What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-21 · 100 added, 102 removed, 474 unchanged (30% of the section changed)

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

ITEM 7—MANAGEMENT'S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

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

Orders of 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.

Results of Operations - 2024

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The estimated sell-through of the Company’s

products from the independent distributors to retailers in 2023 decreased 7% from 2022.

For the same period, adjusted NICS decreased 4%.

The greater reduction in the sell-through of the Company’s products relative to adjusted NICS background checks may be attributable

to aggressive promotions, discounts, rebates, and the extension of payment terms offered by the Company’s competitors.

products from the independent distributors to retailers in 2024 increased 5% from 2023.

In 2024, adjusted NICS decreased 4% from 2023.

The increase in the sell-through of the Company’s products despite the decrease in adjusted NICS background checks may be attributable

to new product introductions, like the Ruger American Rifle Generation II bolt-action rifles, the Marlin lever-action rifles, and the

RXM pistol, which helped offset aggressive promotions, discounts, rebates, and the extension of payment terms offered by the Company’s

Estimated sell-through from distributors to retailers and total adjusted

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Units – Backlog

The Company’s finished goods inventory increased

by 30,700 units during 2023.

inventories of the Company’s products decreased by 39,100 units during 2023, and approximate a reasonable level to support rapid

fulfillment of retailer demand for most product families .

The Company’s finished goods inventory decreased

by 28,300 units during 2024, while distributor inventories of the Company’s

products decreased by 63,500 units during the same period.

Inventory data follows:

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Cost of products sold

Firearms sales and unit shipments decreased 9%

and 17%, respectively, in 2023.

New products represented $121.7 million or 23% of firearms sales in 2023, an increase from $78.4 million

or 14% of firearms sales in 2022.

Firearms sales decreased 2% and unit shipments

increased 3%, respectively, in 2024.

New products represented $159.3 million or 32% of firearms sales in 2024, an increase from $119.0

million or 23% of firearms sales in 2023.

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

new products included the MAX-9 pistol (during the first quarter only), Security-380 pistol, Super Wrangler revolver, LCP MAX pistol,

Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, and American Centerfire Rifle Generation II.

decreased gross profit for the year ended December 31, 2023 is attributable to the significant decrease in sales , as well as inflationary

cost increases in materials, commodities, services, wages, energy, fuel and transportation, unfavorable deleveraging of fixed costs resulting

from decreased production, a product mix shift toward products with relatively lower margins that remain in stronger demand, and increased

promotional costs.

In 2024, new products included the RXM pistol, American Centerfire Rifle Generation II, Marlin 1894 lever-action rifles, Security-380

pistol, Super Wrangler revolver, LC Carbine, and the Small-Frame Autoloading Rifle and the Marlin 1895 Marlin lever-action rifles, which

were only included for a portion of the year.

decreased gross profit for the year ended December 31, 2024 is attributable to the decrease in sales , unfavorable deleveraging

of fixed costs resulting from decreased production, and a product mix shift toward products with relatively lower margins that remain

in stronger demand.

The decrease in gross margin for the year ended

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Total operating expenses

The increase in selling expenses for the year

ended December 31, 2023 was primarily attributable to increased trade show costs, travel expenditures, and advertising, partially

offset by decreased sales volume.

The increase in general, and administrative expenses

for the year ended December 31, 2023 was primarily attributable to increased professional service costs.

Selling expenses for the year ended December 31,

2024 were substantially unchanged from 2023, as increased spending on advertising was offset by modest reductions in several selling and

marketing initiatives.

increase in general, and administrative expenses for the year ended December 31, 2024 was primarily attributable to increased professional

service costs and accrued severances of $1.5 million taken in the first quarter of 2024 related to a reduction in force involving

approximately 80 employees.

These increases were partially offset by a reduction in incentive compensation expenses.

The aforementioned

accrued severances were 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.

Operating Income

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Other income, net

The increase in other income

for the year ended December 31, 2023 was the result of increases in interest income due to increased interest rates earned on short-term

investments, partially offset by decreased royalty and other income.

The decrease in other income for the year ended

December 31, 2024 was primarily the result of decreases in interest income due to decreased interest rates earned on short-term investments

and other income, partially offset by increased royalty.

Income Taxes and Net Income

effective income tax rate was 19.1% in 2024 and 18.0% in 2023.

The Company's 2023 and 2022 effective tax rate differs 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 impact related to research and development tax credits on the effective tax rate is expected to

decline in future years.

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.

As a result of the foregoing factors, consolidated

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EBITDA margin

Net income margin

EBITDA is defined as earnings before interest,

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Cost of products sold

Results of Operations - 2022

of Operations - 2023

Year ended December 31, 2023, as compared to

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(1) Distributor ending inventory as provided by the independent distributors of the Company’s products.

(2) Average sales price for orders received and ending backlog is net of Federal Excise

Tax of 10% for handguns and 11% for long guns.

(2) Average sales price for orders received and ending backlog is net of Federal Excise Tax of 10% for handguns

and 11% for long guns.

Product Demand

The estimated sell-through of the

Company’s products from the independent distributors to retailers in 2022 decreased 25% from 2021.

For the same period,

adjusted NICS decreased 11%.

These decreases are attributable to decreased consumer demand for firearms from the unprecedented

levels of the surge that began in 2020 and remained for most of 2021.

The greater reduction in the sell-through of the

Company’s products relative to adjusted NICS background checks may be attributable to the following:

● More aggressive promotions, discounts, rebates, and the extension of payment terms offered by our competitors,

● An apparent increase in sales of used firearms at retail, which are included in the adjusted NICS checks,

but are not distinguished from new gun sales, and

● Decreased retailer inventories as the anticipation of further discounting may be encouraging cautious

buying behavior by retailers.

The estimated sell-through of the Company’s

products from the independent distributors to retailers in 2023 decreased 7% from 2022.

For the same period, adjusted NICS decreased 4%.

The greater reduction in the sell-through of the Company’s products relative to adjusted NICS background checks may be attributable

to aggressive promotions, discounts, rebates, and the extension of payment terms offered by the Company’s competitors.

Estimated sell-through from distributors to retailers and total adjusted

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from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, to plan

production levels and manage inventories.

levels and manage inventories.

These reviews resulted in a decrease in total unit production of 19% in 2023 compared to 2022.

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by 30,700 units during 2023.

inventories of the Company’s products increased by 134,200 units during 2022, and approximate a reasonable level to support rapid

inventories of the Company’s products decreased by 39,100 units during 2023, and approximate a reasonable level to support rapid

fulfillment of retailer demand for most product families .

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The Company does not have access to data on retailer

Quarterly Summary Unit Data

Quarterly Data

To supplement the summary annual unit data and

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Estimated Units Sold from Distributors to Retailers

Total Adjusted NICS Background Checks

Total Adjusted NICS BackgroundChecks

Average Unit Sales Price

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Estimated Units Sold from Distributors to Retailers

Total Adjusted NICS Background Checks

Total Adjusted NICS BackgroundChecks

Average Unit Sales Price

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and 17%, respectively, in 2023.

New products represented $78.4 million or 14% of firearms sales in 2022, compared to $155.5 million

New products represented $119.0 million or 23% of firearms sales in 2023, an increase from $78.4 million

or 14% of firearms sales in 2022.

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

new products included the MAX-9 pistol, LCP MAX, Marlin 1895 lever-action rifles, PC Charger, LC Carbine, and Small-Frame Autoloading

decreased gross profit for the year ended December 31, 2022 is attributable to the significant decrease in sales , as well as inflationary

cost increases in materials, commodities, services, energy, fuel and transportation, which were partially offset by increased pricing .

decrease in gross margin for the year ended December 31, 2022 is attributable to the aforementioned inflationary cost increases and unfavorable

deleveraging of fixed costs resulting from decreased production and sales.

new products included the MAX-9 pistol (during the first quarter only), Security-380 pistol, Super Wrangler revolver, LCP MAX pistol,

Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, and American Centerfire Rifle Generation II.

decreased gross profit for the year ended December 31, 2023 is attributable to the significant decrease in sales , as well as unfavorable

deleveraging of fixed costs resulting from decreased production, a product mix shift toward products with relatively lower margins that

remain in stronger demand, and increased promotional costs.

The decrease in gross margin for the year ended

December 31, 2023 is attributable to the aforementioned factors, partially offset by increased pricing.

Selling, General and Administrative

general and administrative expenses were $76.6 million in 2022, a slight increase of $0.1 million from $76.5 million in 2021, and an increase

from 10.5% of sales in 2021 to 12.9% of sales in 2022.

The increase in these expenses was primarily attributable to increased shipping

costs and to the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the

height of the COVID-19 restrictions, almost entirely offset by decreased incentive compensation expenses and decreased variable costs,

such as shipping, as a result of the reduced sales volume.

Other Operating Income (Expense), Net

Other operating income (expense), net was de minimis

in 2022 and an expense of $0.1 million in 2021.

Selling and general and administrative expenses data for the year ended

(dollars in millions):

Selling expenses

General and administrative expenses

Total operating expenses

The increase in selling expenses for the year

ended December 31, 2023 was primarily attributable to increased trade show costs, travel expenditures, and advertising, partially offset

by decreased sales volume.

The increase in general, and administrative expenses

for the year ended December 31, 2023 was primarily attributable to increased professional service costs.

Operating Income

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This is a decrease of $51.4 million from 2022 operating income of $103.5 million or 17.3% of sales.

Other Operating Income (Expense), Net

Other income data for the year ended (dollars in millions):

Royalty income

Royalty income was $0.8 million in 2022 and $2.0

million in 2021.

Interest income

Interest income was $2.6 million in 2022, an increase

from de minimis earnings in 2021, due to significantly increased interest rates earned on short-term investments beginning in the second

quarter of 2022.

Interest expense

Interest expense was $0.3 million in 2022 and

$0.2 million and 2021.

Other income, net

Other income, net was $1.7 million in 2022, an

increase of $0.1 million from $1.6 million in 2021.

The increase in other income for the year ended

December 31, 2023 was the result of increases in interest income due to increased interest rates earned on short-term investments, partially

offset by decreased royalty and other income.

Income Taxes and Net Income

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of certain executive compensation.

The decrease in the 2022 effective tax rate was primarily attributable to research and development

tax credits, some of which related to amended prior year income tax returns.

The impact related to research and development tax credits

on the effective tax rate is expected to decline in future years.

The impact related to research and development tax credits on the effective tax rate is expected to

decline in future years.

As a result of the foregoing factors, consolidated

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EBITDA margin

Net income margin

EBITDA is defined as earnings before interest,

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a current ratio of 4.2 to 1.

The Company’s current ratio is higher than the previous year’s primarily due to the dividends

payable of $88 million related to the $5.00 per share special dividend that was declared on November 30, 2022 and paid on January 5, 2023.

The Company also has access to a $40 million unsecured revolving line of credit that is currently undrawn.

The Company also has access to a $40 million unsecured revolving line of credit that is currently

Capital Resources

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million, $33.9 million, and $77.2 million in 2024, 2023, and 2022, respectively.

The decrease in cash provided in 2023 compared to 2022

is primarily attributable to significantly decreased earnings in 2023.

The increase in cash provided in 2024 compared to 2023

is primarily attributable to the decrease in inventory in 2024 compared to the increase in 2023, and the reduction in prepaid and other

assets compared to increases in those accounts in 2023, partially offset by reduced income in 2024.

The decrease in cash provided in 2023 compared

to 2021 is primarily attributable to significantly decreased earnings in 2022 and increased inventories and trade receivables in 2022.

to 2022 is primarily attributable to the decrease in net income in 2023.

Third parties supply the Company with various

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At December 31, 2024, the Company’s investment in this money market fund totaled $33.0 million.

In 2024, the Company repurchased 835,060 shares

of its common stock for $34.4 million in the open market.

The average price per share purchased was $41.19.

These purchases were funded

with cash on hand.

In 2023, the Company repurchased

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were funded with cash on hand.

No shares were repurchased in 2021.

At December 31, 2024, approximately $40.3 million

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various insurance policies.

The global outbreak of the Coronavirus disease

2019 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Government in March 2020.

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

twelve month period ended December 31, 2023, the Company did not experience a significant adverse impact on its business from COVID-19

or related government restrictions.

The Company cannot predict the extent to which its business, results of operations, financial condition,

or cash flows will ultimately be impacted by COVID-19.

The Company expects to realize its deferred tax

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The Company believes that the assumptions and judgments involved in the accounting estimates below have the greatest potential impact

on its financial statements, so the Company believes these to be its critical accounting estimates.

on its financial statements, so the Company believes these

to be its critical accounting estimates.

The methodologies applied for determining

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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.

The Company adopted ASU 2023-07, beginning with the current filing.

The adoption of the new guidance required

additional disclosures, but did not have a material impact to the Company.

Refer to Note 17, Operating Segment Information, for the updated

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

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

In November 2024, the FASB issued ASU No.

“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,” which requires additional

disclosure of certain costs and expenses within the notes to the financial statements.

The updated standard is effective for annual reporting

periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027.

The requirements will be applied prospectively with the option for retrospective application.

Early adoption is permitted.

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

Forward-Looking Statements and Projections

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis