What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 143 added, 132 removed, 463 unchanged (37% of the section changed)

3 unchanged sentences

(Dollars in thousands)

October 2, 2021

December 31, 2020

17 unchanged sentences

(Dollars in thousands, except per share data)

October 2, 2021

December 31, 2020

36 unchanged sentences

Three Months Ended

Six Months Ended

June 27, 2020

Nine Months Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

Net firearms sales

18 unchanged sentences

Cash dividends per share

See notes to condensed consolidated financial statements.

STURM, RUGER & COMPANY, INC.

10 unchanged sentences

Recognition of stock-based compensation expense

Balance at July 3, 2021

Balance at October 2, 2021

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Six Months Ended

June 27, 2020

Nine Months Ended

October 2, 2021

September 26, 2020

Operating Activities

18 unchanged sentences

Proceeds from maturities of short-term investments

Cash used for investing activities

Cash (used for) provided by investing activities

Financing Activities

14 unchanged sentences

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods.

Operating results for the six months ended July 3, 2021 may not be indicative of the results to be expected for the full year ending December 31, 2021.

Operating results for the nine months ended October 2, 2021 may not be indicative of the results to be expected for the full year ending December 31, 2021.

These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

36 unchanged sentences

During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill in the period in which such revised estimates are identified.

No such adjustments were recorded in the three and six months ended July 3, 2021.

No such adjustments were recorded in the three and nine months ended October 2, 2021.

Use of Estimates:

5 unchanged sentences

REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

The impact of ASC 606 on revenue recognized during the three and six months ended July 3, 2021 and June 27, 2020 is as follows:

The impact of ASC 606 on revenue recognized during the three and nine months ended October 2, 2021 and September 26, 2020 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

Contract liabilities with customers at beginning of period

3 unchanged sentences

As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products.

The Company was not responsible for the shipment of any free products arising from such sales promotion programs as of July 3, 2021.

The Company was not responsible for the shipment of any free products arising from such sales promotion programs as of October 2, 2021.

Practical Expedients and Exemptions

6 unchanged sentences

Inventories consist of the following:

October 2, 2021

December 31, 2020

11 unchanged sentences

Under the provisions of ASU 2016-02, the Company records right-of-use assets equal to the present value of the contractual liability for future lease payments.

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of July 3, 2021:

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of October 2, 2021:

Balance Sheet Line Item

October 2, 2021

Right-of-use assets

7 unchanged sentences

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 July 3, 2021:

The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Condensed Consolidated Balance Sheet as of October 2, 2021:

Remainder of 2021

4 unchanged sentences

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 July 3, 2021 is 11.36 years.

The Company’s weighted average remaining lease term for operating leases as of October 2, 2021 is 11.90 years.

NOTE 6 —

LINE OF CREDIT

The Company has a $ 40 million revolving line of credit with a bank.

This facility terminates on September 30, 2021 .

Borrowings under this facility bear interest at the one-month LIBOR rate ( 0.10 % at July 3, 2021) plus 150 basis points.

The Company is charged one-quarter of a percent ( 0.25 %) per year on the unused portion.

The facility includes certain terms and covenants, including the requirement that the Company maintain a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) for the preceding four quarters in any quarter that the Company draws on the line of credit.

The Company had a $ 40 million revolving line of credit with a bank.

This facility terminated on September 30, 2021 .

Borrowings under this facility bore interest at the one-month LIBOR rate ( 0.08 % at September 30, 2021) plus 150 basis points.

The Company was charged one-quarter of a percent ( 0.25 %) per year on the unused portion.

The facility included certain terms and covenants, including the requirement that the Company maintain a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) for the preceding four quarters in any quarter that the Company drew on the line of credit.

During the first quarter of 2020, the Company made a $ 1 million draw from the facility while it was not in compliance with this covenant.

1 unchanged sentence

The Company notified the lender and was granted a waiver on June 30, 2020.

At July 3, 2021 and December 31, 2020, the Company was in compliance with the terms and covenants of the credit facility.

At July 3, 2021, there was no outstanding balance on the line of credit.

At the line of credit’s termination date and December 31, 2020, the Company was in compliance with the terms and covenants of the credit facility.

NOTE 7 —

2 unchanged sentences

The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code.

Expenses related to these matching contributions totaled $ 0.9 million and $ 2.2 million for the three and six months ended July 3, 2021, respectively, and $ 0.8 million and $ 1.7 million for the three and six months ended June 27, 2020, respectively.

Expenses related to these matching contributions totaled $ 0.9 million and $ 3.1 million for the three and nine months ended October 2, 2021, respectively, and $ 0.8 million and $ 2.4 million for the three and nine months ended September 26, 2020, respectively.

The Company plans to contribute approximately $ 0.9 million to the plan in matching employee contributions during the remainder of 2021.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.6 million and $ 4.0 million for the three and six months ended July 3, 2021, respectively, and $ 1.1 million and $ 2.6 million for the three and six months ended June 27, 2020, respectively.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.6 million and $ 5.6 million for the three and nine months ended October 2, 2021, respectively, and $ 1.2 million and $ 3.9 million for the three and nine months ended September 26, 2020, respectively.

The Company plans to contribute approximately $ 1.6 million in supplemental contributions to the plan during the remainder of 2021.

NOTE 8 —

The Company's 2021 and 2020 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 26.4 % and 26.7 % for the three and six months ended July 3, 2021, respectively.

The Company’s effective income tax rate was 24.7 % and 25.4 % for the three and six months ended June 27, 2020, respectively.

Income tax payments for the three and six months ended July 3, 2021 totaled $ 22.6 million and $ 22.8 million, respectively.

Income tax payments for the three and six months ended June 27, 2020 totaled $ 2.4 million and $ 4.0 million, respectively.

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 effective income tax rate was 26.7 % for both the three and nine months ended October 2, 2021.

The Company's 2020 effective tax rate differs from the statutory federal tax rate due principally to state income taxes.

The Company’s effective income tax rate was 24.7 % and 25.2 % for the three and nine months ended September 26, 2020, respectively.

Income tax payments for the three and nine months ended October 2, 2021 totaled $ 13.8 million and $ 36.6 million, respectively.

Income tax payments for the three and nine months ended September 26, 2020 totaled $ 18.2 million and $ 22.3 million, respectively.

The Company files income tax returns in the U.S.

4 unchanged sentences

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 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.

3 unchanged sentences

Three Months Ended

Six Months Ended

June 27, 2020

Nine Months Ended

September 26,

Weighted average number of common shares outstanding –

7 unchanged sentences

Vesting requirements are determined by the Compensation Committee of the Board of Directors .

The Company reserved 750,000 shares for issuance under the 2017 SIP, of which 218,000 shares remain available for future grants as of July 3, 2021.

The Company reserved 750,000 shares for issuance under the 2017 SIP, of which 218,000 shares remain available for future grants as of October 2, 2021.

Restricted Stock Units

2 unchanged sentences

The retention-based awards are subject only to the three-year vesting period.

There were 93,939 restricted stock units issued during the six months ended July 3, 2021.

There were 93,939 restricted stock units issued during the nine months ended October 2, 2021.

Total compensation costs related to these restricted stock units are $ 6.5 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.7 million and $ 5.0 million for the three and six months ended July 3, 2021, respectively, and $ 1.3 million and $ 2.7 million for the three and six months ended June 27, 2020, respectively.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.6 million and $ 6.7 million for the three and nine months ended October 2, 2021, respectively, and $ 1.7 million and $ 4.4 million for the three and nine months ended September 26, 2020, respectively.

NOTE 11 —

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

June 27, 2020

September 26,

Income (Loss) Before Income Taxes

3 unchanged sentences

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities.

Payments made to the NRA in the three and six months ended July 3, 2021 totaled $ 0.2 million and $ 0.2 million, respectively.

Payments made to the NRA in the three and six months ended June 27, 2020 totaled $ 0.1 million and $ 0.2 million, respectively.

Payments made to the NRA in the three and nine months ended October 2, 2021 totaled $ 0.1 million and $ 0.3 million, respectively.

Payments made to the NRA in the three and nine months ended September 26, 2020 totaled $ 0.2 million and $ 0.4 million, respectively.

One of the Company’s Directors also serves as a Director on the Board of the NRA.

1 unchanged sentence

CONTINGENT LIABILITIES

As of July 3, 2021, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims.

The lawsuits fall into three categories:

traditional product liability litigation, non-product litigation, and municipal litigation.

As of October 2, 2021, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims.

The lawsuits fall into two categories:

traditional product liability litigation and municipal litigation.

Each is discussed in turn below.

1 unchanged sentence

Two lawsuits mentioned above involve a claim for damages related to an allegedly defective product due to its design and/or manufacture.

The lawsuits stem from a specific incident of personal injury and are based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

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.

Non-Product Litigation

FN Herstal S.A.

Sturm, Ruger & Co., Inc.

was filed in the United States District Court for the Eastern District of Virginia on March 6, 2020.

The Complaint alleges injury and economic loss based upon alleged federal and state trademark infringement and unfair competition.

These allegations arise from the Company’s use and efforts to seek registration of “Ruger-57”

in connection with the launch of a pistol bearing that mark.

The Company believes that the suit lacks any merit and has filed an Answer denying all material allegations and Counterclaims seeking cancellation of certain of Plaintiff’s registered trademarks.

Discovery was set to close on March 9, 2021, but the court extended discovery deadlines to accommodate settlement discussions between the parties, which were unsuccessful.

No new deadlines have been established and discovery is ongoing.

The lawsuits each stem from a specific incident of personal injury and are based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

The Company's 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 is only one remaining lawsuit of this type, filed by the City of Gary in Indiana State Court in 1999.

The Complaint in that case 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.

There are two lawsuits of this type.

The City of Gary , filed in Indiana State Court in 1999, and Estado Unidos Mexicanos v.

Smith & Wesson, et al .

, which was filed in August 2021.

The City of Gary Complaint in that case 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.

30 unchanged sentences

Discovery is ongoing.

Estado 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.

The Company believes that the allegations are without merit and will defend itself accordingly.

Summary of Claimed Damages and Explanation of Product Liability Accruals

6 unchanged sentences

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.

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.

8 unchanged sentences

SUBSEQUENT EVENTS

On July 30, 2021, the Board of Directors authorized a dividend of $ 1.00 per share, for shareholders of record as of August 16, 2021, payable on August 27, 2021.

The Company has evaluated events and transactions occurring subsequent to July 3, 2021 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

On October 29, 2021, the Board of Directors authorized a dividend of 79 ¢

per share, for shareholders of record as of November 15, 2021, payable on November 30, 2021.

The Company has evaluated events and transactions occurring subsequent to October 2, 2021 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

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

14 unchanged sentences

The COVID-19 pandemic has created significant uncertainty and adversely impacted many industries throughout the global economy.

In the first half of 2021, the Company did not experience a significant adverse impact on its business resulting from government restrictions on the movement of people, goods, and services.

In the first nine months of 2021, the Company did not experience a significant 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.

1 unchanged sentence

From a liquidity perspective, the Company believes it is currently well positioned to manage through this global crisis.

At the end of the second quarter of 2021, the Company was debt-free, and had cash and short-term investments totaling $173.6 million and an unused $40.0 million revolving credit facility.

At the end of the third quarter of 2021, the Company was debt-free, and had cash and short-term investments totaling $193 million.

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

5 unchanged sentences

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

Confidentially communicating with and assisting employees with potential health issues through our dedicated facility   nurses,

Confidentially communicating with and assisting employees with potential health issues through our dedicated facility nurses,  

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

1 unchanged sentence

Providing all employees with multiple facemask coverings and other personal protective equipment and currently mandating their use by unvaccinated and “at risk”

individuals at all times in our facilities,

Issuing periodic guidance and reminders to all associates –

directly to their phones when possible –

to encourage them to engage in safe and responsible behaviors, and

Manufacturing and donating personal protective equipment to local hospitals, health care facilities, and police and fire departments in our local communities.

The costs of these actions are expected to total approximately $1.5 million in 2021, of which approximately $0.3 million and $0.7 million was recognized during the three and six months ended July 3, 2021, respectively.

The comparable expenses totaled $3.6 million in 2020, of which approximately $1.2 million and $1.6 million were recognized during the three and six months ended June 27, 2020, respectively.

individuals at all times in our facilities, and

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

The costs of these actions are expected to total approximately $1.5 million in 2021, of which approximately $0.4 million and $1.1 million was recognized during the three and nine months ended October 2, 2021, respectively.

The comparable expenses totaled $3.6 million in 2020, of which approximately $0.9 million and $2.4 million were recognized during the three and nine months ended September 26, 2020, respectively.

The Company has also experienced expense reductions and deferrals in certain areas of its business, including reductions or delays in sponsorships and advertising, reduced conference and trade show participation costs, and reduced travel expenditures.

The net expense reductions and deferrals for the three and six months ended July 3, 2021 approximated $0.7 million and $1.6 million, respectively.

These expense reductions and deferrals approximated $1.0 million for both the three and six months ended June 27, 2020.

In the three months ended July 3, 2021 some business activities that had been cancelled or deferred as a result of the pandemic began to resume and the related expenses increased.

The net expense reductions and deferrals for the three and nine months ended October 2, 2021 approximated $0.2 million and $0.9 million, respectively.

These expense reductions and deferrals approximated $1.1 million and $2.2 million for the three and nine months ended September 26, 2020.

In the three months and nine months ended October 2, 2021 some business activities that had previously been cancelled or deferred as a result of the pandemic began to resume and the related expenses increased.

If COVID-19 restrictions continue to ease, these expense reductions and deferrals could lessen and may ultimately be eliminated.

2 unchanged sentences

While certain parts of the economy have begun to reopen as restrictions have been lifted, additional restrictions could be put in place in the future which would adversely impact the Company’s business for an indeterminate period.

Since the latter stages of the first quarter of 2020, there has been a significant increase in consumer demand for firearms, as evidenced by the increase in adjusted National Instant Criminal Background Check System (“NICS”) checks.

This increased demand may be attributable, in part, to COVID-19.

The sustainability of this increased consumer demand, and the ultimate impact of COVID-19 on consumer demand, cannot be predicted at this time.

Beginning in the latter stages of the first quarter of 2020, there was a significant increase in consumer demand for firearms, as evidenced by increases in adjusted National Instant Criminal Background Check System (“NICS”) checks.

This increased demand may have been attributable, in part, to COVID-19.

The sustainability of this increased consumer demand in the long-term, and the ultimate impact of COVID-19 on consumer demand, cannot be predicted at this time.

The ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Results of Operations

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 13% in the first half of 2021 compared to the prior year period.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 9% in the first nine months of 2021 compared to the prior year period.

For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 11%.

1 unchanged sentence

Strong consumer demand for the Company’s products,

Increases in production for each of the past seven quarters, and

Introduction of new products that have been met with strong demand.

Sales of new products, including the Wrangler, the Ruger-57, the LCP II in .22 LR, the PC Charger, the MAX-9 pistol, and the LCP MAX represented $77.9 million or 22% of firearm sales in the first half of 2021.

Increased production in 2021, and

The introduction of new products that have been met with strong demand.

Sales of new products, including the Ruger-57, the LCP II in .22 LR, the PC Charger, the MAX-9 pistol, and the LCP MAX represented $116.2 million or 22% of firearm sales in the first nine months of 2021.

New product sales include only major new products that were introduced in the past two years.

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing six quarters follow:

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow:

Estimated Units Sold from Distributors to Retailers (1)

11 unchanged sentences

Orders Received and Ending Backlog

The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels.

The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels.

The Company generally does not use the orders received or ending backlog for planning production levels.

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing six quarters are as follows (dollars in millions, except average sales price):

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing seven quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

5 unchanged sentences

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, semi-monthly to plan production levels.

The Company increased overall production in the first half of 2021 by 51% from the first half of 2020.

The Company increased overall production in the first nine months of 2021 by 41% from the first nine months of 2020.

Summary Unit Data

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

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

Units Ordered

3 unchanged sentences

Ending Unit Backlog

During the second quarter of 2021, the Company’s finished goods inventory and distributor inventories of the Company’s products decreased 7,800 units and remain significantly below pre-COVID-19 pandemic levels.

Inventory data for the trailing six quarters follows:

During the third quarter of 2021, the Company’s finished goods inventory remained substantially unchanged and distributor inventories of the Company’s products increased 67,300 units.

Inventories of most product families remain significantly below pre-COVID-19 pandemic levels.

Inventory data for the trailing seven quarters follows:

Units —

7 unchanged sentences

The Company does not have access to data on retailer inventories of the Company’s products.

Consolidated net sales were $200.1 million for the three months ended July 3, 2021, an increase of 53.6% from $130.3 million in the comparable prior year period.

For the six months ended July 3, 2021, consolidated net sales were $384.4 million, an increase of 51.4% from $253.9 million in the comparable prior year period.

Firearms net sales were $199.4 million for the three months ended July 3, 2021, an increase of 54.1% from $129.4 million in the comparable prior year period.

For the six months ended July 3, 2021 firearms net sales were $383.0 million, an increase of 51.9% from $252.2 million in the comparable prior year period.

Firearms unit shipments increased 47.0% and 40.5% for the three and six months ended July 3, 2021, from the comparable prior year periods.

Castings net sales were $0.6 million for the three months ended July 3, 2021, a decrease of 26.6% from $0.9 million in the comparable prior year period.

For the six months ended July 3, 2021, castings net sales were $1.4 million, a decrease of 18.8% from $1.7 million in the comparable prior year period.

Net sales data for the three months ended (dollars in millions):

September 26,

Net sales data for the nine months ended (dollars in millions):

September 26,

The increases in consolidated net sales and firearms net sales for both the three and nine months ended October 2, 2021 are attributable to strong consumer demand for the Company’s products and increased production.

Cost of Products Sold and Gross Profit

Consolidated cost of products sold was $121.3 million for the three months ended July 3, 2021, an increase of 34.5% from $90.2 million in the comparable prior year period.

Consolidated cost of products sold was $233.1 million for the six months ended July 3, 2021, an increase of 31.1% from $177.8 million in the comparable prior year period.

Gross profit for the three and six months ended July 3, 2021 was $78.8 million and $151.3 million, respectively, an increase of $38.7 million and $75.2 million from $40.1 million and $76.1 million in the comparable prior year periods.

As a percentage of sales, gross profit increased to 39.4% in both the three and six months ended July 3, 2021, respectively, from 30.8% and 30.0% in the comparable prior year periods.

This significant increased profitability was due primarily to:

the increase in sales and production, resulting in favorable leveraging of fixed costs, including depreciation, engineering and other indirect labor,

a significant reduction in sales promotional activities, and

improved labor efficiencies.

Cost of products sold and gross profit data for the three months ended (dollars in millions):

September 26,

Cost of products sold

Cost of products sold and gross profit data for the nine months ended (dollars in millions):

September 26,

Cost of products sold

The increased gross profit for both the three and nine months ended October 2, 2021 is attributable to the significant increase in sales and profitability.

The increase in gross margin for both the three and nine months ended October 2, 2021 is attributable to favorable leveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting from the increased sales and production, a reduction in sales promotional activities, and improved labor efficiencies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $19.1 million for the three months ended July 3, 2021, an increase of $3.0 million or 18.9% from $16.1 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses decreased to 9.5% in the three months ended July 3, 2021 from 12.3% in the prior period.

Selling, general and administrative expenses were $39.7 million for the six months ended July 3, 2021, an increase of $7.8 million or 24.4% from $31.9 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative

expenses decreased to 10.3% in the six months ended July 3, 2021 from 12.6% in the prior period.

Selling, general and administrative expenses were $18.1 million for the three months ended October 2, 2021, a decrease of $0.2 million or 1.2% from $18.3 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses decreased to 10.1% in the three months ended October 2, 2021 from 12.6% in the prior year period.

Selling, general and administrative expenses were $57.8 million for the nine months ended October 2, 2021, an increase of $7.6 million or 15.1% from $50.2 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses decreased to 10.3% in the nine months ended October 2, 2021 from 12.6% in the prior year period.

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

Other income, net

Other income, net of $0.6 million and $1.0 million for the three and six months ended July 3, 2021, respectively, decreased from $0.7 million and $1.3 million for the three and six months ended June 27, 2020 as a result of reduced interest rates earned on short-term investments in 2021 compared to 2020.

Other income, net of $1.3 million and $2.3 million for the three and nine months ended October 2, 2021, respectively, increased from $36,000 and $1.4 million for the three and nine months ended September 26, 2020 as a result of increased royalty and miscellaneous income in 2021 compared to 2020.

Income Taxes and Net Income

The Company's 2021 and 2020 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 26.4% and 26.7% the three and six months ended July 3, 2021, respectively.

The Company’s effective income tax rate was 24.7% and 25.4% for the three and six months ended June 27, 2020, respectively.

As a result of the foregoing factors, consolidated net income was $44.4 million and $82.6 million for the three and six months ended July 3, 2021, respectively.

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 effective income tax rate was 26.7% for both the three and nine months ended October 2, 2021.

The Company's 2020 effective tax rate differs from the statutory federal tax rate due principally to state income taxes.

The Company’s effective income tax rate was 24.7% and 25.2% for the three and nine months ended September 26, 2020, respectively.

As a result of the foregoing factors, consolidated net income was $35.2 million and $117.8 million for the three and nine months ended October 2, 2021, respectively.

This represents an increase of 42.2% and 100.7% from $24.8 million and $58.7 million in the comparable prior year periods.

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In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and one non-GAAP financial measure, EBITDA, which management believes provides useful information to investors.

This non-GAAP financial measure may not be comparable to similarly titled financial measures being disclosed by other companies.

This non-GAAP financial measure may not be comparable to similarly titled

financial measures being disclosed by other companies.

In addition, the Company believes that the non-GAAP financial measure should be considered in addition to, and not in lieu of, GAAP financial measures.

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The Company calculates its EBITDA 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.

EBITDA was $67.5 million for the three months ended July 3, 2021, an increase of 114.1% from $31.5 million in the comparable prior year period.

For the six months ended July 3, 2021 EBITDA was $127.4 million, an increase of 115.9% from $59.0 million in the comparable prior year period.

EBITDA was $55.4 million for the three months ended October 2, 2021, an increase of 38.1% from $40.1 million in the comparable prior year period.

For the nine months ended October 2, 2021 EBITDA was $182.8 million, an increase of 88.4% from $99.1 million in the comparable prior year period.

Non-GAAP Reconciliation —

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Three Months Ended

Six Months Ended

June 27, 2020

Nine Months Ended

September 26,

Income tax expense

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Financial Condition

At the end of the second quarter of 2021, the Company’s cash and short-term investments totaled $173.6 million.

At the end of the third quarter of 2021, the Company’s cash and short-term investments totaled $192.7 million.

Pre-LIFO working capital of $277.9 million, less the LIFO reserve of $49.4 million, resulted in working capital of $228.5 million and a current ratio of 3.8 to 1.

Cash provided by operating activities was $76.2 million for the six months ended July 3, 2021, compared to $78.1 million for the comparable prior year period.

The decrease in cash provided in the six months ended July 3, 2021 is primarily attributable to the increase in accounts receivable and the payment of the 2020 annual incentive compensation in the six months ended July 3, 2021 and the decrease in inventories in the prior period.

Cash provided by operating activities was $117.0 million for the nine months ended October 2, 2021, compared to $82.0 million for the comparable prior year period.

The increase in cash provided in

the nine months ended October 2, 2021 is primarily attributable to the increase in net income, partially offset by the payment of the 2020 annual incentive compensation and the increase in inventory in the nine months ended October 2, 2021.

Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts.

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.

In the nine months ended October 2, 2021, the Company’s manufacturing operations were impacted by limited deliveries of raw materials.

A limited supply of these materials in the marketplace can result in increases to purchase prices and adversely affect production levels.

If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

Capital expenditures for the six months ended July 3, 2021 totaled $11.4 million, an increase from $5.9 million in the comparable prior year period.

Capital expenditures for the nine months ended October 2, 2021 totaled $15.6 million, an increase from $8.0 million in the comparable prior year period.

In 2021, the Company expects to spend approximately $20 million on capital expenditures, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment.

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Shipments of Marlin rifles are anticipated to begin in the fourth quarter of 2021.

Dividends of $27.6 million were paid during the six months ended July 3, 2021.

Dividends of $45.2 million were paid during the nine months ended October 2, 2021.

The Company has financed its dividends with cash provided by operations and current cash.

On July 30, 2021, the Company’s Board of Directors authorized a dividend of $1.00 per share to shareholders of record on August 16, 2021, payable on August 27, 2021.

Dividends of $104.1 million were paid during the nine months ended September 26, 2020, reflecting the quarterly dividends and a $5.00 per share special dividend paid in August 2020.

On October 29, 2021, the Company’s Board of Directors authorized a dividend of 79¢

per share to shareholders of record on November 15, 2021, payable on November 30, 2021.

The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.

The Company purchases United States Treasury instruments which mature within one year with available cash.

At July 3, 2021, the Company’s investment in these instruments totaled $150.0 million.

The Company did not purchase any shares of its common stock in the six months ended July 3, 2021 and June 27, 2020.

As of July 3, 2021, $86.7 million remained authorized for future stock repurchases.

At October 2, 2021, the Company’s investment in these instruments totaled $165.0 million.

The Company did not purchase any shares of its common stock in the nine months ended October 2, 2021 and September 26, 2020.

As of October 2, 2021, $86.7 million remained authorized for future stock repurchases.

Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt.

The Company’s unsecured $40 million credit facility, which expires on September 30, 2021, was unused at July 3, 2021 and the Company has no debt.

The Company has no debt.

Other Operational Matters

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The Company believes that it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company.

If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have a material adverse impact on the Company.

If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have a material adverse impact on the Company.

Since 2018, two of the Company’s independent domestic wholesale distributors have filed for bankruptcy protection.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements