| | | (3) | Distributor ending inventory as provided by the independent distributors of the Company’s products. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors. | | | | | (4) | This total does not include inventory at retailers. The Company does not have access to data on retailer inventories. |
Quarterly Summary Unit Data To supplement the summary annual unit data and discussion above, the same data for the last eight quarters follows: | | 2018 | | | 2020 | | | | Q4 | | Q3 | | Q2 | | Q1 | | | Q4 | | Q3 | | Q2 | | Q1 | | | | | | | | | | | | | | | | | | | | | Units Ordered | | 312,800 | | 237,800 | | 344,600 | | 635,900 | | | 733,200 | | 935,200 | | 746,600 | | 626,700 | | | | | | | | | | | | | | | | | | | | | Units Produced | | 402,400 | | 404,200 | | 415,200 | | 388,500 | | | 491,000 | | 430,400 | | 374,400 | | 363,300 | | | | | | | | | | | | | | | | | | | | | Units Shipped | | 394,800 | | 386,200 | | 411,600 | | 440,400 | | | 493,000 | | 430,700 | | 395,100 | | 398,900 | | | | | | | | | | | | | | | | | | | | | Estimated Units Sold from Distributors to Retailers | | 400,000 | | 364,000 | | 381,100 | | 509,500 | | | 513,100 | | 457,400 | | 501,600 | | 476,800 | | | | | | | | | | | | | | | | | | | | | Total Adjusted NICS Background Checks | | 3,813,000 | | 2,708,000 | | 2,863,000 | | 3,731,000 | | | 5,626,000 | | 5,165,000 | | 5,452,000 | | 4,841,000 | | | | | | | | | | | | | | | | | | | | | Average Unit Sales Price | | $ | 304 | | $ | 295 | | $ | 309 | | $ | 295 | | | $ | 342 | | $ | 337 | | $ | 328 | | $ | 285 | | | | | | | | | | | | | | | | | | | | | Units – Backlog | | 153,000 | | 235,000 | | 383,400 | | 450,400 | | | 1,511,900 | | 1,271,700 | | 767,200 | | 415,700 | | | | | | | | | | | | | | | | | | | | | Units – Company Inventory | | 80,300 | | 72,700 | | 54,700 | | 51,000 | | | 8,800 | | 10,700 | | 11,100 | | 31,900 | | | | | | | | | | | | | | | | | | | | | Units – Distributor Inventory (5) | | 299,700 | | 304,800 | | 282,700 | | 252,300 | | | 39,200 | | 59,300 | | 86,000 | | 192,500 | |
| | 2017 | | | 2019 | | | | Q4 | | Q3 | | Q2 | | Q1 | | | Q4 | | Q3 | | Q2 | | Q1 | | | | | | | | | | | | | | | | | | | | | Units Ordered | | 467,500 | | 221,900 | | 214,400 | | 395,000 | | | 413,900 | | 362,200 | | 257,900 | | 327,100 | | | | | | | | | | | | | | | | | | | | | Units Produced | | 320,800 | | 327,300 | | 432,900 | | 529,900 | | | 355,000 | | 286,500 | | 297,900 | | 374,000 | | | | | | | | | | | | | | | | | | | | | Units Shipped | | 383,200 | | 329,100 | | 432,000 | | 521,000 | | | 387,500 | | 328,400 | | 288,300 | | 322,000 | | | | | | | | | | | | | | | | | | | | | Estimated Units Sold from Distributors to Retailers | | 425,600 | | 341,300 | | 362,400 | | 533,800 | | | 397,000 | | 295,100 | | 316,300 | | 347,100 | | | | | | | | | | | | | | | | | | | | | Total Adjusted NICS Background Checks | | 4,210,000 | | 2,948,000 | | 3,116,000 | | 3,694,000 | | | 4,001,000 | | 2,956,000 | | 2,828,000 | | 3,414,000 | | | | | | | | | | | | | | | | | | | | | Average Unit Sales Price | | $ | 306 | | $ | 315 | | $ | 302 | | $ | 319 | | | $ | 269 | | $ | 286 | | $ | 329 | | $ | 351 | | | | | | | | | | | | | | | | | | | | | Units – Backlog | | 254,900 | | 170,600 | | 277,800 | | 495,400 | | | 187,900 | | 161,500 | | 127,700 | | 158,100 | | | | | | | | | | | | | | | | | | | | | Units – Company Inventory | | 102,900 | | 165,400 | | 167,200 | | 166,200 | | | 67,400 | | 100,000 | | 141,900 | | 132,300 | | | | | | | | | | | | | | | | | | | | | Units – Distributor Inventory (5) | | 321,300 | | 363,800 | | 376,000 | | 306,400 | | | 270,400 | | 280,000 | | 246,700 | | 274,700 | |
| (5) | Distributor ending inventory as provided by the independent distributors of the Company’s products. |
(in millions except average sales price, net of Federal Excise Tax) | | 2018 | | | 2020 | | | | Q4 | | Q3 | | Q2 | | Q1 | | | Q4 | | Q3 | | Q2 | | Q1 | | | | | | | | | | | | | | | | | | | | | Orders Received | | $ | 92.9 | | $ | 66.6 | | $ | 95.4 | | $ | 175.1 | | | $ | 277.1 | | $ | 284.0 | | $ | 228.8 | | $ | 203.0 | | | | | | | | | | | | | | | | | | | | | Average Sales Price of Orders Received | | $ | 297 | | $ | 280 | | $ | 277 | | $ | 275 | | | $ | 352 | | $ | 304 | | $ | 306 | | $ | 324 | | | | | | | | | | | | | | | | | | | | | Ending Backlog | | $ | 55.6 | | $ | 81.5 | | $ | 125.0 | | $ | 149.2 | | | $ | 516.6 | | $ | 410.1 | | $ | 255.6 | | $ | 142.7 | | | | | | | | | | | | | | | | | | | | | Average Sales Price of Ending Backlog | | $ | 364 | | $ | 347 | | $ | 326 | | $ | 331 | | | $ | 342 | | $ | 322 | | $ | 333 | | $ | 343 | |
| | 2017 | | | 2019 | | | | Q4 | | Q3 | | Q2 | | Q1 | | | Q4 | | Q3 | | Q2 | | Q1 | | | | | | | | | | | | | | | | | | | | | Orders Received | | $ | 129.0 | | $ | 62.9 | | $ | 62.4 | | $ | 131.9 | | | $ | 121.5 | | $ | 102.3 | | $ | 70.3 | | $ | 104.3 | | | | | | | | | | | | | | | | | | | | | Average Sales Price of Orders Received | | $ | 276 | | $ | 283 | | $ | 291 | | $ | 334 | | | $ | 294 | | $ | 283 | | $ | 273 | | $ | 319 | | | | | | | | | | | | | | | | | | | | | Ending Backlog | | $ | 75.4 | | $ | 56.6 | | $ | 95.0 | | $ | 163.8 | | | $ | 57.8 | | $ | 44.7 | | $ | 37.8 | | $ | 58.9 | | | | | | | | | | | | | | | | | | | | | Average Sales Price of Ending Backlog | | $ | 296 | | $ | 332 | | $ | 342 | | $ | 331 | | | $ | 308 | | $ | 277 | | $ | 296 | | $ | 372 | |
Net Sales Consolidated net sales were $495.6$568.9 million in 2018.2020. This represents a decreasean increase of $26.7$158.4 million or 5.1%38.6% from 20172019 consolidated net sales of $522.3$410.5 million. Firearms segment net sales were $490.6$565.9 million in 2018.2020. This represents a decreasean increase of $27.1$159.6 million or 5.2%39.3% from 20172019 firearms net sales of $517.7$406.3 million. Firearms unit shipments decreased 1.9%increased 29.5% in 2018.2020. Casting segment net sales were $5.0$3.0 million in 2018.2020. This represents an increasea decrease of $0.4$1.2 million or 10.4%28.1% from 20172019 casting sales of $4.6 million.$4.2 million Cost of Products Sold and Gross Profit Consolidated cost of products sold was $361.3$377.4 million in 2018.2020. This represents a decreasean increase of $6.9$66.4 million or 1.9%21.4% from 20172019 consolidated cost of products sold of $368.2$311.0 million. The gross margin was 27.1%33.7% in 2018.2020. This represents a decreasean increase from 29.5%24.3% in 20172019 as illustrated below: (in thousands) | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2018 | | | | 2017 | | | 2020 | | | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 495,635 | | 100.0 | % | | $ | 522,256 | | 100.0 | % | | $ | 568,868 | | | 100 | % | | $ | 410,506 | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls | | | 354,997 | | 71.6 | % | | | 367,551 | | 70.4 | % | | | 375,489 | | | 65.9 | % | | | 313,769 | | 76.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | LIFO expense | | | 1,882 | | 0.4 | % | | | 2,639 | | 0.5 | % | | | 879 | | | 0.2 | % | | | 796 | | 0.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Overhead rate adjustments to inventory | | | 1,777 | | | 0.4 | % | | | (4,423 | ) | | (0.9 | )% | | | 472 | | | 0.1 | % | | | (3,710 | ) | | (0.9 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Labor rate adjustments to inventory | | | 193 | | | — | | | | (379 | ) | | (0.1 | )% | | | 318 | | | 0.1 | % | | | (415 | ) | | (0.1 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | Product liability | | | 1,514 | | 0.3 | % | | | 360 | | 0.1 | % | | | 1,139 | | | 0.2 | % | | | 718 | | | 0.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Product safety bulletins and recalls | | | 914 | | 0.2 | % | | | 2,500 | | 0.5 | % | | | (870 | ) | | (0.2 | )% | | | (200 | ) | | (0.1 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of products sold | | | 361,277 | | 72.9 | % | | | 368,248 | | 70.5 | % | | | 377,427 | | | 66.3 | % | | | 310,958 | | 75.7 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | $ | 134,358 | | 27.1 | % | | $ | 154,008 | | 29.5 | % | | $ | 191,441 | | | 33.7 | % | | $ | 99,548 | | 24.3 | % |
Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls- In 2018,2020, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability increased 1.2%and safety bulletins and recalls decreased 10.5% as a percentage of sales compared to 2017.2019. This increasedecrease was due primarily to the adoption of ASC 606,significant increase in sales and production which resulted in $12.1 millionfavorable leveraging of fixed costs and a reduction in promotional expenses that had been classified as selling expenses in prior years being included in cost of products sold in 2018.activities. LIFO- The Company recognized LIFO expense in 20182020 and 20172019 of $1.9$0.9 million and $2.6$0.8 million, respectively, which increased cost of products sold in both periods. Overhead Rate Change- The net impact on inventory in 20182020 and 20172019 from the change in the overhead rates used to absorb overhead expenses into inventory was a decrease of $1.8$0.5 million and an increase of $4.4$3.7 million, respectively, reflecting increased overhead efficiency in 20182020 and decreased overhead efficiency in 2017.2019. The increase in inventory value in 2020 resulted in a corresponding decrease to cost of products sold and the decrease in inventory value in 20182019 resulted in a corresponding increase to cost of products sold and the increase in inventory value in 2017 resulted in a corresponding decrease to cost of products sold. Labor Rate Adjustments- In 2018,2020, the change in inventory value resulting from the change in the labor rates used to absorb labor expenses into inventory was a decrease of $0.2$0.3 million, reflecting increased labor efficiency. This decrease in inventory value resulted in a corresponding increase to cost of products sold. In 2017,2019, the change in inventory value resulting from the change in the labor rates used to absorb labor expenses into inventory was an increase of $0.4 million, reflecting decreased labor efficiency. This increase in inventory value resulted in a corresponding decrease to cost of products sold. Product Liability- This expense includes the cost of outside legal fees, insurance, and other expenses incurred in the management and defense of product liability matters. These costs totaled $1.5$1.1 million and $0.4$0.7 million in 20182020 and 2017,2019, respectively. See Note 1920 in the notes to the financial statements “Contingent Liabilities” for further discussion of the Company’s product liability. Product Safety Bulletins and Recalls –- In October 2018, the Company issued a safety bulletin announcing that some Ruger American Pistols chambered in 9mm may exhibit premature wear of the locking surfaces between the slide and barrel. The Company offered a free retrofit to customers of affected pistols and recorded a $1.0 million expense in the third quarter of 2018, which was the expected total cost of the safety bulletin. In June 2017,2019 and 2020, the Company discovered that Mark IV pistols manufactured prior to June 1, 2017 hadestimated costs remaining for the potential to discharge unintentionally if theproduct safety bulletin was not utilized correctly. The Company recalled all Mark IV pistols and recorded a $2.5 million expense in the second quarter,reduced, which is the expected totaldecreased cost of the recall. Also, the Company issued a Product Safety Bulletin for certain Ruger Precision Rifles due to the potential for interference between the aluminum bolt shroud and the cocking piece and recorded asales by $0.2 million expenseand $0.9 million in the third quarter of 2017.2019 and 2020, respectively. Gross Profit- Gross profit was $134.4$191.4 million or 27.1%33.7% of sales in 2018.2020. This is a decreasean increase of $19.6$91.9 million from 20172019 gross profit of $154.0$99.5 million or 29.5%24.3% of sales in 2017.2019. Selling, General and Administrative Selling, general and administrative expenses were $67.4$72.3 million in 2018, a decrease2020, an increase of $10.2$12.2 million from $77.6$60.1 million in 2017,2019, and a decrease from 14.9%14.6% of sales in 20172019 to 13.6%12.7% of sales in 2018. These decreases were2020. The increase in expense was primarily attributable to reductionsincreased sales and incentive compensation expenses and the decrease in firearms promotional expense. Effective January 1, 2018, the Company adopted ASC 606 which modified revenue recognition relatedpercentage of sales was attributable to certain sales promotion activities that include the shipment of no charge firearms. As a result, approximately $12.1 million of promotional expenses that had been classified as selling expensessignificant increase in prior years are recorded as cost of products sold in 2018.sales. Other Operating Income, net Other operating income, net was de minimis in 20182020 and 2017.2019. Operating Income Operating income was $67.0$119.1 million or 13.5%20.9% of sales in 2018.2020. This is a decreasean increase of $9.3$79.7 million from 20172019 operating income of $76.3$39.4 million or 14.6%9.6% of sales. Royalty Income Royalty income was $0.8 million in 20182020 and $0.5$0.7 million in 2017.2019. Interest Income and Interest income was $1.1 million in 2020, a decrease of $1.5 million from $2.6 million in 2019, due to decreased interest rates earned on short-term investments in 2020. Interest Expense Interest incomeexpense was $0.2 million and interest expense were insignificant$0.2 million in 20182020 and 20172019, respectively. Other Income, Net Other income, net was $1.0$0.1 million in 2018, an increase2020, a decrease of $0.1$0.5 million from $0.9$0.6 million in 2017.2019. Income Taxes and Net Income The effective income tax rate was 25.9%25.3% in 20182020 and 32.8%25.0% in 2017. The decrease in the effective tax rate in 2018 is primarily attributable to the “2017 Tax Cuts and Jobs Act” which reduced the Federal corporate income tax rate to 21% beginning in 2018.2019. As a result of the foregoing factors, consolidated net income was $50.9$90.4 million in 2018.2020. This represents a decreasean increase of $1.2$58.1 million from 20172019 consolidated net income of $52.1$32.3 million. Non-GAAP Financial Measure In an effort to provide investors with additional information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and onetwo non-GAAP financial measure,measures, EBITDA and EBITDA margin, which management believes provides useful information to investors. ThisThese non-GAAP measuremeasures may not be comparable to similarly titled measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measuremeasures should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA isand 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’sits financial performance. Non-GAAP Reconciliation – EBITDA EBITDA (Unaudited, dollars in thousands) Year ended December 31, | | 2018 | | | 2017 | | | 2020 | | | 2019 | | | | | | | | | | | | | | Net income | | $ | 50,933 | | | $ | 52,142 | | | $ | 90,398 | | | $ | 32,291 | | | | | | | | | | | | | | | | | | Income tax expense | | | 17,781 | | | | 25,504 | | | | 30,583 | | | | 10,736 | | Depreciation and amortization expense | | | 31,972 | | | | 34,264 | | | | 27,576 | | | | 29,331 | | Interest expense | | | 330 | | | | 152 | | | | 191 | | | | 192 | | Interest income | | | (211 | ) | | | (27 | ) | | | (1,126 | ) | | | (2,594 | ) | EBITDA | | $ | 100,805 | | | $ | 112,035 | | | $ | 147,622 | | | $ | 69,956 | | EBITDA margin | | | | 26.0 | % | | | 17.0 | % |
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’s EBITDA calculation also excludes any one-time non-cash, non-operating expense. Financial Condition Liquidity At December 31, 2019,2021, the Company had cash and cash equivalents of $35.4$21.0 million and $129.5$200.0 million in short term investments. Our pre-LIFO working capital of $235.2$303.4 million, less the LIFO reserve of $47.1$51.8 million, resulted in working capital of $188.1$251.6 million and a current ratio of 4.14.3 to 1. Operations Cash provided by operating activities was $172.3 million, $143.8 million, and $49.6 million $119.8 million,in 2021, 2020, and $101.2 million in 2019, 2018, and 2017, respectively. The decreaseincrease in cash provided in 20192021 compared to 20182020 is primarily attributable to decreasedsignificantly increased earnings in 2019, an increase in accounts receivable in 2019 compared to a significant decrease in accounts receivable in 2018, and decreases in accounts payable and accrued expenses in 2019 compared to increases in those accounts in 2018.2021. The increase in cash provided in 20182020 compared to 20172019 is primarily attributable to significant decreasessignificantly increased earnings in accounts payable2020, decreased inventories in 2020, and accrued expensesincreased employee compensation and benefit accruals in 2017 compared to modest increases in 2018, partially offset by other working capital fluctuations.2020. Third parties supply the Company with various raw materials for its firearms and castings, such as 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. There is a limited supply of these materials in the marketplace at any given time, which can cause the purchase prices to vary based upon numerous market factors. The Company believes that it has adequate quantities of raw materials in inventory or on order to provide sufficient time to locate and obtain additional items at then-current market cost without interruption of its manufacturing operations. However, ifIf 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 were $28.8 million, $24.2 million, and $20.3 million $10.5 million,in 2021, 2020, and $33.6 million in 2019, 2018, and 2017, respectively. In 2020,2022, the Company expects capital expenditures to approximate $20 million, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment. Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the budgeted amount. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash. On November 23, 2020, the Company acquired substantially all of the Marlin Firearms assets, consisting of inventory, machinery and equipment, and intangible assets. The agreement to purchase these assets emanated from the Remington Outdoor Company, Inc. bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of Alabama on September 30, 2020. The purchase price of approximately $28.3 million was paid with available cash on hand. Shipments of Ruger-made, Marlin lever-action rifles commenced late in the fourth quarter of 2021. As of December 31, 2019,2021, the Company had $129.5$200.0 million of United States Treasury instruments which mature within one year. In 2019, the Company repurchased 44,500 shares of its common stock for $2.0 million in the open market. The average price per share purchased was $44.83. These purchases were funded with cash on hand. No shares were repurchased in 2018. In 2017, the Company repurchased 1,319,708 shares of its common stock for $64.8 million in the open market. The average price per share purchased was $49.14. These purchases were funded with cash on hand.2020 or 2021. At December 31, 2019,2021, approximately $86.7 million remained authorized for future share repurchases. The Company paid dividends totaling $59.1 million, $113.9 million, and $14.3 million $19.2 million,in 2021, 2020, and $23.9 million2019, respectively. The increased dividends paid in 2019, 2018, and 2017, respectively.2020 were attributable to a $5.00 per share special dividend paid in August 2020. 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 February 14, 2020,18, 2022, the Company’s Board of Directors authorized a dividend of 18¢86¢ per share to shareholders of record on March 13, 2020.11, 2022. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash, and the Company’s need for funds. The Company provides supplemental discretionary contributions to substantially all employees’ individual 401(k) accounts. Based on its unencumbered assets, the Company believes it has the ability to raise cash through issuance of short-term or long-term debt. The Company’s unsecured $40 million credit facility, which expires on September 30, 2020, remained unused at December 31, 2019 and the Company has no debt.
Contractual Obligations The table below summarizes the Company’s significant contractual obligations atAt December 31, 2019, and2021, the effect such obligations are expected to have on the Company’s liquidity and cash flowsCompany had approximately $64.2 million in future periods. This table excludes amounts already recorded on the Company’s balance sheet as current liabilities at December 31, 2019.
“Purchase Obligations” as used in the below table includes all agreements to purchase goods or services that are enforceable and legally binding on the Company, and that specify all significant terms, including: fixed or minimum quantitiesof which are expected to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Certain of the Company’s purchase orders or contracts for the purchase of raw materials and other goods and services that may not necessarily be enforceable or legally binding onsettled in less than one year. Additionally, the Company are also includedhas approximately $2.3 million in “Purchase Obligations” in the table, and, therefore, certain of the Company’s purchase orders or contracts included in the table may represent authorizations to purchase rather than legally binding agreements.operating lease obligations, which will be payable through 2034. The Company expects to fund all of these commitments with cash flows from operations and current cash.
Payment due by period (in thousands) | Contractual Obligations | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 Years | | Long-Term Debt Obligations | | | — | | | | — | | | | — | | | | — | | | | — | | Capital Lease Obligations | | | — | | | | — | | | | — | | | | — | | | | — | | Operating Lease Obligations | | $ | 3,420 | | | $ | 589 | | | $ | 803 | | | $ | 428 | | | $ | 1,600 | | Purchase Obligations | | $ | 40,124 | | | $ | 40,124 | | | | — | | | | — | | | | — | | Other Long Term Liabilities Reflected on the Registrant’s Balance sheet Under GAAP | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 43,544 | | | $ | 40,713 | | | $ | 803 | | | $ | 428 | | | $ | 1,600 | |
The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Firearms Legislation and Litigation See Item 1A - Risk Factors and Note 1920 to the financial statements which are included in the Annual Report on Form 10-K for a discussion of firearms legislation and litigation. 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 we are not able to comply with them, such noncompliance could have a material adverse impact on the Company. Since 2018, two
Three of the Company’s smaller independent domestic wholesale distributors filed for bankruptcy protection. Additionally, three of our smaller domestic distributors discontinued their firearms distribution operations in 2019. Currently, there are 14 domestic distributors. Additionally, the Company has 4144 and 2625 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. The Company expects to realize its deferred tax assets through tax deductions against future taxable income. Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities as of the balance sheet date and net sales and expenses recognized and incurred during the reporting period then ended. The Company bases estimates on prior experience, facts and circumstances, and other assumptions, including those reviewed with actuarial consultants and independent counsel, when applicable, that are believed to be reasonable. However, actual results may differ from these estimates. The Company believes the determination of its product liability accrual is a critical accounting policy. The Company’s management reviews every lawsuit and claim and is in contact with independent and corporate counsel on an ongoing basis. The provision for product liability claims is based upon many factors, which vary for each case. These factors include the type of claim, nature and extent of injuries, historical settlement ranges, jurisdiction where filed, and advice of counsel. An accrual is established for each lawsuit and claim, when appropriate, based on the nature of each such lawsuit or claim. Amounts are charged to product liability expense in the period in which the Company becomes aware that a claim or, in some instances a threat of a claim, has been made when potential losses or costs of defense are probable and can be reasonably estimated. Such amounts are determined based on the Company’s experience in defending similar claims. Occasionally, charges are made for claims made in prior periods because the cumulative actual costs incurred for that claim, or reasonably expected to be incurred in the future, exceed amounts already provided with respect to such claims. Likewise, credits may be taken if cumulative actual costs incurred for that claim, or reasonably expected to be incurred in the future, are less than amounts previously provided. While it is not possible to forecast the outcome of litigation or the timing of related costs, in the opinion of management, after consultation with independent and corporate counsel, there is a remote likelihood that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but such litigation may have a material impact on the Company’s financial results and cash flows for a particular period. The Company believes the valuation of its inventory and the related excess and obsolescence reserve is also a critical accounting policy. Inventories are carried at the lower of cost, principally determined by the last-in, first-out (LIFO) method, or market. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and the Company’s estimates of the prevailing costs of the many components of inventory costs existing at that time. The Company determines its excess and obsolescence reserve by projecting the year in which inventory will be consumed into a finished product. Given ever-changing market conditions, customer preferences and the anticipated introduction of new products, projecting the future usage of inventory is subjective. As such, it does not seem prudent to carry inventory at full cost beyond thatwhat the Company projects to be needed during the next 36 months. The methodologies applied for determining the estimates related to the product liability accrual, the LIFO reserve, and the excess and obsolescence reserve have not changed from the prior year. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers Topic 606, (“ASC 606”), which supersedes nearly all existing revenue recognition guidance. As more fully discussed in Note 2, the Company adopted ASC 606 using the modified retrospective method on January 1, 2018. In March 2016,2017, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in2017-04, Intangibles – Goodwill and Other: Simplifying the new compensation guidance is that all excess tax benefits and tax deficiencies (including tax benefits of dividends) on share-based compensation awards should be recognized in the Statement of Income as income tax expense. Previously such benefits or deficiencies were recognized in the Balance Sheet as adjustments to additional paid-in capital.Test for Goodwill Impairment. The new guidance wassimplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance for accelerated filing companies will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 20162019 and all other entities should adopt the amendments in this update for its annual or any interim periods thereafter. The Company adopted ASU 2016-09goodwill impairment tests in the first quarter of 2017. The impact of adopting this change in accounting principle reduced the Company’s effective tax rate by 2% for the period ending December 31, 2017 and did not impact the effective tax rate for the period ended December 31, 2018. The adoption of this pronouncement did not have a material impact on the Company’s results of operations or financial position in any year.
In February 2016, the FASB issued ASU 2016-02, Leases Topic 842 (“ASC 842”), which amends the existing accounting standards for leases. ASC 842 requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases (with the exception of short-term leases) and disclose key information about leasing arrangements, whereas under current standards, the Company’s operating leases are not recognized on its consolidated balance sheet.
Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. ASC 842 is effective forfiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to2022. The amendment should be applied using eitheron a modified retrospective approach,prospective basis. Early adoption is permitted for interim or an optional transition method which allows an entity to apply the new standard at theannual goodwill impairment tests performed on testing dates after January 1, 2017. Management does not anticipate that this adoption date withwill have a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASC 842 in the first quarter of 2019 using this optional transition method. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualified. The Company elected the practical expedient to not separate lease and non-lease components for all of its leases. The right-of-use assets and lease liabilities for the lease portfolio recordedsignificant impact on its consolidated balance sheet as of January 1, 2019 was about $2 million, primarily related to real estate. The adoption of this pronouncement did not impact the Company’s consolidated statementsfinancial position, results of operations, or its consolidated statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance requires financial instruments measured at amortized cost basis to be presented at the net amount expected to be collected through application of the current expected credit losses model. The model requires an estimate of the credit losses expected over the life of an exposure or pool of exposures. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This pronouncement is effective for fiscal years beginning after Dec. 15, 2019. Early adoption is permitted. The Company has completed its assessment and will adopt the new guidance effective January 1, 2020. The adoption of the new guidance willdid not have a material impact to the Company.
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. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar meaning, typically identify such forward-looking statements. 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. ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changing interest rates on its investments, which consist primarily of United States Treasury instruments with short-term (less than one year) maturities and cash. The interest rate market risk implicit in the Company's investments at any given time is low, as the investments mature within short periods and the Company does not have significant exposure to changing interest rates on invested cash. The Company has not undertaken any actions to cover interest rate market risk and is not a party to any interest rate market risk management activities. A hypothetical 100 basis point change in market interest rates over the next year would not materially impact the Company’s earnings or cash flows. A hypothetical 100 basis point change in market interest rates would not have a material effect on the fair value of the Company’s investments. ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | Reports of Independent Registered Public Accounting Firm | 4847
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(PCAOB ID 49) Consolidated Balance Sheets at December 31, 20192021 and 20182020 | 5150
| Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2019, 20182021, 2020 and 20172019 | 5352
| Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 20182021, 2020 and 20172019 | 5453
| Consolidated Statements of Cash Flows for the years ended December 31, 2019, 20182021, 2020 and 20172019 | 5554
| Notes to Consolidated Financial Statements | 5655
|
ReportReports of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors of Sturm, Ruger & Company, Inc. and Subsidiary Opinion on the Internal Control Over Financial Reporting We have audited Sturm, Ruger & Company, Inc. and Subsidiary's (the Company) internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20192021 and 2018,2020, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019,2021, and our report dated February 19, 202023, 2022 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/RSM US LLP Stamford, Connecticut February 19, 202023, 2022 Report of Independent Registered Public Accounting Firm To the ShareholdersStockholders and the Board of Directors of Sturm, Ruger & Company, Inc. and Subsidiary Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Sturm, Ruger & Company, Inc. and Subsidiary (the Company) as of December 31, 20192021 and 2018, and2020, the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,2021, and the related notes and schedule (collectively, the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 19, 202023, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Audit Committeeaudit committee and that: (1) relatesrelate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit mattermatters or on the accounts or disclosures to which it relates. Last-In, First-Out Inventory ReservesReserve As described in Notes 1 and 45 to the consolidated financial statements, the Company's consolidated net inventories balance was $28.3 million assubstantially all of December 31, 2019. Thethe Company’s inventories are valued at the lower of cost, determined by the last-in, first-out (LIFO) method, or market.market, and the Company's consolidated net inventories balance of $43.9 million as of December 31, 2021, included a LIFO inventory reserve of $51.8 million. The Company valuesrecords its inventorynet inventories under the LIFO method at the end of each year based on the inventory levels at the measurement date and a complex manual calculation that estimates the prevailing inventory costs existing at that time. The Company also determines a reserve for excess and obsolete inventory based on historical usage, and projecting the year in which inventory will be consumed into a finished product. The valuation of inventories requires management to make significant assumptions, including the assessment of market value by inventory category considering historical usage, future usage and market demand for their products, and qualitative judgments related to discontinued, slow moving and obsolete inventories. We identified the LIFO inventory reservesreserve as a critical audit matter because of the significant assumptions,complexities of the manual calculations and judgements usedperformed by management into estimate the prevailing inventory costs, which includes calculations to estimate current year price level changes through the development of a prior year and a current year cumulative price index. Auditing management’s estimate of the LIFO and excess and obsolete reserves. Auditing management’s assumptionsinventory reserve was complex and required a high degree of auditor judgement and subjectivity when performingincreased audit procedures and evaluatingeffort due to the audit evidence obtained.complexities of management’s manual calculations. Our audit procedures related to the Company’s LIFO inventory reservesreserve included the following, among others: • We obtained an understanding of the relevant controls related to the LIFO inventory reservesreserve and tested such controls for design and operating effectiveness, including controls related to the review of the significant assumptionscalculations related to expected future demandthe estimate of the current year price level changes, the calculation of the cumulative price indexes, and historical sales.the estimate of the LIFO inventory reserve. • We tested management's process for determining the inventory reserves, including: ◦
Evaluated the reasonableness of the significant assumptions used by management including those related to forecasted inventory usage by considering historic sales activity and sales forecast
◦
Tested the completeness, accuracy, and relevance of the underlying data used in management's estimatesestimate of slow-moving and obsolete inventorythe current year price level changes, the calculation of cumulative price index and the LIFO reserveinventory reserve.
◦•
TestedWe tested the calculations and applicationmathematical accuracy of the Company’s calculation to estimate the LIFO inventory reserve.
• We evaluated the appropriateness of management’s methodologies related to develop the valuation estimatesestimate of slow-moving and obsolete inventory and the LIFO inventory reserve. ◦•
Developed an independent expectationWe evaluated the reasonableness of inventory write-downs at year-end based on historical trends and compared itmanagement’s estimate of the current year price level changes by comparing management’s estimate to management's estimate.external market data.
/s/RSM US LLP We have served as the Company's auditor since 2005. Stamford, Connecticut February 19, 202023, 2022 Consolidated Balance Sheets (Dollars in thousands, except per share data) December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | Current Assets | | | | | | | | | | | | | Cash and cash equivalents | | $ | 35,420 | | | $ | 38,492 | | | $ | 21,044 | | | $ | 20,147 | | Short-term investments | | | 129,488 | | | | 114,326 | | | | 199,971 | | | | 121,007 | | Trade receivables, net | | | 52,640 | | | | 45,031 | | | | 57,036 | | | | 57,876 | | | | | | | | | | | | | | | | | | | Gross inventories | | | 79,011 | | | | 80,288 | | | | 100,023 | | | | 80,487 | | Less LIFO reserve | | | (47,137 | ) | | | (46,341 | ) | | | (51,826 | ) | | | (48,016 | ) | Less excess and obsolescence reserve | | | (3,573 | ) | | | (2,527 | ) | | | (4,347 | ) | | | (3,394 | ) | Net inventories | | | 28,301 | | | | 31,420 | | | | 43,850 | | | | 29,077 | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | 3,467 | | | | 2,920 | | | | 6,832 | | | | 6,266 | | Total Current Assets | | | 249,316 | | | | 232,189 | | | | 328,733 | | | | 234,373 | | | | | | | | | | | | | | | | | | | Property, Plant, and Equipment | | | 372,482 | | | | 358,756 | | | | 421,282 | | | | 393,843 | | Less allowances for depreciation | | | (298,568 | ) | | | (276,045 | ) | | | (347,651 | ) | | | (323,110 | ) | Net property, plant and equipment | | | 73,914 | | | | 82,711 | | | | 73,631 | | | | 70,733 | | | | | | | | | | | | | | | | | | | Deferred income taxes | | | 5,393 | | | | 2,969 | | | | 536 | | | | 1,530 | | Other assets | | | 20,338 | | | | 17,663 | | | | 39,443 | | | | 41,622 | | Total Assets | | $ | 348,961 | | | $ | 335,532 | | | $ | 442,343 | | | $ | 348,258 | |
See accompanying notes to consolidated financial statements. December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | Current Liabilities | | | | | | | | | | | | | | | | | | | | | | | | Trade accounts payable and accrued expenses | | $ | 29,771 | | | $ | 33,021 | | | $ | 36,400 | | | $ | 37,078 | | Contract liabilities with customers (Note 2) | | | 9,623 | | | | 7,477 | | | Contract liabilities with customers (Note 3) | | | | 0- | | | | 84 | | Product liability | | | 735 | | | | 1,073 | | | | 795 | | | | 1,052 | | Employee compensation and benefits | | | 14,273 | | | | 20,729 | | | | 33,154 | | | | 37,275 | | Workers’ compensation | | | 5,619 | | | | 5,551 | | | | 6,760 | | | | 6,272 | | Income taxes payable | | | 1,223 | | | | 3,340 | | | Total Current Liabilities | | | 61,244 | | | | 71,191 | | | | 77,109 | | | | 81,761 | | | | | | | | | | | | | | | | | | | Lease liability (Note 7) | | | 2,176 | | | | — | | | Lease liability (Note 8) | | | | 1,476 | | | | 1,724 | | Product liability accrual | | | 83 | | | | 99 | | | | 97 | | | | 74 | | | | | | | | | | | | | | | | | | | Contingent liabilities (Note 19) | | | — | | | | — | | | Contingent liabilities (Note 20) | | | | 0- | | | | 0- | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | 2019 – 24,160,424 issued, | | | | | | | | | | 17,450,526 outstanding | | | | | | | | | | 2018 – 24,123,418 issued, | | | | | | | | | | 17,458,020 outstanding | | | 24,160 | | | | 24,123 | | | 2021 – 24,306,486 issued, | | | | | | | | | | 17,596,588 outstanding | | | | | | | | | | 2020 – 24,205,749 issued, | | | | | | | | | | 17,495,851 outstanding | | | | 24,306 | | | | 24,206 | | Additional paid-in capital | | | 38,683 | | | | 33,291 | | | | 46,847 | | | | 43,468 | | Retained earnings | | | 368,205 | | | | 350,423 | | | | 438,098 | | | | 342,615 | | Less: Treasury stock – at cost | | | | | | | | | | | | | | | | | 2019 – 6,709,898 shares | | | | | | | | | | 2018 – 6,665,398 shares | | | (145,590 | ) | | | (143,595 | ) | | 2021 – 6,709,898 shares | | | | | | | | | | 2020 – 6,709,898 shares | | | | (145,590 | ) | | | (145,590 | ) | Total Stockholders’ Equity | | | 285,458 | | | | 264,242 | | | | 363,661 | | | | 264,699 | | Total Liabilities and Stockholders’ Equity | | $ | 348,961 | | | $ | 335,532 | | | $ | 442,343 | | | $ | 348,258 | |
See accompanying notes to consolidated financial statements. Consolidated Statements of Income and Comprehensive Income (In thousands, except per share data) Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | | | | Net firearms sales | | $ | 406,326 | | | $ | 490,607 | | | $ | 517,701 | | | $ | 728,141 | | | $ | 565,863 | | | $ | 406,326 | | Net castings sales | | 4,180 | | | 5,028 | | | 4,555 | | | 2,595 | | | 3,005 | | | 4,180 | | Total net sales | | 410,506 | | | 495,635 | | | 522,256 | | | 730,736 | | | 568,868 | | | 410,506 | | | | | | | | | | | | | | | | | | | | | Cost of products sold | | 310,958 | | | 361,277 | | | 368,248 | | | 451,179 | | | 377,427 | | | 310,958 | | | | | | | | | | | | | | | | | | | | | Gross profit | | 99,548 | | | 134,358 | | | 154,008 | | | 279,557 | | | 191,441 | | | 99,548 | | | | | | | | | | | | | | | | | | | | | Operating Expenses: | | | | | | | | | | | | | | | | | | | Selling | | 29,775 | | | 35,111 | | | 49,232 | | | 33,259 | | | 33,332 | | | 29,775 | | General and administrative | | 30,344 | | | 32,248 | | | 28,396 | | | 43,289 | | | 39,013 | | | 30,344 | | Other operating expense (income), net | | 54 | | | (10 | ) | | 31 | | | (127 | ) | | (52 | ) | | 54 | | Total operating expenses | | 60,173 | | | 67,349 | | | 77,659 | | | 76,421 | | | 72,293 | | | 60,173 | | | | | | | | | | | | | | | | | | | | | Operating income | | 39,375 | | | 67,009 | | | 76,349 | | | 203,136 | | | 119,148 | | | 39,375 | | | | | | | | | | | | | | | | | | | | | Other income: | | | | | | | | | | | | | | | | | | | Royalty income | | 698 | | | 804 | | | 506 | | | 1,975 | | | 814 | | | 698 | | Interest income | | 2,594 | | | 211 | | | 27 | | | 49 | | | 1,126 | | | 2,594 | | Interest expense | | (192 | ) | | (330 | ) | | (152 | ) | | (164 | ) | | (191 | ) | | (192 | ) | Other income, net | | 552 | | | 1,020 | | | 916 | | | 1,598 | | | 84 | | | 552 | | Total other income, net | | 3,652 | | | 1,705 | | | 1,297 | | | 3,458 | | | 1,833 | | | 3,652 | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | 43,027 | | | 68,714 | | | 77,646 | | | 206,594 | | | 120,981 | | | 43,027 | | | | | | | | | | | | | | | | | | | | | Income taxes | | 10,736 | | | 17,781 | | | 25,504 | | | 50,695 | | | 30,583 | | | 10,736 | | | | | | | | | | | | | | | | | | | | | Net income and comprehensive income | | $ | 32,291 | | | $ | 50,933 | | | $ | 52,142 | | | $ | 155,899 | | | $ | 90,398 | | | $ | 32,291 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic Earnings Per Share | | $ | 1.85 | | | $ | 2.92 | | | $ | 2.94 | | | $ | 8.87 | | | $ | 5.17 | | | $ | 1.85 | | | | | | | | | | | | | | | | | | | | | Diluted Earnings Per Share | | $ | 1.82 | | | $ | 2.88 | | | $ | 2.91 | | | $ | 8.78 | | | $ | 5.09 | | | $ | 1.82 | | | | | | | | | | | | | | | | | | | | | Weighted average number of common shares outstanding - Basic | | | 17,585,604 | | | 17,486,054 | | | 17,461,421 | | | | | | | | | | | | | Weighted average number of common shares outstanding - Diluted | | | 17,757,834 | | | 17,769,856 | | | 17,778,832 | | | | | | | | | | | | | Cash Dividends Per Share | | $ | 0.82 | | | $ | 1.10 | | | $ | 1.36 | | | $ | 3.36 | | | $ | 6.51 | | | $ | 0.82 | |
See accompanying notes to consolidated financial statements. Consolidated Statements of Stockholders’ Equity (Dollars in thousands) | | Common Stock | | | Additional Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | Total | | | Common Stock | | | Additional Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | 24,034 | | | $ | 27,211 | | | $ | 293,400 | | | $ | (78,745 | ) | | $ | 265,900 | | | Net income | | | | | | | | | | 52,142 | | | | | | | | 52,142 | | | Dividends paid | | | | | | | | | | (23,905 | ) | | | | | | | (23,905) | | | Stock-based compensation | | | | | | 3,659 | | | | | | | | | | | | 3,659 | | | Exercise of stock options and vesting of RSU’s | | | | | | (2,483 | ) | | | | | | | | | | | (2,483 | ) | | Common stock issued – compensation plans | | 58 | | | | (58 | ) | | | | | | | | | | | — | | | Unpaid dividends accrued | | | | | | | | | | (314 | ) | | | | | | | (314 | ) | | Repurchase of 1,319,708 shares of common stock | | | | | | | | | | | | | | (64,850 | ) | | | (64,850 | ) | | Balance at December 31, 2017 | | 24,092 | | | | 28,329 | | | | 321,323 | | | | (143,595 | ) | | | 230,149 | | | Net income | | | | | | | | | | 50,933 | | | | | | | | 50,933 | | | Dividends paid | | | | | | | | | | (19,201 | ) | | | | | | | (19,201 | ) | | Stock-based compensation | | | | | | 5,809 | | | | | | | | | | | | 5,809 | | | Vesting of RSU’s | | | | | | (816 | ) | | | | | | | | | | | (816) | | | Common stock issued – compensation plans | | 31 | | | | (31 | ) | | | | | | | | | | | — | | | Unpaid dividends accrued | | | | | | | | | | (405 | ) | | | | | | | (405 | ) | | Adoption of ASC 606 (Note 2) | | | | | | | | | | (2,227 | ) | | | | | | | (2,227 | ) | | Balance at December 31, 2018 | | 24,123 | | | | 33,291 | | | | 350,423 | | | | (143,595 | ) | | | 264,242 | | | $ | 24,123 | | | $ | 33,291 | | | $ | 350,423 | | | $ | (143,595 | ) | | $ | 264,242 | | Net income | | | | | | | | | | 32,291 | | | | | | | | 32,291 | | | | | | | | | | | 32,291 | | | | | | | | 32,291 | | Dividends paid | | | | | | | | | | (14,319 | ) | | | | | | | (14,319 | ) | | | | | | | | | | (14,319 | ) | | | | | | | (14,319 | ) | Stock-based compensation | | | | | | 6,330 | | | | | | | | | | | | 6,330 | | | | | | | 6,330 | | | | | | | | | | | | 6,330 | | Vesting of RSU’s | | | | | | (901 | ) | | | | | | | | | | | (901) | | | | | | | (901 | ) | | | | | | | | | | | (901 | ) | Common stock issued – compensation plans | | 37 | | | | (37 | ) | | | | | | | | | | | — | | | 37 | | | | (37 | ) | | | | | | | | | | | 0- | | Unpaid dividends accrued | | | | | | | | | | (190 | ) | | | | | | | (190 | ) | | | | | | | | | | (190 | ) | | | | | | | (190 | ) | Repurchase of 44,500 shares of common stock | | | | | | | | | | | | | | (1,995 | ) | | | (1,995 | ) | | | | | | | | | | | | | | (1,995 | ) | | | (1,995 | ) | Balance at December 31, 2019 | | $ | 24,160 | | | $ | 38,683 | | | $ | 368,205 | | | $ | (145,590 | ) | | $ | 285,458 | | | 24,160 | | | | 38,683 | | | | 368,205 | | | | (145,590 | ) | | | 285,458 | | Net income | | | | | | | | | | | 90,398 | | | | | | | | 90,398 | | Dividends paid | | | | | | | | | | | (113,896 | ) | | | | | | | (113,896 | ) | Stock-based compensation | | | | | | | 6,128 | | | | | | | | | | | | 6,128 | | Vesting of RSU’s | | | | | | | (1,297 | ) | | | | | | | | | | | (1,297 | ) | Common stock issued – compensation plans | | | 46 | | | | (46 | ) | | | | | | | | | | | 0- | | Unpaid dividends accrued | | | | | | | | | | | (2,092 | ) | | | | | | | (2,092 | ) | Balance at December 31, 2020 | | | 24,206 | | | | 43,468 | | | | 342,615 | | | | (145,590 | ) | | | 264,699 | | Net income | | | | | | | | | | | 155,899 | | | | | | | | 155,899 | | Dividends paid | | | | | | | | | | | (59,104 | ) | | | | | | | (59,104 | ) | Stock-based compensation | | | | | | | 8,280 | | | | | | | | | | | | 8,280 | | Vesting of RSU’s | | | | | | | (4,801 | ) | | | | | | | | | | | (4,801 | ) | Common stock issued – compensation plans | | | 100 | | | | (100 | ) | | | | | | | | | | | 0- | | Unpaid dividends accrued | | | | | | | | | | | (1,312 | ) | | | | | | | (1,312 | ) | Balance at December 31, 2021 | | | $ | 24,306 | | | $ | 46,847 | | | $ | 438,098 | | | $ | (145,590 | ) | | $ | 363,661 | |
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows (In thousands) Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | | | | | Operating Activities | | | | | | | | | | | | | | | | | | | Net income | | $ | 32,291 | | | $ | 50,933 | | | $ | 52,142 | | | $ | 155,899 | | | $ | 90,398 | | | $ | 32,291 | | Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | Adjustments to reconcile net income to cash provided by operating activities, net of effects of acquisition: | | | | | | | | | | | | | Depreciation and amortization | | 29,331 | | | | 31,972 | | | | 34,264 | | | 26,152 | | | | 27,576 | | | | 29,331 | | Stock-based compensation | | 6,330 | | | | 5,809 | | | | 3,659 | | | 8,280 | | | | 6,128 | | | | 6,330 | | Excess and obsolescence inventory reserve | | 1,046 | | | | (185 | ) | | | 358 | | | 953 | | | | 0- | | | | 1,046 | | Loss (gain) on sale of assets | | 54 | | | | (10 | ) | | | 31 | | | (Gain) loss on sale of assets | | | (127 | ) | | | (52 | ) | | | 54 | | Deferred income taxes | | (2,424 | ) | | | (4,371 | ) | | | 1,736 | | | 994 | | | | 3,863 | | | | (2,424 | ) | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | Trade receivables | | (7,609 | ) | | | 15,051 | | | | 9,360 | | | 840 | | | | (5,236 | ) | | | (7,609 | ) | Inventories | | 2,073 | | | | 8,479 | | | | 14,463 | | | (15,726 | ) | | | 10,624 | | | | 2,073 | | Trade accounts payable and accrued expenses | | (3,646 | ) | | | 939 | | | | (16,060 | ) | | (392 | ) | | | 7,954 | | | | (3,646 | ) | Contract liability to customers | | 2,146 | | | | 5,250 | | | | — | | | Contract liability with customers | | | (84 | ) | | | (9,539 | ) | | | 2,146 | | Employee compensation and benefits | | (6,646 | ) | | | 6,009 | | | | (11,466 | ) | | (5,433 | ) | | | 20,910 | | | | (6,646 | ) | Product liability | | (354 | ) | | | 353 | | | | (1,000 | ) | | (234 | ) | | | 308 | | | | (354 | ) | Prepaid expenses, other assets and other liabilities | | (888 | ) | | | (3,757 | ) | | | 13,704 | | | 1,217 | | | | (7,905 | ) | | | (888 | ) | Income taxes payable | | (2,117 | ) | | | 3,340 | | | | — | | | Income taxes receivable/payable | | | 0- | | | | (1,223 | ) | | | (2,117 | ) | Cash provided by operating activities | | 49,587 | | | | 119,812 | | | | 101,191 | | | 172,339 | | | | 143,806 | | | | 49,587 | | | | | | | | | | | | | | | | | | | | | | | | | Investing Activities | | | | | | | | | | | | | | | | | | | | | | | Property, plant, and equipment additions | | (20,296 | ) | | | (10,541 | ) | | | (33,596 | ) | | (28,776 | ) | | | (24,229 | ) | | | (20,296 | ) | Purchase of Marlin assets | | | 0- | | | | (28,316 | ) | | | 0- | | Purchases of short-term investments | | (282,738 | ) | | | (114,259 | ) | | | — | | | (681,940 | ) | | | (369,439 | ) | | | (282,738 | ) | Proceeds from maturity of short-term investments | | 267,576 | | | | — | | | | — | | | 602,976 | | | | 377,920 | | | | 267,576 | | Net proceeds from sale of assets | | 14 | | | | 10 | | | | 3 | | | 203 | | | | 178 | | | | 14 | | Cash used for investing activities | | (35,444 | ) | | | (124,790 | ) | | | (33,593 | ) | | (107,537 | ) | | | (43,886 | ) | | | (35,444 | ) | | | | | | | | | | | | | | | | | | | | | | | | Financing Activities | | | | | | | | | | | | | | | | | | | | | | | Dividends paid | | (14,319 | ) | | | (19,201 | ) | | | (23,905 | ) | | (59,104 | ) | | | (113,896 | ) | | | (14,319 | ) | Repurchase of common stock | | (1,995 | ) | | | — | | | | (64,850 | ) | | 0- | | | | 0- | | | | (1,995 | ) | Payment of employee withholding tax related to share-based compensation | | (901 | ) | | | (816 | ) | | | (2,482 | ) | | (4,801 | ) | | | (1,297 | ) | | | (901 | ) | Cash used for financing activities | | (17,215 | ) | | | (20,017 | ) | | | (91,237 | ) | | (63,905 | ) | | | (115,193 | ) | | | (17,215 | ) | | | | | | | | | | | | | | | | | | | | | | | | Decrease in cash and cash equivalents | | (3,072 | ) | | | (24,995 | ) | | | (23,639 | ) | | Increase (decrease) in cash and cash equivalents | | | 897 | | | | (15,273 | ) | | | (3,072 | ) | Cash and cash equivalents at beginning of year | | 38,492 | | | | 63,487 | | | | 87,126 | | | 20,147 | | | | 35,420 | | | | 38,492 | | Cash and cash equivalents at end of year | | $ | 35,420 | | | $ | 38,492 | | | $ | 63,487 | | | $ | 21,044 | | | $ | 20,147 | | | $ | 35,420 | |
See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements (Dollars in thousands, except per share) 1.Summary of 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 were from firearms. Export sales represented approximately 5%4% of firearms sales. 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 manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and utilizes available capacity to manufacture and sell investment castings and MIM parts to unaffiliated, third-party customers. Castings were approximatelyless than 1% of the Company’s total sales for the year ended December 31, 2019.2021. Preparation of Financial Statements The Company follows United States generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The significant accounting policies described below, together with the notes that follow, are an integral part of the consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which became effective January 1, 2018. 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. The Company accounts for cash sales discounts as a reduction in sales. Amounts billed to customers for shipping and handling fees are included in net sales and costs incurred by the Company for the delivery of goods are classified as selling expenses. Federal excise taxes are excluded from net sales. Business Combination On September 26, 2020, the Company entered into an Asset Purchase Agreement (the "Agreement") with the Remington Outdoor Company, Inc. and each of the subsidiaries of the Remington Outdoor Company, Inc. (collectively, “Remington”) to purchase substantially all of the assets (the “Marlin Assets”) used to manufacture Marlin Firearms (the “Marlin Acquisition”). The agreement to purchase these assets emanated from the Remington Outdoor Company, Inc. bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of Alabama on September 30, 2020. The Marlin Acquisition was conducted through a Bankruptcy Court-supervised process, subject to Bankruptcy Court-approved bidding procedures, approval of the transactions by the Bankruptcy Court, and the satisfaction of certain closing conditions. The Company closed on the Marlin Acquisition on November 23, 2020. The Agreement provided that, upon the terms and subject to the conditions set forth therein, Remington sold, transferred and assigned to the Company the Marlin Assets (as defined in the Agreement) for a purchase price of $28.3 million in cash. The Marlin Assets include the following assets, among other things, equipment, inventory, and all intellectual property related to Marlin, including the Marlin names and marks, and all derivatives thereof. The primary purpose of the Marlin Acquisition was to manufacture and sell Marlin branded firearms and generate shareholder value. The Marlin brand aligns with the Ruger brand and the Marlin product portfolio will widen the Company’s diverse product offerings. The transaction was funded by the Company with cash on hand and has been accounted for in accordance with ASC 805 - Business Combinations. ASC 805 requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired, using the bottom up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets was recorded as goodwill. Our estimates of fair value were based upon assumptions believed to be reasonable, yet were inherently uncertain. During the measurement period, which did not exceed one year from the date of acquisition, we recorded adjustments totaling $2.2 million to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments were recorded in the year ended December 31, 2021. Cash and Cash Equivalents The Company considers interest-bearing deposits with financial institutions with remaining maturities of three months or less at the time of acquisition to be cash equivalents. Fair Value Measurements of Short-term Investments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date. Fair value is established according to a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: | Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. | | | | Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. | | | | Level 3: Unobservable inputs are used when little or no market data is available. Level 3 inputs are given the lowest priority in the fair value hierarchy. |
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of December 31, 2019,2021, all of the Company’s short-term investments are U.S. Treasury instruments (Level 1), maturing within one year. Such securities are classified as held to maturity, since the Company has the intent and ability to do so, and are carried at cost plus accrued interest, which approximates fair value. The fair value of inventory acquired as part of business combination is based on a third-party valuation utilizing the comparable sales method which is based on Level 2 and Level 3 inputs. The fair value of property, plant and equipment acquired as part of business combination is based on a third-party valuation utilizing the indirect method of cost approach, which is based on Level 2 and Level 3 inputs. The fair value of patents acquired as part of business combination is based on a third-party valuation utilizing the replacement cost method, which is based on Level 2 and Level 3 inputs. The fair value of the remaining intangible assets as part of business combination are based on a third-party valuation utilizing discounted cash flow methods that involves inputs, which are not observable in the market (Level 3). Accounts Receivable The Company establishes an allowance for doubtful accounts based on the creditworthiness of its customers and historical experience. While the Company uses the best information available to make its evaluation, future adjustments to the allowance for doubtful accounts may be necessary if there are significant changes in economic and industry conditions or any other factors considered in the Company’s evaluation. Bad debt expense has been immaterial during each of the last three years. The Company mitigates its credit risk by maintaining credit insurance on most of its significant customers. Inventories Substantially all of the Company’s inventories are valued at the lower of cost, principally determined by the last-in, first-out (LIFO) method, or market. Elements of cost in inventories include raw materials, direct labor and manufacturing overhead. Property, Plant, and Equipment Property, plant, and equipment are carried at cost. Depreciation is computed over useful lives using the straight-line and declining balance methods predominately over 15 years for buildings, 7 years for machinery and equipment and 3 years for tools and dies. When assets are retired, sold or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the accounts and a gain or loss on such disposals is recognized when appropriate. Maintenance and repairs are charged to operations; replacements and improvements are capitalized. Long-lived Assets The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. In performing this review, the carrying value of the assets is compared to the projected undiscounted cash flows to be generated from the assets. If the sum of the undiscounted expected future cash flows is less than the carrying value of the assets, the assets are considered to be impaired. Impairment losses are measured as the amount by which the carrying value of the assets exceeds their fair value. The Company bases fair value of the assets on quoted market prices if available or, if not available, quoted market prices of similar assets. Where quoted market prices are not available, the Company estimates fair value using the estimated future cash flows generated by the assets discounted at a rate commensurate with the risks associated with the recovery of the assets. Goodwill Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired. We assess goodwill for impairment on an annual basis during the fourth quarter of each year, and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists by the amount the fair value of a reporting unit to which goodwill has been allocated is less than their respective carrying values. The impairment for goodwill is limited to the total amount of goodwill allocated to the reporting unit. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory rates applicable to future years to temporary differences between the financial statement carrying amounts and the tax basis of the Company’s assets and liabilities. Product Liability The Company provides for product liability claims including estimated legal costs to be incurred defending such claims. The provision for product liability claims is charged to cost of products sold. Advertising Costs The Company expenses advertising costs as incurred. Advertising expenses for 2019, 2018,2021, 2020, and 2017,2019, were $2.6 million, $2.9$2.7 million, and $3.1$2.6 million, respectively. Shipping Costs Costs incurred related to the shipment of products are included in selling expense. Such costs totaled $4.2 million, $3.9 million, $4.8 million, and $4.8$3.9 million in 2019, 2018,2021, 2020, and 2017,2019, respectively. Research and Development In 2019, 2018,2021, 2020, and 2017,2019, the Company spent approximately $8.2$11.7 million, $8.5$8.0 million, and $9.8$8.2 million, respectively, on research and development activities relating to new products and the improvement of existing products. These costs are expensed as incurred. Earnings per Share Basic earnings per share is based upon the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per share reflect the impact of options, restricted stock units, and deferred stock outstanding using the treasury stock method. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers Topic 606, (“ASC 606”), which supersedes nearly all existing revenue recognition guidance. As more fully discussed in Note 2, the Company adopted ASC 606 using the modified retrospective method on January 1, 2018. In March 2016,2017, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in2017-04, Intangibles – Goodwill and Other: Simplifying the new compensation guidance is that all excess tax benefits and tax deficiencies (including tax benefits of dividends) on share-based compensation awards should be recognized in the Statement of Income as income tax expense. Previously such benefits or deficiencies were recognized in the Balance Sheet as adjustments to additional paid-in capital.Test for Goodwill Impairment. The new guidance wassimplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance for accelerated filing companies will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 20162019 and all other entities should adopt the amendments in this update for its annual or any interim periods thereafter. The Company adopted ASU 2016-09goodwill impairment tests in the first quarter of 2017. The impact of adopting this change in accounting principle reduced the Company’s effective tax rate by 2% for the period ending December 31, 2017 and did not impact the effective tax rate for the periods ended December 31, 2018 and 2019. The adoption of this pronouncement did not have a material impact on the Company’s results of operations or financial position in any year.
In February 2016, the FASB issued ASU 2016-02, Leases Topic 842 (“ASC 842”), which amends the existing accounting standards for leases. ASC 842 requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases (with the exception of short-term leases) and disclose key information about leasing arrangements, whereas under current standards, the Company’s operating leases were not recognized on its consolidated balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. ASC 842 is effective forfiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to2022. The amendment should be applied using eitheron a modified retrospective approach, or an optional transition method which allows an entity to apply the new standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASC 842 in the first quarter of 2019 using this optional transition method. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualified. The Company elected the practical expedient to not separate lease and non-lease components for all of its leases. The right-of-use assets and lease liabilities for the lease portfolio recorded on its consolidated balance sheet as of January 1, 2019 was about $2 million, primarily related to real estate. The adoption of this pronouncement did not impact the Company’s consolidated statements of operations or its consolidated statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new guidance requires financial instruments measured at amortized cost basis to be presented at the net amount expected to be collected through application of the current expected credit losses model. The model requires an estimate of the credit losses expected over the life of an exposure or pool of exposures. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This pronouncement is effective for fiscal years beginning after Dec. 15, 2019.prospective basis. Early adoption is permitted. The Company has completed its assessment and will adopt the new guidance effectivepermitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2020.2017. The adoption of the new guidance willdid not have a material impact to the Company.
2.Acquisition of Marlin Assets As described in Note 1, the Company closed on the Marlin Acquisition on November 23, 2020. The Company paid $28.3 million dollars in cash for the Marlin Assets from Remington. The Marlin Acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total purchase price has been allocated to tangible assets based on their fair value and the intangibles and goodwill have been allocated on a provisional basis at the date of acquisition. The Company assumed no liabilities in this transaction. These allocations reflect various provisional estimates that were available at the time and are subject to change during the purchase price allocation period until the valuations are finalized. The Company recorded measurement period adjustments in accordance with FASB’s guidance regarding business combinations in the fourth quarter of 2021 based on its valuation and purchase price allocation procedures, to better reflect the facts and circumstances that existed at the acquisition date. The measurement period adjustments, which were completed during the fourth quarter of 2021, resulted in an increase to goodwill of $2.4 million, primarily due to a decrease in the estimated fair value of inventory received. The following table summarizes the Company's allocation of the purchase price: | | Initial Purchase Price Allocation | | | Measurement Period Adjustments | | | Final Purchase Price Allocation | Purchase Price | | | | | | | | | | | | Cash paid to sellers | | $ | 28,316 | | | $ | 0— | | | $ | 28,316 | Purchase Price Allocation | | | | | | | | | | | | Assets Acquired | | | | | | | | | | | | Inventory | | $ | 11,400 | | | $ | (2,414 | ) | | $ | 8,986 | Machinery and equipment | | | 5,000 | | | | (25 | ) | | | 4,975 | Tradename and trademarks | | | 7,800 | | | | | | | | 7,800 | Patents | | | 2,500 | | | | | | | | 2,500 | Customer Relationships | | | 1,000 | | | | | | | | 1,000 | Goodwill | | | 616 | | | | 2,439 | | | | 3,055 | Net Assets Acquired | | $ | 28,316 | | | $ | 0— | | | $ | 28,316 |
Identifiable assets acquired were recorded at their estimated fair values based on the methodology described under “Fair Value Measurements” in Note 1 - Significant Accounting Policies. The Machinery and Equipment acquired in the Marlin Acquisition were classified as deposits on capital items in Other Assets on the Company’s Consolidated Balance Sheet at December 31, 2021. Certain of these items were reclassified as Machinery and Equipment when they were placed in service in 2021. Intangible assets acquired in the Marlin Acquisition are reflected in Other Assets on the Company’s Consolidated Balance Sheet at December 31, 2021. Intangible assets are amortized over their estimated remaining useful lives using a straight-line methodology. | | Remaining Economic Useful Life | Tradename and trademarks | | 20 years | Patents | | 20 years | Customer Relationships | | 15 years |
The excess purchase price over the fair value of the assets acquired was recorded as goodwill in the amount of $3.1 million. The Company incurred acquisition related costs of $1.7 million, which are included in selling, general and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive Income for the fiscal year ended December 31, 2021. The pro forma impact of the acquisition and the results of operations attributable to Marlin in 2019 and 2020 have not been presented, as they are not material to the Company’s consolidated results of operations. The impact on sales and gross margin was no more than 5% of the reported amounts in either period, the trend in annual sales growth was unchanged, and the impact on gross margin percentage was less than 1%, in both periods. 3.Revenue Recognition and Contracts with Customers On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, applied to those contracts for which all performance obligations were not completed as of that date. Under the modified retrospective method, results for reporting periods beginning after January 1, 2018 are presented using the guidance of ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previous guidance provided in ASC Topic 605, Revenue Recognition.
The effects of adjustments to the December 31, 2017 consolidated balance sheet for the adoption of ASC 606 were as follows:
| | Balance at December 31, 2017 | | | ASC 606 Adjustments | | | Opening Balance January 1, 2018 | | Trade accounts payable and accrued expenses | | $ | 32,422 | | | $ | (4,000 | ) | | $ | 28,422 | | Deferred revenue from contracts with customers | | | — | | | | 6,950 | | | | 6,950 | | Deferred taxes | | | 1,402 | | | | (723 | ) | | | 679 | | Retained earnings | | $ | 321,323 | | | $ | (2,227 | ) | | $ | 319,096 | |
At December 31, 2017, the Company had accrued $4.0 million related to certain of its sales promotion activities that included the shipment of no charge firearms. Using the new accounting guidance, a deferred contract liability of $6.9 million was required at December 31, 2017 and an entry for $6.9 million to increase the deferred contract liability, a decrease to accounts payable and accrued expenses by $4.0 million, an increase to deferred tax assets by $0.7 million, and a reduction to beginning retained earnings of $2.2 million was recorded on January 1, 2018 (the “transition entry”).
The impact of the adoption of ASC 606 on revenue recognized during the years ended December 31, 20192021, December 31, 2020, and December 31, 20182019 is as follows: | | | 2019 | | | | 2018 | | Contract liabilities with customers at January 1, | | $ | 7,477 | | | $ | 6,950 | | Revenue recognized | | | (16,352 | ) | | | (20,653 | ) | Revenue deferred | | | 18,498 | | | | 21,180 | | Contract liabilities with customers at December 31, | | $ | 9,623 | | | $ | 7,477 | |
| | | 2021 | | | 2020 | | | 2019 | | Contract liabilities with customers at January 1, | | | $ | 84 | | | $ | 9,623 | | | $ | 7,477 | | Revenue recognized | | | | (84 | ) | | | (14,570 | ) | | | (16,352 | ) | Revenue deferred | | | | 0- | | | | 5,031 | | | | 18,498 | | Contract liabilities with customers at December 31, | | | $ | 0- | | | $ | 84 | | | $ | 9,623 | |
During the year ended December 31, 2021, there were no promotions giving rise to deferred contract liabilities and, therefore, there was no additional deferred revenue. Previously deferred revenue of $0.1 million was recognized in the first quarter of 2021. During the year ended December 31, 2020, the Company deferred $5.0 million of revenue, offset by the recognition of $14.6 million of revenue previously deferred as the performance obligations relating to the shipment of free products were satisfied. This resulted in a net increase in firearms sales for the year ended December 31, 2020 of $9.6 million and a deferred contract revenue liability at December 31, 2020 of $0.1 million. The deferred revenue balance was significantly reduced due to the absence of promotions in the fourth quarter of 2020. During the year ended December 31, 2019, the Company deferred $18.5 million of revenue, offset by the recognition of $16.4 million of revenue previously deferred as the performance obligations relating to the shipment of free products were satisfied. This resulted in a net decrease in firearms sales for the year ended December 31, 2019 of $2.1 million and a deferred contract revenue liability at December 31, 2019 of $9.6 million. The Company estimates that revenue from this deferred contract liability will be recognized in the first two quarters of 2020. During the year ended December 31, 2018, the Company deferred $21.2 million of revenue, offset by the recognition of $20.7 million of revenue previously deferred as the performance obligations relating to the shipment of free products were satisfied. This resulted in a net decrease in firearms sales for the year ended December 31, 2018 of $0.5 million and a deferred contract revenue liability at December 31, 2018 of $7.4 million.
As a result, approximately $9.6 million and $12.1 million of promotional expenses that had been classified as selling expenses in prior years were recorded as cost of products sold in 2019 and 2018, respectively.
As a result of the adoption of ASC 606, for the years ended December 31, 2019 and 2018, the gross margin percentage was reduced by 3% and 3%, respectively, and earnings per share decreased by approximately 4¢ and 1¢, respectively, as compared with the revenue recognition methodology used in earlier comparable reporting periods.
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. 3.4.Trade Receivables, Net
Trade receivables consist of the following: December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Trade receivables | | $ | 54,110 | | | $ | 46,360 | | | $ | 58,605 | | | $ | 59,442 | | Allowance for doubtful accounts | | (400 | ) | | (400 | ) | | (400 | ) | | (400 | ) | Allowance for discounts | | (1,070 | ) | | (929 | ) | | (1,169 | ) | | (1,166 | ) | | | $ | 52,640 | | | $ | 45,031 | | | $ | 57,036 | | | $ | 57,876 | |
In 2019,2021, the largest individual trade receivable balances accounted for 31%34%, 18%17%, and 12%17% of total trade receivables, respectively. In 2018,2020, the largest individual trade receivable balances accounted for 20%30%, 20%15%, and 14% of total trade receivables, respectively. 4.5.Inventories
Inventories consist of the following: December 31, | | 2019 | | 2018 | | Inventory at FIFO | | | | | | | | | Finished goods | | $ | 13,131 | | | $ | 17,313 | | Materials and products in process | | | 65,880 | | | | 62,975 | | Gross inventories | | | 79,011 | | | | 80,288 | | Less: LIFO reserve | | | (47,137 | ) | | | (46,341 | ) | Less: excess and obsolescence reserve | | | (3,573 | ) | | | (2,527 | ) | Net Inventories | | $ | 28,301 | | | $ | 31,420 | |
December 31, | | 2021 | | | 2020 | | | | | | | | | | | Inventory at FIFO | | | | | | | | | Finished goods | | $ | 7,322 | | | $ | 2,878 | | Materials and products in process | | | 92,701 | | | | 77,609 | | Gross inventories | | | 100,023 | | | | 80,487 | | Less: LIFO reserve | | | (51,826 | ) | | | (48,016 | ) | Less: excess and obsolescence reserve | | | (4,347 | ) | | | (3,394 | ) | Net Inventories | | $ | 43,850 | | | $ | 29,077 | |
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In 2019 and 2018, inventory quantities were reduced. These reductions resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases, the effect of which decreased 2019 and 2018 costs of products sold by approximately $0.2 million and $0.6 million, respectively.
5.6.Property, Plant and Equipment
Property, plant and equipment consist of the following: December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Land and improvements | | $ | 2,671 | | | $ | 2,020 | | | $ | 2,686 | | | $ | 2,686 | | Buildings and improvements | | 53,692 | | | 52,518 | | | 62,781 | | | 55,076 | | Machinery and equipment | | 270,426 | | | 262,821 | | | 302,241 | | | 285,869 | | Dies and tools | | 45,693 | | | 41,397 | | | 53,574 | | | 50,212 | | | | $ | 372,482 | | | $ | 358,756 | | | Property, plant and equipment | | | | 421,282 | | | | 393,843 | | Less allowances for depreciation | | | | (347,651 | ) | | | (323,110 | ) | Net property, plant and equipment | | | $ | 73,631 | | | $ | 70,733 | |
Depreciation expense totaled $25.8 million, $27.3 million, and $29.0 million in 2021, 2020, and 2019, respectively. 6.7.Other Assets
Other assets consist of the following: December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Patents, at cost | | $ | 7,181 | | | $ | 6,955 | | | $ | 10,024 | | | $ | 9,859 | | Accumulated amortization | | (4,780 | ) | | (4,491 | ) | | (5,360 | ) | | (5,071 | ) | Deposits on capital items | | 11,886 | | | 12,106 | | | 18,026 | | | 22,255 | | Right-of-use assets | | 2,610 | | | — | | | Marlin trade name | | | 7,800 | | | 7,800 | | Other | | 3,441 | | | 3,093 | | | 8,953 | | | 6,779 | | | | $ | 20,338 | | | $ | 17,663 | | | $ | 39,443 | | | $ | 41,622 | |
The capitalized cost of patents is amortized using the straight-line method over their useful lives. The cost ofExpenses related to patent amortization was $0.3 million in 2019, 2018,2021, 2020, and 2017.2019. The estimated annual patent amortization costexpense for each of the next five years is $0.3$0.2 million. Costs incurred to maintain existing patents are charged to expense in the year incurred. The Marlin trade name will be amortized using the straight-line method over its useful life. The estimated annual trade name amortization cost for each of the next five years is $0.4 million. The intangible asset related to Marlin customer relationships are included in Other above and will be amortized using the straight-line method over its useful life. The estimated annual customer relationship name amortization expense for each of the next five years is $0.1 million. 7.8.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. The Company’s lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. The Company adopted the provisions of ASU 2016-02 using the effective dateinterest method on January 1, 2019 and recorded right-of-use assets equal to the present value of the contractual liability for future lease payments. The table below presents the right-of-use assets and related lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:2021: | | Balance Sheet Line Item | | | December 31, 2019 | | | Balance Sheet Line Item | | | December 31, 2021 | | | December 31, 2020 | | | | | | | | | | | | | | | | | Right-of-use assets | | Other assets | | | $ | 2,610 | | | Other assets | | | $ | 1,694 | | | $ | 2,124 | | Operating lease liabilities | | | | | | | | | | | | | | | | | | | Current portion | | Trade accounts payable and accrued expenses | | | $ | 464 | | | Trade accounts payable and accrued expenses | | | $ | 249 | | | $ | 451 | | Noncurrent portion | | Lease liabilities | | | | 2,176 | | | Lease liabilities | | | | 1,476 | | | | 1,724 | | Total operating lease liabilities | | | | | | $ | 2,640 | | | | | | | $ | 1,725 | | | $ | 2,175 | |
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 uses itscalculates an incremental borrowing rate enumerated in its revolving line of credit (see Note 9) to determine the present value of its operating lease liabilities. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:2021: 2020 | | $ | 589 | | | 2021 | | | 559 | | | 2022 | | | 244 | | | $ | 244 | | 2023 | | | 213 | | | | 213 | | 2024 | | | 215 | | | | 215 | | 2025 | | | | 160 | | 2026 | | | | 160 | | Thereafter | | | 1,600 | | | | 1,280 | | Total undiscounted future minimum lease payments | | | 3,420 | | | | 2,272 | | Less: Difference between undiscounted lease payments & the present value of future lease payments | | | (780 | ) | | | (547 | ) | Total operating lease liabilities | | $ | 2,640 | | | $ | 1,725 | |
Certain of the Company’s lease agreements contain renewal options at the Company’s discretion. The Company does not recognize right-of-use assets or lease liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception of the lease or when a triggering event occurs. The Company’s weighted average remaining lease term for operating leases as of December 31, 20192021 is 11.612.1 years. 8.9. Trade Accounts Payable and Accrued Expenses
Trade accounts payable and accrued expenses consist of the following: December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | | | | | | | | | | | Trade accounts payable | | $ | 8,339 | | | $ | 11,675 | | | $ | 12,209 | | | $ | 12,796 | | Federal excise taxes payable | | 10,670 | | | 11,690 | | | 15,734 | | | 14,332 | | Accrued other | | 10,762 | | | 9,656 | | | 8,457 | | | 9,950 | | | | $ | 29,771 | | | $ | 33,021 | | | $ | 36,400 | | | $ | 37,078 | |
9.10. Line of Credit
TheThroughout 2020 and during 2021 the Company hashad a $40 million unsecured revolving line of credit with a bank. This facility is renewable annually and terminatesterminated on September 30, 2020.2021. On January 7, 2022, the Company entered into a new $40 million unsecured revolving line of credit agreement with a different bank that expires January 7, 2024. Borrowings under this new facility bear interest at either 1) the one-month LIBOR rate (1.754% at December 31, 2019)Bloomberg short-Term Bank Yield Index – 1 month plus 150 basis points, or 2) a fluctuating rate per annum equal to the greater of (i) the Bank’s prime rate or (ii) the federal funds rate plus 50 basis points. The Company is also charged one-quarter of a percent (0.25%) per year on the unused portion. Had this agreement been in effect at December 31, 2021, the Company would have been in compliance with the terms and covenants of the credit facility. At December 31, 2019,2020, the Company was in compliance with the terms and covenants of the credit facility, which remains unused. At December 31, 2018, the Company was in compliance with the terms and covenants of a previous credit facility.
10.11. Employee Benefit Plans
The Company sponsors a qualified defined-contribution 401(k) plan that covers substantially all of its employees. Under the terms of the 401(k) plan, the Company matches a certain portion of employee contributions to their individual 401(k) accounts using the “safe harbor” guidelines provided in the Internal Revenue Code. Expenses related to matching employee contributions to the 401(k) plan were $4.0 million, $3.3 million, and $3.2 million $3.1 million,in 2021, 2020, and $3.5 million in 2019, 2018, and 2017, respectively. Additionally, in 2019, 2018,2021, 2020, and 20172019 the Company provided discretionary supplemental contributions to the individual 401(k) accounts of substantially all employees. Each employee received a supplemental contribution to their account based on a uniform percentage of qualifying compensation established annually. The cost of these supplemental contributions totaled $7.4 million, $5.6 million, and $5.0 million $5.3 million,in 2021, 2020, and $5.6 million in 2019, 2018, and 2017, respectively. 11.12.Other Operating Income, Net
Other operating income, net consists of the following: Year ended December 31, | | | 2019 | | | | 2018 | | | | 2017 | | | | | | | | | | | | | | | (Loss) gain on sale of operating assets | | $ | (54 | ) | | $ | 10 | | | $ | (31 | ) |
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Year ended December 31, | | | 2021 | | | | 2020 | | | | 2019 | | | | | | | | | | | | | | | Gain (loss) on sale of operating assets | | $ | 127 | | | $ | 52 | | | $ | (54 | ) |
12.13. Income Taxes
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 2016.2017. The federal and state income tax provision consisted of the following: Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | | | | Current | | | Deferred | | | Current | | | Deferred | | | Current | | | Deferred | | | Current | | | Deferred | | | Current | | | Deferred | | | Current | | | Deferred | | Federal | | $ | 10,705 | | | $ | (1,911 | ) | | $ | 17,574 | | | $ | (3,265 | ) | | $ | 20,232 | | | $ | 1,865 | | | $ | 42,422 | | | $ | 863 | | | $ | 20,201 | | | $ | 3,696 | | | $ | 10,705 | | | $ | (1,911 | ) | State | | 2,455 | | | (513 | ) | | 3,859 | | | (387 | ) | | 3,987 | | | (580 | ) | | 7,279 | | | 131 | | | 6,519 | | | 167 | | | 2,455 | | | (513 | ) | | | $ | 13,160 | | | $ | (2,424 | ) | | $ | 21,433 | | | $ | (3,652 | ) | | $ | 24,219 | | | $ | 1,285 | | | $ | 49,701 | | | $ | 994 | | | $ | 26,720 | | | $ | 3,863 | | | $ | 13,160 | | | $ | (2,424 | ) |
Changes in deferred tax assets relating to the adoption
The effective income tax rate varied from the statutory federal income tax rate as follows: Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | | 2020 | | | | 2019 | | Statutory federal income tax rate | | 21.0 | % | | 21.0 | % | | 35.0 | % | | 21.0 | % | | | 21.0 | % | | | 21.0 | % | | State income taxes, net of federal tax benefit | | 3.6 | | | 4.0 | | | 2.9 | | | 3.4 | | | | 4.4 | | | | 3.6 | | | Domestic production activities deduction | | — | | | — | | | (2.6 | ) | | Impact of Accounting Standard Update 2016-09 | | — | | | — | | | (0.9 | ) | | Impact of Tax Cuts and Jobs Act on deferred taxes | | — | | | — | | | (0.7 | ) | | Other items | | 0.4 | | | 0.9 | | | (0.9 | ) | | 0.1 | | | | (0.1 | ) | | | 0.4 | | | Effective income tax rate | | 25.0 | % | | 25.9 | % | | 32.8 | % | | 24.5 | % | | | 25.3 | % | | | 25.0 | % | |
The Tax Cuts and Jobs Act of 2017 lowered the statutory corporate tax rate from 35% to 21 % for years beginning after December 31, 2017. The Company estimates that its effective tax rate in 20202022 will approximate 24.8 %.25%.
As discussed in the Recent Accounting Pronouncements section of Note 1 to the Consolidated Financial Statements, the Company adopted ASU 2016-09 in the first quarter of 2017. The impact of adopting this change in accounting principle reduced the Company’s effective tax rate by 0.9% for the period ending December 31, 2017 and did not impact the effective tax rate for the periods ended December 31, 2018 and December 31, 2019. The adoption of this pronouncement did not have a material impact on the Company’s results of operations or financial position in any year.
Significant components of the Company’s deferred tax assets and liabilities are as follows: December 31, | | 2019 | | | 2018 | | | 2021 | | | 2020 | | Deferred tax assets | | | | | | | | | | | | Product Liability | | $ | 203 | | | $ | 294 | | | $ | 224 | | | $ | 285 | | Employee compensation and benefits | | 2,263 | | | 2,356 | | | 2,643 | | | 2,548 | | Allowances for doubtful accounts and discounts | | 3,761 | | | 2,750 | | | 418 | | | 445 | | Inventories | | 978 | | | 729 | | | 1,224 | | | 954 | | Stock-based compensation | | 3,064 | | | 2,292 | | | 1,538 | | | 3,353 | | Other | | 1,637 | | | 1,113 | | | 1,538 | | | 1,443 | | Total deferred tax assets | | 11,906 | | | 9,534 | | | 7,585 | | | 9,028 | | Deferred tax liabilities: | | | | | | | | | | | | Depreciation | | 5,631 | | | 6,256 | | | 6,235 | | | 6,638 | | Other | | 882 | | | 309 | | | 814 | | | 860 | | Total deferred tax liabilities | | 6,513 | | | 6,565 | | | 7,049 | | | 7,498 | | Net deferred tax assets | | $ | 5,393 | | | $ | 2,969 | | | $ | 536 | | | $ | 1,530 | |
The Company made income tax payments of approximately $49.5 million, $30.6 million, and $16.0 million, $18.1 million,during 2021, 2020, and $23.4 million, during 2019, 2018, and 2017, respectively. The Company expects to realize its deferred tax assets through tax deductions against future taxable income. The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable. The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position. 13.14.Earnings Per Share
Set forth below is a reconciliation of the numerator and denominator for the basic and diluted earnings per share calculations for the periods indicated: Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | | | | Numerator: | | | | | | | | | | | | | Net income | | $ | 32,291 | | | $ | 50,933 | | | $ | 52,142 | | Denominator: | | | | | | | | | | | | | Weighted average number of common shares outstanding – Basic | | | 17,461,421 | | | | 17,450,658 | | | | 17,725,494 | | Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans | | | 317,411 | | | | 203,973 | | | | 213,596 | | Weighted average number of common shares outstanding – Diluted | | | 17,778,832 | | | | 17,654,631 | | | | 17,939,090 | |
The dilutive effect of outstanding options and restricted stock units is calculated using the treasury stock method. There are no anti-dilutive stock options in 2019, 2018, and 2017 because the closing price of the Company’s stock on December 31, 2019, 2018, and 2017 exceeded the strike price of all outstanding options on each of those dates.
Table of Contents
Year ended December 31, | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | Numerator: | | | | | | | | | | | | | Net income | | $ | 155,899 | | | $ | 90,398 | | | $ | 32,291 | | Denominator: | | | | | | | | | | | | | Weighted average number of common shares outstanding – Basic | | | 17,585,604 | | | | 17,486,054 | | | | 17,461,421 | | Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans | | | 172,230 | | | | 283,802 | | | | 317,411 | | Weighted average number of common shares outstanding – Diluted | | | 17,757,834 | | | | 17,769,856 | | | | 17,778,832 | |
14.15.Stock Repurchases
In 2017 and 2019 the Company repurchased shares of its common stock. Details of these purchases are as follows: 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 2017 | | | | | | | | | | | | | | | | | January 29 to February 25 | | | 900,997 | | | $ | 49.70 | | | | 900,997 | | | | | | February 26 to April 1 | | | 173,288 | | | $ | 49.92 | | | | 173,288 | | | | | | Third Quarter 2017 | | | | | | | | | | | | | | | | | July 30 to August 26 | | | 4,490 | | | $ | 47.92 | | | | 4,490 | | | | | | August 27 to September 30 | | | 240,933 | | | $ | 46.30 | | | | 240,933 | | | | | | Third Quarter 2019 | | | | | | | | | | | | | | | | | July 28 to August 24 | | | 44,500 | | | $ | 44.83 | | | | 44,500 | | | | | | Total | | | 1,364,208 | | | $ | 48.96 | | | | 1,364,208 | | | $ | 86,710,000 | |
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 | | | | | | | | | | | | | | | | | | | Third Quarter 2019 | | | | | | | | | | | | | | | | | July 28 to August 24 | | | 44,500 | | | $ | 44.83 | | | | 44,500 | | | | | | Total | | | 44,500 | | | $ | 44.83 | | | | 44,500 | | | $ | 86,710,000 | |
All of these purchases were made with cash held by the Company and no debt was incurred. No shares were repurchased in 2018.2020 and 2021. At December 31, 2019,2021, approximately $87$86.7 million remained authorized for share repurchases. 15.16.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 has reserved 750,000 shares for issuance under the 2017 SIP, of which 461,000218,000 shares remain available for future grants as of December 31, 2019.2021. In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 SIP”), which had similar provisions as the 2017 SIP. The 2007 SIP plan expired April 24, 2017. The Company had reserved 2,550,000 shares for issuance under the 2007 SIP,
Compensation expense related to deferred stock, restricted stock, and restricted stock units is recognized based on the grant-date fair value of the Company’s common stock, using either the actual share price or an estimated value using the Monte Carlo valuation model. Compensation expense related to stock options is recognized based on the grant-date fair value of the awards estimated using the Black-Scholes option pricing model. The total stock-based compensation cost included in the Statements of Income was $8.3 million, $6.1 million, and $6.3 million $5.8 million,in 2021, 2020, and $3.7 million in 2019, 2018, and 2017, respectively. Stock Options There were no stock options granted in 2019, 2018,2021, 2020, or 20172019 and no stock options outstanding at December 31, 2019.2021. The following table summarizes the stock option activity of the 2007 SIP: | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Grant Date Fair Value | | | Weighted Average Remaining Contractual Life (Years) | | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Grant Date Fair Value | | | Weighted Average Remaining Contractual Life (Years) | | Outstanding at December 31, 2016 | | 11,838 | | | $ | 8.95 | | | $ | 6.69 | | | 2.3 | | | Granted | | — | | | — | | | — | | | — | | | Exercised | | — | | | — | | | — | | | — | | | Canceled | | — | | | — | | | — | | | — | | | Outstanding at December 31, 2017 | | 11,838 | | | 8.95 | | | 6.69 | | | 1.3 | | | Granted | | — | | | — | | | — | | | — | | | Exercised | | (4,616 | ) | | 8.28 | | | 6.90 | | | — | | | Canceled | | (1,750 | ) | | 8.69 | | | 4.57 | | | 0.3 | | | Outstanding at December 31, 2018 | | 5,472 | | | 9.60 | | | 7.20 | | | 0.9 | | | 5,472 | | | $ | 9.60 | | | $ | 7.20 | | | 0.9 | | Granted | | — | | | — | | | — | | | — | | | 0- | | | | 0- | | | | 0- | | | - | | Exercised | | (5,472 | ) | | 9.60 | | | 7.20 | | | — | | | (5,472 | ) | | | 9.60 | | | | 7.20 | | | - | | Canceled | | — | | | — | | | — | | | — | | | 0- | | | | 0- | | | | 0- | | | - | | Outstanding at December 31, 2019 | | — | | | — | | | — | | | — | | | 0- | | | | 0- | | | | 0- | | | - | | Exercisable Options Outstanding at December 31, 2019 | | — | | | — | | | — | | | — | | | Non-Vested Options Outstanding at December 31, 2019 | | — | | | $ | — | | | $ | — | | | — | | | Granted | | | 0- | | | | 0- | | | | 0- | | | - | | Exercised | | | 0- | | | | 0- | | | | 0- | | | - | | Canceled | | | 0- | | | | 0- | | | | 0- | | | - | | Outstanding at December 31, 2020 | | | 0- | | | | 0- | | | | 0- | | | - | | Granted | | | 0- | | | | 0- | | | | 0- | | | - | | Exercised | | | 0- | | | | 0- | | | | 0- | | | - | | Canceled | | | 0- | | | | 0- | | | | 0- | | | - | | Outstanding at December 31, 2021 | | | 0- | | | | 0- | | | | 0- | | | - | | Exercisable Options Outstanding at December 31, 2021 | | | 0- | | | | 0- | | | | 0- | | | 0- | | Non-Vested Options Outstanding at December 31, 2021 | | | 0- | | | $ | 0- | | | $ | 0— | | | 0— | |
Deferred Stock Deferred stock awards vest based on the passage of time or the Company’s attainment of performance objectives. Upon vesting, these awards convert one-for-one to common stock. In 2019, 6,3362021, 5,113 deferred stock awards were issued to non-employee directors that will vest in May 20202022 and 7,7196,615 deferred stock awards were issued to non-employee directors that will vest in May 20222024. In 2018, 5,7672020, 6,244 deferred stock awards were issued to non-employee directors that vested in May 20192021 and 6,7518,078 deferred stock awards were issued to non-employee directors that will vest in May 20212023. In 2017, 5,4322019, 6,337 deferred stock awards were issued to non-employee directors that vested in May 20182020 and 6,3607,720 deferred stock awards were issued to non-employee directors that will vest in May 2020.2022. Compensation expense related to these awards is amortized ratably over the vesting period. Compensation expense related to these awards was $0.7$0.8 million in 2019, 2018,2021, $0.8 million in 2020, and 2017.$0.7 in 2019. At December 31, 2019,2021, there was $0.9$0.8 million of unrecognized compensation cost related to deferred stock that is expected to be recognized over a period of three years. Restricted Stock Units The Company grants restricted stock units RSU’s(RSU’s) to senior employees. Some of these RSU’s are retention awards and have only time-based vesting. Other RSU’s have a vesting “double trigger.” The vesting of these RSU’s is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors, including stock performance relative to industry indices, return on net operating assets, and the passage of time. During 2021, 82,000 restricted stock units were issued. Compensation costs related to these restricted stock units was $5.6 million, of which $1.6 million was recognized in 2021. The costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months. During 2020, 95,000 restricted stock units were issued. Compensation costs related to these restricted stock units was $5.7 million, of which $1.1 million was recognized in 2020. The costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months. During 2019, 68,000 restricted stock units were issued. Compensation costs related to these restricted stock units was $3.7 million, of which $1.0 million was recognized in 2019. The costs are being recognized ratably over the remaining periods required before the units vest, which range from 24 to 26 months. During 2018, 172,000 restricted stock units were issued. Compensation costs related to these restricted stock units was $8.1 million, of which $2.2 million was recognized in 2018. The costs are being recognized ratably over the remaining periods required before the units vest, which ranged from 24 to 26 months.
During 2017, 114,000 restricted stock units were issued. Compensation costs related to these restricted stock units was $4.3 million, of which $1.2 million was recognized in 2017. The costs are being recognized ratably over the remaining periods required before the units vest, which ranged from 24 to 26 months.
At December 31, 2019,2021, there was $5.8$7.1 million of unrecognized compensation cost related to restricted stock units that is expected to be recognized over a period of 2.3 years. 16.17.Operating Segment Information
The Company has 2 reportable operating segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a number of federally-licensed, independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding parts. Corporate segment income relates to interest income, the sale of non-operating assets, and other non-operating activities. Corporate segment assets consist of cash and other non-operating assets. The Company evaluates performance and allocates resources, in part, based on income (loss) before taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1). Intersegment sales are recorded at the Company’s cost plus a fixed profit percentage. Year ended December 31, | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | | Net Sales | | | | | | | | | | | | | | | | | | Firearms | | $ | 406,326 | | | $ | 490,607 | | | $ | 517,701 | | | $ | 728,141 | | | $ | 565,863 | | | $ | 406,326 | | Castings | | | | | | | | | | | | | | | | | | | | | Unaffiliated | | | 4,180 | | | 5,028 | | | 4,555 | | | | 2,595 | | | 3,005 | | | 4,180 | | Intersegment | | | 18,425 | | | 22,946 | | | 24,436 | | | | 24,711 | | | 22,254 | | | 18,425 | | | | | 22,605 | | | 27,974 | | | 28,991 | | | | 27,306 | | | 25,259 | | | 22,605 | | Eliminations | | | (18,425 | ) | | (22,946 | ) | | (24,436 | ) | | | (24,711 | ) | | (22,254 | ) | | (18,425 | ) | | | $ | 410,506 | | | $ | 495,635 | | | $ | 522,256 | | | $ | 730,736 | | | $ | 568,868 | | | $ | 410,506 | | Income (Loss) Before Income Taxes | | | | | | | | | | | | | | | | | | | | | Firearms | | $ | 40,814 | | | $ | 70,311 | | | $ | 77,368 | | | $ | 207,657 | | | $ | 120,732 | | | $ | 40,814 | | Castings | | | (797 | ) | | (2,240 | ) | | (53 | ) | | | (2,732 | ) | | (1,000 | ) | | (797 | ) | Corporate | | | 3,010 | | | 643 | | | 331 | | | | 1,669 | | | 1,249 | | | 3,010 | | | | $ | 43,027 | | | $ | 68,714 | | | $ | 77,646 | | | $ | 206,594 | | | $ | 120,981 | | | $ | 43,027 | | Identifiable Assets | | | | | | | | | | | | | | | | | | | | | Firearms | | $ | 163,792 | | | $ | 166,975 | | | $ | 206,091 | | | $ | 188,290 | | | $ | 174,500 | | | $ | 163,792 | | Castings | | | 11,332 | | | 10,850 | | | 12,524 | | | | 13,889 | | | 11,959 | | | 11,332 | | Corporate | | | 173,837 | | | 157,707 | | | 65,703 | | | | 240,164 | | | 161,799 | | | 173,837 | | | | $ | 348,961 | | | $ | 335,532 | | | $ | 284,318 | | | $ | 442,343 | | | $ | 348,258 | | | $ | 348,961 | | Goodwill | | | | | | | | | | | | Firearms | | | $ | 3,055 | | | $ | 616 | | | $ | 0- | | Castings | | | | 209 | | | 209 | | | 209 | | | | | $ | 3,264 | | | $ | 825 | | | $ | 209 | | Depreciation | | | | | | | | | | | | | | | | | | | | | Firearms | | $ | 27,149 | | | $ | 29,542 | | | $ | 31,701 | | | $ | 22,842 | | | $ | 25,126 | | | $ | 27,149 | | Castings | | | 1,875 | | | 2,083 | | | 2,118 | | | | 2,959 | | | 2,158 | | | 1,875 | | | | $ | 29,024 | | | $ | 31,625 | | | $ | 33,819 | | | $ | 25,801 | | | $ | 27,284 | | | $ | 29,024 | | Capital Expenditures | | | | | | | | | | | | | | | | | | | | | Firearms | | $ | 19,570 | | | $ | 9,689 | | | $ | 32,710 | | | $ | 25,239 | | | $ | 19,253 | | | $ | 19,570 | | Castings | | | 726 | | | 852 | | | 886 | | | | 3,537 | | | 4,976 | | | 726 | | | | $ | 20,296 | | | $ | 10,541 | | | $ | 33,596 | | | $ | 28,776 | | | $ | 24,229 | | | $ | 20,296 | |
In 2021, the Company’s largest customers and the percent of firearms sales they represented were as follows: Lipsey’s - 21%; Sports South - 19%; and Davidson’s - 19%. In 2020, the Company’s largest customers and the percent of firearms sales they represented were as follows: Sports South - 22%; Lipsey’s - 22%; and Davidson’s - 18%. In 2019, the Company’s largest customers and the percent of firearms sales they represented were as follows: Lipsey’s-26%Lipsey’s - 26%; Sports South-22%South - 22%; and Davidson’s-15%. In 2018, the Company’s largest customers and the percent of firearms sales they represented were as follows: Davidson’s-21%; Lipsey’s-20%; and Sports South-16%.
In 2017, the Company’s largest customers and the percent of firearms sales they represented were as follows: Davidson’s-21%; Lipsey’s-18%; Sports South-13%; and Jerry’s/Ellett Brothers-12%Davidson’s - 15%.
The Company’s assets are located entirely in the United States and domestic sales represented at least 95% of total sales in 2019, 2018,2021, 2020, and 2017.2019. 17.18.Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 2019:2021: | | | | | Three Months Ended | | | | | | | | 4/3/21 | | | 7/3/21 | | | 10/2/21 | | | 12/31/21 | | | Net Sales | | $ | 184,377 | | | $ | 200,072 | | | $ | 178,246 | | | $ | 168,041 | | | Gross profit | | | 72,566 | | | | 78,757 | | | | 64,802 | | | | 63,432 | | | Net income | | | 38,192 | | | | 44,384 | | | | 35,202 | | | | 38,121 | | | Basic earnings per share | | | 2.18 | | | | 2.52 | | | | 2.00 | | | | 2.17 | | | Diluted earnings per share | | $ | 2.16 | | | $ | 2.50 | | | $ | 1.98 | | | $ | 2.14 | | |
| | | | | Three Months Ended | | | | | | | 3/30/19 | | | 6/29/19 | | | 9/28/19 | | | 12/31/19 | | | 3/28/20 | | | 6/27/20 | | | 9/26/20 | | | 12/31/20 | | | Net Sales | | $ | 114,039 | | | $ | 96,329 | | | $ | 94,999 | | | $ | 105,139 | | | $ | 123,639 | | | $ | 130,264 | | | $ | 145,705 | | | $ | 169,260 | | | Gross profit | | | 32,597 | | | 22,302 | | | 19,867 | | | 24,782 | | | | 36,009 | | | 40,085 | | | 51,152 | | | 64,195 | | | Net income | | | 13,033 | | | 6,233 | | | 4,817 | | | 8,208 | | | | 15,338 | | | 18,594 | | | 24,753 | | | 31,713 | | | Basic earnings per share | | | 0.75 | | | 0.36 | | | 0.28 | | | 0.47 | | | | 0.88 | | | 1.06 | | | 1.42 | | | 1.81 | | | Diluted earnings per share | | $ | 0.74 | | | $ | 0.35 | | | $ | 0.27 | | | $ | 0.46 | | | $ | 0.87 | | | $ | 1.05 | | | $ | 1.39 | | | $ | 1.78 | | |
| | 3/31/18 | | | 6/30/18 | | | 9/29/18 | | | 12/31/18 | | Net Sales | | $ | 131,159 | | | $ | 128,411 | | | $ | 114,945 | | | $ | 121,121 | | Gross profit | | | 35,820 | | | | 36,599 | | | | 28,092 | | | | 33,848 | | Net income | | | 14,264 | | | | 15,189 | | | | 9,206 | | | | 12,274 | | Basic earnings per share | | | 0.82 | | | | 0.87 | | | | 0.53 | | | | 0.70 | | Diluted earnings per share | | $ | 0.81 | | | $ | 0.86 | | | $ | 0.52 | | | $ | 0.69 | |
18.19.Related Party Transactions
From time to time, the Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities. The Company paid the NRA $0.8$0.5 million, $0.7$0.6 million and $0.8 million in 2021, 2020 and 2019, 2018 and 2017, respectively. The Company has contracted with Symbolic, Inc. (“Symbolic”) to assist in its marketing efforts. Payments to Symbolic were insignificant in 2019 and 2018. During One of the year ended December 31, 2017, the Company paid Symbolic $1.4 million, which amount included $0.9 million for the reimbursement of expenses paid by SymbolicCompany’s Directors also serves as a Director on the Company’s behalf. Symbolic’s principal and founder has beenBoard of the Company’s Vice President of Marketing since June 2017 and remains a partner of Symbolic.NRA.
19.20.Contingent Liabilities
As of December 31, 2019,2021, the Company was a defendant in five (5)four (4) lawsuits and is aware of certain other such claims. The lawsuits fall into threetwo categories: traditional product liability litigation, non-product litigation, and municipal litigation. Each is discussed in turn below. Traditional Product Liability Litigation Two lawsuits mentioned above involve a claim for damages related to an allegedly defective product due to its design and/or manufacture. Each lawsuit stemsThe lawsuits stem from a specific incident of personal injury and isare based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty. The Company management believes that the allegations in these cases are unfounded, that the incidents are unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company. Non-Product Litigation
David S. Palmer, on behalf of himself and all others similarly situated vs. Sturm, Ruger & Co. is a putative class-action suit filed in Florida state court on behalf of Florida consumers. The suit alleges breach of warranty and deceptive trade practices related to the sale of 10/22 Target Rifles. The Company has denied all material allegations and the dispute between the parties has been resolved. The matter remains pending until an order of dismissal can be obtained from the court.
Primus Group LLC v. Smith and Wesson, et al. is a putative class action filed in the United States District Court for the Southern District of Ohio on August 8, 2019. Plaintiff alleges that the defendants’ lawful sale of modern sporting rifles violates the Racketeer Influenced Corrupt Organizations Act and seeks a temporary restraining order (“TRO”) and permanent injunction. On August 20, 2019, the court denied plaintiff’s request for a TRO. On September 3, 2019, defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). On September 16, 2019, plaintiff filed an Amended Complaint. On October 9, 2019, the court dismissed plaintiff’s Amended Complaint, with prejudice. Plaintiff filed a Notice of Appeal on October 15, 2019 and has since sought two extensions of time to file its initial brief.
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 is only one remaining lawsuitare two lawsuits of this type, filed by the type. The City of Gary, filed in Indiana State Court in 1999. 1999, and Estado Unidos Mexicanos v. Smith & Wesson, et al., which was filed in August 2021. The complaintCity of Gary Complaint in that case seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages. In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants. The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising. The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products. After a long procedural history, the case was scheduled for trial on June 15, 2009. The case was not tried on that date and was largely dormant until a status conference was held on July 27, 2015. At that time, the court entered a scheduling order setting deadlines for plaintiff to file a Second Amended Complaint, for defendants to answer, and for defendants to file dispositive motions. The plaintiff did not file a Second Amended Complaint by the deadline. In 2015, Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. The defendants filed a joint motion for judgment on the pleadings, asserting immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce in Arms Act inapplicable to the City's claims. The motion was fully briefed by the parties. On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v. Runnels, which presented related issues. The Indiana Supreme Court decided KS&E Sports on April 24, 2017, and the City of Gary court lifted the stay. The City of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of the KS&E Sports decision on defendants' motion for judgment on the pleadings. A hearing on the motion for judgment on the pleadings was held on December 12, 2017. On January 2, 2018, the court issued an order granting defendants’ motion for judgment on the pleadings, but denying defendants’ request for attorney’s fees and costs. On January 8, 2018, the court entered judgment for the defendants. The City filed a Notice of Appeal on February 1, 2018. Defendants cross-appealed the order denying attorney’s fees and costs. Briefing in the Indiana Court of Appeals was completed on the City’s appeal and Defendants’ cross appeal on September 10, 2018. The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that Manufacturer Defendants’ conduct was unlawful. However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief. The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019. The Petition was denied on November 26, 2019. The case has beenwas remanded to the trial court for further proceedings. During the quarter ended April 3, 2021, the City initiated discovery and the Manufacturer Defendants reciprocated. Discovery is ongoing. Estado 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 the defendants design, manufacture, distribute, market and sell firearms in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels for criminal activities. Plaintiff seeks injunctive relief and monetary damages. The Company believes that the allegations are without merit and is defending itself 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 after July 10, 2000, coverage is provided on an annual basis for losses exceeding $5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage. The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company’s financial results for a particular period. Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims. Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case. A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case. Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience. Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs. In most cases, an accrual is established only for estimated legal defense costs. Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future. Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims; i.e., an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis. A range of reasonably possible losses relating to unfavorable outcomes cannot be made. However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $0.1$0.9 million and $0.1$1.1 million at December 31, 20192021 and 2018,2020, respectively, are set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal. During 2021, one (1) traditional product liability lawsuit was filed against the Company. As of December 31, 2019 and 2018,2021, the Company was a defendant in 3 and 4four (4) lawsuits respectively, involving its products, including two (2) traditional lawsuits and is aware of other such claims. two (2) municipal lawsuits. During 2019 and 2018, respectively, 2 and 3 product-related lawsuits were2020, one (1) traditional product liability lawsuit was filed against the Company 2 and 1one (1) was resolved. As of December 31, 2020, the Company was a defendant in three (3) lawsuits were settled,involving its products, including two (2) traditional lawsuits and 1 and 0 lawsuits were dismissed without payment.one (1) municipal lawsuit. The Company’s product liability expense was $ 0.7$1.1 million in 2019, $1.52021, $1.1 million in 2018,2020, and $0.4$0.7 million in 2017.2019. This expense includes the cost of outside legal fees, insurance, and other expenses incurred in the management and defense of product liability matters. A roll-forward of the product liability reserve and detail of product liability expense for the three years ended December 31, 20192021 follows: Balance Sheet Roll-forward for Product Liability Reserve | | | | | | | | | | Cash Payments | | | | | | | | Balance Beginning of Year (a) | | | Accrued Legal Expense (Income) (b) | | | Legal Fees (c) | | | Settlements (d) | | | Balance End of Year (a) | | | | | | | | | | | | | | | | | | | | | | | 2017 | | $ | 1,819 | | | | (477 | ) | | | (290 | ) | | | (233 | ) | | $ | 819 | | | | | | | | | | | | | | | | | | | | | | | 2018 | | $ | 819 | | | | 731 | | | | (183 | ) | | | (195 | ) | | $ | 1,172 | | | | | | | | | | | | | | | | | | | | | | | 2019 | | $ | 1,172 | | | | (37 | ) | | | (240 | ) | | | (77 | ) | | $ | 818 | |
| | | | | | | | | | Cash Payments | | | | | | | | Balance Beginning of Year (a) | | | Accrued Legal Expense (Income) (b) | | | Legal Fees (c) | | | Settlements (d) | | | Balance End of Year (a) | | | | | | | | | | | | | | | | | | | | | | | 2019 | | $ | 1,172 | | | | (37 | ) | | | (240 | ) | | | (77 | ) | | $ | 818 | | | | | | | | | | | | | | | | | | | | | | | 2020 | | $ | 818 | | | | 300 | | | | 8 | | | | 0— | | | $ | 1,126 | | | | | | | | | | | | | | | | | | | | | | | 2021 | | $ | 1,126 | | | | (7 | ) | | | (227 | ) | | | 0— | | | $ | 892 | |
Income Statement Detail for Product Liability Expense | | Accrued Legal Expense (b) | | | Insurance Premium Expense (e) | | | Total Product Liability Expense | | | | | | | | | | | | | | | 2017 | | $ | (477 | ) | | | 837 | | | $ | 360 | | | | | | | | | | | | | | | 2018 | | $ | 731 | | | | 783 | | | $ | 1,514 | | | | | | | | | | | | | | | 2019 | | $ | (37 | ) | | | 755 | | | $ | 718 | |
| | Accrued Legal Expense (b) | | | Insurance Premium Expense (e) | | | Total Product Liability Expense | | | | | | | | | | | | | | | 2019 | | $ | (37 | ) | | | 755 | | | $ | 718 | | | | | | | | | | | | | | | 2020 | | $ | 300 | | | | 839 | | | $ | 1,139 | | | | | | | | | | | | | | | 2021 | | $ | (7 | ) | | | 1,119 | | | $ | 1,112 | |
Notes | (a) | The beginning and ending liability balances represent accrued legal fees only. Settlements and administrative costs are expensed as incurred. Only in rare instances is an accrual established for settlements. | | | (b) | The expense accrued in the liability is for legal fees only. In 20172021 and 2019, the costs incurred related to cases that were settled or dismissed were less than the amounts accrued for these cases in prior years. | | | (c) | Legal fees represent payments to outside counsel related to product liability matters. | | | (d) | Settlements represent payments made to plaintiffs or allegedly injured parties in exchange for a full and complete release of liability. | | |
(e) | Insurance expense represents the cost of insurance premiums. |
There were no insurance recoveries during any of the above years. 20.21.Financial Instruments
The Company does not hold or issue financial instruments for trading or hedging purposes, nor does it hold interest rate, leveraged, or other types of derivative financial instruments. Fair values of accounts receivable, accounts payable, accrued expenses and income taxes payable reflected in the December 31, 20192021 and 20182020 balance sheets approximate carrying values at those dates. 21.22.Subsequent Events
As described in Note 10, on January 7, 2022, the Company entered into a $40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2024. On February 14, 2020,18, 2022, the Company’s Board of Directors authorized a dividend of 18¢86¢ per share to shareholders of record on March 13, 2020.11, 2022. The Company’s management has evaluated transactions occurring subsequent to December 31, 20192021 and determined that there were no events or transactions during that period that would have a material impact on the Company’s results of operations or financial position. ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A — CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company conducted an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2019.2021. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2019,2021, the Company’s disclosure controls and procedures over financial reporting were effective. Management’s Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company conducted an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its internal control over financial reporting as of December 31, 2019.2021. This evaluation was performed based on the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in “Internal Control — Integrated Framework” issued by the COSO in 2013. The effectiveness of the Company’s internal control over financial reporting as of December 31, 20192021 has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report which is included in this Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. New York Stock Exchange Certification Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the Company submitted an unqualified certification of our Chief Executive Officer to the New York Stock Exchange in 2019.2021. The Company has also filed, as exhibits to this Annual Report on Form 10-K, the Chief Executive Officer and Chief Financial Officer Certifications required under the Sarbanes-Oxley Act of 2002. ITEM 9B — OTHER INFORMATION None. PART III ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information concerning the Company’s directors, including the Company’s separately designated standing audit committee, and on the Company’s code of business conduct and ethics required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020,9, 2022, which will be filed with the SEC in April 2020.2022. Information concerning the Company’s executive officers required by this Item is set forth in Item 1 of this Annual Report on Form 10-K under the caption “Executive Officers of the Company.” Information concerning beneficial ownership reporting compliance required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020,9, 2022, which will be filed with the SEC in April 2020.2022. ITEM 11—EXECUTIVE COMPENSATION Information concerning director and executive compensation required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020,9, 2022, which will be filed with the SEC in April 2020.2022. ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information concerning the security ownership of certain beneficial owners and management and related stockholder matters required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020,9, 2022, which will be filed with the SEC in April 2020.2022. ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information concerning certain relationships and related transactions required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020.9, 2022. ITEM 14—PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES Information concerning the Company’s principal accountant fees and services and the pre-approval policies and procedures of the audit committee of the board of directors required by this Item is incorporated by reference from the Company’s Proxy Statement relating to the 20202022 Annual Meeting of Stockholders scheduled to be held May 13, 2020,9, 2022, which will be filed with the SEC in April 2020.2022. PART IV ITEM 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (a) | Exhibits and Financial Statement Schedule | | | | | | (1) | Financial Statements can be found under Item 8 of Part II of this Form 10-K | | | | | | (2) | Schedule can be found on Page 8394 of this Form 10-K | | | | | | (3) | Listing of Exhibits: | | | | | | | Exhibit 3.1 | Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibits 4.1 and 4.2 to the Form S-3 Registration Statement previously filed by the Company File No. 33-62702). | | | | | | | Exhibit 3.2 | Bylaws of the Company, as amended through November 12, 2019. | | | | | | | Exhibit 4.1 | Description of the Company’s Securities. | | | | | | | Exhibit 10.1 | Severance Agreement, dated as of April 10, 2008, by and between the Company and Thomas A. Dineen (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on April 11, 2008). | | | | | | | Exhibit 10.2 | Severance Agreement, dated as of April 10, 2008, by and between the Company and Thomas P. Sullivan (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed with the SEC on April 11, 2008). | | | | | | | Exhibit 10.3 | Severance Agreement, dated as of May 2, 2008 by and between the Company and Kevin B. Reid, Sr. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2008). | | | | | | | Exhibit 10.4 | Transition Services and Consulting Agreement, dated August 1, 2016, by and between the Company and Michael O. Fifer (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2016). | | | | | | | Exhibit 10.5 | Amended and Restated Agreement, dated August 1, 2016,November 10, 2020, by and between the Company and Christopher J. Killoy(Incorporated (Incorporated by reference to Exhibit 10.210.1 to the Company's Current Report on Form 8-K8-K/A filed with the SEC on August 2, 2016)November 12, 2020). | | | | | | | Exhibit 10.6 | Executive Severance Agreement, dated August 1, 2016, by and between the Company and Shawn C. Leska (Incorporated by | | | | |
| | | reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2016). | | | | |
| | Exhibit 10.7 | CreditLoan Agreement, dated September 27, 2018, byJanuary 7, 2022 between Sturm, Ruger & Company, Inc. and between the Company and Wells FargoRegions Bank NA. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 2, 2018)January 11, 2022).
| | | | | | | Exhibit 10.8 | The Sturm, Ruger & Company, Inc. 2017 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement of Schedule 14A, filed with the SEC on March 27, 2017) | | | | | | | Exhibit 10.9 | Asset Purchase Agreement, dated September 26, 2020, by and among Sturm, Ruger & Co., Inc. and Remington Outdoor Company, Inc. and each of the subsidiaries of Remington Outdoor Company, Inc. (Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the SEC on October 1, 2020). | | | | | | | Exhibit 23.1 | Consent of RSM US LLP | | | | | | | Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act. | | | | | | | Exhibit 31.2 | Certification of Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act. | | | | | | | Exhibit 32.1 | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | Exhibit 32.2 | Certification of the Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | Exhibit 101.INS* | XBRL Instance Document–Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | Exhibit 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | | | | | | Exhibit 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | Exhibit 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | Exhibit 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | Exhibit 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | Exhibit 104* | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | *Filed herewith | |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. | | (Registrant) | | | | S/THOMAS A. DINEEN | | Thomas A. Dineen | | Principal Financial Officer | | Principal Accounting Officer, Senior Vice President, | | Treasurer, and Chief Financial Officer | | | | | | February 19, 202023, 2022 | | Date |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. S/CHRISTOPHER J. KILLOY | 2/19/2023/22 | | S/JOHN A. COSENTINO, JR. | 2/19/2023/22 | Christopher J. Killoy Chief Executive Officer, Director (Principal (Principal Executive Officer)
| | | John A. Cosentino, Jr. Director | | | | | | | S/C. MICHAEL JACOBI | 2/19/2023/22 | | S/RONALD C. WHITAKER | 2/19/2023/22 | C. Michael Jacobi Director | | | Ronald C. Whitaker Director | | | | | | | S/AMIR P. ROSENTHAL | 2/19/2023/22 | | S/PHILLIP C. WIDMAN | 2/19/2023/22 | Amir P. Rosenthal Director | | | Phillip C. Widman Director | | | | | | | S/TERRENCE G. O’CONNOR | 2/19/2023/22 | | S/SANDRA S. FROMAN | 2/19/2023/22 | Terrence G. O’Connor Director | | | Sandra S. Froman Director | | | | | | | S/MICHAEL O. FIFER | 2/19/2023/22 | | S/THOMAS A. DINEEN | 2/19/2023/22 | Michael O. Fifer Director | | | Thomas A. Dineen Principal Financial Officer Principal Accounting Officer, Senior Vice President, President, Treasurer, and Chief Financial Officer
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EXHIBIT INDEX | | Page No. | Exhibit 3.1 | Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibits 4.1 and 4.2 to the Form S-3 Registration Statement previously filed by the Company File No. 33-62702). | | | | | Exhibit 3.2 | Bylaws of the Company, as amended through November 12, 2019. | | | | | Exhibit 4.1 | Description of the Company’s Securities. | | | | | Exhibit 10.1 | Severance Agreement, dated as of April 10, 2008, by and between the Company and Thomas A. Dineen (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on April 11, 2008). | | | | | Exhibit 10.2 | Severance Agreement, dated as of April 10, 2008, by and between the Company and Thomas P. Sullivan (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed with the SEC on April 11, 2008). | | | | | Exhibit 10.3 | Severance Agreement, dated as of May 2, 2008 by and between the Company and Kevin B. Reid, Sr. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 2, 2008). | | | | | Exhibit 10.4 | Transition Services and Consulting Agreement, dated August 1, 2016, by and between the Company and Michael O. Fifer (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2016). | | | | | Exhibit 10.5 | Amended and Restated Agreement, dated November 10, 2020, by and between the Company and Christopher J. Killoy (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K/A filed with the SEC on November 12, 2020). | | | | | Exhibit 10.6 | Executive Severance Agreement, dated August 1, 2016, by and between the Company and Shawn C. Leska (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2016). | | | | | Exhibit 10.7 | Loan Agreement, dated January 7, 2022 between Sturm, Ruger & Company, Inc. and Regions Bank. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on January 11, 2022). | |
EXHIBIT INDEX (continued) Exhibit 10.8 | The Sturm, Ruger & Company, Inc. 2017 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement of Schedule 14A, filed with the SEC on March 27, 2017). | | | | | Exhibit 10.9 | Asset Purchase Agreement, dated September 26, 2020, by and among Sturm, Ruger & Co., Inc. and Remington Outdoor Company, Inc. and each of the subsidiaries of Remington Outdoor Company, Inc. (Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the SEC on October 1, 2020). | | | | | Exhibit 23.1 | Consent of RSM US LLP | 88 | | | | Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act. | 89 | | | | Exhibit 31.2 | Certification of Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act. | 91 | | | | Exhibit 32.1 | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 93 | | | | Exhibit 32.2 | Certification of the Treasurer and Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 94 | | | | Exhibit 101.INS* | Inline 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. | | | | | Exhibit 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | | | | Exhibit 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | Exhibit 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | Exhibit 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | Exhibit 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | Exhibit 104* | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | *Filed herewith | | | | | |
YEAR ENDED DECEMBER 31, 20192021 STURM, RUGER & COMPANY, INC. ITEMS 15(a) FINANCIAL STATEMENT SCHEDULE Sturm, Ruger & Company, Inc. Item 15(a)--Financial Statement Schedule Schedule II—Valuation and Qualifying Accounts (In Thousands) COL. A | | COL. B | | COL. C | | COL. D | | COL. E | | | COL. B | | COL. C | | COL. D | | COL. E | | | | | | ADDITIONS | | | | | | | | | ADDITIONS | | | | | | Description | | Balance at Beginning of Period | | (1) Charged (Credited) to Costs and Expenses | | (2) Charged to Other Accounts –Describe | | Deductions | | Balance at End of Period | | | Balance at Beginning of Period | | (1) Charged (Credited) to Costs and Expenses | | (2) Charged to Other Accounts –Describe | | Deductions | | Balance at End of Period | | | | | | | | | | | | | | | | | | | | | | | | | Deductions from asset accounts: | | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2021 | | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | Year ended December 31, 2020 | | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | Year ended December 31, 2019 | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | Year ended December 31, 2018 | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | | Year ended December 31, 2017 | | $ | 400 | | $ | — | | | | $ | — | | $ | 400 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for discounts: | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2021 | | | $ | 1,166 | | $ | 16,116 | | | | $ | 16,113 | (a) | | $ | 1,169 | | Year ended December 31, 2020 | | | $ | 1,070 | | $ | 12,482 | | | | $ | 12,386 | (a) | | $ | 1,166 | | Year ended December 31, 2019 | | $ | 929 | | $ | 9,222 | | | | $ | 9,081 | (a) | | $ | 1,070 | | | $ | 929 | | $ | 9,222 | | | | $ | 9,081 | (a) | | $ | 1,070 | | Year ended December 31, 2018 | | $ | 1,225 | | $ | 10,704 | | | | $ | 11,000 | (a) | | $ | 929 | | | Year ended December 31, 2017 | | $ | 1,405 | | $ | 11,795 | | | | $ | 11,975 | (a) | | $ | 1,225 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Excess and obsolete inventory reserve: | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2021 | | | $ | 3,394 | | $ | 953 | | | | $ | — | (b) | | $ | 4,347 | | Year ended December 31, 2020 | | | $ | 3,573 | | $ | (179) | | | | $ | — | (b) | | $ | 3,394 | | Year ended December 31, 2019 | | $ | 2,527 | | $ | 1,199 | | | | $ | 153 | (b) | | $ | 3,573 | | | $ | 2,527 | | $ | 1,199 | | | | $ | 153 | (b) | | $ | 3,573 | | Year ended December 31, 2018 | | $ | 2,698 | | $ | 1,377 | | | | $ | 1,548 | (b) | | $ | 2,527 | | | Year ended December 31, 2017 | | $ | 2,340 | | $ | 1,247 | | | | $ | 889 | (b) | | $ | 2,698 | | |
| (a) | Discounts taken | (b) | Inventory written off |
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