STURM RUGER & CO INC 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) March 29, 2025 December 31, 2024 (Note) Assets Current Assets Cash $ 16,180 $ 10,028 Short-term investments 92,161 95,453 Trade receivables, net 67,488 67,145 Gross inventories (Note 4) 144,741 149,417 Less LIFO reserve ( 67,462 ) ( 66,398 ) Less excess and obsolescence reserve ( 6,573 ) ( 6,533 ) Net inventories 70,706 76,486 Prepaid expenses and other current assets 6,900 9,245 Total Current Assets 253,435 258,357 Property, plant and equipment 478,596 477,622 Less allowances for depreciation ( 411,557 ) ( 406,373 ) Net property, plant and equipment 67,039 71,249 Deferred income taxes 18,257 16,681 Other assets 40,272 37,747 Total Assets $ 379,003 $ 384,034 Note : The Condensed Consolidated Balance Sheet at December 31, 2024 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 ) March 29, 2025 December 31, 2024 (Note) Liabilities and Stockholders’ Equity Current Liabilities Trade accounts payable and accrued expenses $ 34,006 $ 35,750 Contract liabilities with customers (Note 3) 789 — Product liability 373 431 Employee compensation and benefits 14,402 18,824 Workers’ compensation 5,231 5,804 Total Current Liabilities 54,801 60,809 Employee compensation 1,088 1,835 Product liability accrual 61 61 Lease liabilities (Note 5) 1,572 1,747 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 2025 – 24,473,499 issued, 16,580,839 outstanding 2024 – 24,467,983 issued, 16,654,523 outstanding 24,473 24,468 Additional paid-in capital 51,499 50,536 Retained earnings 440,531 436,609 Less: Treasury stock – at cost 2025 – 7,892,660 shares 2024 – 7,813,460 shares ( 195,022 ) ( 192,031 ) Total Stockholders’ Equity 321,481 319,582 Total Liabilities and Stockholders’ Equity $ 379,003 $ 384,034 Note : The Condensed Consolidated Balance Sheet at December 31, 2024 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 March 29, 2025 March 30, 2024 Net firearms sales $ 135,195 $ 136,008 Net castings sales 543 812 Total net sales 135,738 136,820 Cost of products sold 105,843 107,417 Gross profit 29,895 29,403 Operating expenses: Selling 9,413 9,706 General and administrative 12,010 12,166 Total operating expenses 21,423 21,872 Operating income 8,472 7,531 Other income: Interest income 1,038 1,355 Interest expense ( 16 ) ( 17 ) Other income, net 253 178 Total other income, net 1,275 1,516 Income before income taxes 9,747 9,047 Income taxes 1,979 1,963 Net income and comprehensive income $ 7,768 $ 7,084 Basic earnings per share $ 0.47 $ 0.41 Diluted earnings per share $ 0.46 $ 0.40 Weighted average number of common shares outstanding - Basic 16,623,214 17,434,178 Weighted average number of common shares outstanding - Diluted 16,850,956 17,640,268 Cash dividends per share $ 0.24 $ 0.23 See notes to condensed consolidated financial statements. 5 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands) Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance at December 31, 2024 $ 24,468 $ 50,536 $ 436,609 $ ( 192,031 ) $ 319,582 Net income and comprehensive income 7,768 7,768 Common stock issued – compensation plans 5 ( 5 ) — Vesting of RSUs ( 178 ) ( 178 ) Dividends paid ( 3,992 ) ( 3,992 ) Unpaid dividends accrued 146 146 Recognition of stock-based compensation expense 1,146 1,146 Repurchase of 79,200 shares of common stock ( 2,991 ) ( 2,991 ) Balance at March 29, 2025 $ 24,473 $ 51,499 $ 440,531 $ ( 195,022 ) $ 321,481 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 7,084 7,084 Common stock issued – compensation plans 18 ( 18 ) — Vesting of RSUs ( 624 ) ( 624 ) Dividends paid ( 4,080 ) ( 4,080 ) Unpaid dividends accrued ( 8 ) ( 8 ) Recognition of stock-based compensation expense 1,082 1,082 Repurchase of 75,024 shares of common stock ( 3,219 ) ( 3,219 ) Balance at March 30, 2024 $ 24,455 $ 47,289 $ 421,054 $ ( 160,842 ) $ 331,956 See notes to condensed consolidated financial statements. 6 STURM, RUGER & COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ( Dollars in thousands) Three Months Ended March 29, 2025 March 30, 2024 Operating Activities Net income $ 7,768 $ 7,084 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,571 5,833 Stock-based compensation 1,146 1,082 Excess and obsolescence inventory reserve 40 — Deferred income taxes ( 1,576 ) ( 3,116 ) Changes in operating assets and liabilities: Trade receivables ( 343 ) ( 5,951 ) Inventories 5,740 11,314 Trade accounts payable and accrued expenses ( 2,281 ) ( 2,057 ) Contract liabilities with customers 789 ( 119 ) Employee compensation and benefits ( 5,023 ) ( 11,480 ) Product liability ( 58 ) ( 311 ) Prepaid expenses, other assets and other liabilities ( 628 ) 5,066 Cash provided by operating activities 11,145 7,345 Investing Activities Property, plant and equipment additions ( 1,124 ) ( 1,788 ) Purchases of short-term investments ( 36,288 ) ( 39,488 ) Proceeds from maturities of short-term investments 39,580 42,487 Cash provided by investing activities 2,168 1,211 Financing Activities Remittance of taxes withheld from employees related to share-based compensation ( 178 ) ( 624 ) Repurchase of common stock ( 2,991 ) ( 3,219 ) Dividends paid ( 3,992 ) ( 4,080 ) Cash used for financing activities ( 7,161 ) ( 7,923 ) Increase in cash and cash equivalents 6,152 633 Cash and cash equivalents at beginning of period 10,028 15,174 Cash and cash equivalents at end of period $ 16,180 $ 15,807 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 months ended March 29, 2025 may not be indicative of the results to be expected for the full year ending December 31, 2025. 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, 2024. 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 % of total sales for each of the three month periods ended March 29, 2025 and March 30, 2024. 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. Revenue Recognition: The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Substantially all product sales are sold FOB (free on board) shipping point. Customary payment terms are 2% 30 days, net 40 days. Generally, all performance obligations are satisfied when product is shipped and the customer takes ownership and assumes the risk of loss. In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which downstream customers are entitled to receive no charge products based on their purchases of certain of the Company’s products from the independent distributors. The fulfillment of these no charge products is the Company’s responsibility. In such instances, the Company allocates the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the firearms included in the promotional program, including the no charge firearms. Revenue is recognized proportionally as each performance obligation is satisfied, based on the relative customary price of each product. Customary prices are generally determined based on the prices charged to the independent distributors. The net change in contract liabilities for a given period is reported as an increase or decrease to sales. 8 Fair Value of Financial Instruments: The carrying amounts of financial instruments, including cash, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items. The Company’s short-term investments consist of United States Treasury instruments, which mature within one year, and investments in a bank-managed money market fund that invests exclusively in United States Treasury obligations and is valued at the net asset value ("NAV") daily closing price, as reported by the fund, based on the amortized cost of the fund’s securities. The NAV is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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. On March 27, 2025, the SEC voted to end its defense of these rules, and sent a letter to the court before which the rules are being challenged withdrawing its defense of the rules and stating that SEC counsel is no longer authorized to advance the arguments made in the brief that the SEC had filed. We are currently evaluating the impact on our disclosures of adopting this new pronouncement. 9 In December of 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”).” This guidance requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the financial statements to provide enhanced transparency into the expense captions presented on the statement of earnings. It is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. Adoption may be applied either prospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact of this guidance on the Company’s related disclosures. NOTE 3 - REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS The impact of ASC 606 on revenue recognized during the three months ended March 29, 2025 and March 30, 2024 is as follows: Three Months Ended March 29, 2025 March 30, 2024 Contract liabilities with customers at beginning of period $ — $ 149 Revenue deferred 789 — Revenue recognized — ( 119 ) Contract liabilities with customers at end of period $ 789 $ 30 As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products. The Company expects the remaining deferred revenue from the contract liabilities with customers to be recognized in the second quarter of 2025. 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: March 29, 2025 December 31, 2024 Inventory at FIFO Finished products $ 18,808 $ 26,022 Materials and work in process 125,933 123,395 Gross inventories 144,741 149,417 Less: LIFO reserve ( 67,462 ) ( 66,398 ) Less: excess and obsolescence reserve ( 6,573 ) ( 6,533 ) Net inventories $ 70,706 $ 76,486 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 March 29, 2025: Balance Sheet Line Item March 29, 2025 Right-of-use assets Other assets $ 2,219 Operating lease liabilities Current portion Trade accounts payable and accrued expenses $ 647 Noncurrent portion Lease liabilities 1,572 Total operating lease liabilities $ 2,219 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: Three Months Ended March 29, 2025 March 30, 2024 Cash paid for amounts included in the measurement of lease liabilities $ 180 $ 203 Cash amounts paid for short-term leases $ 81 $ 106 Right-of-use assets obtained in exchange for lease liabilities $ — $ — Weighted average remaining lease term (years) 7.4 8.1 Weighted average discount rate 8.0 % 8.0 % 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 March 29, 2025: Remainder of 2025 $ 574 2026 771 2027 295 2028 160 2029 160 Thereafter 800 Total undiscounted future minimum lease payments 2,760 Less: Difference between undiscounted lease payments & the present value of future lease payments ( 541 ) Total operating lease liabilities $ 2,219 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 March 29, 2025, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused. NOTE 7 - EMPLOYEE BENEFIT PLANS The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $ 1.2 million and $ 1.2 million for the three months ended March 29, 2025 and March 30, 2024, respectively. The Company plans to contribute approximately $ 3.0 million to the plan in matching employee contributions during the remainder of 2025. 12 In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 2.0 million and $ 2.0 million for the three months ended March 29, 2025 and March 30, 2024, respectively. The Company plans to contribute approximately $ 4.5 million in supplemental contributions to the plan during the remainder of 2025. NOTE 8 - INCOME TAXES The Company's 2025 and 2024 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 20.3 % and 21.7 % for the three months ended March 29, 2025 and March 30, 2024, respectively. Income tax payments totaled $ 2.0 million and $ 0.1 million for the three month periods ended March 29, 2025 and March 30, 2024, 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 2021. 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. 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 March 29, 2025 March 30, 2024 Numerator: Net income $ 7,768 $ 7,084 Denominator: Weighted average number of common shares outstanding – Basic 16,623,214 17,434,178 Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans 227,742 206,090 Weighted average number of common shares outstanding – Diluted 16,850,956 17,640,268 13 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 456,000 shares remain available for future grants as of March 29, 2025. Any shares remaining from the 2017 SIP will be available for future grants under the terms of the 2023 SIP. As of March 29, 2025, 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. 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. Additionally, the Company awarded its new CEO a one-time award of 40,000 RSUs, which shall convert into shares of the Company’s Common Stock on a one-to-one basis when vested, a portion of which shall be subject to time-based vesting and a portion of which shall be subject to performance-based vesting. There were 238,226 restricted stock units issued during the three months ended March 29, 2025. Total compensation costs related to these restricted stock units are $ 9.1 million. Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 2.1 million and $ 1.1 million for the three months ended March 29, 2025 and March 30, 2024, 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. 14 Selected operating segment financial information follows: (in thousands) Three Months Ended March 29, 2025 March 30, 2024 Net Sales Firearms $ 135,195 $ 136,008 Castings Unaffiliated 543 812 Intersegment 7,222 8,542 7,765 9,354 Eliminations ( 7,222 ) ( 8,542 ) $ 135,738 $ 136,820 Costs of Goods Sold Firearms $ 105,254 $ 106,469 Castings Unaffiliated 589 948 Intersegment 7,222 8,542 7,811 9,490 Eliminations ( 7,222 ) ( 8,542 ) $ 105,843 $ 107,417 Gross Profit (Loss) Firearms $ 29,941 $ 29,539 Castings ( 46 ) ( 136 ) $ 29,895 $ 29,403 Operating Income (Loss) Firearms $ 8,655 $ 7,852 Castings ( 183 ) ( 321 ) $ 8,472 $ 7,531 Income (Loss) Before Income Taxes Firearms $ 8,758 $ 8,016 Castings ( 145 ) ( 321 ) Corporate 1,134 1,352 $ 9,747 $ 9,047 Three Months Ended March 29, 2025 March 30, 2024 Depreciation Firearms $ 4,988 $ 5,112 Castings 347 455 $ 5,335 $ 5,567 Capital Expenditures Firearms $ 1,034 $ 1,635 Castings 90 153 $ 1,124 $ 1,788 15 March 29, 2025 December 31, 2024 Identifiable Assets Firearms $ 223,645 $ 230,024 Castings 8,950 9,303 Corporate 146,408 144,707 $ 379,003 $ 384,034 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 months ended March 29, 2025 and March 30, 2024 totaled $ 0.3 million and $ 0.2 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 months ended March 29, 2025 and March 30, 2024 totaled $ 0.1 million and $ 0.2 million, respectively. One of the Company’s Directors also serves on the Board of the NSSF. NOTE 13 - CONTINGENT LIABILITIES As of March 29, 2025, 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 Court granted Defendants’ subsequent request to certify the Order for appeal. On October 2, 2024, Defendants filed a motion with the Indiana Court of Appeals to accept jurisdiction over the interlocutory appeal, which was granted over Plaintiff’s objection on November 1, 2024. On October 16, 2024, the trial court entered an Order staying all proceeding pending the interlocutory appeal. Briefing of the appeal is underway. 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 sought a Stay of Proceedings Pending Review of a Petition for Writ of Certiorari to the United States Supreme Court. The District Court denied the 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 District Court heard argument on the pending Rule 12(b)(2) motions to dismiss. On August 7, 2024, the Court granted the motions, dismissing Ruger and some of the other Defendants from the case, but did not enter judgement in favor of these Defendants. Because judgment has not entered in favor of Ruger, the 30-day period in which Plaintiff may appeal the Court’s August 7, 2024 ruling has not yet begun to run. 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. Oral argument was held at the Supreme Court on March 4, 2025. 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 a number of firearm manufacturers, distributors, and retailers as Defendants, including the Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well as common law public nuisance. The allegations essentially mirror those in Buffalo , discussed in the preceding paragraph. 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. Defendants also moved to stay the cases pending a decision by the Second Circuit Court of Appeals in National Shooting Sports Foundation, Inc. et al. v. James , which challenges the constitutionality of the recently enacted N.Y. Gen. Bus. Law §§ 898-a–e. On June 8, 2023, the court granted defendants’ motions and the cases were consolidated for pretrial purposes and stayed. Breach of Contract The Company was named in two purported class action lawsuits arising out of a data breach at Freestyle Solutions, Inc., the vendor who was hosting the Company’s ShopRuger.com website at the time of the breach. Jones v. Sturm, Ruger & Co., was filed in the U.S. District Court for Connecticut on October 4, 2022 and Copeland v. Sturm, Ruger & Company, et al. was filed in the U.S. District Court for New Jersey on October 27, 2022. Copeland also named Freestyle Solutions, Inc. as a Defendant. By agreement of the parties, Copeland was dismissed, without prejudice, and consolidated with Jones in the pending Connecticut case. On January 20, 2023, five Plaintiffs filed an Amended Complaint naming the Company and Freestyle 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 parties have since participated in a mediation and agreed to a settlement in principle. Efforts are underway to obtain Court approval of the settlement. Unfair Trade Practices Estate of Suzanne Fountain v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford and arises out of the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. On that date, plaintiff’s decedent, Suzanne Fountain, was murdered by 21-year-old Ahmad Al Aliwi Al-Issa. The Complaint alleges that the Company’s advertising and marketing of the Ruger AR-556 pistol violate the Connecticut Unfair Trade Practices Act and were a substantial factor in bringing about the wrongful death of Suzanne Fountain. Estate of Neven Stanisic et al. v. Sturm, Ruger & Co., Inc., was filed in the Connecticut Superior Court in Stamford on behalf of five plaintiffs. Like Estate of Suzanne Fountain , the claims arise from the criminal 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. 18 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. 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. The motions were briefed fully and, on February 27, 2025, the Court denied the motions. On March 31, 2025, the Company filed Motions to Strike on a variety of grounds. The motions are being briefed. 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, insurance coverage was provided on an annual basis for losses exceeding $ 5 million per claim, or an aggregate maximum loss of $ 10 million annually, except for certain claims brought by governments or municipalities, 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. 19 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. Often, a Complaint does not specify the amount of damages being sought and a range of reasonably possible losses relating to unfavorable outcomes cannot be made. The dollar amount of damages claimed at December 31, 2024, 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 April 25, 2025, the Board of Directors authorized a dividend of 18 ¢ per share, for shareholders of record as of May 16, 2025 , payable on May 30, 2025 . The Company has evaluated events and transactions occurring subsequent to March 29, 2025 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