What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 543 added, 590 removed, 504 unchanged (69% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Sturm, Ruger & Company,

To the Stockholders and the Board of Directors of Sturm, Ruger &

Company, Inc.

and Subsidiary

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We have audited Sturm, Ruger & Company, Inc.

and Subsidiary's (the

Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained,

in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in

Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company

Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and

the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three

years in the period ended December 31, 2022, and our report dated February 22, 2023 expressed an unqualified opinion.

and Subsidiary’s

(the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal

Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,

2023, based on criteria established in Internal Control—Integrated Framework issued by

the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public

Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and

2022, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the

three years in the period ended December 31, 2023, and our report dated February 21, 2024 expressed an unqualified opinion.

Basis for Opinion

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the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB

and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the

PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial

reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting,

assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control

based on the assessed risk.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over

financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal

control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

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Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed

to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those

policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of

the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could

have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting

may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk

that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

A company's internal control over financial reporting is a process

designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting

includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly

reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded

as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts

and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's

assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or

procedures may deteriorate.

/s/RSM US LLP

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Report of Independent Registered Public Accounting

To the Stockholders and the Board of Directors of Sturm, Ruger & Company,

To the Stockholders and the Board of Directors of Sturm, Ruger &

Company, Inc.

and Subsidiary

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and the related notes to the consolidated financial statements and schedule (collectively, the financial statements).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and

its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted

in the United States of America.

We also have audited, in accordance with the standards of the Public Company

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022,

and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity

with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company

Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31,

based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission in 2013, and our report dated February 22, 2023 expressed an unqualified opinion on the effectiveness of the

Company’s internal control over financial reporting.

2023, based on criteria established in Internal Control—Integrated Framework issued by

the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 21, 2024 expressed an unqualified

opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting

firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public

accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material

misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement

of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included

examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating

the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial

We believe that our audits provide a reasonable basis for our opinion.

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communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

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audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the

critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it

critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it

Last-In, First-Out Inventory Reserve

As described in Notes 1 and 5 to the financial statements, substantially all

of the Company’s inventories are valued at the lower of cost, which is principally determined by the last-in, first-out (LIFO) method,

or net realizable value, and the Company's consolidated net inventories balance of $65.0 million as of December 31, 2022, included a LIFO

inventory reserve of $59.5 million.

The Company records its net inventories under the LIFO method at the end of each year based on the

inventory levels at the measurement date and the prevailing inventory costs existing at that time which are estimated using a complex

We identified the LIFO inventory reserve as a critical audit matter because

of the complexities of the manual calculations performed by management to estimate the prevailing inventory costs, which includes calculations

to estimate current year price level changes through the development of a prior year and a current year cumulative price index.

management’s estimate of the LIFO inventory reserve was complex and required a high degree of auditor judgement and increased audit

effort due to the complexities of management’s manual calculations.

Our audit procedures related to the Company’s

LIFO inventory reserve included the following, among others:

● We obtained an understanding of the relevant controls related to the LIFO inventory reserve and tested

such controls for design and operating effectiveness, including controls related to the review of the calculations related to the estimate

of the current year price level changes, the calculation of the cumulative price indexes, and the estimate of the LIFO inventory reserve.

● We tested the completeness, accuracy, and relevance of the underlying data used in management's estimate

of the current year price level changes, the calculation of cumulative price index and the LIFO inventory reserve.

● We tested the mathematical accuracy of the Company’s calculation to estimate the LIFO inventory

● We evaluated the appropriateness of management’s methodologies to develop the estimate of the LIFO

inventory reserve.

● We evaluated the reasonableness of management’s estimate of the current year price level changes

by comparing management’s estimate to external market data.

As described in Notes 1 and 4 to the financial statements, substantially all of the Company’s inventories are valued at the

lower of cost, which is principally determined by the last-in, first-out (LIFO) method, or net realizable value, and the Company’s

consolidated net inventories balance of $79.8 million as of December 31, 2023, included a LIFO inventory reserve of $64.3 million.

Company records its net inventories under the LIFO method at the end of each year based on the inventory levels at the measurement date

and the prevailing inventory costs existing at that time, which are estimated using a complex manual calculation.

We identified the LIFO inventory reserve as a critical audit matter

because of the complexities of the manual calculations performed by management to estimate the prevailing inventory costs, which includes

calculations to estimate current year price level changes through the development of a prior year and a current year cumulative price

Auditing management’s estimate of the LIFO inventory reserve was complex and required a high degree of auditor judgement

and increased audit effort due to the complexities of management’s manual calculations.

Our audit procedures related to the Company’s LIFO inventory

reserve included the following, among others:

● We obtained an understanding of the relevant controls related to the LIFO

inventory reserve and tested such controls for design and operating effectiveness, including controls related to the review of the calculations

related to the estimate of the current year price level changes, the calculation of the cumulative price indexes, and the estimate of

the LIFO inventory reserve.

● We tested the completeness, accuracy, and relevance of the underlying data

used in management’s estimate of the current year price level changes, the calculation of cumulative price index and the LIFO inventory

● We tested the mathematical accuracy of the Company’s calculation to

estimate the LIFO inventory reserve.

● We evaluated the appropriateness of management’s methodologies to develop

the estimate of the LIFO inventory reserve.

● We evaluated the reasonableness of management’s estimate of the current

year price level changes by comparing management’s estimate to external market data.

/s/ RSM US LLP

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General and administrative

Other operating expense (income), net

Other operating income, net

Total operating expenses

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Unpaid dividends accrued

Repurchase of 4,440 shares of common stock

Balance at December 31, 2022

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Property, plant and equipment additions

Purchase of Marlin assets

Purchases of short-term investments

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Repurchase of common stock

Payment of employee withholding tax related to share-based compensation

Payment of employee

withholding tax related to share-based compensation

Cash used for financing activities

Increase (decrease) in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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(Dollars in thousands, except per share)

of Significant Accounting Policies

Summary of Significant Accounting Policies

Sturm, Ruger & Company, Inc.

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total sales for the year ended December 31, 2023.

Preparation of

Financial Statements

of Financial Statements

The Company follows United States generally accepted

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from these estimates.

The significant accounting policies described below,

together with the notes that follow, are an integral part of the consolidated financial statements.

Principles of

Consolidation

The consolidated financial statements include the

accounts of the Company and its wholly owned subsidiary.

The significant accounting policies described

below, together with the notes that follow, are an integral part of the consolidated financial statements.

of Consolidation

The consolidated financial statements include

the accounts of the Company and its wholly owned subsidiary.

All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition

The Company recognizes revenue in accordance with

the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which became

effective January 1, 2018.

The Company recognizes revenue in accordance

with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which

became effective January 1, 2018.

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

Customary payment terms are 2%

30 days , net 40 days.

Generally, all performance obligations are satisfied when product is shipped and the customer takes ownership and

assumes the risk of loss.

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.

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of the Company’s products from the independent distributors.

The fulfillment of these no charge products

is the Company’s

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

responsibility.

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Federal excise taxes are excluded from net sales.

Business Combination

On September 26, 2020, the Company entered into an

Asset Purchase Agreement (the "Agreement") with the Remington Outdoor Company, Inc.

and each of the subsidiaries of the Remington

Outdoor Company, Inc.

(collectively, “Remington”) to purchase substantially all of the assets (the “Marlin Assets”)

used to manufacture Marlin Firearms (the “Marlin Acquisition”).

The agreement to purchase these assets emanated from the Remington

Outdoor Company, Inc.

bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of Alabama on September

The Marlin Acquisition was conducted through a Bankruptcy Court-supervised process, subject to Bankruptcy Court-approved bidding

procedures, approval of the transactions by the Bankruptcy Court, and the satisfaction of certain closing conditions.

The Company closed

on the Marlin Acquisition on November 23, 2020.

The Agreement provided that, upon the terms and subject

to the conditions set forth therein, Remington sold, transferred and assigned to the Company the Marlin Assets (as defined in the Agreement)

for a purchase price of $ 28.3 million in cash.

The Marlin Assets include the following assets, among other things, equipment, inventory,

and all intellectual property related to Marlin, including the Marlin names and marks, and all derivatives thereof.

The primary purpose of the Marlin Acquisition was

to manufacture and sell Marlin branded firearms and generate shareholder value.

The Marlin brand aligns with the Ruger brand and the

Marlin product portfolio will widen the Company’s diverse product offerings.

The transaction was funded by the Company with cash

on hand and has been accounted for in accordance with ASC 805 - Business Combinations .

ASC 805 requires, among other things,

an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired, using the

bottom up approach, to estimate their value at acquisition date.

Any excess of the fair value of the purchase consideration over these

identified net assets was recorded as goodwill.

Our estimates of fair value were based upon assumptions believed to be reasonable, yet

were inherently uncertain.

During the measurement period, which did not exceed one year from the date of acquisition, we recorded adjustments

totaling $2.2 million to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to

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

Cash and Cash

The Company considers interest-bearing deposits with

financial institutions with remaining maturities of three months or less at the time of acquisition to be cash equivalents.

Fair Value Measurements

of Short-term Investments

Fair value is defined as the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous

market at the measurement date.

Fair value is established according to a hierarchy that prioritizes observable and unobservable inputs

used to measure fair value into three broad levels, which are described below:

Unadjusted quoted prices in active

markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority to

Level 1 inputs.

Observable prices that are based

on inputs not quoted on active markets, but corroborated by market data.

Unobservable inputs are used when

little or no market data is available.

Cash Equivalents

The Company considers interest-bearing deposits

with financial institutions with remaining maturities of three months or less at the time of acquisition to be cash equivalents.

Measurements of Short-term Investments

Fair value is defined as the price that would

be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or

most advantageous market at the measurement date.

Fair value is established according to a hierarchy that prioritizes observable and unobservable

inputs used to measure fair value into three broad levels, which are described below:

Unadjusted quoted prices in

active markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority

to Level 1 inputs.

Observable prices that are

based on inputs not quoted on active markets, but corroborated by market data.

Unobservable inputs are used

when little or no market data is available.

Level 3 inputs are given the lowest priority in the fair value hierarchy.

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accrued interest, which approximates fair value.

The fair value of inventory acquired as part of business

combination is based on a third-party valuation utilizing the comparable sales method which is based on Level 2 and Level 3 inputs.

fair value of property, plant and equipment acquired as part of business combination is based on a third-party valuation utilizing the

indirect method of cost approach, which is based on Level 2 and Level 3 inputs.

The fair value of inventory acquired as part of

business combination is based on a third-party valuation utilizing the comparable sales method which is based on Level 2 and Level 3 inputs.

The fair value of property, plant and equipment acquired as part of business combination is based on a third-party valuation utilizing

the indirect method of cost approach, which is based on Level 2 and Level 3 inputs.

The fair value of patents acquired as part of business

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are valued at the lower of cost, principally determined by the last-in, first-out (LIFO) method, or net realizable value.

Elements of cost in inventories

include raw materials, direct labor and manufacturing overhead.

Property, Plant,

and Equipment

Property, plant, and equipment are carried at cost.

Depreciation is computed over useful lives using the straight-line and declining balance methods predominately over 15 years for buildings,

7 years for machinery and equipment and 3 years for tools and dies.

When assets are retired, sold or otherwise disposed of, their gross

carrying values and related accumulated depreciation are removed from the accounts and a gain or loss on such disposals is recognized

when appropriate.

cost in inventories include raw materials, direct labor and manufacturing overhead.

Plant and Equipment

Property, plant and equipment are carried at

Depreciation is computed over useful lives using the straight-line and declining balance methods predominately over 15 years for

buildings, 7 years for machinery and equipment and 3 years for tools and dies.

When assets are retired, sold or otherwise disposed of,

their gross carrying values and related accumulated depreciation are removed from the accounts and a gain or loss on such disposals is

recognized when appropriate.

Maintenance and repairs are charged to operations;

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Long-lived Assets

The Company evaluates the carrying value of long-lived assets to be held

and used when events or changes in circumstances indicate the carrying value may not be recoverable.

In performing this review, the carrying

value of the assets is compared to the projected undiscounted cash flows to be generated from the assets.

If the sum of the undiscounted

expected future cash flows is less than the carrying value of the assets, the assets are considered to be impaired.

Impairment losses

are measured as the amount by which the carrying value of the assets exceeds their fair value.

The Company bases fair value of the assets

on quoted market prices if available or, if not available, quoted market prices of similar assets.

Where quoted market prices are not

available, the Company estimates fair value using the estimated future cash flows generated by the assets discounted at a rate commensurate

with the risks associated with the recovery of the assets.

As of December 31, 2022, the Company does not believe there are any indications

of impairment related to long-lived assets.

Our goodwill represents the excess of the purchase

price of business combinations over the fair value of the net assets acquired.

We assess goodwill for impairment on an

annual basis during the fourth quarter of each year, and between annual tests whenever events or changes in circumstances

indicate that the carrying amount may not be recoverable.

An impairment exists by the amount the fair value of a reporting unit to which goodwill has been allocated is less than their respective carrying values.

The impairment for goodwill is limited to the total amount of goodwill allocated to the reporting unit.

Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units.

The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses.

As of December 31, 2022, the Company does not believe there are any indications of impairment related to goodwill.

Income taxes are accounted for using the asset and

liability method.

The Company evaluates the carrying value of long-lived

assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable.

In performing this

review, the carrying value of the assets is compared to the projected undiscounted cash flows to be generated from the assets.

sum of the undiscounted expected future cash flows is less than the carrying value of the assets, the assets are considered to be impaired.

Impairment losses are measured as the amount by which the carrying value of the assets exceeds their fair value.

The Company bases fair

value of the assets on quoted market prices if available or, if not available,

quoted market prices of similar assets.

Where quoted market

prices are not available, the Company estimates fair value using the estimated future cash flows generated by the assets discounted at

a rate commensurate with the risks associated with the recovery of the assets.

As of December 31, 2023, the Company does not believe there

are any indications of impairment related to long-lived assets.

The Company’s

goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired.

goodwill for impairment on an annual basis during the fourth quarter of each year, and between annual tests whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable.

An impairment exists by the amount the fair value of a reporting

unit to which goodwill has been allocated is less than their respective carrying values.

The impairment for goodwill is limited to the

total amount of goodwill allocated to the reporting unit.

Goodwill impairment testing requires significant judgment and management estimates,

including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and

liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units.

The estimates and assumptions

described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the

amounts of any resulting impairment losses.

As of December 31, 2023, the Company does not believe there are any indications of

impairment related to goodwill.

Income taxes are accounted for using the asset

and liability method.

Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences”

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Advertising Costs

The Company includes advertising costs in selling expenses and these costs

are expensed as incurred.

Advertising costs for 2022, 2021, and 2020, were $ 2.4 million, $ 2.6 million, and $ 2.7 million, respectively.

Shipping Costs

The Company includes advertising costs in selling

expenses and these costs are expensed as incurred.

Advertising costs for 2023, 2022, and 2021, were $ 3.1 million, $ 2.4 million, and $ 2.6

million, respectively.

Costs incurred related to the shipment of products

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Research and Development

In 2022, 2021, and 2020, the Company spent approximately $ 9.6 million, $ 11.7

million, and $ 8.0 million, respectively, on research and development activities relating to new products and the improvement of existing

In 2023, 2022, and 2021, the Company spent approximately

$ 9.8 million, $ 9.6 million, and $ 11.7 million, respectively, on research and development activities relating to new products and the improvement

of existing products.

These costs are included in costs of products sold and are expensed as incurred.

These costs are capitalized for

tax purposes under the provisions of the Tax Cuts and Jobs Act of 2017 that relate to IRS Code Section 174, as discussed in Note 13.

Earnings per Share

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units, and deferred stock outstanding using the treasury stock method.

of Marlin Assets

As described in Note 1, the Company closed on the

Marlin Acquisition on November 23, 2020.

The Company paid $ 28.3 million dollars in cash for the Marlin Assets from Remington.

The Marlin Acquisition was accounted for in accordance

with ASC Topic 805, Business Combinations.

Accordingly, the total purchase price has been allocated to tangible assets based on their

fair value and the intangibles and goodwill have been allocated on a provisional basis at the date of acquisition.

The Company assumed

no liabilities in this transaction.

These allocations reflect various provisional estimates that were available at the time and are subject

to change during the purchase price allocation period until the valuations are finalized.

The Company recorded measurement period adjustments

in accordance with FASB’s guidance regarding business combinations in the fourth quarter of 2021 based on its valuation and purchase

price allocation procedures, to better reflect the facts and circumstances that existed at the acquisition date.

The measurement period

adjustments, which were completed during the fourth quarter of 2021, resulted in an increase to goodwill of $ 2.4 million, primarily due

to a decrease in the estimated fair value of inventory received.

The following table summarizes the Company's allocation

of the purchase price:

Initial Purchase

Price Allocation

Final Purchase

Price Allocation

Purchase Price

Cash paid to sellers

Purchase Price Allocation

Assets Acquired

Machinery and equipment

Tradename and trademarks

Customer Relationships

Net Assets Acquired

Identifiable assets acquired were recorded at their

estimated fair values based on the methodology described under “Fair Value Measurements” in Note 1 - Significant Accounting

The Machinery and Equipment acquired in the Marlin

Acquisition were classified as deposits on capital items in Other Assets on the Company’s Consolidated Balance Sheet at December

Certain of these items were reclassified as Machinery and Equipment when they were placed in service in 2022 and 2021.

Intangible assets acquired in the Marlin Acquisition

are reflected in Other Assets on the Company’s Consolidated Balance Sheet at December 31, 2022.

Intangible assets are amortized

over their estimated remaining useful lives using a straight-line methodology.

Remaining Economic

Tradename and trademarks

Customer Relationships

The excess purchase price over the fair value of the

assets acquired was recorded as goodwill in the amount of $ 3.1 million.

The Company incurred acquisition related costs of $ 1.7 million,

which are included in selling, general and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive

Income for the fiscal year ended December 31, 2020.

The pro forma impact of the acquisition and the results

of operations attributable to Marlin in 2019 and 2020 have not been presented, as they are not material to the Company’s consolidated

results of operations.

The impact on sales and gross margin was no more than 5 % of the reported amounts in either period, the trend in

annual sales growth was unchanged, and the impact on gross margin percentage was less than 1 %, in both periods.

Revenue Recognition and

Contracts with Customers

Recent Accounting Pronouncements

In November of 2023, the FASB issued ASU 2023-07,

“Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” The updated accounting guidance requires

enhanced reportable segment disclosures, primarily related to significant segment expenses which are regularly provided to the chief operating

decision maker.

The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning

after December 15, 2024.

Retrospective application is required and early adoption is permitted.

The Company is currently evaluating the

effect the updated guidance will have on its financial statement disclosures.

In December of 2023, the FASB issued ASU 2023-09,

“Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The updated accounting guidance requires expanded income

tax disclosures, including the disaggregation of existing disclosures related to the effective tax rate reconciliation and income taxes

The guidance is effective for fiscal years beginning after December 15, 2024.

Prospective application is required, with retrospective

application permitted.

The Company is currently evaluating the effect the updated guidance will have on its financial statement disclosures.

Revenue Recognition and Contracts with Customers

The impact of ASC 60 6

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During the year ended December 31, 2023, the Company

deferred $ 3.2 million of revenue, offset by the recognition of $ 4.1 million of revenue previously deferred as the performance obligations

relating to the shipment of free products were satisfied.

This resulted in a net increase in firearms sales for the year ended December

31, 2023 of $ 0.9 million and a deferred contract revenue liability at December 31, 2023 of $ 0.1 million.

The Company estimates that revenue

from this deferred contract liability will be recognized in the first quarter of 2024.

During the year ended December 31, 2022, the Company

deferred $ 1.0 million of revenue.

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for the year ended December 31, 2022 of $ 1.0 million and a deferred contract revenue liability at December 31, 2022 of $ 1.0 million.

estimates that revenue from this deferred contract liability will be recognized in the first half of 2023.

During the year ended December 31, 2021, there were

no promotions giving rise to deferred contract liabilities and, therefore, there was no additional deferred revenue.

During the year ended December 31, 2021, there

were no promotions giving rise to deferred contract liabilities and, therefore, there was no additional deferred revenue.

Previously deferred

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December 31, 2021.

During the year ended December 31, 2020, the Company

deferred $ 5.0 million of revenue, offset by the recognition of $ 14.6 million of revenue previously deferred as the performance obligations

relating to the shipment of free products were satisfied.

This resulted in a net increase in firearms sales for the year ended December

31, 2020 of $ 9.6 million and a deferred contract revenue liability at December 31, 2020 of $ 0.1 million.

The deferred revenue balance

was significantly reduced due to the absence of promotions in the fourth quarter of 2020.

Practical Expedients and Exemptions

The Company has elected to account for shipping and

handling activities that occur after control of the related product transfers to the customer as fulfillment activities that are recognized

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.

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Allowance for discounts

In 2022, the largest individual trade receivable balances

accounted for 26 %, 23 %, and 18 % of total trade receivables, respectively.

In 2021, the largest individual trade receivable balances

accounted for 34 %, 17 %, and 17 % of total trade receivables, respectively.

In 2023, the largest individual trade receivable

balances accounted for 22 %, 20 %, and 17 % of total trade receivables, respectively.

In 2022, the largest individual trade receivable

balances accounted for 26 %, 23 %, and 18 % of total trade receivables, respectively.

Inventories consist of the following:

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Marlin trade name

The capitalized cost of patents is amortized using

the straight-line method over their useful lives.

Expenses related to patent amortization was $ 0.4 million in 2022 and $ 0.3 million in

2021, and 2020.

The estimated annual patent amortization expense for each of the next five years is $ 0.2

Costs incurred to maintain existing patents

are charged to expense in the year incurred.

The Marlin trade name will be amortized using the straight-line method over its useful life.

The estimated annual trade name amortization cost for each of the next five years is $ 0.4 million.

The intangible asset related to Marlin

customer relationships are included in Other above and will be amortized using the straight-line method over its useful life.

The estimated

annual customer relationship name amortization expense for each of the next five years is $ 0.1 million.

The capitalized cost of patents is amortized

using the straight-line method over their useful lives.

Expenses related to patent amortization was $ 0.4 million in 2023, $ 0.4 million

in 2022, and $ 0.3 million in 2021.

The estimated annual patent amortization expense for each of the next five years is $ 0.3 million.

Costs incurred to maintain existing patents are charged to expense in the year incurred.

The Marlin trade name will be amortized using

the straight-line method over its useful life.

The estimated annual trade name amortization cost for each of the next five years is $ 0.4

The intangible asset related to Marlin customer relationships are included in Other above and will be amortized using the straight-line

method over its useful life.

The estimated annual customer relationship name amortization expense for each of the next five years is

$ 0.1 million.

Leased Assets

The Company leases certain of its real estate and

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

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or restrictive covenants.

The Company adopted the provisions of ASU 2016-02

using the effective interest method on January 1, 2019 and recorded right-of-use assets equal to the present value of the contractual

liability for future lease payments.

The table below presents the right-of-use assets and related lease liabilities recognized on the

condensed consolidated balance sheet as of December 31, 2022:

The Company uses the effective interest method

to record right-of-use assets equal to the present value of the contractual liability for future lease payments.

The table below presents

the right-of-use assets and related lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2023:

Balance Sheet Line

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Total operating lease liabilities

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 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

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Total operating lease liabilities

Certain of the Company’s lease agreements contain

renewal options at the Company’s discretion.

The Company does not recognize right-of-use assets or lease liabilities for leases

of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception

of the lease or when a triggering event occurs.

The Company’s weighted average remaining lease term for operating leases as of December

31, 2022 is 8.9 years.

Trade Accounts

Payable and Accrued Expenses

Certain of the Company’s lease agreements

contain renewal options at the Company’s discretion.

The Company does not recognize right-of-use assets or lease liabilities for

leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at

the inception of the lease or when a triggering event occurs.

The Company’s weighted average remaining lease term for operating

leases as of December 31, 2023 is 7.9 years.

Trade Accounts Payable and Accrued Expenses

Trade accounts payable and accrued expenses consist

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Accrued Dividends

On November 30, 2022, the Company’s Board of

Directors declared a $ 5.00 per share special dividend payable on January 5, 2023 to stockholders of record as of December 15, 2022.

On November 30, 2022, the Company’s Board

of Directors declared a $ 5.00 per share special dividend payable on January 5, 2023 to stockholders of record as of December 15, 2022.

The dividend, which totaled $ 88.3 million, was paid on January 5, 2023.

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Company entered into a new $ 40 million unsecured revolving line of credit agreement with a different bank that expires January 7, 2025 .

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

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.

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 December 31, 2022, the Company was in compliance with the terms and covenants of the credit facility.

Benefit Plans

At December 31, 2023, the

Company was in compliance with the terms and covenants of the credit facility.

Employee Benefit Plans

The Company sponsors a qualified defined-contribution

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these supplemental contributions totaled $ 6.9 million, $ 7.4 million, and $ 7.4 million in 2023, 2022, and 2021, respectively.

Operating Income, Net

Other Operating Income, Net

Other operating income, net consists of the following:

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

jurisdiction and various state jurisdictions.

federal jurisdiction and various state jurisdictions.

With few exceptions, the Company is no longer subject to U.S.

federal and state income tax

examinations by tax authorities for years before 2017.

federal and state

income tax examinations by tax authorities for years before 2017.

The federal and state income tax provision consisted of the following:

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in 2024 will approximate 21 %.

Significant components of the Company’s deferred

tax assets and liabilities are as follows:

Significant components of the Company’s

deferred tax assets and liabilities are as follows:

Deferred tax assets

Product Liability

Capitalized research and development costs

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Net deferred tax assets

Prior to 2022, the Company expensed research and development

costs in the period in which they were incurred for both financial accounting and income tax purposes.

In 2022 the Company adopted the

provisions of the Tax Cuts and Jobs Act of 2017 that relate to IRS Code Section 174.

Under these provisions, research and development

costs must be capitalized and amortized over five years for income tax purposes.

The Company continues to expense these costs in the period

incurred for financial accounting purposes.

Prior to 2022, the Company expensed research and

development costs in the period in which they were incurred for both financial accounting and income tax purposes.

In 2022 the Company

adopted the provisions of the Tax Cuts and Jobs Act of 2017 that relate to IRS Code Section 174.

Under these provisions, research and

development costs must be capitalized and amortized over five years for income tax purposes.

The Company continues to expense these costs

in the period incurred for financial accounting purposes.

The Company made income tax payments of approximately

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tax assets through tax deductions against future taxable income .

The Company does not believe it has included any “uncertain

tax positions” in its federal income tax return or any of the state income tax returns it is currently filing.

The Company has made

an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently

consider itself liable.

The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial

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.

Earnings Per Share

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Stock Repurchases

In 2022 the Company repurchased shares of its common

In 2023 and 2022 the Company repurchased shares

of its common stock.

Details of these purchases are as follows:

of Shares that

Third Quarter 2022

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November 27 to December 31

All of these purchases were made with cash held by

the Company and no debt was incurred.

No shares were repurchased in 2020 and 2021.

Fourth Quarter 2023

October 1 to October 28

October 29 to November 25

November 26 to December 31

All of these purchases were made with cash held

by the Company and no debt was incurred.

No shares were repurchased in 2021.

At December 31, 2023, approximately $ 74.7 million

remained authorized for share repurchases.

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

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

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

The Company has reserved 750,000 shares for issuance under the 2017 SIP, of which approximately 120,000 shares remain available for

future grants as of December 31, 2022.

Compensation expense related to deferred stock, restricted

stock, and restricted stock units is recognized based on the grant-date fair value of the Company’s common stock, using either the

actual share price or an estimated value using the Monte Carlo valuation model.

The total stock-based compensation cost included in the

Statements of Income was $ 5.7 million, $ 8.3 million, and $ 6.1 million in 2022, 2021, and 2020, respectively.

The Company has 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

December 31, 2023.

Any shares remaining from the 2017 SIP will be available for future grants under the terms of the 2023 SIP.

As of December

31, 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.

Compensation expense related to deferred stock,

restricted stock, and restricted stock units is recognized based on the grant-date fair value of the Company’s common stock, using

either the actual share price or an estimated value using the Monte Carlo valuation model.

The total stock-based compensation cost included

in the Statements of Income was $ 6.2 million, $ 5.7 million, and $ 8.3 million in 2023, 2022, and 2021, respectively.

Deferred Stock

Deferred stock awards vest based on the passage of

time or the Company’s attainment of performance objectives.

Deferred stock awards vest based on the passage

of time or the Company’s attainment of performance objectives.

Upon vesting, these awards convert one-for-one to common stock.

In 2022, 5,953 deferred stock awards were issued to non-employee directors that will vest in May 2023, 7,688 deferred stock awards were issued to non-employee directors that will vest in May 2025 and a 1,478 deferred stock award was issued to a non-employee director that will vest in June 2027.

In 2021, 5,113 deferred stock awards were issued to non-employee directors that vested

in May 2022 and 6,615 deferred stock awards were issued to non-employee directors that will vest in May 2024.

In 2020, 6,244 deferred stock awards were issued to

non-employee directors that vested in May 2021 and 8,078 deferred stock awards were issued to non-employee directors that will vest in

Compensation expense related to these awards is amortized

ratably over the vesting period.

Compensation expense related to these awards was $ 0.8 million in 2022, $ 0.8 million in 2021, and $ 0.8

At December 31, 2022, there was $ 0.9 million of unrecognized

compensation cost related to deferred stock that is expected to be recognized over a period of three years.

In 2023, 7,566 deferred stock awards were issued

to non-employee directors that will vest in June 2024 and 9,760 deferred stock awards were issued to non-employee directors that will

vest in June 2026.

In 2022, 5,953 deferred stock awards were issued

to non-employee directors that vested in May 2023, 7,688 deferred stock awards were issued to non-employee directors that will vest in

May 2025 and a 1,478 deferred stock award was issued to a non-employee director that will vest in June 2027.

In 2021, 5,113 deferred stock awards were issued

to non-employee directors that vested in May 2022 and 6,615 deferred stock awards were issued to non-employee directors that will vest

Compensation expense related to these awards is

amortized ratably over the vesting period.

Compensation expense related to these awards was $ 0.9 million in 2023, $ 0.8 million in 2022,

and $ 0.8 million in 2021.

At December 31, 2023, there was $ 1.0 million of

unrecognized compensation cost related to deferred stock that is expected to be recognized over a period of three years.

Restricted Stock Units

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“double trigger.” The vesting of these RSU’s is dependent on the achievement of corporate objectives established by

the Compensation Committee of the Board of Directors, including stock performance relative to industry indices, return on net operating

assets, and the passage of time.

During 2022, 82,000 restricted stock units were issued.

Compensation costs related to these restricted stock units was $ 6.0

million, of which $ 1.7 million was recognized in 2022.

The costs are being recognized ratably over the remaining periods required before

the units vest, which range from 24 to 26 months.

During 2021, 82,000 restricted stock units were issued.

the Compensation Committee of the Board of Directors, including return on net operating assets, stock performance, and the passage of

During 2023, 114,000 restricted stock units were

Compensation costs related to these restricted stock units was $ 6.1 million, of which $ 1.3 million was recognized in 2023.

The costs are

being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months.

During 2020, 95,000 restricted stock units were issued.

costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months.

During 2022, 82,000 restricted stock units were

Compensation costs related to these restricted stock units was $ 6.0 million, of which $ 1.7 million was recognized in 2022.

The costs are

being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months.

At December 31, 2022, there was $ 8.1 million of unrecognized

compensation cost related to restricted stock units that is expected to be recognized over a period of 3.3 years.

Segment Information

costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months.

During 2021, 82,000 restricted stock units were

Compensation costs related to these restricted stock units was $ 5.6 million, of which $ 1.6 million was recognized in 2021.

costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months.

At December 31, 2023, there was $ 7.5 million of

unrecognized compensation cost related to restricted stock units that is expected to be recognized over a period of 3.3 years.

Operating Segment Information

The Company has two reportable operating segments:

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Corporate segment assets consist of cash and other non-operating

The Company evaluates performance and allocates resources,

in part, based on income (loss) before taxes.

The accounting policies of the reportable segments are the same as those described in the

summary of significant accounting policies (see Note 1).

Intersegment sales are recorded at the Company’s cost plus a fixed profit

The Company evaluates performance and allocates

resources, in part, based on income (loss) before taxes.

The accounting policies of the reportable segments are the same as those described

in the summary of significant accounting policies (see Note 1).

Intersegment sales are recorded at the Company’s cost plus a fixed

profit percentage.

Year ended December 31,

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Capital Expenditures

In 2022, the Company’s largest customers and

the percent of firearms sales they represented were as follows:

In 2023, the Company’s largest customers

and the percent of firearms sales they represented were as follows:

Lipsey’s - 24 %;

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and Sports South - 15 %.

In 2021, the Company’s largest customers and

the percent of firearms sales they represented were as follows:

In 2022, the Company’s largest customers

and the percent of firearms sales they represented were as follows:

Lipsey’s - 23 %;

Sports South - 19 %;

and Davidson’s - 19 %.

In 2020, the Company’s largest customers and

the percent of firearms sales they represented were as follows:

Sports South - 22 %;

Davidson’s - 23 %;

and Sports South - 21 %.

In 2021, the Company’s largest customers

and the percent of firearms sales they represented were as follows:

Lipsey’s - 21 %;

Sports South - 19 %;

and Davidson’s - 19 %.

The Company’s assets are located entirely in

the United States and domestic sales represented at least 94 % of total sales in 2022, 2021, and 2020.

Results of Operations (Unaudited)

The following is a tabulation of the unaudited quarterly

results of operations for the two years ended December 31, 2022:

The Company’s assets are located entirely

in the United States and domestic sales represented at least 94 % of total sales in 2023, 2022, and 2021.

Quarterly Results of Operations (Unaudited)

The following is a tabulation of the unaudited

quarterly results of operations for the two years ended December 31, 2023:

Three Months Ended

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Related Party Transactions

From time to time, the Company contracts with the

National Rifle Association (“NRA”) for some of its promotional and advertising activities.

The Company paid the NRA $ 0.7 million, $ 0.5 million and $ 0.6 million in

2022, 2021 and 2020, respectively.

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

The Company is a member of the National Shooting Sports Foundation (“NSSF”),

the firearm industry trade association.

The Company paid the NSSF $ 0.3 million, $ 0.4 million and $ 0.5 million in 2022, 2021 and 2020,

respectively.

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

From time to time, the Company contracts with

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

The Company paid the NRA $ 0.5

million, $ 0.7 million and $ 0.5 million in 2023, 2022, and 2021, 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.

Company paid the NSSF $ 0.3 million, $ 0.3 million and $ 0.4 million in 2023, 2022, and 2021, respectively.

One of the Company’s

Directors also serves on the Board of the NSSF.

Contingent Liabilities

of December 31, 2022, the Company was a defendant in eight (8) lawsuits and is aware of certain other such claims.

generally fall into three categories:

of December 31, 2023, the Company was a defendant in nine (9) lawsuits and is aware of certain other such claims.

generally fall into four (4) categories:

traditional product liability litigation,

municipal litigation and negligence .

Each is discussed in turn below.

municipal litigation , negligence, and unfair trade practices .

discussed in turn below.

Traditional Product Liability Litigation

One lawsuit mentioned above involves a claim for damages

One lawsuit 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 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.

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

The Company believes that the allegations in this

case are unfounded, that the incident is unrelated to the design or manufacture of the firearm involved, and that there should be no recovery

against the Company.

Municipal Litigation

litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors

and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third parties.

There are four (4) lawsuits

of this type, as follows:

(i) City of Gary v.

Smith & Wesson Corp., et al , filed in Indiana

State Court in 1999;

(ii) Estados Unidos Mexicanos v.

Smith & Wesson Brands, Inc., et al.

, filed in August 2021 in the U.S.

District Court for the District of Massachusetts;

(iii) The City of Buffalo v.

Smith & Wesson Brands, Inc., et al.

December 2022 in the New York State Supreme Court for Erie County, New York and presently pending in the U.S.

District Court for the Western

District of New York;

and (iv) The City of Rochester v.

Smith & Wesson Brands, Inc., et al.

, filed in December 2022 in the

New York State Supreme Court for Monroe County, New York and presently pending in the U.S.

District Court for the Western District of

and retailers seeking to recover damages allegedly arising out of the criminal misuse of firearms by third parties.

There are four

(4) lawsuits of this type, as follows:

The Complaint in City of Gary v.

Smith & Wesson

Corp., et al .

was filed in 1999 and seeks damages, among other things, for

the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages.

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

The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing,

Wesson Corp., et al .

was filed in Indiana State Court in 1999 and seeks damages,

among other things, for the costs of medical care , police

and emergency services, public health services , and other services

as well as punitive damages.

In addition , nuisance abatement and/or

injunctive relief is sought to change th e design ,

manufacture , mark e ting

and distribution practices of th e various defendants.

alleges , among other claims ,

negligence in the design of products , public

nuisance , negligent distribution and marketing ,

negligence per se and deceptive advertising.

The case does not allege a specific injury to a specific individual as a result of the misuse

or use of any of the Company's products.

After a long procedural history, the case was scheduled

for trial on June 15, 2009.

The case was not tried on that date and was largely dormant until a status conference was held on July 27,

At that time, the court entered a scheduling order setting deadlines for plaintiff to file a Second Amended Complaint, for defendants

to answer, and for defendants to file dispositive motions.

The plaintiff did not file a Second Amended Complaint by the deadline.

In 2015, Indiana passed a new law such that Indiana

Code §34-12-3-1 became applicable to the City's case.

The defendants filed a joint motion for judgment on the pleadings, asserting

immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce

in Arms Act inapplicable to the City's claims.

On September 29, 2016, the court entered an order

staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v.

Runnels, which presented related issues.

The Indiana Supreme Court decided KS&E Sports on April 24, 2017, and the City of Gary court lifted the stay.

of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of the KS&E

Sports decision on defendants' motion for judgment on the pleadings.

A hearing on the motion for judgment on the pleadings

was held on December 12, 2017.

On January 2, 2018, the court issued an order granting defendants’ motion for judgment on the pleadings,

but denying defendants’ request for attorney’s fees and costs.

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

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

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

Briefing in the Indiana Court of Appeals was completed

on the City’s appeal and Defendants’ cross appeal on September 10, 2018.

The Court of Appeals issued its ruling on May 23,

2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that Manufacturer

Defendants’ conduct was unlawful.

However, the court reversed dismissal of the City’s negligent sale and distribution and

related public nuisance counts for damages and injunctive relief.

The Manufacturer Defendants filed a Petition to Transfer

the case to the Indiana Supreme Court on July 8, 2019.

The Petition was denied on November 26, 2019.

The case was remanded to the trial

court for further proceedings.

During the quarter ended April 3, 2021, the City initiated

discovery and the Manufacturer Defendants reciprocated.

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.

Estados Unidos Mexicanos v.

Wesson Brands, Inc., et al.

was filed by the Country of Mexico and names seven defendants, mostly U.S.-based firearms manufacturers,

including the Company.

The Complaint advances a variety of legal theories including negligence, public nuisance, unjust enrichment,

restitution, and others.

Plaintiff essentially alleges that the defendants design, manufacture, distribute, market and sell firearms

in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels

for criminal activities.

Plaintiff seeks injunctive relief and monetary damages.

On November 22,

2021, Defendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government’s complaint based on the

Government’s lack of Article III standing, Protection of Lawful Commerce in Arms Act immunity, and lack of proximate cause.

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

personal jurisdiction.

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

On September 30, 2022,

the court entered an order granting the defendants’ joint Rule 12(b)(6) motion.

The Company’s Rule 12(b)(2) motion was

denied as moot, without prejudice.

On October 26, 2022, the plaintiff filed a Notice of Appeal and the Court has entered a briefing

On December 20, 2022, the City of Buffalo, New York filed a lawsuit captioned

The City of Buffalo v.

Unidos Mexicanos v.

Smith & Wesson Brands, Inc., et al.

in the New York State Supreme Court for Erie County, New York.

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

On December 21, 2022, the City of Rochester, New York filed a lawsuit captioned

The City of Rochester v.

was filed by the Country of Mexico in August 2021 in the U.S.

Court for the District of Massachusetts 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 motion to dismiss the Complaint for, among

other things, failure to state a claim on which relief may be granted.

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

On October 26, 2022, Plaintiff filed a Notice of Appeal and the matter was briefed before the First Circuit Court of Appeals.

Oral argument was held on July 24, 2023.

On January 22, 2024, the First Circuit Court of Appeals issued an opinion reversing the District

Court’s dismissal case and remanding the case for further proceedings.

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 Monroe County, New York.

The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the Company, and purports to state

causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well as common law public nuisance.

The allegations essentially mirror those in The City of Buffalo , discussed in the preceding paragraph, as plaintiff claims that

the criminal misuse of firearms in Rochester, New York is the result of the manufacturing, sales, marketing, and distribution practices

of the defendants.

The defendants timely removed the matter to the U.S.

in the New York State Supreme Court

for Erie County, New York.

The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the

Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well

as common law public nuisance.

Generally, plaintiff alleges that the criminal misuse of firearms in the City of Buffalo is the result

of the manufacturing, sales, marketing, and distribution practices of the defendants.

The defendants timely removed the matter to the

District Court for the Western District of New York.

On December 21, 2022, the City of Rochester, New

York filed a lawsuit captioned The City of Rochester v.

Smith & Wesson Brands, Inc., et al.

in the New York State Supreme Court

for Monroe County, New York.

The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the

Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well

as common law public nuisance.

The allegations essentially mirror those in Buffalo , discussed in the preceding paragraph.

timely removed the matter to the U.S.

District Court for the Western District of New York.

Defendants moved to consolidate the Buffalo

and 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.

James , which challenges the constitutionality of the recently

Law §§ 898-a–e.

On June 8, 2023, the court granted

Defendants’ motions and the cases were consolidated for pretrial purposes and stayed.

Sturm, Ruger, et al.

is a lawsuit arising out of a slip

and fall accident by a contract security officer in December 2019.

The Complaint was filed in the Superior Court for Sullivan County,

New Hampshire on December 13, 2022 and names Pine Hill Construction, a snow removal contractor, as a co-defendant.

The Company has tendered

the defense of this matter to its insurance carrier and is assisting as required.

The Company was named in two purported class action lawsuits arising out

of a data breach at Freestyle Solutions, Inc., the vendor who was hosting the Company ShopRuger.com website at the time of the breach.

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 Defendant.

Company has tendered the defense of this matter to its insurance carrier and is assisting as required.

The Company was named in two purported class action

lawsuits arising out of a data breach at Freestyle Solutions, Inc., the vendor who was hosting the Company’s ShopRuger.com website

at the time of the breach.

Sturm, Ruger & Co., was filed in the U.S.

District Court for Connecticut on October 4, 2022 and Copeland v.

Ruger & Company, et al.

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.

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,

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 Solutions, Inc.

as defendants.

The Complaint alleges causes of action for negligence, breach of implied warranties, and unjust enrichment.

Summary of Claimed Damages and Explanation of Product

Liability Accruals

Punitive damages, as well as compensatory damages,

are demanded in certain of the lawsuits and claims.

In many instances, the plaintiff does not seek a specified amount of money, though

The Complaint alleges causes of action for negligence, breach of implied

warranties, and unjust enrichment.

The Company moved to dismiss the Amended Complaint, the motion has been briefed fully, and the parties

are awaiting a ruling.

Unfair Trade Practices

Estate of Suzanne Fountain v.

& 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 alleged 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.

& 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.

decedents were murdered by Ahmad Al Aliwi Al-Issa and Plaintiffs alleged 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.

Fountain and Stanisic cases were consolidated for discovery purposes only and transferred by the court to the Complex Litigation

Plaintiffs then 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.

matter was timely removed to the U.S.

District Court for the District of Connecticut based upon the new allegations and federal question

jurisdiction.

Plaintiffs moved to remand the case to state court, the matter has been briefed fully, and the parties are awaiting a ruling.

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 the lawsuits

and claims develop, the timing of which may vary greatly from case to case.

A time schedule cannot be determined in advance with any reliability

concerning when payments will be made in any given case.

Provision is made for product liability claims based

upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience.

the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable,

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 Compan y, but

may have a material impact on the Company’ s financial results

for a particular period.

Product liability claim payments are made when

appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims.

Legal costs are paid

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

A schedule cannot be determined in advance

with any reliability concerning when payments will be made in any given case.

Provision is made for product liability claims

based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience.

Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable,

only in rare cases is an accrual established for such costs.

In most cases, an accrual is established only for

estimated legal defense costs.

Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities

and expenses incurred to date and reasonably anticipated in the future.

Threatened product liability claims are reflected in the Company's

product liability accrual on the same basis as actual claims;

, an accrual is made for reasonably anticipated possible liability

and claims handling expenses on an ongoing basis.

A range of reasonably possible losses relating to unfavorable outcomes cannot be made.

However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $ 1.1 million at December 31, 2021, is set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

At December 31, 2022, the total amount claimed specifically in these cases was de minimis.

During 2022, no traditional product liability lawsuit

was filed against the Company and one ( 1 ) was resolved.

As of December 31, 2022, the Company was a defendant five lawsuits involving its

products, including one ( 1 ) traditional product liability lawsuit and four ( 4 ) municipal lawsuits.

The Company also was a defendant in

three ( 3 ) negligence lawsuits though, as discussed above, that number has since been reduced to two (2) lawsuits with the consolidation

of the Jones and Copeland matters.

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;

, an accrual is made for reasonably anticipated

possible liability and claims handling expenses on an ongoing basis.

Often, a Complaint does not specify the amount

of damages being sought and a range of reasonably possible losses relating to unfavorable outcomes cannot be made.

The dollar amount of

damages claimed at December 31, 2023 and December 31, 2022 was de minimis .

The amount claimed at December 31, 2021 was $ 1.1 million

and 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.

During 2023, one ( 1 ) traditional product liability

lawsuit was filed against the Company and one (1) was resolved.

As of December 31, 2023, the Company was a defendant in seven ( 7 ) lawsuits

involving its products, including one ( 1 ) traditional product liability lawsuit, four ( 4 ) municipal lawsuits and two ( 2 ) lawsuits based

upon alleged unfair trade practices.

The Company was also a defendant in two ( 2 ) negligence lawsuits.

During 2022, no traditional product liability

lawsuits were filed against the Company and one ( 1 ) was resolved.

As of December 31, 2022, the Company was a defendant in five ( 5 ) lawsuits

involving its products, including one ( 1 ) traditional product liability lawsuit and four ( 4 ) municipal lawsuits.

The Company also was

a defendant in three ( 3 ) negligence lawsuits though, as discussed above, that number has since been reduced to two (2) lawsuits with the

consolidation of the Jones and Copeland matters.

During 2021, one ( 1 ) traditional product liability

lawsuit was filed against the Company.

1 unchanged sentence

including two ( 2 ) traditional lawsuits and two (2) municipal lawsuits.

During 2020, one ( 1 ) traditional product liability

lawsuit was filed against the Company and one ( 1 ) was resolved.

As of December 31, 2020, the Company was a defendant in three ( 3 )

lawsuits involving its products, including two ( 2 ) traditional lawsuits and one ( 1 ) municipal lawsuit.

Company’s product liability expense was $ 1.5 million in 2023, $ 1.3

million in 2022, and $ 1.1 million in 2021.

This expense includes the cost of outside legal fees, and other expenses incurred in the management

and defense of product liability matters.

A roll-forward of

the product liability reserve and detail of product liability expense for the three years ended December 31, 2022 follows:

This expense includes the cost of outside legal fees, insurance, and other expenses incurred

in the management and defense of product liability matters.

A roll-forward of the product liability reserve and detail of product

liability expense for the three years ended December 31, 2023 follows:

Balance Sheet Roll-forward for Product Liability

12 unchanged sentences

(e) Insurance expense represents the cost of insurance premiums.

There were no insurance recoveries during any of the

There were no insurance recoveries during any

of the above years.

Financial Instruments

3 unchanged sentences

sheets approximate carrying values at those dates.

On February 17, 2023, the Company’s Board of

Directors authorized a dividend of 42 ¢ per share to shareholders of record on March 10, 2023.

Subsequent Events

On February 16, 2024, the Company’s Board

of Directors authorized a dividend of 23 ¢ per share to shareholders of record on March 15, 2024.

The Company’s management has evaluated transactions

3 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data