STURM RUGER & CO INC 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________ to _______________ Commission file number 1-10435 STURM, RUGER & COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 06-0633559 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Lacey Place , Southport , Connecticut 06890 (Address of principal executive offices) (Zip code) (203) 259-7843 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $1 par value RGR New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The number of shares outstanding of the issuer's common stock as of October 15, 2024: 16,790,824 INDEX STURM, RUGER & COMPANY, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets – September 28, 2024 and December 31, 2023 3 Condensed consolidated statements of income and comprehensive income – Three and nine months ended September 28, 2024 and September 30, 2023 5 Condensed consolidated statement of stockholders’ equity – Nine months ended September 28, 2024 6 Condensed consolidated statements of cash flows – Nine months ended September 28, 2024 and September 30, 2023 7 Notes to condensed consolidated financial statements – September 28, 2024 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30 Item 4. Controls and Procedures 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings 30 Item 1A. Risk Factors 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31 Item 3. Defaults Upon Senior Securities 32 Item 4. Mine Safety Disclosures 32 Item 5. Other Information 32 Item 6. Exhibits 33 SIGNATURES 34 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) September 28, 2024 December 31, 2023 (Note) Assets Current Assets Cash $ 7,522 $ 15,174 Short-term investments 88,455 102,485 Trade receivables, net 60,157 59,864 Gross inventories (Note 4) 150,460 150,192 Less LIFO reserve ( 68,265 ) ( 64,262 ) Less excess and obsolescence reserve ( 6,159 ) ( 6,120 ) Net inventories 76,036 79,810 Prepaid expenses and other current assets 14,944 14,062 Total Current Assets 247,114 271,395 Property, plant and equipment 474,501 462,397 Less allowances for depreciation ( 401,972 ) ( 390,863 ) Net property, plant and equipment 72,529 71,534 Deferred income taxes 14,918 11,976 Other assets 38,893 43,912 Total Assets $ 373,454 $ 398,817 Note : The Condensed Consolidated Balance Sheet at December 31, 2023 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 28, 2024 December 31, 2023 (Note) Liabilities and Stockholders’ Equity Current Liabilities Trade accounts payable and accrued expenses $ 31,495 $ 31,708 Contract liabilities with customers (Note 3) — 149 Product liability 270 634 Employee compensation and benefits 17,413 24,660 Workers’ compensation 5,792 6,044 Total Current Liabilities 54,970 63,195 Employee compensation 1,712 1,685 Product liability accrual 61 46 Lease liability (Note 5) 1,766 2,170 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 2024 – 24,467,983 issued, 16,790,824 outstanding 2023 – 24,437,020 issued, 17,458,620 outstanding 24,468 24,437 Additional paid-in capital 49,441 46,849 Retained earnings 428,014 418,058 Less: Treasury stock – at cost 2024 – 7,677,159 shares 2023 – 6,978,400 shares ( 186,978 ) ( 157,623 ) Total Stockholders’ Equity 314,945 331,721 Total Liabilities and Stockholders’ Equity $ 373,454 $ 398,817 Note : The Condensed Consolidated Balance Sheet at December 31, 2023 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 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net firearms sales $ 121,512 $ 120,368 $ 387,349 $ 411,114 Net castings sales 775 525 2,519 2,036 Total net sales 122,287 120,893 389,868 413,150 Cost of products sold 99,615 96,165 308,639 311,788 Gross profit 22,672 24,728 81,229 101,362 Operating expenses: Selling 8,998 8,669 28,188 27,702 General and administrative 9,932 9,733 32,796 31,898 Total operating expenses 18,930 18,402 60,984 59,600 Operating income 3,742 6,326 20,245 41,762 Other income: Interest income 1,155 1,454 3,839 4,147 Interest expense ( 24 ) ( 122 ) ( 66 ) ( 177 ) Other income, net 392 431 749 1,082 Total other income, net 1,523 1,763 4,522 5,052 Income before income taxes 5,265 8,089 24,767 46,814 Income taxes 527 658 4,681 8,848 Net income and comprehensive income $ 4,738 $ 7,431 $ 20,086 $ 37,966 Basic earnings per share $ 0.28 $ 0.42 $ 1.17 $ 2.14 Diluted earnings per share $ 0.28 $ 0.42 $ 1.15 $ 2.13 Weighted average number of common shares outstanding - Basic 16,847,866 17,722,682 17,207,632 17,705,280 Weighted average number of common shares outstanding - Diluted 17,137,065 17,889,089 17,455,265 17,828,710 Cash dividends per share $ 0.19 $ 0.36 $ 0.58 $ 6.10 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, 2023 $ 24,437 $ 46,849 $ 418,058 $ ( 157,623 ) $ 331,721 Net income and comprehensive income 20,086 20,086 Common stock issued – compensation plans 31 ( 31 ) — Vesting of RSUs ( 624 ) ( 624 ) Dividends paid ( 9,990 ) ( 9,990 ) Unpaid dividends accrued ( 140 ) ( 140 ) Recognition of stock-based compensation expense 3,247 3,247 Repurchase of 698,759 shares of common stock ( 29,355 ) ( 29,355 ) Balance at September 28, 2024 $ 24,468 $ 49,441 $ 428,014 $ ( 186,978 ) $ 314,945 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 28, 2024 September 30, 2023 Operating Activities Net income $ 20,086 $ 37,966 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 16,941 19,576 Stock-based compensation 3,247 2,968 Excess and obsolescence inventory reserve 39 — Gain on sale of assets — ( 4 ) Deferred income taxes ( 2,942 ) ( 4,058 ) Changes in operating assets and liabilities: Trade receivables ( 293 ) 5,550 Inventories 3,735 ( 14,278 ) Trade accounts payable and accrued expenses ( 514 ) ( 5,967 ) Contract liability with customers ( 149 ) 405 Employee compensation and benefits ( 7,360 ) ( 8,129 ) Product liability ( 349 ) 144 Prepaid expenses, other assets and other liabilities 3,042 ( 15,704 ) Income taxes payable — ( 1,171 ) Cash provided by operating activities 35,483 17,298 Investing Activities Property, plant and equipment additions ( 17,196 ) ( 11,637 ) Proceeds from sale of assets — 5 Purchases of short-term investments ( 100,993 ) ( 141,410 ) Proceeds from maturities of short-term investments 115,023 194,091 Cash (used for) provided by investing activities ( 3,166 ) 41,049 Financing Activities Remittance of taxes withheld from employees related to share-based compensation ( 624 ) ( 2,156 ) Repurchase of common stock ( 29,355 ) — Dividends paid ( 9,990 ) ( 107,805 ) Cash used for financing activities ( 39,969 ) ( 109,961 ) Decrease in cash and cash equivalents ( 7,652 ) ( 51,614 ) Cash and cash equivalents at beginning of period 15,174 65,173 Cash and cash equivalents at end of period $ 7,522 $ 13,559 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 of America 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 28, 2024 may not be indicative of the results to be expected for the full year ending December 31, 2024. 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, 2023. 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 5 % and 7 % of total sales for the nine month periods ended September 28, 2024 and September 30, 2023, respectively. 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 subsidiaries. All significant intercompany accounts and transactions have been eliminated. 8 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. 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. Recent Accounting Pronouncements: In March 2024, the Securities and Exchange Commission (“SEC”) issued the final rule under SEC Release No. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, requiring public companies to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a company’s climate-related risks that have materially impacted or are reasonably likely to have a material impact on its business strategy, results of operations, or financial condition, and the actual and potential material impacts of any identified climate-related risks on the company’s strategy, business model and outlook, as well as relating to assessment, management, oversight and mitigation of such material risks, material climate-related targets and goals, and material greenhouse gas emissions. Additionally, certain disclosures related to severe weather events and other natural conditions will be required in the audited financial statements. The first phase of the final rule is effective for fiscal years beginning in 2025. Disclosure for prior periods is only required if it was previously disclosed in an SEC filing. On April 4, 2024, the SEC voluntarily stayed implementation of the final rule to facilitate the orderly judicial resolution of pending legal challenges to the rule. We are currently evaluating the impact on our disclosures of adopting this new pronouncement. 9 In November of 2023, the Financial Accounting Standards Board (“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 paid. 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. NOTE 3 - REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS The impact of ASC 606 on revenue recognized during the three and nine months ended September 28, 2024 and September 30, 2023 is as follows: Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Contract liabilities with customers at beginning of period $ — $ 100 $ 149 $ 1,031 Revenue deferred — 1,468 — 1,680 Revenue recognized — ( 132 ) ( 149 ) ( 1,275 ) Contract liabilities with customers at end of period $ — $ 1,436 $ — $ 1,436 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. 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. 10 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 28, 2024 December 31, 2023 Inventory at FIFO Finished products $ 29,987 $ 30,989 Materials and work in process 120,473 119,203 Gross inventories 150,460 150,192 Less: LIFO reserve ( 68,265 ) ( 64,262 ) Less: excess and obsolescence reserve ( 6,159 ) ( 6,120 ) Net inventories $ 76,036 $ 79,810 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. 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 28, 2024: Balance Sheet Line Item September 28, 2024 Right-of-use assets Other assets $ 2,328 Operating lease liabilities Current portion Trade accounts payable and accrued expenses $ 562 Noncurrent portion Lease liabilities 1,766 Total operating lease liabilities $ 2,328 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. 11 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 table below includes cash paid for our operating lease liabilities, other non-cash information, our weighted average remaining lease term and weighted average discount rate: Nine Months Ended September 28, 2024 September 29, 2023 Cash paid for amounts included in the measurement of lease liabilities $ 432 $ 432 Cash amounts paid for short-term leases $ 507 $ 247 Right-of-use assets obtained in exchange for lease liabilities $ — $ — Weighted average remaining lease term (years) 7.6 8.6 Weighted average discount rate 8.0 % 5.0 % 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 28, 2024: Remainder of 2024 $ 201 2025 702 2026 705 2027 229 2028 160 Thereafter 960 Total undiscounted future minimum lease payments 2,957 Less: Difference between undiscounted lease payments & the present value of future lease payments ( 629 ) Total operating lease liabilities $ 2,328 NOTE 6 - LINE OF CREDIT On June 6, 2024, the Company amended its existing $ 40 million unsecured revolving line of credit agreement with a bank, which now expires January 7, 2028 . Borrowings under this new facility bear interest at the applicable Secured Overnight Financing Rate (SOFR), plus 150 basis points, plus an additional adjustment of eight basis points. The Company is also charged one-quarter of a percent ( 0.25 %) per year on the unused portion. At September 28, 2024, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused. 12 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 $ 0.9 million and $ 3.1 million for the three and nine months ended September 28, 2024, respectively, and $ 1.0 million and $ 3.7 million for the three and nine months ended September 30, 2023, respectively. The Company plans to contribute approximately $ 1.0 million to the plan in matching employee contributions during the remainder of 2024. In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.5 million and $ 5.3 million for the three and nine months ended September 28, 2024, respectively, and $ 1.6 million and $ 5.3 million for the three and nine months ended September 30 , 2023, respectively. The Company plans to contribute approximately $ 1.5 million in supplemental contributions to the plan during the remainder of 2024. NOTE 8 - INCOME TAXES The Company's 2024 and 2023 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 10.0 % and 18.9 % for the three and nine months ended September 28, 2024, respectively. The Company’s effective income tax rate was 8.1 % and 18.9 % for the three and nine months ended September 30, 2023, respectively. Income tax payments totaled $ 1.1 million and $ 10.6 million for the three and nine month periods ended September 28, 2024, respectively. Income tax payments for the three and nine months ended September 30, 2023 totaled $ 7.3 million and $ 23.8 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 2019. 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. 13 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 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Numerator: Net income $ 4,738 $ 7,431 $ 20,086 $ 37,966 Denominator: Weighted average number of common shares outstanding – Basic 16,847,866 17,722,682 17,207,632 17,705,280 Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans 289,199 166,407 247,633 123,430 Weighted average number of common shares outstanding – Diluted 17,137,065 17,889,089 17,455,265 17,828,710 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 710,000 shares remain available for future grants as of September 28, 2024. Any shares remaining from the 2017 SIP will be available for future grants under the terms of the 2023 SIP. As of September 28, 2024, approximately 120,000 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. 14 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 137,516 restricted stock units issued during the nine months ended September 28, 2024. Total compensation costs related to these restricted stock units are $ 5.9 million. Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.7 million and $ 4.6 million for the three and nine months ended September 28, 2024, respectively, and $ 1.6 million and $ 5.0 million for the three and nine months ended September 30, 2023, 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 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net Sales Firearms $ 121,512 $ 120,368 $ 387,349 $ 411,114 Castings Unaffiliated 775 525 2,519 2,036 Intersegment 7,376 7,947 24,022 25,307 8,151 8,472 26,541 27,343 Eliminations ( 7,376 ) ( 7,947 ) ( 24,022 ) ( 25,307 ) $ 122,287 $ 120,893 $ 389,868 $ 413,150 Income (Loss) Before Income Taxes Firearms $ 4,237 $ 6,108 $ 21,718 $ 43,637 Castings ( 296 ) 420 ( 884 ) ( 1,178 ) Corporate 1,324 1,561 3,933 4,355 $ 5,265 $ 8,089 $ 24,767 $ 46,814 Depreciation Firearms $ 5,074 $ 5,676 $ 14,818 $ 17,027 Castings 473 553 1,363 1,661 $ 5,547 $ 6,229 $ 16,181 $ 18,688 Capital Expenditures Firearms $ 6,704 $ 6,674 $ 16,829 $ 11,456 Castings 78 90 367 181 $ 6,782 $ 6,764 $ 17,196 $ 11,637 15 September 28, 2024 December 31, 2023 Identifiable Assets Firearms $ 231,342 $ 228,699 Castings 9,637 11,144 Corporate 132,475 158,974 $ 373,454 $ 398,817 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 28, 2024 totaled $ 0.1 million and $ 0.5 million, respectively. Payments made to the NRA in the three and nine months ended September 30, 2023 totaled $ 0.1 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 months ended September 28, 2024 totaled $ 0.1 million and $ 0.3 million, respectively. Payments made to the NSSF in the three and nine months ended September 30, 2023 totaled $ 0.1 million and $ 0.3 million, respectively. One of the Company’s Directors also serves on the Board of the NSSF. NOTE 13 - CONTINGENT LIABILITIES As of September 28, 2024, the Company was a defendant in eight (8) lawsuits and is aware of certain other claims. The lawsuits generally fall into four (4) categories: municipal litigation, breach of contract, unfair trade practices, and trademark litigation. 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 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 Complaint 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. 16 On March 15, 2024, Indiana Governor Eric Holcomb signed into law HB 1235, which reserves to the State of Indiana the right to bring an action on behalf of a political subdivision against a firearm or ammunition manufacturer, trade association, seller, or dealer, concerning certain matters. The new law also prohibits a political subdivision from bringing or maintaining such an action. With the passage of this new law, the Company and other defendants filed a Motion for Judgment on the Pleadings on March 18, 2024. On August 12, 2024, the Court denied Defendants’ motion. The Defendants then sought to certify the Order for appeal, which was granted. On October 2, 2024, Defendants filed a motion with the Indiana Court of Appeals to accept jurisdiction over the interlocutory appeal, which is being briefed. On October 16, 2024, the trial court entered an Order staying all proceeding pending the interlocutory appeal. 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 motion to dismiss the Complaint, which was granted on September 30, 2022. Plaintiffs appealed to the First Circuit Court of Appeals and, on January 22, 2024, the Court of Appeals reversed the District Court’s dismissal and remanded the case for further proceedings. The Defendants filed a Petition for Writ of Certiorari seeking review by the United States Supreme Court. The Defendants also sought a stay of the proceedings pending a decision on the Petition. The District Court denied the request for a stay and held that the Defendants should request that the First Circuit recall its mandate or petition for a stay from the Supreme Court. On June 17, 2024, the Court heard argument on Ruger’s (and other Defendants’) Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction. On August 7, 2024, the Court granted the motions, dismissing Ruger and some of the other Defendants from the case. Subsequently, the Supreme Court granted the Defendants’ Petition for Writ of Certiorari. With the dismissal of Ruger and other Defendants on personal jurisdiction grounds, the remaining Defendants will prosecute the appeal before the Supreme Court. 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. The 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 suit names the same defendants and makes essentially the same allegations raised in Buffalo, discussed in the preceding paragraph. Defendants timely removed the matter to the U.S. District Court for the Western District of New York. 17 Defendants moved to consolidate the Buffalo and Rochester cases for pretrial purposes only and 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. Breach of Contract The Company is a defendant in Jones v. Sturm, Ruger & Co., a purported class action lawsuit 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. 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. The Company moved to dismiss the Amended Complaint. On March 27, 2024, the Court dismissed Plaintiffs’ negligence and unjust enrichment claims against the Company. The Court denied the motion with respect to Plaintiffs’ breach of contract claim, concluding that development of additional information is required to assess the applicability of the limitation of liability clause contained in the Company’s terms and conditions of use. The case is proceeding accordingly. Unfair Trade Practices Estate of Suzanne Fountain v. Sturm, Ruger & Co., Inc., was filed in Connecticut Superior Court 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 Connecticut Superior Court on behalf of five plaintiffs. Like Estate of Suzanne Fountain , the claims arise from the criminal shooting at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. Plaintiffs’ 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. The Fountain and Stanisic cases were consolidated for discovery purposes only and transferred by the court to the Complex Litigation Docket. 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. The 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 and, following briefing and oral argument, the matter was remanded on April 25, 2024. 18 On June 12, 2024, Ruger filed Motions to Dismiss the Connecticut state court cases based upon the doctrine of forum non conveniens . Following oral argument on September 9, 2024, the Court allowed Plaintiffs limited, additional discovery and requested further briefing on the matter. That effort is ongoing. Trademark Litigation On March 12, 2024, the Company was named as a defendant in FN Herstal, et al. v. Sturm, Ruger & Company, Inc. , which is pending in the U.S. District Court for the Middle District of North Carolina. T he Complaint alleges that the Company’s use of the initialism “SFAR” in connection with the marketing of its Small Frame Autoloading Rifle infringes the Plaintiffs’ SCAR trademark. The Complaint alleges violations of the Lanham Act and the North Carolina Unfair and Deceptive Trade Practices Act, as well as trademark infringement under North Carolina common law. The Company believes that the allegations are meritless and is defending the action accordingly. 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 between July 10, 2000 and August 31, 2024, 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. Insurance coverage was not renewed with incumbent carriers effective September 1, 2024. Rather, the Company established a wholly-owned captive insurance company for claims made on or after September 1, 2024. 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. 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. 19 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. NOTE 14 - SUBSEQUENT EVENTS On October 25, 2024, the Board of Directors authorized a dividend of 11 ¢ per share, for shareholders of record as of November 13, 2024 , payable on November 27, 2024 . The Company has evaluated events and transactions occurring subsequent to September 28, 2024 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. 20 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview 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 5% and 7% of total sales for the nine month periods ended September 28, 2024 and September 30, 2023, respectively. 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. Less than 1% of sales are from the castings segment. Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year. This is due in part to the timing of the distributor show season, which occurs during the first quarter. Results of Operations Demand The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 4% in the first nine months of 2024 compared to the prior year period. For the same period, National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 3%. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven quarters follow: 2024 2023 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Estimated Units Sold from Distributors to Retailers (1) 336,300 327,800 396,700 384,700 307,400 323,000 391,500 Total adjusted NICS Background Checks (thousands) (2) 3,432 3,364 3,983 4,742 3,284 3,654 4,168 (1) The estimates for each period were calculated by taking the beginning inventory at the distributors, plus shipments from the Company to distributors during the period, less the ending inventory at distributors. These estimates are only a proxy for actual market demand as they: ● Rely on data provided by independent distributors that are not verified by the Company, ● Do not consider potential timing issues within the distribution channel, including goods-in-transit, and ● Do not consider fluctuations in inventory at retail. 21 (2) NICS background checks are performed when the ownership of most firearms, either new or used, is transferred by a Federal Firearms Licensee. NICS background checks are also performed for permit applications, permit renewals, and other administrative reasons. The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (“CCW”) permit application checks, as well as checks on active CCW permit databases. The adjusted NICS checks represent less than half of the total NICS checks. Adjusted NICS data can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies. Orders Received and Ending Backlog The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels. The Company generally does not use the orders received or ending backlog for planning production levels. The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing seven quarters are as follows (dollars in millions, except average sales price): (All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.) 2024 2023 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Units Ordered 316,900 250,500 472,600 316,600 176,300 258,100 408,000 Orders Received $ 109.4 $ 99.5 $ 198.2 $ 116.7 $ 58.8 $ 102.1 $ 156.2 Average Sales Price of Units Ordered $ 345 $ 397 $ 419 $ 369 $ 334 $ 396 $ 383 Ending Backlog $ 268.7 $ 272.2 $ 296.2 $ 229.0 $ 234.8 $ 293.7 $ 327.3 Average Sales Price of Ending Unit Backlog $ 572 $ 567 $ 523 $ 522 $ 510 $ 496 $ 488 Production The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company to plan production levels. The Company’s overall production in the third quarter of 2024 decreased 11% from the second quarter of 2024 . 22 Summary Unit Data Firearms unit data for the trailing seven quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns): 2024 2023 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Units Ordered 316,900 250,500 472,600 316,600 176,300 258,100 408,000 Units Produced 330,300 370,400 314,500 305,200 324,500 387,400 381,000 Units Shipped 327,400 336,300 345,400 337,800 308,400 336,400 384,900 Average Sales Price of Units Shipped $ 371 $ 386 $ 394 $ 383 $ 390 $ 422 $ 387 Ending Unit Backlog 469,700 480,200 566,000 438,800 460,000 592,100 670,400 Inventories During the third quarter of 2024, the Company’s finished goods inventory increased by 2,900 units and distributor inventories of the Company’s products decreased by 8,900 units. Inventory unit data for the trailing seven quarters follows: 2024 2023 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Company Inventory 149,600 146,700 112,600 143,500 176,100 160,000 108,900 Distributor Inventory (1) 207,600 216,500 208,000 259,300 306,200 305,200 291,800 Total Inventory (2) 357,200 363,200 320,600 402,800 482,300 465,200 400,700 (1) Distributor ending inventory is provided by the Company’s independent distributors. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors. (2) This total does not include inventory at retailers. The Company does not have access to data on retailer inventories of the Company’s products. 23 Net Sales, Cost of Products Sold, and Gross Profit Net sales, cost of products sold, and gross profit data for the three months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Net firearms sales $ 121.5 $ 120.4 $ 1.1 1.0% Net castings sales 0.8 0.5 0.3 47.6% Total net sales 122.3 120.9 1.4 1.2% Cost of products sold 99.6 96.2 3.4 3.6% Gross profit $ 22.7 $ 24.7 $ (2.0 ) (8.3% ) Gross margin 18.5% 20.5% (2.0% ) (9.8% ) The increase in total consolidated net sales and net firearms sales for the three months ended September 28, 2024 is attributable to strong demand for certain of the Commpany’s firearms. Sales of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, and American Centerfire Rifle Generation II represented $35.5 million or 31.0% of firearm sales in the three months ended September 28, 2024. New product sales include only major new products that were introduced in the past two years. The decreased gross profit for the three months ended September 28, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production and a product mix shift toward products with relatively lower margins that remain in relatively stronger demand. The decrease in gross margin for the three months ended September 28, 2024 is attributable to the aforementioned factors, partially offset by increased pricing. Net sales, cost of products sold, and gross profit data for the nine months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Net firearms sales $ 387.4 $ 411.1 $ (23.7 ) (5.8% ) Net castings sales 2.5 2.1 0.4 23.7% Total net sales 389.9 413.2 (23.3 ) (5.6% ) Cost of products sold 308.7 311.8 (3.1 ) (1.0% ) Gross profit $ 81.2 $ 101.4 $ (20.2 ) (19.9% ) Gross margin 20.8% 24.5% (3.7% ) (15.1% ) 24 The decrease in total consolidated net sales and net firearms sales for the nine months ended September 28, 2024 is attributable to decreased consumer demand for firearms. Sales of new products, including the Security-380 pistol, Super Wrangler revolver, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, and American Centerfire Rifle Generation II, represented $113.3 million or 31.2% of firearm sales in the first nine months of 2024. New product sales include only major new products that were introduced in the past two years. The decreased gross profit for the nine months ended September 28, 2024 is attributable to unfavorable deleveraging of fixed costs resulting from decreased production, a product mix shift toward products with relatively lower margins that remain in relatively stronger demand, and the decrease in sales. The decrease in gross margin for the nine months ended September 28, 2024 is attributable to the aforementioned factors, partially offset by increased pricing. Selling and General and Administrative Expenses Selling and general and administrative expenses data for the three months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Selling expenses $ 9.0 $ 8.7 $ 0.3 3.8% General and administrative expenses 9.9 9.7 0.2 2.0% Total operating expenses $ 18.9 $ 18.4 $ 0.5 2.9% The increase in selling expenses for the three months ended September 28, 2024 was attributable to increased spending on advertising, partially offset by modest reductions in several selling and marketing initiatives. The increase in general and administrative expenses for the three months ended September 28, 2024 was primarily attributable to increased professional service costs. Selling and general and administrative expenses data for the nine months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Selling expenses $ 28.2 $ 27.7 $ 0.5 1.8% General and administrative expenses 32.8 31.9 0.9 2.8% Total operating expenses $ 61.0 $ 59.6 $ 1.4 2.3% 25 The increase in selling expenses for the nine months ended September 28, 2024 was attributable increased spending on advertising, partially offset by modest reductions in several selling and marketing initiatives. The increase in general and administrative expenses for the nine months ended September 28, 2024 was primarily attributable to accrued severances of $1.5 million taken in the first quarter of 2024 related to a reduction in force involving approximately 80 employees, partially offset by decreased incentive compensation expenses. The aforementioned accrued severances are expected to be settled in cash and consist of one-time termination charges arising from severance obligations and other customary employee benefit payments in connection with a reduction in force. The reduction in force is expected to result in approximately $9 million of annualized cash savings. This action is part of the Company’s initiatives to reallocate its resources and cost structure into prioritized areas that will drive long-term growth and improve margins. Other Income Other income data for the three months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Other income $ 1.5 $ 1.8 $ (0.3 ) (13.6% ) The decrease in other income for the three months ended September 28, 2024 was attributable to decreased interest income. Other income data for the nine months ended (dollars in millions): September 28, 2024 September 30, 2023 Change % Change Other income $ 4.5 $ 5.1 $ (0.6 ) (10.5% ) The decrease in other income for the nine months ended September 28, 2024 was the result of decreases in interest income and miscellaneous income. Income Taxes and Net Income The Company's 2024 and 2023 effective tax rates differ from the statutory federal tax rate due principally to research and development tax credits, state income taxes and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 10.0% and 18.9% for the three and nine months ended September 28, 2024, respectively. The Company’s effective income tax rate was 8.1% and 18.9% for the three and nine months ended September 30, 2023, respectively. As a result of the foregoing factors, consolidated net income was $4.7 million for the three months ended September 28, 2024, a decrease of 36.2% from $7.4 million in the comparable prior year period. 26 Consolidated net income was $20.1 million for the nine months ended September 28, 2024, a decrease of 47.1% from $38.0 million in the comparable prior year period. Non-GAAP Financial Measures In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information to investors. These non-GAAP financial measures may not be comparable to similarly titled financial measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance. EBITDA is defined as earnings before interest, taxes, and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense, and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income to arrive at EBITDA. The Company calculates EBITDA margin by dividing EBITDA by total net sales. EBITDA was $9.9 million for the three months ended September 28, 2024, a decrease of 25.2% from $13.3 million in the comparable prior year period. For the nine months ended September 28, 2024 EBITDA was $37.9 million, a decrease of 39.2% from $62.4 million in the comparable prior year period. Non-GAAP Reconciliation – EBITDA EBITDA (Unaudited, dollars in thousands) Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net income $ 4,738 $ 7,431 $ 20,086 $ 37,966 Income tax expense 527 658 4,681 8,848 Depreciation and amortization expense 5,804 6,530 16,941 19,576 Interest income (1,155 ) (1,454 ) (3,839 ) (4,147 ) Interest expense 24 122 66 177 EBITDA $ 9,938 $ 13,287 $ 37,935 $ 62,420 EBITDA margin 8.1% 11.0% 9.7% 15.1% Net income margin 3.9% 6.1% 5.2% 9.2% 27 Financial Condition Liquidity and Capital Resources At the end of the third quarter of 2024, the Company’s cash and short-term investments totaled $96.0 million. Pre-LIFO working capital of $260.4 million, less the LIFO reserve of $68.3 million, resulted in working capital of $192.1 million and a current ratio of 4.5 to 1. Operations Cash provided by operating activities was $35.5 million for the nine months ended September 28, 2024, compared to $1.3 million for the comparable prior year period. The increase in cash provided in the nine months ended September 28, 2024 is primarily attributable to decreases in inventory and prepaid expenses and other assets in the nine months ended September 28, 2024, partially offset by the decrease in net income in the nine months ended September 28, 2024. Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts. A limited supply of these materials in the marketplace can result in increases to purchase prices and adversely affect production levels. If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected. Investing and Financing Capital expenditures for the nine months ended September 28, 2024 totaled $17.2 million, an increase from $11.6 million in the comparable prior year period. In 2024, the Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total approximately $20 million. Actual capital expenditures could vary significantly from the projected amount due to the timing of capital projects. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash and cash equivalents. Dividends of $10.0 million were paid during the nine months ended September 28, 2024. The Company has financed its dividends with cash provided by operations and current cash. The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share. The Company’s practice is to pay a dividend of approximately 40% of net income. On October 25, 2024, the Company’s Board of Directors authorized a dividend of 11¢ per share to shareholders of record on November 13, 2024, payable on November 27, 2024. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds. As of September 28, 2024, the Company had $61.5 million of United States Treasury instruments which mature within one year. The Company also invests available cash in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one year. At September 28, 2024, the Company’s investment in this money market fund totaled $27.0 million. During the nine months ended September 28, 2024 the Company purchased 698,759 shares of its common stock for $29.3 million in the open market. The average price per share purchased was $41.99. These purchases were funded with cash on hand. As of September 28, 2024, $45.3 million remained authorized for future stock repurchases. 28 Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt. The Company’s unsecured $40 million credit facility, which expires on January 7, 2028, was unused at September 28, 2024. Other Operational Matters In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms serial number tracking and control, waste disposal, air emissions and water discharges into the environment. The Company believes that it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company. If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have a material adverse impact on the Company. The Company has 15 independent distributors that service the domestic commercial market. Additionally, the Company has 44 and 26 distributors servicing the export and law enforcement markets, respectively. The Company self-insures a significant amount of its product liability, workers’ compensation, medical, and other insurance. It also carries significant deductible amounts on various insurance policies. In September 2024, the Company did not renew its product liability coverage with its incumbent carriers and established a wholly-owned captive insurance company for claims made on or after September 1, 2024. The Company expects to realize its deferred tax assets through tax deductions against future taxable income. Adjustments to Critical Accounting Policies The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2023 Annual Report on Form 10-K filed on February 21, 2024, or the judgments affecting the application of those estimates and assumptions. Forward-Looking Statements and Projections The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, the impact of future firearms control and environmental legislation, and accounting estimates, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events. 29 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The interest rate market risk implicit to the Company at any given time is typically low, as the Company does not have significant exposure to changing interest rates on invested cash. There has been no material change in the Company’s exposure to interest rate risks during the three months ended September 28, 2024. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (the “Disclosure Controls and Procedures”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 28, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 28, 2024, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have further concluded that, as of September 28, 2024, there have been no material changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. The effectiveness of any system of internal controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that the Disclosure Controls and Procedures will detect all errors or fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system will be attained. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The nature of the legal proceedings against the Company is discussed at Note 13 to the financial statements, which are included in this Form 10-Q. 30 The Company has reported all cases instituted against it through June 29, 2024, and the results of those cases, where terminated, to the SEC on its previous Form 10-Q and 10-K reports, to which reference is hereby made. There were no lawsuits formally instituted against the Company during the three months ending September 28, 2024. ITEM 1A. RISK FACTORS During the three months ended September 28, 2024, there were no material changes in the Company’s risk factors from the information provided in Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Share repurchase activity during the nine months ended September 28, 2024 was as follows. These purchases were funded with cash on hand. Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program First Quarter 2024 January 1 to January 27 7,317 $ 43.42 7,317 January 28 to February 24 20,307 $ 42.93 20,307 February 25 to March 30 47,400 $ 42.79 47,400 Second Quarter 2024 March 31 to April 27 — — — April 28 to May 25 28,924 $ 42.92 28,924 May 26 to June 29 373,969 $ 42.27 373,969 Third Quarter 2024 June 30 to July 27 156,517 $ 41.27 156,517 July 28 to August 24 — — — August 25 to September 28 64,325 $ 40.66 64,325 Total 698,759 $ 41.99 698,759 $ 45,300,000 All of these purchases were made with cash held by the Company and no debt was incurred. 31 As of September 28, 2024, the Company was authorized by the Board of Directors to repurchase up to $100 million of the Company’s common stock under a share repurchase program announced on May 8, 2017, of which $54.7 million had been used and approximately $45.3 million remained authorized for share repurchases, in each case as of such date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. MINE SAFETY DISCLOSURES Not applicable ITEM 5. OTHER INFORMATION Rule 10b5-1 Trading Plans The adoption or termination of contracts, instructions or written plans for the purchase and sale of the Company’s securities by the Company’s Section 16 officers or directors for the three months ended September 28, 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows: Name Title Action Date Adopted Expiration Date Aggregate # of Securities to be Purchased/Sold Amir P. Rosenthal (1) Director Adoption of Rule 10b5-1 Plan August 6, 2024 May 30, 2025 1,000 (1) Amir P. Rosenthal, a director of the Company, entered into a Rule 10b5-1 Plan on August 6, 2024. Mr. Rosenthal’s Rule 10b5-1 Plan provides for the potential sale of up to 1,000 shares of the Company’s common stock. The Rule 10b5-1 Plan expires on May 30, 2025, or upon the earlier completion of all authorized transactions under such Rule 10b5-1 Plan. None of the Company’s directors or Section 16 officers adopted or terminated a “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K during the three months ended September 28, 2024. 32 ITEM 6. EXHIBITS (a) Exhibits: 31.1 Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *Filed herewith **Furnished herewith 33 STURM, RUGER & COMPANY, INC. FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 28, 2024 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STURM, RUGER & COMPANY, INC. Date: October 30, 2024 S/THOMAS A. DINEEN Thomas A. Dineen Principal Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Chief Financial Officer 34