STURM RUGER & CO INC 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) September 30, 2023 December 31, 2022 (Note) Assets Current Assets Cash $ 13,559 $ 65,173 Short-term investments 106,451 159,132 Trade receivables, net 59,899 65,449 Gross inventories (Note 4) 150,021 129,294 Less LIFO reserve ( 64,969 ) ( 59,489 ) Less excess and obsolescence reserve ( 5,781 ) ( 4,812 ) Net inventories 79,271 64,993 Prepaid expenses and other current assets 14,780 7,091 Total Current Assets 273,960 361,838 Property, plant and equipment 458,332 447,126 Less allowances for depreciation ( 388,531 ) ( 370,273 ) Net property, plant and equipment 69,801 76,853 Deferred income taxes 10,167 6,109 Other assets 46,422 39,963 Total Assets $ 400,350 $ 484,763 Note : The Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. See notes to condensed consolidated financial statements. 3 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued) (Dollars in thousands, except per share data ) September 30, 2023 December 31, 2022 (Note) Liabilities and Stockholders’ Equity Current Liabilities Trade accounts payable and accrued expenses $ 29,736 $ 35,658 Dividends payable — 88,343 Contract liabilities with customers (Note 3) 1,436 1,031 Product liability 406 235 Employee compensation and benefits 23,142 30,160 Workers’ compensation 6,467 6,469 Income taxes payable — 1,171 Total Current Liabilities 61,187 163,067 Employee compensation 1,484 1,846 Product liability accrual 46 73 Lease liability (Note 5) 2,328 3,039 Contingent liabilities (Note 13) — — Stockholders’ Equity Common Stock, non-voting, par value $ 1 : Authorized shares 50,000; none issued — — Common Stock, par value $ 1 : Authorized shares – 40,000,000 2023 – 24,437,020 issued, 17,722,682 outstanding 2022 – 24,378,568 issued, 17,664,230 outstanding 24,437 24,378 Additional paid-in capital 45,828 45,075 Retained earnings 410,852 393,097 Less: Treasury stock – at cost 2023 – 6,714,338 shares 2022 – 6,714,338 shares ( 145,812 ) ( 145,812 ) Total Stockholders’ Equity 335,305 316,738 Total Liabilities and Stockholders’ Equity $ 400,350 $ 484,763 Note : The Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. See notes to condensed consolidated financial statements. 4 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net firearms sales $ 120,368 $ 138,771 $ 411,114 $ 444,615 Net castings sales 525 619 2,036 2,003 Total net sales 120,893 139,390 413,150 446,618 Cost of products sold 96,165 100,521 311,788 306,087 Gross profit 24,728 38,869 101,362 140,531 Operating expenses: Selling 8,669 8,763 27,702 25,828 General and administrative 9,733 10,247 31,898 30,927 Total operating expenses 18,402 19,010 59,600 56,755 Operating income 6,326 19,859 41,762 83,776 Other income: Interest income 1,454 730 4,147 951 Interest expense ( 122 ) ( 88 ) ( 177 ) ( 205 ) Other income, net 431 490 1,082 2,092 Total other income, net 1,763 1,132 5,052 2,838 Income before income taxes 8,089 20,991 46,814 86,614 Income taxes 658 2,602 8,848 17,236 Net income and comprehensive income $ 7,431 $ 18,389 $ 37,966 $ 69,378 Basic earnings per share $ 0.42 $ 1.04 $ 2.14 $ 3.93 Diluted earnings per share $ 0.42 $ 1.03 $ 2.13 $ 3.90 Weighted average number of common shares outstanding - Basic 17,722,682 17,668,435 17,705,280 17,643,473 Weighted average number of common shares outstanding - Diluted 17,889,089 17,825,797 17,828,710 17,770,120 Cash dividends per share $ 0.36 $ 0.47 $ 6.10 $ 2.01 See notes to condensed consolidated financial statements. 5 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands) Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance at December 31, 2022 $ 24,378 $ 45,075 $ 393,097 $ ( 145,812 ) $ 316,738 Net income and comprehensive income 37,966 37,966 Common stock issued – compensation plans 59 ( 59 ) — Vesting of RSUs ( 2,156 ) ( 2,156 ) Dividends paid ( 19,462 ) ( 19,462 ) Unpaid dividends accrued ( 749 ) ( 749 ) Recognition of stock-based compensation expense 2,968 2,968 Balance at September 30, 2023 $ 24,437 $ 45,828 $ 410,852 $ ( 145,812 ) $ 335,305 See notes to condensed consolidated financial statements. 6 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ( Dollars in thousands) Nine Months Ended September 30, 2023 October 1, 2022 Operating Activities Net income $ 37,966 $ 69,378 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 19,576 20,120 Stock-based compensation 2,968 5,053 (Gain) loss on sale of assets ( 4 ) 15 Deferred income taxes ( 4,058 ) ( 1,908 ) Changes in operating assets and liabilities: Trade receivables 5,550 ( 4,326 ) Inventories ( 14,278 ) ( 17,655 ) Trade accounts payable and accrued expenses ( 5,967 ) ( 5,315 ) Contract liability with customers 405 — Employee compensation and benefits ( 8,129 ) ( 11,774 ) Product liability 144 ( 340 ) Prepaid expenses, other assets and other liabilities ( 15,704 ) ( 2,985 ) Income taxes payable ( 1,171 ) — Cash provided by operating activities 17,298 50,263 Investing Activities Property, plant and equipment additions ( 11,637 ) ( 17,206 ) Proceeds from sale of assets 5 41 Purchases of short-term investments ( 141,410 ) ( 200,378 ) Proceeds from maturities of short-term investments 194,091 235,041 Cash provided by investing activities 41,049 17,498 Financing Activities Remittance of taxes withheld from employees related to share-based compensation ( 2,156 ) ( 3,371 ) Repurchase of common stock — ( 107 ) Dividends paid ( 107,805 ) ( 35,474 ) Cash used for financing activities ( 109,961 ) ( 38,952 ) (Decrease) increase in cash and cash equivalents ( 51,614 ) 28,809 Cash and cash equivalents at beginning of period 65,173 21,044 Cash and cash equivalents at end of period $ 13,559 $ 49,853 See notes to condensed consolidated financial statements. 7 STURM, RUGER & COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. Operating results for the three and nine months ended September 30, 2023 may not be indicative of the results to be expected for the full year ending December 31, 2023. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Organization: Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99 % of sales are from firearms. Export sales accounted for approximately 7 % of total sales for the nine month periods ended September 30, 2023 and October 1, 2022. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market. The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Approximately 1 % of sales are from the castings segment. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition: The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Substantially all product sales are sold FOB (free on board) shipping point. Customary payment terms are 2% 30 days, net 40 days . Generally, all performance obligations are satisfied when product is shipped and the customer takes ownership and assumes the risk of loss. In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which downstream customers are entitled to receive no charge products based on their purchases of certain of the Company’s products from the independent distributors. The fulfillment of these no charge products is the Company’s responsibility. In such instances, the Company allocates the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the firearms included in the promotional program, including the no charge firearms. Revenue is recognized proportionally as each performance obligation is satisfied, based on the relative customary price of each product. Customary prices are generally determined based on the prices charged to the independent distributors. The net change in contract liabilities for a given period is reported as an increase or decrease to sales. 8 Fair Value of Financial Instruments: The carrying amounts of financial instruments, including cash, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items. The Company’s short-term investments consist of United States Treasury instruments, which mature within one year, and investments in a bank-managed money market fund that invests exclusively in United States Treasury obligations and is valued at the net asset value ("NAV") daily closing price, as reported by the fund, based on the amortized cost of the fund’s securities. The NAV is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 3 - REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS The impact of ASC 606 on revenue recognized during the three and nine months ended September 30, 2023 and October 1, 2022 is as follows: Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Contract liabilities with customers at beginning of period $ 100 $ — $ 1,031 $ — Revenue deferred 1,468 — 1,680 — Revenue recognized ( 132 ) — ( 1,275 ) — Contract liabilities with customers at end of period $ 1,436 $ — $ 1,436 $ — 9 As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products. The Company expects the remaining deferred revenue from this contract liability with customers to be recognized in the fourth quarter of 2023. Practical Expedients and Exemptions The Company has elected to account for shipping and handling activities that occur after control of the related product transfers to the customer as fulfillment activities that are recognized upon shipment of the goods. NOTE 4 - INVENTORIES Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. Inventories consist of the following: September 30, 2023 December 31, 2022 Inventory at FIFO Finished products $ 31,907 $ 23,573 Materials and work in process 118,114 105,721 Gross inventories 150,021 129,294 Less: LIFO reserve ( 64,969 ) ( 59,489 ) Less: excess and obsolescence reserve ( 5,781 ) ( 4,812 ) Net inventories $ 79,271 $ 64,993 NOTE 5 - LEASED ASSETS The Company leases certain of its real estate and equipment. The Company has evaluated all its leases and determined that all are operating leases under the definitions of the guidance of ASU 2016-02, Leases (Topic 842) . The Company’s lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. 10 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 September 30, 2023: Balance Sheet Line Item September 30, 2023 Right-of-use assets Other assets $ 2,926 Operating lease liabilities Current portion Trade accounts payable and accrued expenses $ 598 Noncurrent portion Lease liabilities 2,328 Total operating lease liabilities $ 2,926 The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight line basis over the life of the lease. 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 September 30, 2023: Remainder of 2023 $ 200 2024 808 2025 702 2026 705 2027 229 Thereafter 1,120 Total undiscounted future minimum lease payments 3,764 Less: Difference between undiscounted lease payments & the present value of future lease payments ( 838 ) Total operating lease liabilities $ 2,926 Certain of the Company’s lease agreements contain renewal options at the Company’s discretion. The Company does not recognize right-of-use assets or lease liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception of the lease or when a triggering event occurs. The Company’s weighted average remaining lease term for operating leases as of September 30, 2023 is 8.1 years. NOTE 6 - LINE OF CREDIT On January 7, 2022, the Company entered into a $ 40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2025 . 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 September 30, 2023, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused. 11 NOTE 7 - EMPLOYEE BENEFIT PLANS The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $ 1.0 million and $ 3.7 million for the three and nine months ended September 30, 2023, respectively, and $ 0.9 million and $ 3.1 million for the three and nine months ended October 1, 2022, respectively. The Company plans to contribute approximately $ 1.0 million to the plan in matching employee contributions during the remainder of 2023. In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.6 million and $ 5.3 million for the three and nine months ended September 30, 2023, respectively, and $ 1.5 million and $ 5.4 million for the three and nine months ended October 1, 2022, respectively. The Company plans to contribute approximately $ 1.6 million in supplemental contributions to the plan during the remainder of 2023. NOTE 8 - INCOME TAXES The Company's 2023 and 2022 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes, and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 8.1 % and 18.9 % for the three and nine months ended September 30, 2023, respectively. The Company’s effective income tax rate was 12.4 % and 19.9 % for the three and nine months October 1, 2022, respectively. The lower effective income tax rates for the three and nine months ended September 30, 2023 resulted from the recognition of higher than anticipated tax credits that were noted when the Company filed its 2022 Federal and state income tax returns. Income tax payments for the three and nine months ended September 30, 2023 totaled $ 7.3 million and $ 23.8 million, respectively. Income tax payments for the three and nine months ended October 1, 2022 totaled $ 6.0 million and $ 26.6 million, respectively. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2018. The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable. The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position. 12 NOTE 9 - EARNINGS PER SHARE Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated: Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Numerator: Net income $ 7,431 $ 18,389 $ 37,966 $ 69,378 Denominator: Weighted average number of common shares outstanding – Basic 17,722,682 17,668,435 17,705,280 17,643,473 Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans 166,407 157,362 123,430 126,647 Weighted average number of common shares outstanding – Diluted 17,889,089 17,825,797 17,828,710 17,770,120 The dilutive effect of outstanding options and restricted stock units is calculated using the treasury stock method. There were no stock options that were anti-dilutive and therefore not included in the diluted earnings per share calculation. NOTE 10 - COMPENSATION PLANS In May 2017, the Company’s shareholders approved the 2017 Stock Incentive Plan (the “2017 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives. Vesting requirements are determined by the Compensation Committee of the Board of Directors . The Company reserved 750,000 shares for issuance under the 2017 SIP. In June 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan (the “2023 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives. Vesting requirements are determined by the Compensation Committee of the Board of Directors . The Company reserved 1,000,000 shares for issuance under the 2023 SIP, of which 869,000 shares remain available for future grants as of September 30, 2023. Any shares remaining from the 2017 SIP will be available for future grants under the terms of the 2023 SIP. As of September 30, 2023, 121,034 shares remained unawarded from the 2017 SIP. Since the shareholder approval of the 2023 SIP, no additional awards have been or will be granted under the 2017 SIP. Previously granted and outstanding awards under the 2017 SIP will remain subject to the terms of the 2017 SIP. 13 Restricted Stock Units The Company grants performance-based and retention-based restricted stock units to senior employees. The vesting of the performance-based awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors and a three-year vesting period. The retention-based awards are subject only to a three-year vesting period. There were 113,862 restricted stock units issued during the nine months ended September 30, 2023. Total compensation costs related to these restricted stock units are $ 6.1 million. Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.6 million and $ 5.0 million for the three and nine months ended September 30, 2023, respectively, and $ 1.7 million and $ 5.1 million for the three and nine months ended October 1, 2022, respectively. NOTE 11 - OPERATING SEGMENT INFORMATION The Company has two reportable segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a select number of independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding parts. Selected operating segment financial information follows: (in thousands) Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net Sales Firearms $ 120,368 $ 138,771 $ 411,114 $ 444,615 Castings Unaffiliated 525 619 2,036 2,003 Intersegment 7,947 4,453 25,307 13,781 8,472 5,072 27,343 15,784 Eliminations ( 7,947 ) ( 4,453 ) ( 25,307 ) ( 13,781 ) $ 120,893 $ 139,390 $ 413,150 $ 446,618 Income (Loss) Before Income Taxes Firearms $ 6,108 $ 21,339 $ 43,637 $ 88,130 Castings 420 ( 1,029 ) ( 1,178 ) ( 2,754 ) Corporate 1,561 681 4,355 1,238 $ 8,089 $ 20,991 $ 46,814 $ 86,614 Depreciation Firearms $ 5,676 $ 5,815 $ 17,027 $ 17,430 Castings 553 574 1,661 1,736 $ 6,229 $ 6,389 $ 18,688 $ 19,166 Capital Expenditures Firearms $ 6,674 $ 2,324 $ 11,456 $ 15,971 Castings 90 552 181 1,235 $ 6,764 $ 2,876 $ 11,637 $ 17,206 14 September 30, 2023 December 31, 2022 Identifiable Assets Firearms $ 230,340 $ 223,301 Castings 10,137 11,910 Corporate 159,873 249,552 $ 400,350 $ 484,763 Goodwill Firearms $ 3,055 $ 3,055 Castings 209 209 $ 3,264 $ 3,264 NOTE 12 - RELATED PARTY TRANSACTIONS The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities. Payments made to the NRA in the three and nine months ended September 30, 2023 totaled $ 0.1 million and $ 0.4 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. 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 month periods ended September 30, 2023 totaled $ 0.1 million and $ 0.3 million, respectively. Payments made to the NSSF in the three and nine months ended October 1, 2022 totaled $ 0.1 million and $ 0.2 million, respectively. One of the Company’s Directors also serves on the Board of the NSSF. NOTE 13 - CONTINGENT LIABILITIES As of September 30, 2023, the Company was a defendant in eight (8) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: municipal litigation, negligence, and unfair trade practices. Each is discussed in turn below. Municipal Litigation Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third parties. There are four lawsuits of this type: the City of Gary , filed in Indiana State Court in 1999; Estados Unidos Mexicanos v. Smith & Wesson, et al. , filed in the U.S. District Court for the District of Massachusetts in August 2021; The City of Buffalo , filed in the Supreme Court of the State of New York for Erie County on December 20, 2022; and The City of Rochester , filed in the Supreme Court for the State of New York for Monroe County on December 21, 2022, each of which is described in more detail below. The City of Gary Complaint seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages. In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants. The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising. The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products. After a long procedural history , during the quarter ended April 3, 2021, the City initiated discovery and the manufacturer defendants reciprocated. Discovery is ongoing. 15 Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc., et al. was filed by the Country of Mexico and names seven defendants, mostly U.S.-based firearms manufacturers, including the Company. The Complaint advances a variety of legal theories including negligence, public nuisance, unjust enrichment, restitution, and others. Plaintiff essentially alleges that Defendants design, manufacture, distribute, market and sell firearms in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels for criminal activities. Plaintiff seeks injunctive relief and monetary damages. On November 22, 2021, defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government’s complaint. On September 30, 2022, the court entered an order granting defendants’ motion. On October 26, 2022, plaintiff filed a Notice of Appeal and the matter is being briefed before the First Circuit Court of Appeals. Oral argument was held on July 24, 2023. On December 20, 2022, the City of Buffalo, New York filed a lawsuit captioned The City of Buffalo v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Erie County, New York. The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well as common law public nuisance. Generally, plaintiff alleges that the criminal misuse of firearms in the City of Buffalo is the result of the manufacturing, sales, marketing, and distribution practices of the defendants. Defendants timely removed the matter to the U.S. District Court for the Western District of New York. On December 21, 2022, the City of Rochester, New York filed a lawsuit captioned The City of Rochester v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Monroe County, New York. The allegations essentially mirror those in The City of Buffalo , discussed in the preceding paragraph. Defendants timely removed the matter to the U.S. District Court for the Western District of New York. Defendants moved to consolidate the The City of Buffalo and The City of Rochester cases for pretrial purposes only. Defendants also moved to stay the cases pending a decision by the Second Circuit Court of Appeals in National Shooting Sports Foundation, Inc. et al. v. James , which challenges the constitutionality of the recently enacted N.Y. Gen. Bus. Law §§ 898-a–e. On June 8, 2023, the court granted defendants’ motions and the cases were consolidated for pretrial purposes and stayed. Negligence Rossiter v. Sturm, Ruger, et al. is a lawsuit arising out of a slip and fall accident by a contract security officer in December 2019. The Complaint was filed in the Superior Court for Sullivan County, New Hampshire on December 13, 2022 and names Pine Hill Construction, a snow removal contractor, as a co-defendant. The Company has tendered the defense of this matter to its insurance carrier and is assisting as required. 16 The Company was named in two purported class action lawsuits arising out of a data breach at Freestyle Solutions, Inc., the vendor who hosted the Company’s ShopRuger.com website at the time of the breach. Jones v. Sturm, Ruger & Co., was filed in the U.S. District Court for Connecticut on October 4, 2022 and Copeland v. Sturm, Ruger & Company, et al. was filed in the U.S. District Court for New Jersey on October 27, 2022. Copeland also named Freestyle Solutions, Inc. as a defendant. By agreement of the parties, Copeland was dismissed, without prejudice, and consolidated with Jones in the pending Connecticut case. On January 20, 2023, five plaintiffs filed an Amended Complaint naming the Company and Freestyle Software, Inc. as defendants. The Complaint alleges causes of action for negligence, breach of implied warranties, and unjust enrichment. The Company filed a Motion to Dismiss on a variety of grounds. The matter has been briefed fully, and a decision is pending. Unfair Trade Practices Estate of Suzanne Fountain v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford and arises out of the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. On that date, plaintiff’s decedent, Suzanne Fountain, was murdered by 21-year-old Ahmad Al Aliwi Al-Issa. The Complaint alleges that the Company’s advertising and marketing of the Ruger AR-556 pistol violate the Connecticut Unfair Trade Practices Act and were a substantial factor in bringing about the wrongful death of Suzanne Fountain. Estate of Neven Stanisic et al. v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford on behalf of five plaintiffs. Like Estate of Suzanne Fountain , the claims arise from the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. Plaintiffs’ decedents were murdered by Ahmad Al Aliwi Al-Issa and plaintiffs allege that the Company’s advertising and marketing of the Ruger AR-556 pistol violate the Connecticut Unfair Trade Practices Act and were a substantial factor in causing the wrongful death of plaintiffs’ decedents. The Fountain and Stanisic cases have been consolidated for discovery purposes only and transferred by the court to the Complex Litigation Docket. Plaintiffs sought leave to file an amended complaint, essentially abandoning their negligent marketing allegations and advancing a new theory predicated upon alleged violations of the Gun Control Act and National Firearms Act. Over the Company’s objections, plaintiffs were permitted to file the amended complaint. The matter was timely removed to the U.S. District Court for the District of Connecticut based upon federal question jurisdiction. Summary of Claimed Damages and Explanation of Product Liability Accruals Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and claims. In many instances, the plaintiff does not seek a specified amount of money, though aggregate amounts ultimately sought may exceed product liability accruals and applicable insurance coverage. For product liability claims made after July 10, 2000, coverage is provided on an annual basis for losses exceeding $ 5 million per claim, or an aggregate maximum loss of $ 10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage. The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company's financial results for a particular period. Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims. Legal costs are paid as lawsuits and claims develop, the timing of which may vary greatly from case to case. A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case. 17 Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience. Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs. In most cases, an accrual is established only for estimated legal defense costs. Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future. Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims; i.e. , an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis. A range of reasonably possible losses relating to unfavorable outcomes cannot be made. However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $ 1.1 million at December 31, 2021, is set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal. At December 31, 2022, the total amount claimed specifically in these cases was de minimis . NOTE 14 - SUBSEQUENT EVENTS On October 27, 2023, the Board of Directors authorized a dividend of 17 ¢ per share, for shareholders of record as of November 15, 2023, payable on November 29, 2023. The Company has evaluated events and transactions occurring subsequent to September 30, 2023 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position. 18