deliver our products in a timely manner. In addition, if any of these third parties
were to cease operations or cease doing business with us, we may be unable to replace them at a
reasonable cost. And such failure of a third-party transportation provider could harm our
reputation, negatively affect our customer relationships and have a material adverse effect on our
financial position and results of operations
The integration of Marlin branded firearms may be more difficult than anticipated.
If we are unable to execute our strategy related to the acquisition of Marlin assets and we are not
able to manufacture Marlin branded firearms to the planned level of quality, quantity, cost
effectiveness, or timeliness as planned, our financial condition, results of operations, and
reputation would suffer.
Availability and retention of our labor force, especially our key management, is critical to
the success of the Company.
We have observed an overall tightening and increasingly competitive labor market, which could
inhibit our ability to recruit and retain the employees we require and could lead to increased costs,
such as additional overtime to meet demand and increased wage rates to attract and retain
employees. We rely on the knowledge, experience, and leadership skills of our senior management
team. Our senior executives are not bound by employment agreements. The loss of the services
of one or more of our senior executives or other key personnel could have a significant adverse
impact on our business.
ITEM 1B—UNRESOLVED STAFF COMMENTS
None
15
ITEM 2—PROPERTIES
The Company’s manufacturing operations are carried out at four facilities. The following table
sets forth certain information regarding each of these facilities:
Approximate
Aggregate
Usable
Square Feet
Status
Segment
Newport, New Hampshire
350,000
Owned
Firearms/Castings
Prescott, Arizona
230,000
Mayodan, North Carolina
220,000
Earth City, Missouri
35,000
Leased
Owned
Leased
Firearms
Firearms
Castings
Each firearms facility contains enclosed ranges for testing firearms. The lease of the Prescott
facility provides for rental payments which are approximately equivalent to estimated rates for real
property taxes.
The Company has other facilities that were not used in its manufacturing operations in 2022:
Approximate
Aggregate
Usable
Square Feet
Status
Segment
Southport, Connecticut
25,000
Owned
Corporate
Newport, New Hampshire
(Dorr Woolen Building)
Enfield, Connecticut
Rochester, New Hampshire
Fairport, New York
45,000
10,000
2,000
3,700
Mayodan, North Carolina
225,000
Madison, North Carolina
130,000
Owned
Leased
Leased
Leased
Owned
Leased
Firearms
Firearms
Firearms
Corporate
Firearms
Firearms
There are no mortgages or any other major encumbrance on any of the real estate owned by the
Company.
The Company’s principal executive offices are located in Southport, Connecticut.
16
ITEM 3—LEGAL PROCEEDINGS
The nature of the legal proceedings against the Company is discussed at Note 21 to the financial
statements, which are included in this Form 10-K.
The Company has reported all cases instituted against it through October 1, 2022, and the results
of those cases, where terminated, to the SEC on its previous Form 10-Q and 10-K reports, to which
reference is hereby made.
There were five lawsuits formally instituted against the Company during the three months ending
December 31, 2022. As follows:
The City of Buffalo v. Smith & Wesson Brands, Inc., et al., filed in the Supreme Court of the
State of New York for Erie County on December 20, 2022.
The City of Rochester v. Smith & Wesson Brands, Inc., et al., filed in the Supreme Court of the
State of New York for Monroe County on December 21, 2022.
Rossiter v. Sturm, Ruger & Co., Inc., et al., filed in the Sullivan County Superior Court for the
State of New Hampshire on December 13, 2022.
Jones v. Sturm, Ruger & Co., filed in the U.S. District Court for the District of Connecticut, on
October 4, 2022.
Copeland v. Sturm, Ruger & Company, et al., filed in the U.S. District Court for the District of
New Jersey, on October 27, 2022.
ITEM 4—MINE SAFETY DISCLOSURES – NOT APPLICABLE
17
PART II
ITEM 5—MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The Company’s common stock is traded on the New York Stock Exchange under the symbol
“RGR.” At February 10, 2023, the Company had 1,826 stockholders of record.
Issuer Repurchase of Equity Securities
In 2022 the Company repurchased shares of its common stock. In 2020 and 2021, the Company
did not repurchase any shares of its common stock. Details of the purchases in 2022 follow:
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Program
Maximum
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Program
-
-
2,136
-
2,304
-
4,440 $86,490,000
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
-
-
2,136
-
2,304
-
4,440
-
-
$49.97
-
$49.77
-
$49.87
Period
Third Quarter 2022
July 3 to July 30
July 31 to August 27
August 28 to October 1
Fourth Quarter 2022
October 2 to October 29
October 30 to November 26
November 27 to December 31
Total
All of these purchases were made with cash held by the Company and no debt was incurred.
At December 31, 2022 approximately $86.5 million remained authorized for share repurchases.
18
Comparison of Five-Year Cumulative Total Return*
Sturm, Ruger & Co., Inc., Standard & Poor’s 500, Dow Jones US Recreational Products
TSM Index, Recreation, and Russell 2000 Index
(Performance Results Through 12/31/22)
$250
$200
$150
$100
$50
Sturm, Ruger & Company, Inc.
S&P 500
Russell 2000
Dow Jones US Recreational Products TSM
Recreation
148.85
134.26
134.00
131.09
111.23
125.72
111.70
102.86
99.63
87.30
191.58
175.68
153.85
156.89
143.24
122.41
104.15
120.97
115.37
63.34
100.00
97.15
95.62
88.99
82.25
70.31
$0
2017
2018
2019
2020
2021
2022
*Assumes $100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Sturm, Ruger & Company, Inc.
Standard & Poors 500
Russell 2000 Index
Dow Jones US Recreational Products TSM
Recreation
2017
100.00
100.00
100.00
100.00
100.00
2018
97.15
95.62
88.99
70.31
82.25
2019
87.30
125.72
111.70
99.63
102.86
2020
131.09
148.85
134.00
134.26
111.23
2021
143.24
191.58
153.85
175.68
104.15
2022
120.97
156.89
122.41
115.37
63.34
For the year ended December 31, 2022, the Company has provided the five year cumulative total
return results for the Dow Jones US Recreational Products Index, a widely-published index
tracking companies that provide recreational products, along with those of the Recreation index
formerly used by the Company, which is comprised of companies in the broader recreation
industry and was prepared by a former service provider of the Company that is no longer providing
cumulative total return calculations. The five year results for both the former Recreation index and
the Dow Jones US Recreational Products Index are presented above.
19
ITEM 6—[RESERVED]
20
ITEM 7—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 represent approximately 6% 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 of 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.
Impact of COVID-19
The global outbreak of the Coronavirus disease 2019 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 has created significant uncertainty and adversely impacted many industries throughout
the global economy. In 2022, the Company was able to mitigate the adverse impact on its business
resulting from government restrictions on the movement of people, goods, and services. 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, with guidance from a dedicated Company
COVID-19 Task Force, continues to monitor and assess the situation, take proactive steps to
promote the health and safety of its employees, and prepare for potential implications for the
Company’s business, supply chain and customer demand.
From a liquidity perspective, the Company believes it is currently well positioned to continue to
manage through this global crisis. At the end of 2022, the Company was debt-free and had cash
and short-term investments totaling $224.3 million.
The impact of COVID-19 in 2022 and future years on consumer demand and the Company’s
business, operations, financial results financial condition, and cash flows is dependent on future
developments, including the duration of the pandemic and the related impact on the global
economy, which remains uncertain.
21
Results of Operations - 2022
Product Demand
The estimated sell-through of the Company’s products from the independent distributors to
retailers in 2022 decreased 25% from 2021. For the same period, adjusted NICS decreased 11%.
These decreases are attributable to decreased consumer demand for firearms from the
unprecedented levels of the surge that began in 2020 and remained for most of 2021.The greater
reduction in the sell-through of the Company’s products relative to adjusted NICS background
checks may be attributable to the following:
More aggressive promotions, discounts, rebates, and the extension of payment terms
offered by our competitors,
An apparent increase in sales of used firearms at retail, which are included in the adjusted
NICS checks, but are not distinguished from new gun sales, and
Decreased retailer inventories as the anticipation of further discounting may be
encouraging cautious buying behavior by retailers.
Estimated sell-through from distributors to retailers and total adjusted NICS background checks:
2022
2021
2020
Estimated Units Sold from Distributors to
Retailers (1)
1,506,800
2,017,800
1,948,900
Total Adjusted NICS Background Checks (2)
16,425,000
18,515,000
21,084,000
(1)
The estimates for each period were calculated by taking the beginning inventory at
the distributors, plus shipments from the Company to distributors during the period,
less the ending inventory at distributors. These estimates are only a proxy for actual
market demand as they:
Rely on data provided by independent distributors that are not verified by
the Company,
Do not consider potential timing issues within the distribution channel,
including goods-in-transit, and
Do not consider fluctuations in inventory at retail.
(2)
NICS background checks are performed when the ownership of most firearms,
either new or used, is transferred by a Federal Firearms Licensee. NICS
background checks are also performed for permit applications, permit renewals,
and other administrative reasons.
The adjusted NICS data presented above was derived by the NSSF by subtracting
NICS checks that are not directly related to the sale of a firearm, including checks
22
used for concealed carry (“CCW”) permit application checks as well as checks on
active CCW permit databases.
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 our 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 units ordered, value of orders received and ending backlog, net of Federal Excise Tax, for
the trailing three years are as follows (dollars in millions, except average sales price):
2022
2021
2020
Orders Received
$451.2
$606.5
$992.9
Average Sales Price of Orders Received
$416
$330
$326
Ending Backlog
$314.4
$429.7
$516.6
Average Sales Price of Ending Backlog
$486
$357
$342
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, to plan production
levels and manage inventories. These reviews resulted in a decrease in total unit production of
20% in 2022 compared to 2021.
23
Annual Summary Unit Data
Firearms unit data for orders, production, and shipments follows:
Units Ordered
Units Produced
Units Shipped
2022
2021
2020
1,083,800
1,835,500
3,041,700
1,733,200
2,154,600
1,659,100
1,641,000
2,142,900
1,717,700
Average Sales Price
$362
$340
$329
Units – Backlog
647,300
1,204,500
1,511,900
Inventories
The Company’s finished goods inventory increased by 92,200 units during 2022.
Distributor inventories of the Company’s products increased by 134,200 units during 2022, and
approximate a reasonable level to support rapid fulfillment of retailer demand for most product
families.
Inventory data follows:
2022
2021
2020
Units – Company Inventory
112,800
20,600
8,800
Units – Distributor Inventory (3)
298,400
164,200
39,200
Total inventory (4)
411,200
184,800
48,000
(3)
(4)
Distributor ending inventory as provided by the independent distributors of the
Company’s products. These numbers do not include goods-in-transit inventory that
has been shipped from the Company but not yet received by the distributors.
This total does not include inventory at retailers. The Company does not have
access to data on retailer inventories.
24
Year ended December 31, 2022, as compared to year ended December 31, 2021:
Net Sales, Cost of Products Sold, and Gross Profit
Net sales, cost of products sold, and gross profit data for the year ended (dollars in
millions):
Net firearms sales
$593.3
$728.1
December 31,
2022
December 31,
2021
Change
$(134.8)
% Change
(18.5)%
Net casting sales
2.5
2.6
(0.1)
(1.6)%
Total net sales
595.8
730.7
(134.9)
(18.5)%
Cost of products sold
415.7
451.2
(35.5)
(7.8)%
Gross profit
$180.1
$279.5
$ (99.4)
(35.6)%
Gross margin
30.2%
38.3%
(8.1)%
(29.7)%
Firearms sales and unit shipments decreased 18.5% and 23.4%, respectively, in 2022. New
products represented $78.4 million or 14% of firearms sales in 2022, compared to $155.5 million
or 22% of firearms sales in 2021. New product sales include only major new products that were
introduced in the past two years. In 2022, new products included the MAX-9 pistol, LCP MAX,
Marlin 1895 lever-action rifles, PC Charger, LC Carbine, and Small-Frame Autoloading Rifle.
The decreased gross profit for the year ended December 31, 2022 is attributable to the significant
decrease in sales, as well as inflationary cost increases in materials, commodities, services, energy,
fuel and transportation, which were partially offset by increased pricing.
The decrease in gross margin for the year ended December 31, 2022 is attributable to the
aforementioned inflationary cost increases and unfavorable deleveraging of fixed costs resulting
from decreased production and sales.
Selling, General and Administrative
Selling, general and administrative expenses were $76.6 million in 2022, a slight increase of $0.1
million from $76.5 million in 2021, and an increase from 10.5% of sales in 2021 to 12.9% of sales
in 2022. The increase in these expenses was primarily attributable to increased shipping costs and
to the resumption of trade show participation costs, travel expenditures, and advertising that had
been deferred during the height of the COVID-19 restrictions, almost entirely offset by decreased
25
incentive compensation expenses and decreased variable costs, such as shipping, as a result of the
reduced sales volume.
Other Operating Income (Expense), Net
Other operating income (expense), net was de minimis in 2022 and an expense of $0.1 million in
2021.
Operating Income
Operating income was $103.5 million or 17.3% of sales in 2022. This is a decrease of $99.6
million from 2021 operating income of $203.1 million or 27.8% of sales.
Royalty Income
Royalty income was $0.8 million in 2022 and $2.0 million in 2021.
Interest Income
Interest income was $2.6 million in 2022, an increase from de minimis earnings in 2021, due to
significantly increased interest rates earned on short-term investments beginning in the second
quarter of 2022.
Interest Expense
Interest expense was $0.3 million in 2022 and $0.2 million and 2021.
Other Income, Net
Other income, net was $1.7 million in 2022, an increase of $0.1 million from $1.6 million in 2021.
Income Taxes and Net Income
The effective income tax rate was 18.4% in 2022 and 24.5% in 2021. The Company's 2022 and
2021 effective tax rate differs 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 decrease in the 2022 effective tax rate was primarily attributable to
research and development tax credits, some of which related to amended prior year income tax
returns. The impact related to research and development tax credits on the effective tax rate is
expected to decline in future years.
As a result of the foregoing factors, consolidated net income was $88.3 million in 2022. This
represents a decrease of $67.6 million from 2021 consolidated net income of $155.9 million.
26
Non-GAAP Financial Measure
In an effort to provide investors with additional information regarding its 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 measures may
not be comparable to similarly titled 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
its financial performance.
Non-GAAP Reconciliation – EBITDA
EBITDA
(Unaudited, dollars in thousands)
Year ended December 31,
Net income
Income tax expense
Depreciation and amortization expense
Interest expense
Interest income
EBITDA
EBITDA margin
2022
2021
$ 88,332
$155,899
19,947
25,789
256
(2,552)
$131,772
22.1%
50,695
26,152
164
(49)
$232,861
31.9%
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’s EBITDA calculation also excludes any one-time
non-cash, non-operating expense.
27
Quarterly Data
To supplement the summary annual unit data and discussion above, the same data for the last eight
quarters follows:
Units Ordered
Units Produced
Units Shipped
Estimated Units Sold from
Distributors to Retailers
Total Adjusted NICS Background
Checks
Q4
2022
Q3
Q2
Q1
156,000
295,600
250,600
381,600
397,300
382,800
431,800
521,300
393,100
373,800
382,600
491,500
397,800
343,500
354,300
411,200
4,531,000
3,764,000
3,917,000
4,213,000
Average Unit Sales Price
$378
$371
$366
$338
Units – Backlog
647,300
884,400
962,600
1,094,600
Units – Company Inventory
112,800
108,600
99,700
50,400
Units – Distributor Inventory (5)
298,400
303,100
272,800
244,600
Units Ordered
Units Produced
Units Shipped
Estimated Units Sold from
Distributors to Retailers
Total Adjusted NICS Background
Checks
Q4
2021
Q3
Q2
Q1
373,000
218,800
453,400
790,300
512,100
525,200
575,400
541,900
502,300
524,800
580,800
535,000
458,200
457,400
583,300
518,900
4,763,000
3,971,000
4,298,000
5,483,000
Average Unit Sales Price
$334
$338
$343
$343
Units – Backlog
1,204,500
1,333,800
1,639,800
1,767,200
Units – Company Inventory
20,600
10,900
Units – Distributor Inventory (5)
164,200
120,100
10,400
52,800
15,700
55,300
28
(5) Distributor ending inventory as provided by the independent distributors of the
Company’s products.
(in millions except average sales price, net of Federal Excise Tax)
Q4
2022
Q3
Q2
Q1
Orders Received
$81.0
$124.3
$98.9
$147.0
Average Sales Price of Orders Received
$519
$421
$395
$385
Ending Backlog
$314.4
$377.6
$389.6
$420.5
Average Sales Price of Ending Backlog
$486
$427
$405
$384
Q4
2021
Q3
Q2
Q1
Orders Received
$119.2
$61.1
$158.3
$267.9
Average Sales Price of Orders Received
$320
$279
$349
$339
Ending Backlog
$429.7
$471.7
$582.3
$612.3
$357
$346
$355
$354
Average Sales Price of Ending Backlog
29
Fourth Quarter Net Sales and Gross Profit Analysis
Net sales, cost of products sold, and gross profit data for the three months ended (dollars in
millions):
Net firearms sales
December 31,
2022
December 31,
2021
$148.7
$167.5
Change
$(18.8)
% Change
(11.3)%
Net casting sales
0.5
0.5
-
14.8%
Total net sales
Cost of products sold
149.2
109.6
168.0
(18.8)
(11.2)%
104.6
5.0
4.8%
Gross profit
Gross margin
$ 39.6
$ 63.4
$(23.8)
(37.6)%
26.5%
37.7%
(11.2)%
(21.1)%
30
Results of Operations - 2021
Year ended December 31, 2021, as compared to year ended December 31, 2020:
Annual Summary Unit Data
Firearms unit data for orders, production, shipments and ending inventory, and castings setups (a
measure of foundry production) are as follows:
Units Ordered
Units Produced
Units Shipped
Average Sales Price
Units – Backlog
2021
2020
2019
1,835,500
3,041,700
1,361,100
2,154,600
1,659,100
1,313,400
2,142,900
1,717,700
1,326,200
$340
$329
$306
1,204,500
1,511,900
187,900
Units – Company Inventory
20,600
8,800
67,400
Units – Distributor Inventory (1)
164,200
39,200
270,400
Castings Setups
68,469
66,044
62,548
Orders Received and Ending Backlog
(in millions except average sales price, net of Federal Excise Tax):
2021
2020
2019
Orders Received
$606.5
$992.9
$398.4
Average Sales Price of Orders Received (2)
$330
$326
Ending Backlog
$429.7
$516.6
Average Sales Price of Ending Backlog (2)
$357
$342
$293
$57.8
$308
(1) Distributor ending inventory as provided by the independent distributors of the
Company’s products.
(2) Average sales price for orders received and ending backlog is net of Federal Excise
Tax of 10% for handguns and 11% for long guns.
31
Product Demand
The estimated sell-through of the Company’s products from the independent distributors to
retailers in 2021 increased 3.5% from 2020. For the same period, adjusted NICS decreased 12%.
The increase in the sell-through of the Company’s products compared favorably to the
decrease in adjusted NICS background checks in 2021 and may be attributable to the following:
Strong consumer demand for the Company’s products,
The introduction of popular new products.
Increased production in 2021, and
Estimated sell-through from distributors to retailers and total adjusted NICS background checks:
2021
2020
2019
Estimated Units Sold from Distributors to
Retailers (1)
2,017,800
1,948,900
1,355,500
Total Adjusted NICS Background Checks (2)
18,515,000
21,084,000
13,199,000
(1)
The estimates for each period were calculated by taking the beginning inventory at
the distributors, plus shipments from the Company to distributors during the period,
less the ending inventory at distributors. These estimates are only a proxy for actual
market demand as they:
Rely on data provided by independent distributors that are not verified by
the Company,
Do not consider potential timing issues within the distribution channel,
including goods-in-transit, and
Do not consider fluctuations in inventory at retail.
(2)
NICS background checks are performed when the ownership of most firearms,
either new or used, is transferred by a Federal Firearms Licensee. NICS
background checks are also performed for permit applications, permit renewals,
and other administrative reasons.
The adjusted NICS data presented above was derived by the NSSF by subtracting
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.
Adjusted NICS data can be impacted by changes in state laws and regulations and
any directives and interpretations issued by governmental agencies.
32
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, to plan production
levels and manage inventories. These reviews resulted in an increase in total unit production of
29.9% in 2021 compared to 2020.
Inventories
The Company’s finished goods inventory increased by 11,800 units during 2021, but remain
significantly below pre-COVID-19 pandemic levels.
Distributor inventories of the Company’s products increased by 125,000 units during 2021, but
remain significantly below the level needed to support rapid fulfillment of retailer demand for most
product families.
Inventory data follows:
2021
2020
2019
Units – Company Inventory
20,600
8,800
67,400
Units – Distributor Inventory (3)
164,200
39,200
270,400
Total inventory (4)
184,800
48,000
337,800
(3)
(4)
Distributor ending inventory as provided by the independent distributors of the
Company’s products. These numbers do not include goods-in-transit inventory that
has been shipped from the Company but not yet received by the distributors.
This total does not include inventory at retailers. The Company does not have
access to data on retailer inventories.
33
Quarterly Summary Unit Data
To supplement the summary annual unit data and discussion above, the same data for the last eight
quarters follows:
Units Ordered
Units Produced
Units Shipped
Estimated Units Sold from
Distributors to Retailers
Total Adjusted NICS Background
Checks
Q4
2021
Q3
Q2
Q1
373,000
218,800
453,400
790,300
512,100
525,200
575,400
541,900
502,300
524,800
580,800
535,000
458,200
457,400
583,300
518,900
4,763,000
3,971,000
4,298,000
5,483,000
Average Unit Sales Price
$334
$338
$343
$343
Units – Backlog
1,204,500
1,333,800
1,639,800
1,767,200
Units – Company Inventory
20,600
10,900
Units – Distributor Inventory (5)
164,200
120,100
10,400
52,800
15,700
55,300
Units Ordered
Units Produced
Units Shipped
Estimated Units Sold from
Distributors to Retailers
Total Adjusted NICS Background
Checks
Q4
2020
Q3
Q2
Q1
733,200
935,200
746,600
626,700
491,000
430,400
374,400
363,300
493,000
430,700
395,100
398,900
513,100
457,400
501,600
476,800
5,626,000
5,165,000
5,452,000
4,841,000
Average Unit Sales Price
$342
$337
$328
$285
Units – Backlog
1,511,900
1,271,700
767,200
415,700
Units – Company Inventory
Units – Distributor Inventory (5)
8,800
39,200
10,700
59,300
11,100
31,900
86,000
192,500
34
(5) Distributor ending inventory as provided by the independent distributors of the
Company’s products.
(in millions except average sales price, net of Federal Excise Tax)
Q4
2021
Q3
Q2
Q1
Orders Received
$119.2
$61.1
$158.3
$267.9
Average Sales Price of Orders Received
$320
$279
$349
$339
Ending Backlog
$429.7
$471.7
$582.3
$612.3
Average Sales Price of Ending Backlog
$357
$346
$354
$355
Q4
2020
Q3
Q2
Q1
Orders Received
$277.1
$284.0
$228.8
$203.0
Average Sales Price of Orders Received
$352
$304
$306
$324
Ending Backlog
$516.6
$410.1
$255.6
$142.7
$342
$343
$322
$333
Average Sales Price of Ending Backlog
35
Net Sales, Cost of Products Sold, and Gross Profit
Net sales, cost of products sold, and gross profit data for the year ended (dollars in
millions):
Net firearms sales
$728.1
$565.9
December 31,
2021
December 31,
2020
Change
$162.2
% Change
28.7%
Net casting sales
2.6
3.0
(0.4)
(13.6)%
Total net sales
730.7
568.9
161.8
Cost of products sold
451.2
377.5
73.7
Gross profit
$279.5
$191.4
$ 88.1
28.5%
19.5%
46.0%
Gross margin
38.3%
33.7%
4.6%
13.6%
Firearms sales and unit shipments increased 28.7% and 24.8%, respectively, in 2021. New
products represented $155.5 million or 22% of firearms sales in 2021, compared to $111.2 million
or 22% of firearms sales in 2020. New product sales include only major new products that were
introduced in the past two years. In 2021, new products included the Ruger-57 pistol, the PC
Charger, the MAX-9 pistol, the LCP II in .22 LR pistol, the LCP MAX pistol, the Wrangler
revolver, and the Marlin 1895 lever-action rifle.
The increased gross profit for the year ended December 31, 2021 is attributable to the significant
increase in sales and profitability.
The increase in gross margin for the year ended December 31, 2021 is attributable to favorable
leveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting
from the increased sales and production, labor efficiencies, and reduced sales promotional
activities.
Selling, General and Administrative
Selling, general and administrative expenses were $76.5 million in 2021, an increase of $4.2
million from $72.3 million in 2020, and a decrease from 12.7% of sales in 2020 to 10.5% of sales
in 2021. The increase in expense was primarily attributable to increased sales and incentive
compensation expenses and the decrease in the percentage of sales was attributable to the
significant increase in sales.
36
Other Operating Income, net
Other operating income, net was $0.1 million in 2021 and was de minimis in 2020.
Operating Income
Operating income was $203.1 million or 27.8% of sales in 2021. This is an increase of $84.0
million from 2020 operating income of $119.1 million or 20.9% of sales.
Royalty Income
Royalty income was $2.0 million in 2021 and $0.8 million in 2020.
Interest Income
Interest income was de minimis in 2021, a decrease from $1.1 million in 2020, due to significantly
decreased interest rates earned on short-term investments in 2021.
Interest Expense
Interest expense was $0.2 million in 2021 and 2020.
Other Income, Net
Other income, net was $1.6 million in 2021, an increase of $1.5 million from $0.1 million in 2020.
Income Taxes and Net Income
The effective income tax rate was 24.5% in 2021 and 25.3% in 2020. The Company's 2021
effective tax rate differs from the statutory federal tax rate due principally to state income taxes
and the nondeductibility of certain executive compensation. The Company's 2020 effective tax
rate differs from the statutory federal tax rate due principally to state income taxes.
As a result of the foregoing factors, consolidated net income was $155.9 million in 2021. This
represents an increase of $65.5 million from 2020 consolidated net income of $90.4 million.
Non-GAAP Financial Measure
In an effort to provide investors with additional information regarding its 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 measures may
not be comparable to similarly titled 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
37
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
its financial performance.
Non-GAAP Reconciliation – EBITDA
EBITDA
(Unaudited, dollars in thousands)
Year ended December 31,
Net income
Income tax expense
Depreciation and amortization expense
Interest expense
Interest income
EBITDA
EBITDA margin
2021
2020
$155,899
$90,398
50,695
26,152
164
(49)
$232,861
31.9%
30,583
27,576
191
(1,126)
$147,622
26.0%
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’s EBITDA calculation also excludes any one-time
non-cash, non-operating expense.
Financial Condition
Liquidity
At December 31, 2022, the Company had cash and cash equivalents of $65.2 million and $159.1
million in short term investments. Our pre-LIFO working capital of $258.3 million, less the LIFO
reserve of $59.5 million, resulted in working capital of $198.7 million and a current ratio of 2.2 to
1. The Company’s current ratio is lower than previous years primarily due to the dividends payable
of $88 million related to the $5.00 per share special dividend that was declared on November 30,
2022 and paid on January 5, 2023. The Company also has access to a $40 million unsecured
revolving line of credit that is currently undrawn.
Capital Resources
The Company believes that its cash flow from operations, current cash position, and access to
capital markets will continue to be sufficient to meet its anticipated cash requirements and
38
contractual obligations, which includes funding the Company’s capital expenditures, acquisitions,
dividend payments, and share repurchases.
Operations
Cash provided by operating activities was $77.2 million, $172.3 million, and $143.8 million in
2022, 2021, and 2020, respectively. The decrease in cash provided in 2022 compared to 2021 is
primarily attributable to significantly decreased earnings in 2022 and increased inventories in
2022.
The increase in cash provided in 2021 compared to 2020 is primarily attributable to significantly
increased earnings in 2021.
Third parties supply the Company with various raw materials for its firearms and castings, such as
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. There
is a limited supply of these materials in the marketplace at any given time, which can cause the
purchase prices to vary based upon numerous market factors. 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 were $27.7 million, $28.8 million, and $24.2 million in 2022, 2021, and 2020,
respectively. In 2023, the Company expects capital expenditures to approximate $20 million,
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 budgeted amount. The Company
finances, and intends to continue to finance, all of these activities with funds provided by
operations and current cash.
Included in capital expenditures amount noted above, on October 3, 2022 the Company purchased
a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina
for $8.3 million for use in its manufacturing and warehousing operations.
On November 23, 2020, the Company acquired substantially all of the Marlin Firearms assets,
consisting of inventory, machinery and equipment, and intangible assets. The agreement to
purchase these assets emanated from the Remington Outdoor Company, Inc. bankruptcy and was
approved by the United States Bankruptcy Court for the Northern District of Alabama on
September 30, 2020. The purchase price of approximately $28.3 million was paid with available
cash on hand. Shipments of Ruger-made, Marlin lever-action rifles commenced in the fourth
quarter of 2021.
As of December 31, 2022, the Company had $107.0 million of United States Treasury instruments
which mature within one year. The Company also invests available cash in a bank-managed
39
money market fund that invests exclusively in United States Treasury instruments which mature
within one year. At December 31, 2022, the Company’s investment in this money market fund
totaled $52.1 million.
In 2022, the Company repurchased 4,440 shares of its common stock for $0.2 million in the open
market. The average price per share purchased was $49.87. These purchases were funded with
cash on hand. No shares were repurchased in 2020 or 2021.
At December 31, 2022, approximately $86.5 million remained authorized for future share
repurchases.
The Company paid dividends totaling $42.7 million, $59.1 million, and $113.9 million in 2022,
2021, and 2020, respectively. The increased dividends paid in 2020 were attributable to a $5.00
per share special dividend paid in August 2020. 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 January 5, 2023, the Company paid a $5.00 per share special dividend to shareholders of record
on December 15, 2022. On February 17, 2023, the Company’s Board of Directors authorized a
dividend of 42¢ per share to shareholders of record on March 10, 2023. The payment of future
dividends depends on many factors, including internal estimates of future performance, then-
current cash, and the Company’s need for funds.
The Company provides supplemental discretionary contributions to substantially all employees’
individual 401(k) accounts.
Based on its unencumbered assets, the Company believes it has the ability to raise cash through
issuance of short-term or long-term debt.
Contractual Obligations
At December 31, 2022, the Company had approximately $84.6 million in agreements to purchase
goods or services that are enforceable and legally binding on the Company, all of which are
expected to be settled in less than one year. Additionally, the Company has approximately $4.4
million in operating lease obligations, which will be payable through 2034. The Company expects
to fund all of these commitments with cash flows from operations and current cash.
Firearms Legislation and Litigation
See Item 1A - Risk Factors and Note 21 to the financial statements which are included in the
Annual Report on Form 10-K for a discussion of firearms legislation and litigation.
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
40
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 we are not able to
comply with them, such noncompliance could have a material adverse impact on the Company.
Currently, there are 15 domestic distributors. 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make assumptions and estimates that affect
the reported amounts of assets and liabilities as of the balance sheet date and net sales and expenses
recognized and incurred during the reporting period then ended. The Company bases estimates on
prior experience, facts and circumstances, and other assumptions, including those reviewed with
actuarial consultants and independent counsel, when applicable, that are believed to be reasonable.
However, actual results may differ from these estimates.
The Company believes that the assumptions and judgments involved in the accounting estimates
below have the greatest potential impact on its financial statements, so the Company believes these
to be its critical accounting estimates. The methodologies applied for determining the estimates
related to the below critical accounting estimates have not changed from the prior year.
Product Liability Accrual
The Company believes the determination of its product liability accrual is a critical accounting
policy. The Company’s management reviews every lawsuit and claim and is in contact with
independent and corporate counsel on an ongoing basis. The provision for product liability claims
is based upon many factors, which vary for each case. These factors include the type of claim,
nature and extent of injuries, historical settlement ranges, jurisdiction where filed, and advice of
counsel. An accrual is established for each lawsuit and claim, when appropriate, based on the
nature of each such lawsuit or claim.
Amounts are charged to product liability expense in the period in which the Company becomes
aware that a claim or, in some instances a threat of a claim, has been made when potential losses
or costs of defense are probable and can be reasonably estimated. Such amounts are determined
based on the Company’s experience in defending similar claims. Occasionally, charges are made
for claims made in prior periods because the cumulative actual costs incurred for that claim, or
reasonably expected to be incurred in the future, exceed amounts already provided with respect to
41
such claims. Likewise, credits may be taken if cumulative actual costs incurred for that claim, or
reasonably expected to be incurred in the future, are less than amounts previously provided.
While it is not possible to forecast the outcome of litigation or the timing of related costs, in the
opinion of management, after consultation with independent and corporate counsel, there is a
remote likelihood that litigation, including punitive damage claims, will have a material adverse
effect on the financial position of the Company, but such litigation may have a material impact on
the Company’s financial results and cash flows for a particular period.
Inventory Valuation and Reserves
The Company believes the valuation of its inventory and the related excess and obsolescence
reserve is also a critical accounting policy. Inventories are carried at the lower of cost, principally
determined by the last-in, first-out (LIFO) method, or market. An actual valuation of inventory
under the LIFO method is made at the end of each year based on the inventory levels and the
Company’s estimates of the prevailing costs of the many components of inventory existing at that
time.
The Company determines its excess and obsolescence reserve by projecting the year in which
inventory will be consumed into a finished product. Given ever-changing market conditions,
customer preferences and the anticipated introduction of new products, projecting the future usage
of inventory is subjective. As such, it does not seem prudent to carry inventory at full cost beyond
what the Company projects to be needed during the next 36 months.
Recent Accounting Pronouncements
None.
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 and accounting estimates, any one or more of which could
cause actual results to differ materially from those projected. Words such as “expect,” “believe,”
“anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar
meaning, typically identify such forward-looking statements. 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.
42
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to changing interest rates on its investments, which consist primarily of
United States Treasury instruments with short-term (less than one year) maturities and cash. The
interest rate market risk implicit in the Company's investments at any given time is low, as the
investments mature within short periods and the Company does not have significant exposure to
changing interest rates on invested cash.
The Company has not undertaken any actions to cover interest rate market risk and is not a party
to any interest rate market risk management activities.
A hypothetical 100 basis point change in market interest rates over the next year would not
materially impact the Company’s earnings or cash flows. A hypothetical 100 basis point change
in market interest rates would not have a material effect on the fair value of the Company’s
investments.
43
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
(PCAOB ID 49)
Consolidated Balance Sheets at December 31, 2022 and 2021
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years
ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended
December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
45
48
50
51
52
53
44
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sturm, Ruger & Company, Inc. and Subsidiary
Opinion on the Internal Control Over Financial Reporting
We have audited Sturm, Ruger & Company, Inc. and Subsidiary's (the Company) internal control over financial reporting
as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related
consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2022, and our report dated February 22, 2023 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/RSM US LLP
Stamford, Connecticut
February 22, 2023
45
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sturm, Ruger & Company, Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sturm, Ruger & Company, Inc. and
Subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of
income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2022, and the related notes to the consolidated financial statements and
schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the three years in the period ended December 31,
2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated
February 22, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the
financial statements that was communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matters
or on the accounts or disclosures to which it relates.
46
Last-In, First-Out Inventory Reserve
As described in Notes 1 and 5 to the financial statements, substantially all of the Company’s inventories
are valued at the lower of cost, which is principally determined by the last-in, first-out (LIFO) method, or
net realizable value, and the Company's consolidated net inventories balance of $65.0 million as of
December 31, 2022, included a LIFO inventory reserve of $59.5 million. The Company records its net
inventories under the LIFO method at the end of each year based on the inventory levels at the
measurement date and the prevailing inventory costs existing at that time which are estimated using a
complex manual calculation.
We identified the LIFO inventory reserve as a critical audit matter because of the complexities of the
manual calculations performed by management to estimate the prevailing inventory costs, which includes
calculations to estimate current year price level changes through the development of a prior year and a
current year cumulative price index. Auditing management’s estimate of the LIFO inventory reserve was
complex and required a high degree of auditor judgement and increased audit effort due to the
complexities of management’s manual calculations.
Our audit procedures related to the Company’s LIFO inventory reserve included the following, among
others:
We obtained an understanding of the relevant controls related to the LIFO inventory reserve and
tested such controls for design and operating effectiveness, including controls related to the
review of the calculations related to the estimate of the current year price level changes, the
calculation of the cumulative price indexes, and the estimate of the LIFO inventory reserve.
We tested the completeness, accuracy, and relevance of the underlying data used in management's
estimate of the current year price level changes, the calculation of cumulative price index and the
LIFO inventory reserve.
We tested the mathematical accuracy of the Company’s calculation to estimate the LIFO
inventory reserve.
We evaluated the appropriateness of management’s methodologies to develop the estimate of the
LIFO inventory reserve.
We evaluated the reasonableness of management’s estimate of the current year price level
changes by comparing management’s estimate to external market data.
/s/RSM US LLP
We have served as the Company's auditor since 2005.
Stamford, Connecticut
February 22, 2023
47
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 31,
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Trade receivables, net
Gross inventories
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
See accompanying notes to consolidated financial statements.
2022
2021
$ 65,173
159,132
65,449
$ 21,044
199,971
57,036
129,294
(59,489)
(4,812)
64,993
7,091
361,838
447,126
(370,273)
76,853
100,023
(51,826)
(4,347)
43,850
6,832
328,733
421,282
(347,651)
73,631
6,109
39,963
$ 484,763
536
39,443
$ 442,343
48
December 31,
2022
2021
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
Lease liability (Note 8)
Employee compensation
Product liability accrual
Contingent liabilities (Note 21)
Stockholders’ Equity
Common stock, non-voting, par value $1:
Authorized shares – 50,000; none issued
Common stock, par value $1:
Authorized shares – 40,000,000
2022 – 24,378,568 issued,
17,664,230 outstanding
2021 – 24,306,486 issued,
17,596,588 outstanding
Additional paid-in capital
Retained earnings
Less: Treasury stock – at cost
2022 – 6,714,338 shares
2021 – 6,709,898 shares
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements.
49
$ 35,658 $ 36,400
88,343
1,031
235
30,160
6,469
1,171
163,067
3,039
1,846
73
-
-
-
795
33,154
6,760
-
77,109
1,476
-
97
-
24,378
45,075
393,097
24,306
46,847
438,098
(145,812)
316,738
$ 484,763
(145,590)
363,661
$ 442,343
Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
Year ended December 31,
2022
2021
2020
Net firearms sales
Net castings sales
Total net sales
Cost of products sold
Gross profit
Operating Expenses (Incomes):
Selling
General and administrative
Other operating expense (income), net
Total operating expenses
Operating income
Other income:
Royalty income
Interest income
Interest expense
Other income, net
Total other income, net
$593,289
2,553
595,842
$728,141
2,595
730,736
$565,863
3,005
568,868
415,757
451,179
377,427
180,085
279,557
191,441
36,114
40,551
(36)
76,629
33,259
43,289
(127)
76,421
33,332
39,013
(52)
72,293
103,456
203,136
119,148
837
2,552
(256)
1,690
4,823
1,975
49
(164)
1,598
3,458
814
1,126
(191)
84
1,833
Income before income taxes
108,279
206,594
120,981
Income taxes
19,947
50,695
30,583
Net income and comprehensive income
$ 88,332
$155,899
$ 90,398
Basic Earnings Per Share
Diluted Earnings Per Share
$5.00
$4.96
$8.87
$8.78
$5.17
$5.09
Weighted average number of common shares outstanding
– Basic
17,648,850
17,585,604
17,486,054
Weighted average number of common shares outstanding
– Diluted
17,793,348
17,757,834
17,769,856
Cash Dividends Per Share
$2.42
$3.36
$6.51
See accompanying notes to consolidated financial statements.
50
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
Balance at December 31, 2019
Net income
Dividends paid
Stock-based compensation
Vesting of RSU’s
Common stock issued –
compensation plans
Unpaid dividends accrued
Balance at December 31, 2020
Net income
Dividends paid
Stock-based compensation
Vesting of RSU’s
Common stock issued –
compensation plans
Unpaid dividends accrued
Balance at December 31, 2021
Net income
Dividends paid
Stock-based compensation
Vesting of RSU’s
Common stock issued –
compensation plans
Unpaid dividends accrued
Repurchase of 4,440 shares of
common stock
Balance at December 31, 2022
Common
Stock
$24,160
Additional
Paid-in
Capital
$38,683
Treasury
Stock
$(145,590)
Retained
Earnings
$368,205
90,398
(113,896)
6,128
(1,297)
46
(46)
24,206
43,468
8,280
(4,801)
100
(100)
24,306
46,847
1,671
(3,371)
72
(72)
(145,590)
(145,590)
(2,092)
342,615
155,899
(59,104)
(1,312)
438,098
88,332
(42,718)
(90,615)
Total
$285,458
90,398
(113,896)
6,128
(1,297)
-
(2,092)
264,699
155,899
(59,104)
8,280
(4,801)
-
(1,312)
363,661
88,332
(42,718)
1,671
(3,371)
-
(90,615)
$24,378
$45,075
$393,097
(222)
$(145,812)
(222)
$316,738
See accompanying notes to consolidated financial statements.
51
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
2022
2021
2020
Operating Activities
Net income
Adjustments to reconcile net income to cash
provided by operating activities, net of effects of
acquisition:
Depreciation and amortization
Stock-based compensation
Excess and obsolescence inventory reserve
Gain 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 receivable/payable
Cash provided by operating activities
Investing Activities
Property, plant, and equipment additions
Purchase of Marlin assets
Purchases of short-term investments
Proceeds from maturity of short-term investments
Net proceeds from sale of assets
Cash provided by (used for) investing activities
Financing Activities
Dividends paid
Repurchase of common stock
Payment of employee withholding tax related to share-
based compensation
Cash used for financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.
$ 88,332
$ 155,899
$ 90,398
25,789
1,671
501
(36)
(5,573)
(8,413)
(21,644)
(640)
1,031
(3,420)
(584)
(954)
1,171
77,231
26,152
8,280
953
(127)
994
840
(15,726)
(392)
(84)
(5,433)
(234)
1,217
-
172,339
27,576
6,128
-
(52)
3,863
(5,236)
10,624
7,954
(9,539)
20,910
308
(7,905)
(1,223)
143,806
(27,730)
-
(365,480)
406,319
100
13,209
(28,776)
-
(681,940)
602,976
203
(107,537)
(24,229)
(28,316)
(369,439)
377,920
178
(43,886)
(42,718)
(222)
(59,104)
-
(113,896)
-
(3,371)
(46,311)
(4,801)
(63,905)
(1,297)
(115,193)
44,129
21,044
$ 65,173
897
20,147
$ 21,044
(15,273)
35,420
$ 20,147
52
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share)
1.
Summary of 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 were from
firearms. Export sales represented approximately 6% of firearms 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 manufactures investment castings made from steel alloys and metal injection
molding (“MIM”) parts for internal use in its firearms and utilizes available capacity to
manufacture and sell investment castings and MIM parts to unaffiliated, third-party customers.
Castings were less than 1% of the Company’s total sales for the year ended December 31, 2022.
Preparation of Financial Statements
The Company follows United States generally accepted accounting principles (“GAAP”). The
preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
The significant accounting policies described below, together with the notes that follow, are an
integral part of the consolidated financial statements.
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”), which became
effective January 1, 2018. 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
53
is the Company’s responsibility. In such instances, the Company allocates the revenue of the
promotional sales based on the estimated level of participation in the sales promotional program
and the timing of the shipment of all of the firearms included in the promotional program, including
the no charge firearms. Revenue is recognized proportionally as each performance obligation is
satisfied, based on the relative customary price of each product. Customary prices are generally
determined based on the prices charged to the independent distributors. The net change in contract
liabilities for a given period is reported as an increase or decrease to sales. The Company accounts
for cash sales discounts as a reduction in sales. Amounts billed to customers for shipping and
handling fees are included in net sales and costs incurred by the Company for the delivery of goods
are classified as selling expenses. Federal excise taxes are excluded from net sales.
Business Combination
On September 26, 2020, the Company entered into an Asset Purchase Agreement (the
"Agreement") with the Remington Outdoor Company, Inc. and each of the subsidiaries of the
Remington Outdoor Company, Inc. (collectively, “Remington”) to purchase substantially all of
the assets (the “Marlin Assets”) used to manufacture Marlin Firearms (the “Marlin Acquisition”).
The agreement to purchase these assets emanated from the Remington Outdoor Company, Inc.
bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of
Alabama on September 30, 2020. The Marlin Acquisition was conducted through a Bankruptcy
Court-supervised process, subject to Bankruptcy Court-approved bidding procedures, approval of
the transactions by the Bankruptcy Court, and the satisfaction of certain closing conditions. The
Company closed on the Marlin Acquisition on November 23, 2020.
The Agreement provided that, upon the terms and subject to the conditions set forth therein,
Remington sold, transferred and assigned to the Company the Marlin Assets (as defined in the
Agreement) for a purchase price of $28.3 million in cash. The Marlin Assets include the following
assets, among other things, equipment, inventory, and all intellectual property related to Marlin,
including the Marlin names and marks, and all derivatives thereof.
The primary purpose of the Marlin Acquisition was to manufacture and sell Marlin branded
firearms and generate shareholder value. The Marlin brand aligns with the Ruger brand and the
Marlin product portfolio will widen the Company’s diverse product offerings. The transaction
was funded by the Company with cash on hand and has been accounted for in accordance with
ASC 805 - Business Combinations. ASC 805 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. Our
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, we 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.
54
Cash and Cash Equivalents
The Company considers interest-bearing deposits with financial institutions with remaining
maturities of three months or less at the time of acquisition to be cash equivalents.
Fair Value Measurements of Short-term Investments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants in the principal or most advantageous market
at the measurement date. Fair value is established according to a hierarchy that prioritizes
observable and unobservable inputs used to measure fair value into three broad levels, which are
described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement
date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1
inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but
corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. Level 3
inputs are given the lowest priority in the fair value hierarchy.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement. Valuation techniques
used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
As of December 31, 2022, the Company’s short-term investments consist of U.S. Treasury
instruments (Level 1), maturing 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 (Level 2). For the bank-managed money market fund, 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.
Such securities are classified as held to maturity, since the Company has the intent and ability to
do so, and are carried at cost plus accrued interest, which approximates fair value.
The fair value of inventory acquired as part of business combination is based on a third-party
valuation utilizing the comparable sales method which is based on Level 2 and Level 3 inputs.
The fair value of property, plant and equipment acquired as part of business combination is based
on a third-party valuation utilizing the indirect method of cost approach, which is based on Level
2 and Level 3 inputs. The fair value of patents acquired as part of business combination is based
on a third-party valuation utilizing the replacement cost method, which is based on Level 2 and
Level 3 inputs. The fair value of the remaining intangible assets as part of business combination
are based on a third-party valuation utilizing discounted cash flow methods that involves inputs,
which are not observable in the market (Level 3).
55
Accounts Receivable
The Company establishes an allowance for doubtful accounts based on the creditworthiness of its
customers and historical experience. While the Company uses the best information available to
make its evaluation, future adjustments to the allowance for doubtful accounts may be necessary
if there are significant changes in economic and industry conditions or any other factors considered
in the Company’s evaluation. Bad debt expense has been immaterial during each of the last three
years. The Company mitigates its credit risk by maintaining credit insurance on most of its
significant customers.
Inventories
Substantially all of the Company’s inventories are valued at the lower of cost, principally
determined by the last-in, first-out (LIFO) method, or net realizable value. Elements of cost in
inventories include raw materials, direct labor and manufacturing overhead.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Depreciation is computed over useful lives
using the straight-line and declining balance methods predominately over 15 years for buildings,
7 years for machinery and equipment and 3 years for tools and dies. When assets are retired, sold
or otherwise disposed of, their gross carrying values and related accumulated depreciation are
removed from the accounts and a gain or loss on such disposals is recognized when appropriate.
Maintenance and repairs are charged to operations; replacements and improvements are
capitalized.
Long-lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used when events
or changes in circumstances indicate the carrying value may not be recoverable. In performing this
review, the carrying value of the assets is compared to the projected undiscounted cash flows to
be generated from the assets. If the sum of the undiscounted expected future cash flows is less
than the carrying value of the assets, the assets are considered to be impaired. Impairment losses
are measured as the amount by which the carrying value of the assets exceeds their fair value. The
Company bases fair value of the assets on quoted market prices if available or, if not available,
quoted market prices of similar assets. Where quoted market prices are not available, the Company
estimates fair value using the estimated future cash flows generated by the assets discounted at a
rate commensurate with the risks associated with the recovery of the assets. As of December 31,
2022, the Company does not believe there are any indications of impairment related to long-lived
assets.
Goodwill
Our goodwill represents the excess of the purchase price of business combinations over the fair
value of the net assets acquired. We assess goodwill for impairment on an annual basis during the
fourth quarter of each year, and between annual tests whenever events or changes in circumstances
56
indicate that the carrying amount may not be recoverable. An impairment exists by the amount
the fair value of a reporting unit to which goodwill has been allocated is less than their respective
carrying values. The impairment for goodwill is limited to the total amount of goodwill allocated
to the reporting unit. Goodwill impairment testing requires significant judgment and management
estimates, including, but not limited to, the determination of (i) the number of reporting units,
(ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the
fair values of the reporting units. The estimates and assumptions described above, along with other
factors such as discount rates, will significantly affect the outcome of the impairment tests and the
amounts of any resulting impairment losses. As of December 31, 2022, the Company does not
believe there are any indications of impairment related to goodwill.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred
income taxes are recognized for the tax consequences of “temporary differences” by applying
enacted statutory rates applicable to future years to temporary differences between the financial
statement carrying amounts and the tax basis of the Company’s assets and liabilities.
Product Liability
The Company provides for product liability claims including estimated legal costs to be incurred
defending such claims. The provision for product liability claims is charged to cost of products
sold.
Advertising Costs
The Company includes advertising costs in selling expenses and these costs are expensed as
incurred. Advertising costs for 2022, 2021, and 2020, were $2.4 million, $2.6 million, and $2.7
million, respectively.
Shipping Costs
Costs incurred related to the shipment of products are included in selling expense. Such costs
totaled $4.7 million, $4.2 million, and $3.9 million in 2022, 2021, and 2020, respectively.
Research and Development
In 2022, 2021, and 2020, the Company spent approximately $9.6 million, $11.7 million, and $8.0
million, respectively, on research and development activities relating to new products and the
improvement of existing products. These costs are included in costs of products sold and are
expensed as incurred.
Earnings per Share
Basic earnings per share is based upon the weighted-average number of shares of common stock
outstanding during the year. Diluted earnings per share reflect the impact of options, restricted
stock units, and deferred stock outstanding using the treasury stock method.
57
2.
Acquisition of Marlin Assets
As described in Note 1, the Company closed on the Marlin Acquisition on November 23, 2020.
The Company paid $28.3 million dollars in cash for the Marlin Assets from Remington.
The Marlin Acquisition was accounted for in accordance with ASC Topic 805, Business
Combinations. Accordingly, the total purchase price has been allocated to tangible assets based
on their fair value and the intangibles and goodwill have been allocated on a provisional basis at
the date of acquisition. The Company assumed no liabilities in this transaction. These allocations
reflect various provisional estimates that were available at the time and are subject to change
during the purchase price allocation period until the valuations are finalized.
The Company recorded measurement period adjustments in accordance with FASB’s guidance
regarding business combinations in the fourth quarter of 2021 based on its valuation and purchase
price allocation procedures, to better reflect the facts and circumstances that existed at the
acquisition date. The measurement period adjustments, which were completed during the fourth
quarter of 2021, resulted in an increase to goodwill of $2.4 million, primarily due to a decrease in
the estimated fair value of inventory received.
The following table summarizes the Company's allocation of the purchase price:
Purchase Price
Cash paid to sellers
Purchase Price Allocation
Assets Acquired
Inventory
Machinery and equipment
Tradename and trademarks
Patents
Customer Relationships
Goodwill
Net Assets Acquired
Initial Purchase
Price Allocation
Measurement
Period
Adjustments
Final Purchase
Price Allocation
$ 28,316
$ -
$ 28,316
$ 11,400
5,000
7,800
2,500
1,000
616
$ (2,414)
(25)
2,439
$ 8,986
4,975
7,800
2,500
1,000
3,055
$ 28,316
$ -
$ 28,316
Identifiable assets acquired were recorded at their estimated fair values based on the methodology
described under “Fair Value Measurements” in Note 1 - Significant Accounting Policies.
The Machinery and Equipment acquired in the Marlin Acquisition were classified as deposits on
capital items in Other Assets on the Company’s Consolidated Balance Sheet at December 31,
58
2021. Certain of these items were reclassified as Machinery and Equipment when they were placed
in service in 2022 and 2021.
Intangible assets acquired in the Marlin Acquisition are reflected in Other Assets on the
Company’s Consolidated Balance Sheet at December 31, 2022. Intangible assets are amortized
over their estimated remaining useful lives using a straight-line methodology.
Tradename and trademarks
Patents
Customer Relationships
Remaining Economic
Useful Life
20 years
20 years
15 years
The excess purchase price over the fair value of the assets acquired was recorded as goodwill in
the amount of $3.1 million. The Company incurred acquisition related costs of $1.7 million, which
are included in selling, general and administrative expenses in the Company’s Consolidated
Statements of Income and Comprehensive Income for the fiscal year ended December 31, 2020.
The pro forma impact of the acquisition and the results of operations attributable to Marlin in 2019
and 2020 have not been presented, as they are not material to the Company’s consolidated results
of operations. The impact on sales and gross margin was no more than 5% of the reported amounts
in either period, the trend in annual sales growth was unchanged, and the impact on gross margin
percentage was less than 1%, in both periods.
3.
Revenue Recognition and Contracts with Customers
The impact of ASC 606 on revenue recognized during the years ended December 31, 2022,
December 31, 2021, and December 31, 2020 is as follows:
Contract liabilities with customers at January 1,
Revenue recognized
Revenue deferred
2022
$ -
2021
$ 84
2020
$ 9,623
-
(84)
(14,570)
1,031
-
5,031
Contract liabilities with customers at December 31,
$ 1,031
$ -
$ 84
During the year ended December 31, 2022, the Company deferred $1.0 million of revenue. There
was no offset for the recognition from previously deferred revenue as the Company did not satisfy
any performance obligations relating to the shipment of free products during the year. This
resulted in a net decrease in firearms sales for the year ended December 31, 2022 of $1.0 million
and a deferred contract revenue liability at December 31, 2022 of $1.0 million. The Company
59
estimates that revenue from this deferred contract liability will be recognized in the first half of
2023.
During the year ended December 31, 2021, there were no promotions giving rise to deferred
contract liabilities and, therefore, there was no additional deferred revenue. Previously deferred
revenue of $0.1 million was recognized in the first quarter of 2021. The Company did not have a
deferred contract revenue liability at December 31, 2021.
During the year ended December 31, 2020, the Company deferred $5.0 million of revenue, offset
by the recognition of $14.6 million of revenue previously deferred as the performance obligations
relating to the shipment of free products were satisfied. This resulted in a net increase in firearms
sales for the year ended December 31, 2020 of $9.6 million and a deferred contract revenue liability
at December 31, 2020 of $0.1 million. The deferred revenue balance was significantly reduced due
to the absence of promotions in the fourth quarter of 2020.
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.
4.
Trade Receivables, Net
Trade receivables consist of the following:
December 31,
Trade receivables
Allowance for doubtful accounts
Allowance for discounts
2022
2021
$67,183
(400)
(1,334)
$65,449
$58,605
(400)
(1,169)
$57,036
In 2022, the largest individual trade receivable balances accounted for 26%, 23%, and 18% of total
trade receivables, respectively.
In 2021, the largest individual trade receivable balances accounted for 34%, 17%, and 17% of total
trade receivables, respectively.
60
5.
Inventories
Inventories consist of the following:
December 31,
Inventory at FIFO
Finished goods
Materials and products in process
Gross inventories
Less: LIFO reserve
Less: excess and obsolescence reserve
Net Inventories
6.
Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31,
Land and improvements
Buildings and improvements
Machinery and equipment
Dies and tools
Property, plant and equipment
Less allowances for depreciation
Net property, plant and equipment
2022
2021
$ 23,573
105,721
129,294
(59,489)
(4,812)
$ 64,993
$ 7,322
92,701
100,023
(51,826)
(4,347)
$ 43,850
2022
2021
$ 2,826 $ 2,686
72,788
314,032
57,480
447,126
(370,273)
$ 76,853
62,781
302,241
53,574
421,282
(347,651)
$ 73,631
Depreciation expense totaled $24.4 million, $25.8 million, and $27.3 million in 2022, 2021, and
2020, respectively.
7.
Other Assets
Other assets consist of the following:
December 31,
Patents, at cost
Accumulated amortization
Deposits on capital items
Marlin trade name
Other
2022
2021
$10,126
(6,318)
17,106
7,800
11,249
$39,963
$10,024
(5,360)
18,026
7,800
8,953
$39,443
The capitalized cost of patents is amortized using the straight-line method over their useful lives.
Expenses related to patent amortization was $0.4 million in 2022 and $0.3 million in 2021, and
2020. The estimated annual patent amortization expense for each of the next five years is $0.2
61
million. Costs incurred to maintain existing patents are charged to expense in the year incurred.
The Marlin trade name will be amortized using the straight-line method over its useful life. The
estimated annual trade name amortization cost for each of the next five years is $0.4 million. The
intangible asset related to Marlin customer relationships are included in Other above and will be
amortized using the straight-line method over its useful life. The estimated annual customer
relationship name amortization expense for each of the next five years is $0.1 million.
8.
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. The Company’s lease agreements generally do not require material variable lease
payments, residual value guarantees or restrictive covenants.
The Company adopted the provisions of ASU 2016-02 using the effective interest method on
January 1, 2019 and recorded 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 December 31, 2022:
Balance Sheet Line
Item
December 31,
2022
December 31,
2021
Right-of-use assets
Other assets
$3,681
$1,694
Operating lease liabilities
Current portion
Trade accounts payable
and accrued expenses
Noncurrent portion
Lease liabilities
Total operating lease liabilities
$ 642
$ 249
3,039
$3,681
1,476
$1,725
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.
62
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 December 31, 2022:
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
$ 803
808
702
705
229
1,120
4,367
(686)
$3,681
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 December 31, 2022 is 8.9 years.
9.
Trade Accounts Payable and Accrued Expenses
Trade accounts payable and accrued expenses consist of the following:
December 31,
Trade accounts payable
Federal excise taxes payable
Accrued other
10.
Accrued Dividends
2022
2021
$13,281
13,635
8,742
$35,658
$12,209
15,734
8,457
$36,400
On November 30, 2022, the Company’s Board of Directors declared a $5.00 per share special
dividend payable on January 5, 2023 to stockholders of record as of December 15, 2022. The
dividend, which totaled $88.3 million, was paid on January 5, 2023.
11.
Line of Credit
During 2021 the Company had a $40 million unsecured revolving line of credit with a bank. This
facility terminated on September 30, 2021. On January 7, 2022, the Company entered into a new
$40 million unsecured revolving line of credit agreement with a different bank that expires January
7, 2025. Borrowings under this new facility bear interest at either 1) the Bloomberg short-Term
63
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 December 31,
2022, the Company was in compliance with the terms and covenants of the credit facility.
12.
Employee Benefit Plans
The Company sponsors a qualified defined-contribution 401(k) plan that covers substantially all
of its employees. Under the terms of the 401(k) plan, the Company matches a certain portion of
employee contributions to their individual 401(k) accounts using the “safe harbor” guidelines
provided in the Internal Revenue Code. Expenses related to matching employee contributions to
the 401(k) plan were $4.1 million, $4.0 million, and $3.3 million in 2022, 2021, and 2020,
respectively.
Additionally, in 2022, 2021, and 2020 the Company provided discretionary supplemental
contributions to the individual 401(k) accounts of substantially all employees. Each employee
received a supplemental contribution to their account based on a uniform percentage of qualifying
compensation established annually. The cost of these supplemental contributions totaled $7.4
million, $7.4 million, and $5.6 million in 2022, 2021, and 2020, respectively.
13. Other Operating Income, Net
Other operating income, net consists of the following:
Year ended December 31,
Gain on sale of operating assets
14.
Income Taxes
2022
$36
2021
$127
2020
$52
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 federal and state income tax provision consisted of the following:
Year ended December 31,
Federal
State
2022
2021
Current Deferred Current Deferred Current Deferred
$3,696
$21,741
167
3,779
$3,863
$25,520
$(4,694) $42,422
(879)
7,279
$(5,573) $49,701
$863 $20,201
6,519
$994 $26,720
131
2020
64
The effective income tax rate varied from the statutory federal income tax rate as follows:
Year ended December 31,
Statutory federal income tax rate
State income taxes, net of federal tax benefit
Research and development tax credits
Other
Effective income tax rate
2022
21.0%
2.7
(4.2)
(1.1)
18.4%
2021
21.0%
3.4
(0.4)
0.5
24.5%
2020
21.0%
4.4
-
(0.1)
25.3%
The Company estimates that its effective tax rate in 2023 will approximate 22.4%.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
Deferred tax assets
Product Liability
Capitalized research and development costs
Employee compensation and benefits
Allowances for doubtful accounts and discounts
Inventories
Stock-based compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Other
Total deferred tax liabilities
Net deferred tax assets
2022
2021
$ 69
4,838
2,316
637
1,196
1,661
1,636
12,353
5,070
1,174
6,244
$ 6,109
$ 224
-
2,643
418
1,224
1,538
1,538
7,585
6,235
814
7,049
$ 536
Prior to 2022, the Company expensed research and development costs in the period in which they
were incurred for both financial accounting and income tax purposes. In 2022 the Company
adopted the provisions of the Tax Cuts and Jobs Act of 2017 that relate to IRS Code Section 174.
Under these provisions, research and development costs must be capitalized and amortized over
five years for income tax purposes. The Company continues to expense these costs in the period
incurred for financial accounting purposes.
The Company made income tax payments of approximately $28.7 million, $49.5 million, and
$30.6 million, during 2022, 2021, and 2020, respectively. The Company expects to realize its
deferred tax assets through tax deductions against future taxable income.
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.
65
15.
Earnings Per Share
Set forth below is a reconciliation of the numerator and denominator for the basic and diluted
earnings per share calculations for the periods indicated:
Year ended December 31,
2022
2021
2020
Numerator:
Net income
Denominator:
$88,332
$155,899
$90,398
Weighted average number of common shares
outstanding – Basic
17,648,850
17,585,604
17,486,054
Dilutive effect of options and restricted stock
units outstanding under the Company’s
employee compensation plans
Weighted average number of common shares
144,498
172,230
283,802
outstanding – Diluted
17,793,348
17,757,834
17,769,856
16.
Stock Repurchases
In 2022 the Company repurchased shares of its common stock. Details of these purchases are as
follows:
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Program
Maximum
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Program
-
-
2,136
-
2,304
-
4,440 $86,490,000
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
-
-
2,136
-
2,304
-
4,440
-
-
$49.97
-
$49.77
-
$49.87
Period
Third Quarter 2022
July 3 to July 30
July 31 to August 27
August 28 to October 1
Fourth Quarter 2022
October 2 to October 29
October 30 to November 26
November 27 to December 31
Total
All of these purchases were made with cash held by the Company and no debt was incurred. No
shares were repurchased in 2020 and 2021.
66
At December 31, 2022, approximately $86.5 million remained authorized for share repurchases.
17.
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 has
reserved 750,000 shares for issuance under the 2017 SIP, of which approximately 120,000 shares
remain available for future grants as of December 31, 2022.
Compensation expense related to deferred stock, restricted stock, and restricted stock units is
recognized based on the grant-date fair value of the Company’s common stock, using either the
actual share price or an estimated value using the Monte Carlo valuation model. The total stock-
based compensation cost included in the Statements of Income was $5.7 million, $8.3 million, and
$6.1 million in 2022, 2021, and 2020, respectively.
Deferred Stock
Deferred stock awards vest based on the passage of time or the Company’s attainment of
performance objectives. Upon vesting, these awards convert one-for-one to common stock.
In 2022, 5,953 deferred stock awards were issued to non-employee directors that will vest in May
2023, 7,688 deferred stock awards were issued to non-employee directors that will vest in May
2025 and a 1,478 deferred stock award was issued to a non-employee director that will vest in June
2027.
In 2021, 5,113 deferred stock awards were issued to non-employee directors that vested in May
2022 and 6,615 deferred stock awards were issued to non-employee directors that will vest in May
2024.
In 2020, 6,244 deferred stock awards were issued to non-employee directors that vested in May
2021 and 8,078 deferred stock awards were issued to non-employee directors that will vest in May
2023.
Compensation expense related to these awards is amortized ratably over the vesting period.
Compensation expense related to these awards was $0.8 million in 2022, $0.8 million in 2021, and
$0.8 in 2020.
At December 31, 2022, there was $0.9 million of unrecognized compensation cost related to
deferred stock that is expected to be recognized over a period of three years.
67
Restricted Stock Units
The Company grants restricted stock units (RSU’s) to senior employees. Some of these RSU’s
are retention awards and have only time-based vesting. Other RSU’s have a vesting “double
trigger.” The vesting of these RSU’s is dependent on the achievement of corporate objectives
established by the Compensation Committee of the Board of Directors, including stock
performance relative to industry indices, return on net operating assets, and the passage of time.
During 2022, 82,000 restricted stock units were issued. Compensation costs related to these
restricted stock units was $6.0 million, of which $1.7 million was recognized in 2022. The costs
are being recognized ratably over the remaining periods required before the units vest, which range
from 24 to 26 months.
During 2021, 82,000 restricted stock units were issued. Compensation costs related to these
restricted stock units was $5.6 million, of which $1.6 million was recognized in 2021. The costs
are being recognized ratably over the remaining periods required before the units vest, which range
from 24 to 26 months.
During 2020, 95,000 restricted stock units were issued. Compensation costs related to these
restricted stock units was $5.7 million, of which $1.1 million was recognized in 2020. The costs
are being recognized ratably over the remaining periods required before the units vest, which range
from 24 to 26 months.
At December 31, 2022, there was $8.1 million of unrecognized compensation cost related to
restricted stock units that is expected to be recognized over a period of 3.3 years.
18. Operating Segment Information
The Company has two reportable operating segments: firearms and castings. The firearms
segment manufactures and sells rifles, pistols, and revolvers principally to a number of federally-
licensed, independent wholesale distributors primarily located in the United States. The castings
segment manufactures and sells steel investment castings and metal injection molding parts.
Corporate segment income relates to interest income, the sale of non-operating assets, and other
non-operating activities. Corporate segment assets consist of cash and other non-operating assets.
The Company evaluates performance and allocates resources, in part, based on income (loss)
before taxes. The accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies (see Note 1). Intersegment sales are recorded at
the Company’s cost plus a fixed profit percentage.
68
Year ended December 31,
Net Sales
Firearms
Castings
Unaffiliated
Intersegment
Eliminations
Income (Loss) Before Income Taxes
Firearms
Castings
Corporate
Identifiable Assets
Firearms
Castings
Corporate
Goodwill
Firearms
Castings
Depreciation
Firearms
Castings
Capital Expenditures
Firearms
Castings
2022
2021
2020
$593,289
$728,141
$565,863
2,553
21,306
23,859
(21,306)
$595,842
$108,610
(3,338)
3,007
$108,279
$223,301
11,910
249,552
$484,763
2,595
24,711
27,306
(24,711)
$730,736
$207,657
(2,732)
1,669
$206,594
$188,290
13,889
240,164
$442,343
$3,055
209
$3,264
$3,055
209
$3,264
$21,992
2,452
$24,444
$26,598
1,175
$27,773
$22,842
2,959
$25,801
$25,239
3,537
$28,776
3,005
22,254
25,259
(22,254)
$568,868
$120,732
(1,000)
1,249
$120,981
$174,500
11,959
161,799
$348,258
$616
209
$825
$25,126
2,158
$27,284
$19,253
4,976
$24,229
In 2022, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Lipsey’s - 23%; Davidson’s - 23%; and Sports South - 21%.
In 2021, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Lipsey’s - 21%; Sports South - 19%; and Davidson’s - 19%.
In 2020, the Company’s largest customers and the percent of firearms sales they represented were
as follows: Sports South - 22%; Lipsey’s - 22%; and Davidson’s - 18%.
The Company’s assets are located entirely in the United States and domestic sales represented at
least 94% of total sales in 2022, 2021, and 2020.
69
19. Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations for the two years
ended December 31, 2022:
Net Sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
Net Sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
20.
Related Party Transactions
Three Months Ended
4/2/22
$166,575
58,108
30,232
1.72
$1.70
7/2/22
$140,653
43,554
20,757
1.18
$1.17
10/1/22
$139,390
38,869
18,389
1.04
$1.03
Three Months Ended
4/3/21
$184,377
72,566
38,192
2.18
$2.16
7/3/21
$200,072
78,757
44,384
2.52
$2.50
10/2/21
$178,246
64,802
35,202
2.00
$1.98
12/31/22
$149,224
39,554
18,954
1.07
$1.06
12/31/21
$168,041
63,432
38,121
2.17
$2.14
From time to time, the Company contracts with the National Rifle Association (“NRA”) for some
of its promotional and advertising activities. The Company paid the NRA $0.7 million, $0.5
million and $0.6 million in 2022, 2021 and 2020, respectively. One of the Company’s Directors
also serves as a Director on the Board of the NRA.
The Company is a member of the National Shooting Sports Foundation (“NSSF”), the firearm
industry trade association. The Company paid the NSSF $0.3 million, $0.4 million and $0.5
million in 2022, 2021 and 2020, respectively. One of the Company’s Directors also serves on the
Board of the NSSF.
21.
Contingent Liabilities
As of December 31, 2022, the Company was a defendant in eight (8) lawsuits and is aware
of certain other such claims. The lawsuits generally fall into three categories: traditional
product liability litigation, municipal litigation and negligence. 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.
70
The Company management believes that the allegations in these cases are unfounded, that the
incidents are 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 four (4) lawsuits of
this type, as follows:
(i) City of Gary v. Smith & Wesson Corp., et al, filed in Indiana State Court in 1999; (ii)
Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc., et al., filed in August 2021 in the
U.S. District Court for the District of Massachusetts; (iii) The City of Buffalo v. Smith & Wesson
Brands, Inc., et al., filed in December 2022 in the New York State Supreme Court for Erie County,
New York and presently pending in the U.S. District Court for the Western District of New York;
and (iv) The City of Rochester v. Smith & Wesson Brands, Inc., et al., filed in December 2022 in
the New York State Supreme Court for Monroe County, New York and presently pending in the
U.S. District Court for the Western District of New York.
The Complaint in City of Gary v. Smith & Wesson Corp., et al. was filed in 1999 and 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.
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 C i t y o f 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.
71
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 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, 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. On September 30, 2022, the court entered an order granting the defendants’
joint Rule 12(b)(6) motion. The Company’s Rule 12(b)(2) motion was denied as moot, without
prejudice. On October 26, 2022, the plaintiff filed a Notice of Appeal and the Court has entered a
briefing schedule.
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. The
72
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 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. The allegations essentially mirror those in The City of Buffalo, discussed in the
preceding paragraph, as plaintiff claims that the criminal misuse of firearms in Rochester, New
York is the result of the manufacturing, sales, marketing, and distribution practices of the
defendants. The defendants timely removed the matter to the U.S. District Court for the Western
District of New York.
Negligence
Rossiter v. Sturm, Ruger, et al. is a lawsuit arising out of a slip and fall accident by a contract
security officer in December 2019. The Complaint was filed in the Superior Court for Sullivan
County, New Hampshire on December 13, 2022 and names Pine Hill Construction, a snow
removal contractor, as a co-defendant. The Company has tendered the defense of this matter to its
insurance carrier and is assisting as required.
The Company was named in two purported class action lawsuits arising out of a data breach at
Freestyle Solutions, Inc., the vendor who was hosting the Company 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.
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.
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
73
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 $1.1 million at December 31, 2021, is set forth as an
indication of possible maximum liability the Company might be required to incur in these cases
(regardless of the likelihood or reasonable probability of any or all of this amount being awarded
to claimants) as a result of adverse judgments that are sustained on appeal. At December 31,
2022, the total amount claimed specifically in these cases was de minimis.
During 2022, no traditional product liability lawsuit was filed against the Company and one (1)
was resolved. As of December 31, 2022, the Company was a defendant five lawsuits involving its
products, including one (1) traditional product liability lawsuit and four (4) municipal lawsuits.
The Company also was a defendant in three (3) negligence lawsuits though, as discussed above,
that number has since been reduced to two (2) lawsuits with the consolidation of the Jones and
Copeland matters.
During 2021, one (1) traditional product liability lawsuit was filed against the Company. As of
December 31, 2021, the Company was a defendant in four (4) lawsuits involving its products,
including two (2) traditional lawsuits and two (2) municipal lawsuits.
During 2020, one (1) traditional product liability lawsuit was filed against the Company and one
(1) was resolved. As of December 31, 2020, the Company was a defendant in three (3) lawsuits
involving its products, including two (2) traditional lawsuits and one (1) municipal lawsuit.
74
The Company’s product liability expense was $1.3 million in 2022, $1.1 million in 2021, and $1.1
million in 2020. This expense includes the cost of outside legal fees, and other expenses incurred
in the management and defense of product liability matters.
A roll-forward of the product liability reserve and detail of product liability expense for the three
years ended December 31, 2022 follows:
Balance Sheet Roll-forward for Product Liability Reserve
Cash Payments
Accrued
Legal
Expense
(Income)
(b)
Balance
Beginning
of Year (a)
Legal Fees
(c)
Settlements
(d)
Balance
End of
Year (a)
2020
2021
2022
$ 818
$1,126
800
(7)
$ 892
(417)
(492)
(227)
(167)
-
-
-
$1,126
$ 892
$ 308
Income Statement Detail for Product Liability Expense
Accrued
Legal
Expense
(b)
Insurance
Premium
Expense
(e)
Total
Product
Liability
Expense
2020
2021
2022
$ 800
$ (7)
$(417)
839
1,119
1,524
$1,639
$1,112
$1,107
Notes
(a)
The beginning and ending liability balances represent accrued legal fees only. Settlements
and administrative costs are expensed as incurred. Only in rare instances is an accrual
established for settlements.
(b)
The expense accrued in the liability is for legal fees only. In 2022 and 2021, the costs
incurred related to cases that were settled or dismissed were less than the amounts accrued
for these cases in prior years.
(c)
Legal fees represent payments to outside counsel related to product liability matters.
(d)
Settlements represent payments made to plaintiffs or allegedly injured parties in exchange
for a full and complete release of liability.
75
(e)
Insurance expense represents the cost of insurance premiums.
There were no insurance recoveries during any of the above years.
22.
Financial Instruments
The Company does not hold or issue financial instruments for trading or hedging purposes, nor
does it hold interest rate, leveraged, or other types of derivative financial instruments. Fair values
of accounts receivable, accounts payable, accrued expenses and income taxes payable reflected in
the December 31, 2022 and 2021 balance sheets approximate carrying values at those dates.
23.
Subsequent Events
On February 17, 2023, the Company’s Board of Directors authorized a dividend of 42¢ per share
to shareholders of record on March 10, 2023.
The Company’s management has evaluated transactions occurring subsequent to December 31,
2022 and determined that there were no events or transactions during that period that would have
a material impact on the Company’s results of operations or financial position.
76
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A—CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company conducted an evaluation, with the participation of its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of December 31, 2022. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of
December 31, 2022, the Company’s disclosure controls and procedures over financial reporting
were effective.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company conducted an evaluation, with the participation of its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of its internal control over financial reporting as of
December 31, 2022. This evaluation was performed based on the criteria established in “Internal
Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in 2013.
Management has concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2022, based on criteria established in “Internal Control — Integrated
Framework” issued by the COSO in 2013.
The effectiveness of the Company’s internal control over financial reporting as of December 31,
2022 has been audited by RSM US LLP, an independent registered public accounting firm, as
stated in their report which is included in this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our
most recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
77
New York Stock Exchange Certification
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the
Company submitted an unqualified certification of our Chief Executive Officer to the New York
Stock Exchange in 2022. The Company has also filed, as exhibits to this Annual Report on Form
10-K, the Chief Executive Officer and Chief Financial Officer Certifications required under the
Sarbanes-Oxley Act of 2002.
ITEM 9B—OTHER INFORMATION
None.
ITEM 9C—DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT
PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning the Company’s directors, including the Company’s separately designated
standing audit committee, and on the Company’s code of business conduct and ethics required by
this Item is incorporated by reference from the Company’s Proxy Statement relating to the 2023
Annual Meeting of Stockholders scheduled to be held June 1, 2023, which will be filed with the
SEC in April 2023.
Information concerning the Company’s executive officers required by this Item is set forth in Item
1 of this Annual Report on Form 10-K under the caption “Executive Officers of the Company.”
Information concerning beneficial ownership reporting compliance required by this Item is
incorporated by reference from the Company’s Proxy Statement relating to the 2023 Annual
Meeting of Stockholders scheduled to be held June 1, 2023, which will be filed with the SEC in
April 2023.
ITEM 11—EXECUTIVE COMPENSATION
Information concerning director and executive compensation required by this Item is incorporated
by reference from the Company’s Proxy Statement relating to the 2023 Annual Meeting of
Stockholders scheduled to be held June 1, 2023, which will be filed with the SEC in April 2023.
78
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning the security ownership of certain beneficial owners and management and
related stockholder matters required by this Item is incorporated by reference from the Company’s
Proxy Statement relating to the 2023 Annual Meeting of Stockholders scheduled to be held June
1, 2023, which will be filed with the SEC in April 2023.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information regarding compensation plans under which equity
securities of the Company are authorized for issuance as of December 31, 2022:
Equity Compensation Plan Information
Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Plan category
(a)
(b) *
(c)
Equity compensation
plans approved by
security holders
2017 Stock Incentive Plan
288,586
Equity compensation
plans not approved by
security holders
None.
Total
288,586
-
-
-
121,034
121,034
*
Restricted stock units are settled in shares of common stock or the cash equivalent.
Accordingly, the weighted-average exercise price is not applicable.
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions required by this Item is
incorporated by reference from the Company’s Proxy Statement relating to the 2023 Annual
Meeting of Stockholders scheduled to be held June 1, 2023.
79
ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning the Company’s principal accountant fees and services and the pre-
approval policies and procedures of the audit committee of the board of directors required by this
Item is incorporated by reference from the Company’s Proxy Statement relating to the 2023
Annual Meeting of Stockholders scheduled to be held June 1, 2023, which will be filed with the
SEC in April 2023.
80
PART IV
ITEM 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits and Financial Statement Schedule
(1) Financial Statements can be found under Item 8 of Part II of this Form 10-K
(2) Schedule can be found on Page 94 of this Form 10-K
(3) Listing of Exhibits:
Exhibit 3.1
Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibits 4.1 and 4.2 to the Form
S-3 Registration Statement previously filed by the Company
File No. 33-62702).
Exhibit 3.2
Bylaws of the Company, as amended through November 12,
2019.
Exhibit 4.1
Description of the Company’s Securities.
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Severance Agreement, dated as of April 10, 2008, by and
between the Company and Thomas A. Dineen (Incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed with the SEC on April 11, 2008).
Severance Agreement, dated as of April 10, 2008, by and
between the Company and Thomas P. Sullivan (Incorporated by
reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K filed with the SEC on April 11, 2008).
Severance Agreement, dated as of May 2, 2008 by and between
the Company and Kevin B. Reid, Sr. (Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed with the SEC on May 5, 2008).
Transition Services and Consulting Agreement, dated August 1,
2016, by and between the Company and Michael O. Fifer
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the SEC on August 2,
2016).
Amended and Restated Agreement, dated November 10, 2020,
by and between the Company and Christopher J. Killoy
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K/A filed with the SEC on
November 12, 2020).
81
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Executive Severance Agreement, dated August 1, 2016, by and
between the Company and Shawn C. Leska (Incorporated by
reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed with the SEC on August 2, 2016).
Loan Agreement, dated January 7, 2022 between Sturm, Ruger
& Company, Inc. and Regions Bank. (Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed with the SEC on January 11, 2022), as amended by that
certain Amendment to Credit Agreement, dated November 3,
2022, between Sturm, Ruger & Company, Inc. and Regions
Bank (Incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed with the SEC on
November 4, 2022).
The Sturm, Ruger & Company, Inc. 2017 Stock Incentive Plan
(incorporated by reference to Annex A of the Company’s
Definitive Proxy Statement of Schedule 14A, filed with the
SEC on March 27, 2017)
Exhibit 23.1
Consent of RSM US LLP
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Certification of Chief Executive Officer Pursuant to Rule 13a-
14(a) of the Exchange Act.
Certification of Treasurer and Chief Financial Officer Pursuant
to Rule 13a-14(a) of the Exchange Act.
Certification of the Chief Executive Officer Pursuant to Rule
13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of the Treasurer and Chief Financial Officer
Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 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.
Exhibit 101.SCH*
Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Exhibit 101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase
Document
Exhibit 101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
82
Exhibit 101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Exhibit 104*
*Filed herewith
Cover Page Interactive Data File – the cover page interactive
data file does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
S/THOMAS A. DINEEN
Thomas A. Dineen
Principal Financial Officer
Principal Accounting Officer, Senior Vice President,
Treasurer, and Chief Financial Officer
February 22, 2023
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
S/CHRISTOPHER J. KILLOY 2/22/23
Christopher J. Killoy
Chief Executive Officer, Director
(Principal Executive Officer)
S/RONALD C. WHITAKER 2/22/23
Ronald C. Whitaker
Director
S/JOHN A. COSENTINO, JR. 2/22/23
John A. Cosentino, Jr.
Director
S/PHILLIP C. WIDMAN 2/22/23
Phillip C. Widman
Director
S/AMIR P. ROSENTHAL 2/22/23
Amir P. Rosenthal
Director
S/SANDRA S. FROMAN 2/22/23
Sandra S. Froman
Director
S/TERRENCE G. O’CONNOR 2/22/23
Terrence G. O’Connor
Director
S/REBECCA S. HALSTEAD 2/22/23
Rebecca S. Halstead
Director
S/MICHAEL O. FIFER 2/22/23
Michael O. Fifer
Director
S/THOMAS A. DINEEN 2/22/23
Thomas A. Dineen
Principal Financial Officer
Principal Accounting Officer, Senior Vice
President, Treasurer, and Chief Financial Officer
84
EXHIBIT INDEX
Page
No.
Exhibit 3.1
Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibits 4.1 and 4.2 to the Form S-3
Registration Statement previously filed by the Company File No.
33-62702).
Exhibit 3.2
Bylaws of the Company, as amended through November 12, 2019.
Exhibit 4.1
Description of the Company’s Securities.
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Severance Agreement, dated as of April 10, 2008, by and between
the Company and Thomas A. Dineen (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the SEC on April 11, 2008).
Severance Agreement, dated as of April 10, 2008, by and between
the Company and Thomas P. Sullivan (Incorporated by reference
to Exhibit 10.6 to the Company's Current Report on Form 8-K
filed with the SEC on April 11, 2008).
Severance Agreement, dated as of May 2, 2008 by and between
the Company and Kevin B. Reid, Sr. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the SEC on May 2, 2008).
Transition Services and Consulting Agreement, dated August 1,
2016, by and between the Company and Michael O. Fifer
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the SEC on August 2,
2016).
Amended and Restated Agreement, dated November 10, 2020, by
and between the Company and Christopher J. Killoy (Incorporated
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K/A filed with the SEC on November 12, 2020).
Executive Severance Agreement, dated August 1, 2016, by and
between the Company and Shawn C. Leska (Incorporated by
reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed with the SEC on August 2, 2016).
Loan Agreement, dated January 7, 2022 between Sturm, Ruger &
Company, Inc. and Regions Bank. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the SEC on January 11, 2022) , as amended by that certain
Amendment to Credit Agreement, dated November 3, 2022,
between Sturm, Ruger & Company, Inc. and Regions Bank
(Incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed with the SEC on November 4,
2022).
85
89
90
92
94
95
EXHIBIT INDEX (continued)
Exhibit 10.8
The Sturm, Ruger & Company, Inc. 2017 Stock Incentive Plan
(incorporated by reference to Annex A of the Company’s
Definitive Proxy Statement of Schedule 14A, filed with the SEC
on March 27, 2017)
Exhibit 23.1
Consent of RSM US LLP
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Certification of Chief Executive Officer Pursuant to Rule 13a-
14(a) of the Exchange Act.
Certification of Treasurer and Chief Financial Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Certification of the Chief Executive Officer Pursuant to Rule 13a-
14(b) of the Exchange Act and 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of the Treasurer and Chief Financial Officer Pursuant
to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 101.INS*
Inline 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.
Exhibit 101.SCH*
Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Exhibit 101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Exhibit 104*
*Filed herewith
Cover Page Interactive Data File – the cover page interactive data
file does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
86
YEAR ENDED DECEMBER 31, 2022
STURM, RUGER & COMPANY, INC.
ITEMS 15(a)
FINANCIAL STATEMENT SCHEDULE
87
Sturm, Ruger & Company, Inc.
Item 15(a)--Financial Statement Schedule
Schedule II—Valuation and Qualifying Accounts
(In Thousands)
COL. A
COL. B
COL. C
ADDITIONS
COL. D
COL. E
Description
(1)
Charged
(Credited) to
Costs and
Expenses
(2)
Charged to
Other
Accounts
–Describe
Balance at
Beginning
of Period
Balance
at End
of
Period
Deductions
Deductions from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
$ 400
$ 400
$ 400
$ -
$ -
$ -
Allowance for discounts:
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
$1,169
$1,166
$1,070
$13,849
$16,116
$12,482
Excess and obsolete inventory
reserve:
$ -
$ -
$ -
$ 400
$ 400
$ 400
$13,684 (a)
$16,113 (a)
$12,386 (a)
$1,334
$1,169
$1,166
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
$4,347
$3,394
$3,573
$ 465
$ 953
$(179)
$ - (b)
$ - (b)
$ - (b)
$4,812
$4,347
$3,394
(a) Discounts taken
(b)
Inventory written off
88
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to incorporation by reference in the Registration Statements (Nos. 333-84677 and
333-53234) on Form S-8 of Sturm, Ruger & Company, Inc. of our reports dated February 22,
2023 relating to the consolidated financial statements, the financial statement schedule and the
effectiveness of internal control over financial reporting of Sturm, Ruger & Company, Inc.,
appearing in the Annual Report on Form 10-K of Sturm, Ruger & Company, Inc. for the year
ended December 31, 2022.
/s/ RSM US LLP
Stamford, Connecticut
February 22, 2023
89
EXHIBIT 31.1
I, Christopher J. Killoy, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K (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.
90
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 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: February 22, 2023
S/CHRISTOPHER J. KILLOY
Christopher J. Killoy
Chief Executive Officer
91
EXHIBIT 31.2
I, Thomas A. Dineen, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K (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.
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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 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: February 22, 2023
S/THOMAS A. DINEEN
Thomas A. Dineen
Senior Vice President, Treasurer and
Chief Financial Officer
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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 Annual Report on Form 10-K of Sturm, Ruger & Company, Inc. (the
“Company”) for the period ended December 31, 2022, 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respect, the
financial condition and results of operations of the Company.
Date: February 22, 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.
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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 Annual Report on Form 10-K of Sturm, Ruger & Company, Inc. (the
“Company”) for the period ended December 31, 2022, 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respect, the
financial condition and results of operations of the Company.
Date: February 22, 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.
95