What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 135 added, 175 removed, 431 unchanged (42% of the section changed)

3 unchanged sentences

(Dollars in thousands)

October 2, 2021

April 2, 2022

December 31, 2021

17 unchanged sentences

(Dollars in thousands, except per share data)

October 2, 2021

April 2, 2022

December 31, 2021

10 unchanged sentences

Lease liability (Note 5)

Deferred income taxes

Contingent liabilities (Note 13)

23 unchanged sentences

Three Months Ended

Nine Months Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

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 October 2, 2021

Balance at April 2, 2022

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended

October 2, 2021

September 26, 2020

Three Months Ended

April 2, 2022

April 3, 2021

Operating Activities

7 unchanged sentences

Trade accounts payable and accrued expenses

Contract liability to customers

Contract liability with customers

Employee compensation and benefits

8 unchanged sentences

Proceeds from maturities of short-term investments

Cash (used for) provided by investing activities

Cash provided by (used for) investing activities

Financing Activities

2 unchanged sentences

Cash used for financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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

Operating results for the three months ended April 2, 2022 may not be indicative of the results to be expected for the full year ending December 31, 2022.

These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

14 unchanged sentences

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.

The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Substantially all product sales are sold FOB (free on board) shipping point.

2 unchanged sentences

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 most common of these instances relates to sales promotion programs under which downstream customers are entitled to receive no charge products based on their purchases of certain of the Company’s products from the independent distributors.

The fulfillment of these no charge products is the Company’s responsibility.

11 unchanged sentences

Any excess of the fair value of the purchase consideration over these identified net assets was recorded as goodwill.

Our estimates of fair value are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance.

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 nine months ended October 2, 2021.

The Company’s estimates of fair value were based upon assumptions believed to be reasonable, yet were inherently uncertain.

During the measurement period, which did not exceed one year from the date of acquisition, the Company recorded adjustments totaling $ 2.2 million to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill.

These adjustments were recorded in the year ended December 31, 2021.

Use of Estimates:

5 unchanged sentences

REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

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:

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

Three Months Ended

Nine Months Ended

September 26,

April 2, 2022

April 3, 2021

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 October 2, 2021.

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

Practical Expedients and Exemptions

6 unchanged sentences

Inventories consist of the following:

October 2, 2021

April 2, 2022

December 31, 2021

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 October 2, 2021:

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of April 2, 2022:

Balance Sheet Line Item

October 2, 2021

April 2, 2022

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 October 2, 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 April 2, 2022:

Remainder of 2022

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 October 2, 2021 is 11.90 years.

The Company’s weighted average remaining lease term for operating leases as of April 2, 2022 is 9.9 years.

NOTE 6 —

LINE OF CREDIT

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.

The draw was subsequently repaid prior to the end of the first quarter.

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

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.

On January 7, 2022, the Company entered into a $ 40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2024 .

Borrowings under this new facility bear interest at either 1) the Bloomberg short-Term Bank Yield Index –

1 month plus 150 basis points, or 2) a fluctuating rate per annum equal to the greater of (i) the Bank’s prime rate or (ii) the federal funds rate plus 50 basis points.

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

At April 2, 2022, the Company was in compliance with the terms and covenants of the credit facility.

At April 2, 2022, there was no outstanding balance on the line of credit

The Company previously had a $ 40 million revolving line of credit with a different bank, which terminated on September 30, 2021.

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

NOTE 7 —

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 $ 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.

Expenses related to these matching contributions totaled $ 1.3 million for both the three months ended April 2, 2022 and April 3, 2021.

The Company plans to contribute approximately $ 4.0 million to the plan in matching employee contributions during the remainder of 2022.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 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.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 2.4 million for both the three months ended April 2, 2022 and April 3, 2021.

The Company plans to contribute approximately $ 5.0 million in supplemental contributions to the plan during the remainder of 2022.

NOTE 8 —

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's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 23.5 % and 27.1 % for the three months ended April 3, 2022 and April 2, 2021, respectively.

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

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

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

Nine Months Ended

September 26,

April 2, 2022

April 3, 2021

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 October 2, 2021.

The Company reserved 750,000 shares for issuance under the 2017 SIP, of which 136,000 shares remain available for future grants as of April 2, 2022.

Restricted Stock Units

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 nine months ended October 2, 2021.

There were 81,774 restricted stock units issued during the three months ended April 2, 2022.

Total compensation costs related to these restricted stock units are $ 6.0 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.6 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.

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

NOTE 11 —

6 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands)

September 26,

April 2, 2022

April 3, 2021

Income (Loss) Before Income Taxes

Capital Expenditures

April 2, 2022

December 31, 2021

Identifiable Assets

2 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 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.

Payments made to the NRA totaled $0.1 million for both the three months ended April 2, 2022 and April 3, 2021.

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

1 unchanged sentence

CONTINGENT LIABILITIES

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

As of April 2, 2022, the Company was a defendant in three (3) lawsuits and is aware of certain other such claims.

The lawsuits fall into two categories:

2 unchanged sentences

Traditional Product Liability Litigation

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

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.

One lawsuit mentioned above involves a claim for damages related to an allegedly defective product due to its design and/or manufacture.

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

The Company management believes that the allegations in this case are unfounded, that the incident is unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company.

Municipal Litigation

1 unchanged sentence

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.

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

Smith & Wesson, et al ., which was filed in August 2021.

The City of Gary Complaint seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages.

In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants.

30 unchanged sentences

Discovery is ongoing.

Estado Unidos Mexicanos v.

Estados Unidos Mexicanos

Estados Unidos Mexicanos v.

Smith & Wesson Brands, Inc., et al.

3 unchanged sentences

Plaintiff seeks injunctive relief and monetary damages.

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

On November 22, 2021, the defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government’s complaint based on the Government’s lack of Article III standing, Protection of Lawful Commerce in Arms Act immunity, and lack of proximate cause.

The Company, along with other non-Massachusetts defendants, also filed a Rule 12(b)(2) motion to dismiss based on lack of specific personal jurisdiction.

The motions were fully briefed and the court heard oral argument on April 12, 2022.

Summary of Claimed Damages and Explanation of Product Liability Accruals

6 unchanged sentences

Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case.

schedule cannot be determined in advance with any reliability concerning when payments will be made in any given 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.

3 unchanged sentences

Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims;

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

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.

2 unchanged sentences

SUBSEQUENT EVENTS

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.

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

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

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

7 unchanged sentences

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

Approximately 1% of sales are from the castings segment.

Less than 1% of sales are from the castings segment.

Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year.

3 unchanged sentences

Government in March 2020.

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

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

In the first quarter of 2022, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and, therefore, the Company cannot predict the extent to which its business, results of operations, financial condition, or cash flows will ultimately be impacted.

Management continues to monitor and assess the situation and to prepare for potential implications for the Company’s business, supply chain and customer demand.

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

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.

These actions include:

Providing all hourly employees with an additional two weeks of paid time off in 2020 and an additional week in 2021,

Providing cash and other incentives for employees to become fully vaccinated,

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

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

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

Reducing hiring early in 2020 to help maintain the health and safety of employees and the cleanliness of our facilities,

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

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

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

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

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

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, 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 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.

With the United States once again seeing a rise in COVID-19 cases and positivity rates, we remain vigilant and are proactively adjusting our plan accordingly to keep our associates healthy and safe, and to minimize any disruption to our business.

The Company has been able to keep all of its facilities safe and open with only limited restrictions on operations.

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.

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.

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

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

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

The Company believes it is currently well positioned to manage through this global crisis.

At the end of the first quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling $212 million.

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

Results of Operations

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.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 21% in the first quarter of 2022 compared to the prior year period.

For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 23%.

The increase in the sell-through of the Company’s products compared favorably to the decrease in adjusted NICS background checks and may be attributable to the following:

Strong consumer demand for the Company’s products,

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 seven quarters follow:

These decreases are attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021.

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

Estimated Units Sold from Distributors to Retailers (1)

13 unchanged sentences

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

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

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

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

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 nine months of 2021 by 41% from the first nine months of 2020.

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

Summary Unit Data

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

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

Units Ordered

3 unchanged sentences

Ending Unit Backlog

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:

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

Inventory data for the trailing five quarters follows:

Units —

7 unchanged sentences

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

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

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,

Net Sales, Cost of Products Sold, and Gross Profit

Net sales, cost of products sold, and gross profit data for the three months ended (dollars in millions):

April 2, 2022

April 3, 2021

Net firearms sales

Net castings sales

Total net sales

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.

The decrease in total consolidated net sales and net firearms sales for the three months ended April 2, 2022 is attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021.

Sales of new products, including the PC Charger, the MAX-9 pistol, the LCP MAX pistol, and the Marlin 1895 lever-action rifle represented $21.4 million or 13% of firearm sales in the first quarter of 2022.

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

Several popular firearms that were considered new products in 2021, including the Wrangler revolver, the Ruger-5.7 pistol, and the LCP II in .22 LR pistol, have now been in production for over two years and are no longer included in new product sales for the first quarter of 2022.

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

The decrease in gross margin for the three months ended April 2, 2022 is attributable to unfavorable deleveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting from decreased sales and production and decreased labor efficiencies.

In addition to unfavorable deleveraging of fixed costs, the aforementioned inflationary cost increases, partially offset by increased pricing, resulted in lower margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $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.

Selling, general and administrative expenses were $19.4 million for the three months ended April 2, 2022, a decrease of $1.2 million or 6.0% from $20.6 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses increased slightly to 11.6% in the three months ended April 2, 2022 from 11.2% in the prior year period.

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

Other income, net

Other income, net of $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.

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

Income Taxes and Net Income

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.

Non-GAAP Financial Measure

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.

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.

The Company believes that EBITDA is 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’s 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 23.5% and 27.1% for the three months ended April 2, 2022 and April 3, 2021, respectively.

As a result of the foregoing factors, consolidated net income was $30.2 million for the three months ended April 2, 2022.

This represents a decrease of 20.8% from $38.2 million in the comparable prior year period.

Non-GAAP Financial Measures

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

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

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

The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital requirements, and is also an indicator of profitability.

The Company believes that this reporting provides better transparency and comparability to its operating results.

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EBITDA is defined as earnings before interest, taxes, and depreciation and amortization.

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 $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.

The Company calculates this by adding the amount of interest expense, income tax expense, and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income to arrive at EBITDA.

The Company calculates EBITDA margin by dividing EBITDA by total net sales.

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

Non-GAAP Reconciliation —

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Three Months Ended

Nine Months Ended

September 26,

April 2, 2022

April 3, 2021

Income tax expense

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Interest expense

EBITDA margin

Financial Condition

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

At the end of the first quarter of 2022, the Company’s cash and short-term investments totaled $211.6 million.

Pre-LIFO working capital of $322.8 million, less the LIFO reserve of $52.7 million, resulted in working capital of $270.1 million and a current ratio of 5.1 to 1.

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.

Cash provided by operating activities was $18.8 million for the three months ended April 2, 2022, compared to $27.8 million for the comparable prior year period.

The decrease in cash provided in the three months ended April 2, 2022 is primarily attributable to the decrease in net income.

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

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

In the three months ended April 2, 2022, the Company’s manufacturing operations were impacted by limited deliveries of raw materials.

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

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Investing and Financing

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.

Capital expenditures for the three months ended April 2, 2022 totaled $10.9 million, an increase from $5.5 million in the comparable prior year period.

In 2022, the Company expects to spend approximately $25 million on capital expenditures, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment.

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The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

On November 23, 2020, the Company acquired substantially all of the Marlin Firearms assets, consisting of inventory, machinery and equipment, and intangibles.

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.

These assets have been moved to the Company’s facilities where manufacturing cells that will produce Marlin rifles will be established.

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

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

Dividends of $15.2 million were paid during the three months ended April 2, 2022.

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

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 quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share.

The Company’s practice is to pay a dividend of approximately 40% of net income.

On April 29, 2022, the Company’s Board of Directors authorized a dividend of 68¢

per share to shareholders of record on May 16, 2022, payable on May 31, 2022.

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

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

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.

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

At April 2, 2022, the Company’s investment in these instruments totaled $170.0 million.

The Company did not purchase any shares of its common stock in the three months ended April 2, 2022 and April 3, 2021.

As of April 2, 2022, $86.7 million remained authorized for future stock repurchases.

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.

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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.

Additionally, three of the Company’s smaller domestic distributors discontinued their firearms distribution operations in 2019.

Three of the Company’s smaller domestic distributors discontinued their firearms distribution operations in 2019.

Currently there are 14 domestic distributors.

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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