What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 136 added, 104 removed, 465 unchanged (34% of the section changed)

3 unchanged sentences

(Dollars in thousands)

October 1, 2022

December 31, 2021

17 unchanged sentences

(Dollars in thousands, except per share data)

December 31, 2021

October 1, 2022

Decembe 31 2021

Liabilities and Stockholders’

33 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net firearms sales

31 unchanged sentences

Recognition of stock-based compensation expense

Balance at July 2, 2022

Repurchase of 2,136 shares of common stock

Balance at October 1, 2022

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

Operating Activities

21 unchanged sentences

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

Repurchase of common stock

Dividends paid

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

Operating results for the nine months ended October 1, 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.

5 unchanged sentences

Approximately 99 % of sales are from firearms.

Export sales typically represent no more than 5 % of total sales, although they accounted for 7 % of total sales for the six month period ended July 2, 2022.

Export sales typically represent no more than 5% of total sales, although they accounted for 7 % of total sales for the nine month period ended October 1, 2022.

Export sales accounted for 5 % of total sales for the three month period ended October 1, 2022.

The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic.

11 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.

20 unchanged sentences

Actual results could differ from those estimates.

Reclassifications:

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

NOTE 3 —

REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

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

The impact of ASC 606 on revenue recognized during the three and nine months ended October 1, 2022 and October 2, 2021 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

Contract liabilities with customers at beginning of period

12 unchanged sentences

Inventories consist of the following:

October 1, 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 July 2, 2022:

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of October 1, 2022:

Balance Sheet Line Item

October 1, 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 July 2, 2022:

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 1, 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 July 2, 2022 is 9.7 years.

The Company’s weighted average remaining lease term for operating leases as of October 1, 2022 is 9.4 years.

NOTE 6 —

4 unchanged sentences

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

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

At October 1, 2022, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused.

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 $ 2.3 million for the three and six months ended July 2, 2022, respectively, and $ 0.9 million and $ 2.2 million for the three and six months ended July 3, 2021, respectively.

Expenses related to these matching contributions totaled $ 0.9 million and $ 3.1 million for the three and nine months ended October 1, 2022, respectively, and $ 0.9 million and $ 3.1 million for the three and nine months ended October 2, 2021, respectively.

The Company plans to contribute approximately $ 0.9 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 $ 1.5 million and $ 3.9 million for the three and six months ended July 2, 2022, respectively, and $ 1.6 million and $ 4.0 million for the three and six months ended July 3, 2021, respectively.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.5 million and $ 5.4 million for the three and nine months ended October 1, 2022, respectively, and $ 1.6 million and $ 5.6 million for the three and nine months ended October 2, 2021, respectively.

The Company plans to contribute approximately $ 1.5 million in supplemental contributions to the plan during the remainder of 2022.

NOTE 8 —

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 20.5 % and 22.3 % for the three and six months ended July 2, 2022, respectively.

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 decrease in the effective tax rates was primarily attributable to research and development tax credits.

Income tax payments for the three and six months ended July 2, 2022 totaled $ 17.6 million and $ 20.7 million, respectively.

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

The Company's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes, and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 12.3 % and 19.9 % for the three and nine months ended October 1, 2022, respectively.

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

The decrease in the 2022 effective tax rates was primarily attributable to research and development tax credits, some of which related to amended returns from prior years.

The impact related to research and development tax credits on the effective tax rate is expected to decline in future years.

Income tax payments for the three and nine months ended October 1, 2022 totaled $ 6.0 million and $ 26.6 million, respectively.

Income tax payments for the three and nine months ended October 2, 2021 totaled $ 13.8 and $ 36.3 million, respectively.

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

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 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 121,000 shares remain available for future grants as of July 2, 2022.

The Company reserved 750,000 shares for issuance under the 2017 SIP, of which 121,000 shares remain available for future grants as of October 1, 2022.

Restricted Stock Units

2 unchanged sentences

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

There were 96,893 restricted stock units issued during the six months ended July 2, 2022.

There were 96,893 restricted stock units issued during the nine months ended October 1, 2022.

Total compensation costs related to these restricted stock units are $ 7.0 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.7 million and $ 3.4 million for the three and six months ended July 2, 2022, respectively, and $ 1.7 million and $ 5.0 million for the three and six months ended July 3, 2021, respectively.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.7 million and $ 5.1 million for the three and nine months ended October 1, 2022, respectively, and $ 1.6 million and $ 6.7 million for the three and nine months ended October 2, 2021, respectively.

NOTE 11 —

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

1 unchanged sentence

Capital Expenditures

October 1, 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 six months ended July 2, 2022 totaled $ 0.1 million and $ 0.2 million, respectively.

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 nine months ended October 1, 2022 totaled $ 0.2 million and $ 0.4 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.

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

The Company is a member of the National Shooting Sports Foundation (“NSSF”), the firearm industry trade association.

Payments made to the NSSF in the three and nine months ended October 1, 2022 totaled $ 0.1 million and $ 0.2 million, respectively.

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

One of the Company’s Directors also serves on the Board of the NSSF.

NOTE 13 —

CONTINGENT LIABILITIES

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

As of October 1, 2022, the Company was a defendant in three (3) lawsuits and is aware of certain other such claims.

The lawsuits fall into two categories:

3 unchanged sentences

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 lawsuit stems from a specific incident of personal injury and is based on a traditional product liability theory 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.

22 unchanged sentences

A hearing on the motion for judgment on the pleadings was held on December 12, 2017.

On January 2, 2018, the court issued an order granting Defendants’

motion for judgment on the pleadings, but denying Defendants’

request for attorney’s fees and costs.

On January 2, 2018, the court issued an order granting Defendants'

motion for judgment on the pleadings, but denying Defendants'

request for attorney's fees and costs.

On January 8, 2018, the court entered judgment for Defendants.

The City filed a Notice of Appeal on February 1, 2018.

Defendants cross-appealed the order denying attorney’s fees and costs.

Briefing in the Indiana Court of Appeals was completed on the City’s appeal and Defendants’

Defendants cross-appealed the order denying attorney's fees and costs.

Briefing in the Indiana Court of Appeals was completed on the City's appeal and Defendants'

cross appeal on September 10, 2018.

The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that the Manufacturer Defendants’

The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City's negligent design and warnings count on the basis that the City had not alleged that the Manufacturer Defendants'

conduct was unlawful.

However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief.

However, the court reversed dismissal of the City's negligent sale and distribution and related public nuisance counts for damages and injunctive relief.

The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019.

10 unchanged sentences

Plaintiff seeks injunctive relief and monetary damages.

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

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

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

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

The court has not yet issued its decision on the motions to dismiss.

On September 30, 2022, the court entered an order granting the Defendants'

joint Rule 12(b)(6) motion.

The Company's Rule 12(b)(2) motion was denied as moot, without prejudice.

The plaintiff filed a Notice of Appeal on October 26, 2022.

Summary of Claimed Damages and Explanation of Product Liability Accruals

3 unchanged sentences

The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims.

While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company’s financial results for a particular period.

Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims.

11 unchanged sentences

SUBSEQUENT EVENTS

On August 3, 2022, the Board of Directors authorized a dividend of 47 ¢

per share, for shareholders of record as of August 17, 2022, payable on August 31, 2022.

The Company has evaluated events and transactions occurring subsequent to July 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.

On October 28, 2022, the Board of Directors authorized a dividend of 41 ¢

per share, for shareholders of record as of November 16, 2022, payable on November 30, 2022.

On October 3, 2022 the Company purchased a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina for $ 8.3 million for use in its manufacturing and warehousing operations.

On October 4, 2022, a purported class action complaint was filed against the Company in the U.S.

District Court for the District of Connecticut.

The Complaint is styled as Mark Jones, Individually and on Behalf of All Others Similarly Situated v.

Sturm, Ruger & Company., Inc .

and alleges damages arising from a reported data breach of the third-party software vendor that owns and manages the server hosting ShopRuger.com.

The Complaint alleges negligence, breach of implied contract, and unjust enrichment and seeks a variety of damages.

The Company has evaluated events and transactions occurring subsequent to October 1, 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

3 unchanged sentences

Approximately 99% of sales are from firearms.

Export sales typically represent no more than 5% of total sales, although they did account for 7% of total sales for the six month period ended July 2, 2022.

Export sales typically represent no more than 5% of total sales, although they did account for 7% of total sales for the nine month period ended October 1, 2022.

Export sales accounted for 5% of total sales for the three month period ended October 1, 2022.

The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic.

8 unchanged sentences

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

During the six month period ended July 2, 2022, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions.

During the nine month period ended October 1, 2022, the Company did not experience a significant adverse impact on its business from COVID-19 or related government restrictions.

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

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

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

These actions include:

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

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

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

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

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

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

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

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

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 second quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling $209 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 and believes it remains well positioned to continue to manage through this global crisis.

At the end of the third quarter of 2022, the Company was debt-free, and had cash and short-term investments totaling $215 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 decreased 31% in the first half of 2022 compared to the prior year period.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 29% in the first nine months 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 14%.

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

The second quarter of 2021 had the highest quarterly distributor unit sell-through in the Company’s history, which led to the significant year-over-year decrease in distributor sell-through in the current quarter.

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’s overall production in the first half of 2022 decreased by 15% from the first half of 2021.

The Company’s overall production in the first nine months of 2022 decreased by 19% from the first nine months of 2021.

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 2022, the Company’s finished goods inventory increased by 49,300 units and distributor inventories of the Company’s products increased by 28,200 units.

Inventory data for the trailing six quarters follows:

During the third quarter of 2022, the Company’s finished goods inventory increased by 8,900 units and distributor inventories of the Company’s products increased by 30,300 units.

Inventory data for the trailing seven quarters follows:

Units —

13 unchanged sentences

Cost of products sold

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

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

Net firearms sales

2 unchanged sentences

Cost of products sold

The decrease in total consolidated net sales and net firearms sales for the three and six months ended July 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 rifles represented $33.8 million or 11% of firearm sales in the first half of 2022.

The decrease in total consolidated net sales and net firearms sales for the three and nine months ended October 1, 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, MAX-9 pistol, LCP MAX pistol, Marlin 1895 lever-action rifles, LC Carbine, and Small-Frame Autoloading Rifle represented $54.9 million or 13% of firearm sales in the first nine months 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 2022.

The decreased gross profit for the three and six months ended July 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 and six months ended July 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.

Several popular firearms that were considered new products in 2021, including the Wrangler revolver, Ruger-5.7 pistol, and 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 2022.

The decreased gross profit for the three and nine months ended October 1, 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 and nine months ended October 1, 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 $18.4 million for the three months ended July 2, 2022, a decrease of $0.7 million or 3.8% from $19.1 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses increased to 13.1% in the three months ended July 2, 2022 from 9.5% in the prior year period.

Selling, general and administrative expenses were $37.7 million for the six months ended July 2, 2022, a decrease of $2.0 million or 4.9% from $39.7 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses increased to 12.3% in the six months ended July 2, 2022 from 10.3% 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 and higher freight expenses.

Selling, general and administrative expenses were $19.0 million for the three months ended October 1, 2022, an increase of $0.9 million or 5.2% from $18.1 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses increased to 13.6% in the three months ended October 1, 2022 from 10.1% in the prior year period.

Selling, general and administrative expenses were $56.8 million for the nine months ended October 1, 2022, a decrease of $1.0 million or 1.8% from $57.8 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses increased to 12.7% in the nine months ended October 1, 2022 from 10.3% in the prior year period.

The increase in these expenses for the three months ended October 1, 2022 was primarily attributable to the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the height of the COVID-19 restrictions, partially offset by decreased sales volume and decreased incentive compensation expenses.

For the nine months ended October 1, 2022, the decrease in these expenses was primarily attributable to decreased sales volume and decreased incentive compensation expenses, partially offset by the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the height of the COVID-19 restrictions.

The increase of expenses as a percentage of sales was attributable to the decrease in sales and higher freight expenses.

Other income, net

Other income, net of $0.9 million and $1.7 million for the three and six months ended July 2, 2022, respectively, increased from $0.6 million and $1.0 million for the three and six months ended July 3, 2021 as a result of increased interest, royalty, and miscellaneous income in 2022 compared to 2021.

Other income, net of $1.1 million and $2.8 million for the three and nine months ended October 1, 2022, respectively, decreased from $1.3 million and increased from $2.3 million for the three and nine months ended October 2, 2021, respectively.

For the three months ended October 1, 2022, the decrease is the result of decreases in royalty and miscellaneous income, partially offset by increased interest income in 2022 compared to 2021.

For the nine months ended October 1, 2022, the increase is the result of increased interest income, partially offset by reduced royalty and miscellaneous income in 2022 compared to 2021.

Income Taxes and Net Income

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

The Company’s effective income tax rate was 20.5% and 22.3% for the three and six months ended July 2, 2022, respectively.

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 decrease in the effective tax rates was primarily attributable to research and development tax credits.

As a result of the foregoing factors, consolidated net income was $20.8 million and $51.0 million for the three and six months ended July 2, 2022.

The Company's 2022 and 2021 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 12.3% and 19.9% for the three and nine months ended October 1, 2022, respectively.

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

The decrease in the 2022 effective tax rates was primarily attributable to research and development tax credits, some of which related to amended prior year income tax returns.

The impact related to research and development tax credits on the effective tax rate is expected to decline in future years.

The substantial reduction in the effective tax rate for the three months ended October 1, 2022 was primarily due to a favorable provision-to-return adjustment related to research and development credits.

As a result of the foregoing factors, consolidated net income was $18.4 million and $69.4 million for the three and nine months ended October 1, 2022.

This represents a decrease of 47.8% and 41.1% from $35.2 million and $117.8 million in the comparable prior year periods.

9 unchanged sentences

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

EBITDA was $32.6 million for the three months ended July 2, 2022, a decrease of 51.7% from $67.5 million in the comparable prior year period.

For the six months ended July 2, 2022 EBITDA was $79.0 million, a decrease of 38.0% from $127.4 million in the comparable prior year period.

EBITDA was $27.0 million for the three months ended October 1, 2022, a decrease of 51.2% from $55.4 million in the comparable prior year period.

For the nine months ended October 1, 2022 EBITDA was $106.0 million, a decrease of 42.0% from $182.8 million in the comparable prior year period.

Non-GAAP Reconciliation —

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Income tax expense

5 unchanged sentences

Liquidity and Capital Resources

At the end of the second quarter of 2022, the Company’s cash and short-term investments totaled $208.5 million.

At the end of the third quarter of 2022, the Company’s cash and short-term investments totaled $215.2 million.

Pre-LIFO working capital of $338.9 million, less the LIFO reserve of $54.4 million, resulted in working capital of $284.5 million and a current ratio of 5.8 to 1.

Cash provided by operating activities was $32.4 million for the six months ended July 2, 2022, compared to $76.2 million for the comparable prior year period.

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

Cash provided by operating activities was $50.3 million for the nine months ended October 1, 2022, compared to $117.0 million for the comparable prior year period.

The decrease in cash provided in the nine months ended October 1, 2022 is primarily attributable to the decrease in net income, reduced annual incentive compensation, and the increase in inventory in the nine months ended October 1, 2022.

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

In the nine months ended October 1, 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 six months ended July 2, 2022 totaled $14.3 million, an increase from $11.4 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.

Capital expenditures for the nine months ended October 1, 2022 totaled $17.2 million, an increase from $15.6 million in the comparable prior year period.

In 2022, the Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total approximately $25 million.

In addition to these investments, in the fourth quarter of 2022 the Company purchased a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina for $8.3 million for use in its manufacturing and warehousing operations.

Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the projected amount.

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

Dividends of $27.2 million were paid during the six months ended July 2, 2022.

Dividends of $35.5 million were paid during the nine months ended October 1, 2022.

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

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

On August 3, 2022, the Company’s Board of Directors authorized a dividend of 47¢

per share to shareholders of record on August 17, 2022, payable on August 31, 2022.

On October 28, 2022, the Company’s Board of Directors authorized a dividend of 41¢

per share to shareholders of record on November 16, 2022, payable on November 30, 2022.

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

The Company invests in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one year with available cash.

At July 2, 2022, the Company’s investment in these instruments totaled $165.0 million.

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

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

At October 1, 2022, the Company’s investment in these instruments totaled $165.3 million.

During the three months ended October 1, 2022, the Company purchased 2,136 shares of its common stock for $0.1 million in the open market.

The average price per share purchased was $49.97.

These purchases were funded with cash on hand.

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

As of October 1, 2022, $86.6 million remained authorized for future stock repurchases.

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

The Company’s unsecured $40 million credit facility, which expires on January 7, 2024, was unused at July 2, 2022.

The Company’s unsecured $40 million credit facility, which expires on January 7, 2024, was unused at October 1, 2022.

Other Operational Matters

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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