10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2017

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______________ to _______________

Commission file number 1-10435

STURM, RUGER & COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-0633559
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)
Lacey Place, Southport, Connecticut	06890
(Address of principal executive offices)	(Zip code)

(203) 259-7843

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes x          No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x          No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o          No x

The number of shares outstanding of the issuer's common stock as of April 25, 2017: Common Stock, $1 par value –17,664,248.

Page 1 of 29

INDEX

STURM, RUGER & COMPANY, INC.

PART I.          FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed consolidated balance sheets – April 1, 2017 and December 31, 2016	3
	Condensed consolidated statements of income and comprehensive income – Three months ended April 1, 2017 and April 2, 2016	5
	Condensed consolidated statement of stockholders’ equity – Three months ended April 1, 2017	6
	Condensed consolidated statements of cash flows –Three months ended April 1, 2017 and April 2, 2016	7
	Notes to condensed consolidated financial statements – April 1, 2017	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II.        OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mining Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
SIGNATURES		29

2 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	April 1, 2017			December 31, 2016
				(Note)
Assets
Current Assets
Cash	$	35,098		$	87,126
Trade receivables, net		77,593			69,442
Gross inventories		100,778			99,417
Less LIFO reserve		(43,267	)		(42,542	)
Less excess and obsolescence reserve		(2,553	)		(2,340	)
Net inventories		54,958			54,535
Prepaid expenses and other current assets		3,250			3,660
Total Current Assets		170,899			214,763
Property, plant and equipment		338,725			331,639
Less allowances for depreciation		(236,522	)		(227,398	)
Net property, plant and equipment		102,203			104,241
Deferred income taxes		—			334
Other assets		31,029			27,541
Total Assets	$	304,131		$	346,879

Note:

The consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

3 

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands, except per share data)

	April 1, 2017			December 31, 2016
				(Note)
Liabilities and Stockholders’ Equity
Current Liabilities
Trade accounts payable and accrued expenses	$	45,287		$	48,493
Product liability		1,282			1,733
Employee compensation and benefits		15,647			25,467
Workers’ compensation		5,713			5,200
Income taxes payable		10,495			—
Total Current Liabilities		78,424			80,893
Product liability		84			86
Deferred income taxes		599			—
Contingent liabilities – Note 11		—			—
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           2017 – 24,084,223 issued,                       17,664,248 outstanding           2016 – 24,034,201 issued,                       18,688,511 outstanding		24,084			24,034
Additional paid-in capital		25,355			27,211
Retained earnings		307,799			293,400
Less: Treasury stock – at cost           2017 – 6,419,975 shares           2016 – 5,345,690 shares		(132,214	)		(78,745	)
Total Stockholders’ Equity		225,024			265,900
Total Liabilities and Stockholders’ Equity	$	304,131		$	346,879

Note:

The consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

4 

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

	Three Months Ended
	April 1, 2017			April 2, 2016
Net firearms sales	$	166,365		$	171,520
Net castings sales		990			1,589
Total net sales		167,355			173,109
Cost of products sold		111,602			113,996
Gross profit		55,753			59,113
Operating expenses:
Selling		13,539			15,074
General and administrative		8,343			7,838
Total operating expenses		21,882			22,912
Operating income		33,871			36,201
Other income:
Interest expense, net		(34	)		(35	)
Other income, net		354			206
Total other income, net		320			171
Income before income taxes		34,191			36,372
Income taxes		11,967			13,094
Net income and comprehensive income	$	22,224		$	23,278
Basic earnings per share	$	1.22		$	1.23
Diluted earnings per share	$	1.21		$	1.21
Cash dividends per share	$	0.44		$	0.35

See notes to condensed consolidated financial statements.

5 

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total
Balance at December 31, 2016	$	24,034	$	27,211		$	293,400		$	(78,745	)	$	265,900
Net income and comprehensive      income							22,224						22,224
Dividends paid							(7,772	)					(7,772	)
Unpaid dividends accrued							(53	)					(53	)
Recognition of stock-based      compensation expense				686									686
Vesting of RSU’s				(2,492	)								(2,492	)
Common stock issued-      compensation plans		50		(50	)								—
Repurchase of 1,074,285 shares      of common stock										(53,469	)		(53,469	)
Balance at April 1, 2017	$	24,084	$	25,355		$	307,799		$	(132,214	)	$	225,024

See notes to condensed consolidated financial statements.

6 

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

	Three Months Ended
	April 1, 2017			April 2, 2016
Operating Activities
Net income	$	22,224		$	23,278
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		9,326			8,344
Slow moving inventory valuation adjustment		615			(91	)
Stock-based compensation		686			632
Loss on sale of assets		31			4
Deferred income taxes		933			865
Changes in operating assets and liabilities:
Trade receivables		(8,151	)		(3,025	)
Inventories		(1,038	)		4,916
Trade accounts payable and accrued expenses		(2,693	)		5,308
Employee compensation and benefits		(9,873	)		(9,798	)
Product liability		(453	)		580
Prepaid expenses, other assets and other liabilities		(3,165	)		(471	)
Income taxes payable and prepaid income taxes		10,495			(1,113	)
Cash provided by operating activities		18,937			29,429
Investing Activities
Property, plant and equipment additions		(7,232	)		(6,346	)
Cash used for investing activities		(7,232	)		(6,346	)
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU’s		—			8,792
Remittance of taxes withheld from employees related to          share-based compensation		(2,492	)		(14,001	)
Repurchase of common stock		(53,469	)		—
Dividends paid		(7,772	)		(6,636	)
Cash used for financing activities		(63,733	)		(11,845	)
(Decrease) Increase in cash and cash equivalents		(52,028	)		11,238
Cash and cash equivalents at beginning of period		87,126			69,225
Cash and cash equivalents at end of period	$	35,098		$	80,463

See notes to condensed consolidated financial statements.

7 

STURM, RUGER & COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. Operating results for the three months ended April 1, 2017 may not be indicative of the results to be expected for the full year ending December 31, 2017. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2016.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales represent approximately 5% of total 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 also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

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.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

8 

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications:

Certain prior period balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements:

On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The new guidance requires that all deferred tax assets and liabilities be presented as a net noncurrent asset or liability on the balance sheet. Previously such items were presented as a net current asset or liability and a net noncurrent asset or liability. The new guidance was effective for fiscal years beginning after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2015-17 in the first quarter of 2017 and applied it retroactively to all prior periods presented in the financial statements. The impact of adopting this change in accounting principle on the December 31, 2016 balance sheet was to reduce current deferred tax assets and working capital by $8,859 and noncurrent deferred tax liabilities by $8,526 from the amounts previously reported for these items.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in 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. The new guidance was effective in fiscal years beginning after December 15, 2016 and interim periods thereafter. 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 1% for the period ending April 1, 2017. This did not have a material impact on the Company’s results of operations or financial position.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning after December 15, 2017. We plan to adopt the provisions of ASU 2014-09 on a modified retrospective basis. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated revenue. We continue to assess the overall impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), its long-awaited final standard on the accounting for leases. The most significant change in the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. This change will result in

9 

lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S. GAAP. The new lease guidance is effective in fiscal years beginning after December 15, 2018 and interim periods thereafter. Early application is permitted for all entities. The Company is currently evaluating the effect that the standard will have on the consolidated financial statements.

NOTE 3 - INVENTORIES

Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation.

During the three month period ended April 1, 2017, inventory quantities were reduced.  If this reduction remains through year-end, it will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases.  Although the effect of such a liquidation cannot be precisely quantified at the present time, management believes that if a LIFO liquidation occurs in 2017, the impact may be material to the Company’s results of operations for the period but will not have a material impact on the financial position of the Company.

Inventories consist of the following:

	April 1, 2017			December 31, 2016
Inventory at FIFO
Finished products	$	27,193		$	24,100
Materials and work in process		73,585			75,317
Gross inventories		100,778			99,417
Less:  LIFO reserve		(43,267	)		(42,542	)
Less:  excess and obsolescence reserve		(2,553	)		(2,340	)
Net inventories	$	54,958		$	54,535

NOTE 4 - LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2017. Borrowings under this facility bear interest at LIBOR (1.802% at April 1, 2017) plus 200 basis points. The Company is charged three-eighths of a percent (0.375%) per year on the unused portion. At April 1, 2017 and December 31, 2016, the Company was in compliance with the terms and covenants of the credit facility, which remains unused.

NOTE 5 - EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $1.0 million and $1.0 million for the three months ended April 1, 2017 and April 2, 2016, respectively. The Company plans

10 

to contribute approximately $3.0 million to the plan in matching employee contributions during the remainder of 2017.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.9 million and $1.7 million for the three months ended April 1, 2017 and April 2, 2016, respectively. The Company plans to contribute approximately $4.0 million in supplemental contributions to the plan during the remainder of 2017.

NOTE 6 - INCOME TAXES

The Company's 2016 and 2015 effective tax rates differ from the statutory federal tax rate due principally to state income taxes partially offset by tax benefits related to the American Jobs Creation Act of 2004. The Company’s effective income tax rate in the three months ended April 1, 2017 and April 2, 2016 was 35.0% and 36.0%, respectively. This reduction is primarily the result of the Company’s adoption of ASU 2016-09 on January 1, 2017, as previously discussed in the Recent Accounting Pronouncements section of Note 1.

Income tax payments for the three months ended April 1, 2017 and April 2, 2016 totaled $0.1 million and $4.6 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2013.

The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable. The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position.

NOTE 7 - EARNINGS PER SHARE

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:

	Three Months Ended
	April 1, 2017		April 2, 2016
Numerator:
Net income	$	22,224	$	23,278
Denominator:
Weighted average number of common shares outstanding – Basic		18,219,557		18,943,427
Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		168,554		225,150
Weighted average number of common shares outstanding – Diluted		18,388,111		19,168,577

11 

The dilutive effect of outstanding options and restricted stock units is calculated using the treasury stock method. There were no stock options that were anti-dilutive and therefore not included in the diluted earnings per share calculation.

NOTE 8 - COMPENSATION PLANS

In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 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 2,550,000 shares for issuance under the 2007 SIP, of which 369,000 shares remain available for future grants as of April 1, 2017.

Compensation costs related to all share-based payments recognized in the statements of operations aggregated $0.7 million and $0.6 million for the three months ended April 1, 2017 and April 2, 2016, respectively.

Stock Options

A summary of changes in options outstanding under the 2007 SIP is summarized below:

	Shares		Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2016		11,838	$	8.95	$	6.69
Granted		—		—		—
Exercised		—		—		—
Expired		—		—		—
Outstanding at April 1, 2017		11,838	$	8.95	$	6.69

The aggregate intrinsic value (mean market price at April 1, 2017 less the weighted average exercise price) of options outstanding under the 2007 SIP was approximately $0.5 million.

Restricted Stock Units

Beginning in 2009, the Company began granting restricted stock units to senior employees in lieu of incentive stock options. The vesting of these awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors. Beginning in 2011, a three year vesting period was added to the performance criteria, which had the effect of requiring both the achievement of the corporate performance objectives and the satisfaction of the vesting period.

There were 102,500 restricted stock units issued during the three months ended April 1, 2017. Total compensation costs related to these restricted stock units are $2.7 million. These costs are being recognized ratably over the vesting period of three years. Total compensation cost related to restricted

12 

stock units was $0.7 million and $0.6 million for the three months ended April 1, 2017 and April 2, 2016, respectively.

NOTE 9 - OPERATING SEGMENT INFORMATION

The Company has two reportable segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a select number of independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding parts.

Selected operating segment financial information follows:

(in thousands)	Three Months Ended
	April 1, 2017			April 2, 2016
Net Sales
Firearms	$	166,365		$	171,520
Castings
Unaffiliated		990			1,589
Intersegment		8,840			8,949
		9,830			10,538
Eliminations		(8,840	)		(8,949	)
	$	167,355		$	173,109
Income (Loss) Before Income Taxes
Firearms	$	34,031		$	36,371
Castings		101			(68	)
Corporate		59			69
	$	34,191		$	36,372

	April 1, 2017		December 31, 2016
Identifiable Assets
Firearms	$	253,531	$	242,758
Castings		15,118		16,096
Corporate		35,482		88,025
	$	304,131	$	346,879

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities, primarily the 2016 “Ruger $5 Million Match Campaign” and the 2015-16 “2.5 Million Gun Challenge”. Payments made to the NRA in the three months ended April 1, 2017 were insignificant. The Company paid the NRA $1.0 million in the three months ended April 2, 2016. One of the Company’s Directors also serves as a Director on the Board of the NRA.

13 

NOTE 11 - CONTINGENT LIABILITIES

As of April 1, 2017, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: traditional product liability litigation, patent litigation, and municipal litigation, discussed in turn below.

Traditional Product Liability Litigation

Two of the four lawsuits mentioned above involve claims for damages related to allegedly defective products due to their design and/or manufacture. These lawsuits stem from specific incidents of personal injury and are 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 were unrelated to the design or manufacture of the firearm, and that there should be no recovery against the Company.

Patent Litigation

Davies Innovations, Inc. v. Sturm, Ruger & Company, Inc. is a patent litigation suit originally filed in the United States District Court for the Southern District of Texas, Galveston Division. Upon motion by the Company, the case was transferred to the United States District Court for the District of New Hampshire. The suit is based upon alleged patent infringement as the plaintiff claims that certain features of the Ruger SR-556 and SR-762 modern sporting rifles infringe its patent. The complaint seeks a judgment of infringement and unspecified monetary damages including costs, fees and treble damages.

Pursuant to the Company’s Motion for Summary Judgment, on February 15, 2017, the Court dismissed the plaintiff’s claim of literal infringement, but allowed the case to proceed to discovery on alternate theories.

The Company management believes that the allegations in this case are unfounded, that there is no infringement of plaintiff’s patent, that plaintiff’s patent is invalid, and that there should be no recovery against the Company.

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 lawsuit of this type, filed by the City of Gary in Indiana State Court in 1999. The 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.

14 

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 have 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 has been briefed by the parties and is awaiting a hearing.

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 million and $0.1 million at April 1, 2017 and December 31, 2016, respectively, are set forth as an indication of possible maximum liability the Company might be

15 

required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

NOTE 12 - SUBSEQUENT EVENTS

On May 5, 2017, the Company’s Board of Directors authorized a dividend of 48¢ per share, for shareholders of record as of May 19, 2017, payable on May 31, 2017.

On May 5, 2017, the Company’s Board of Directors expanded its authorization to repurchase shares of its common stock to $100 million.

The Company has evaluated events and transactions occurring subsequent to April 1, 2017 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

16 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales represent approximately 5% of total 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 also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year. This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Results of Operations

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 7% in the first quarter of 2017 from the comparable prior year period. For the same period, the National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 11%. The decrease in estimated sell-through of the Company’s products from the independent distributors to retailers is attributable to:

· Decreased overall consumer demand in the first quarter of 2017 due to stronger-than-normal demand during most of 2016, likely bolstered by the political campaigns for the November 2016 elections.

· Decreased overall retailer demand in the first quarter of 2017 as some retailers committed inventory dollars to certain product categories such as modern sporting rifles in the third and fourth quarters of 2016 in advance of the November elections.

Sales of new products, including the Mark IV pistols, the LCP II pistol, and the Precision Rifle, represented $41.5 million or 25% of firearm sales in the first quarter of 2017. New product sales include only major new products that were introduced in the past two years.

17 

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing five quarters follow:

	2017		2016
	Q1		Q4		Q3		Q2		Q1
Estimated Units Sold from Distributors to Retailers (1)		533,800		529,100		453,400		453,700		571,000
Total adjusted NICS Background Checks (thousands) (2)		3,694		4,861		3,519		3,199		4,148

(1) The estimates for each period were calculated by taking the beginning inventory at the distributors, plus shipments from the Company to distributors during the period, less the ending inventory at distributors. These estimates are only a proxy for actual market demand as they:

· Rely on data provided by independent distributors that are not verified by the Company,

· Do not consider potential timing issues within the distribution channel, including goods-in-transit, and

· Do not consider fluctuations in inventory at retail.

(2) NICS background checks are performed when the ownership of most firearms, either new or used, is transferred by a Federal Firearms Licensee. NICS background checks are also performed for permit applications, permit renewals, and other administrative reasons.  

The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (“CCW”) permit application checks as well as checks on active CCW permit databases.

Orders Received and Ending Backlog

The Company uses the estimated unit sell-through of our products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels. The Company generally does not use the orders received or ending backlog for planning production levels.

18 

The units ordered, value of orders received and ending backlog, net of excise tax, for the trailing five quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

	2017		2016
	Q1		Q4		Q3		Q2		Q1
Units Ordered		395,000		432,100		445,700		399,400		969,400
Orders Received	$	131.9	$	130.2	$	116.5	$	145.7	$	296.1
Average Sales Price of Units Ordered	$	334	$	301	$	261	$	365	$	305
Ending Backlog	$	163.8	$	195.0	$	219.1	$	257.6	$	276.1
Average Sales Price of Ending Unit Backlog (1)	$	331	$	314	$	306	$	331	$	313

(1) The average sales price of units in the third quarter of 2016 was reduced due to strong orders for the relatively lower priced LCP II pistol, and the cancellation of orders for the original version of relatively higher priced Precision rifle, which was discontinued due to the popularity of the new Enhanced Precision rifle.

Production

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, semi-monthly to plan production levels. These reviews resulted in increased total unit production of 6% for the three months ended April 1, 2017 from the comparable prior year period.

Summary Unit Data

Firearms unit data for the trailing five quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

	2017		2016
	Q1		Q4		Q3		Q2		Q1
Units Ordered		395,000		432,100		445,700		399,400		969,400
Units Produced		529,900		566,200		527,600		529,600		502,100
Units Shipped		521,000		527,300		507,500		504,000		516,700
Average Sales Price of Units Shipped	$	319	$	304	$	315	$	330	$	332
Ending Unit Backlog		495,400		621,400		716,600		778,400		883,000

19 

Inventories

During the first quarter of 2017, the Company’s finished goods inventory increased by 8,800 units and distributor inventories of the Company’s products decreased by 12,900 units.

Inventory data for the trailing five quarters follows:

	2017		2016
	Q1		Q4		Q3		Q2		Q1
Units – Company Inventory		166,200		157,400		118,500		98,500		72,800
Units – Distributor Inventory (1)		306,400		319,300		321,100		267,000		216,700
Total inventory (2)		472,600		476,700		439,600		365,500		289,500

(1) Distributor ending inventory is provided by the Company’s independent distributors. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors.

(2) This total does not include inventory at retailers. The Company does not have access to data on retailer inventories of the Company’s products.

Net Sales

Consolidated net sales were $167.4 million for the three months ended April 1, 2017, a decrease of 3.3% from $173.1 million in the comparable prior year period.

Firearms net sales were $166.4 million for the three months ended April 1, 2017, a decrease of 3.0% from $171.5 million in the comparable prior year period.

Firearms unit shipments increased 1.0% for the three months ended April 1, 2017, from the comparable prior year period.

Casting net sales were $1.0 million for the three months ended April 1, 2017, a decrease of 37.7% from $1.6 million in the comparable prior year period.

Cost of Products Sold and Gross Profit

Consolidated cost of products sold was $111.6 million for the three months ended April 1, 2017, a decrease of 2.1% from $114.0 million in the comparable prior year period.

20 

Gross margin was 33.3% for the three months ended April 1, 2017, compared to 34.1% in the comparable prior year period as illustrated below (in thousands):

	Three Months Ended
	April 1, 2017					April 2, 2016
Net sales	$	167,355		100.0	%	$	173,109		100.0	%
Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory and product liability		111,213		66.5	%		112,916		65.2	%
LIFO expense		725		0.4	%		653		0.4	%
Overhead rate adjustments to inventory		(243	)	(0.1	)%		(485	)	(0.2	)%
Labor rate adjustments to inventory		65		—			80		—
Product liability		(158	)	(0.1	)%		832		0.5	%
Total cost of products sold		111,602		66.7	%		113,996		65.9	%
Gross profit	$	55,753		33.3	%	$	59,113		34.1	%

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, and product liability — During the three months ended April 1, 2017, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, and product liability increased as a percentage of sales by 1.3% compared with the comparable 2016 period primarily due to an unfavorable product mix shift.

LIFO — For the three months ended April 1, 2017 and the comparable prior year period, the Company recognized LIFO expense resulting in increased cost of products sold of $0.7 million.

Overhead Rate Adjustments — The Company uses actual overhead expenses incurred as a percentage of sales-value-of-production over a trailing six month period to absorb overhead expense into inventory. During the three months ended April 1, 2017, the Company became less efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory increased, resulting in an increase in inventory values of $0.2 million, and a corresponding decrease to cost of products sold.

During the three months ended April 2, 2016, the overhead rates used to absorb overhead expenses into inventory increased, resulting in an increase in inventory value of $0.5 million, and a corresponding decrease to cost of products sold.

Labor Rate Adjustments — The Company uses actual direct labor expense incurred as a percentage of sales-value-of-production over a trailing six month period to absorb direct labor expense into inventory. During the three months ended April 1, 2017 and April 2, 2016 the impact of the labor rate adjustment was de minimis.

21 

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. Due to favorable experience in product liability matters during the three months ended April 1, 2017, income of $0.2 million was recognized. During the three months ended April 2, 2016 product liability expense was $0.8 million.

Gross Profit — As a result of the foregoing factors, for the three months ended April 1, 2017, gross profit was $55.8 million, a decrease of $3.3 million from $59.1 million in the comparable prior year period.

Gross profit as a percentage of sales decreased to 33.3% in the three months ended April 1, 2017 from 34.1% in the comparable prior year period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $21.9 million for the three months ended April 1, 2017, a decrease of $1.0 million or 4.5% from $22.9 million in the comparable prior year period. This decrease is primarily attributable to decreased sales promotional expenses, including the absence of the “2.5 Million Gun Challenge”, which ended in the fourth quarter of 2016.

Other income, net

Other income, net was $0.3 million in the three months ended April 1, 2017 compared to $0.2 million in the three months ended April 2, 2016.

Income Taxes and Net Income

The Company’s effective income tax rate in the three months ended April 1, 2017 was 35.0%. The Company’s effective income tax rate in the three months ended April 2, 2016 was 36.0%. The decrease in the effective tax rate in 2017 is attributable to the inclusion of the tax impact of 2017 equity-based compensation in income taxes, as required by newly issued Accounting Standards Update (ASU) 2016-09, “Improvements to Employee Share Based Payment Accounting.” In the prior year, the tax impact of equity-based compensation was recorded directly into equity.

As a result of the foregoing factors, consolidated net income was $22.2 million for the three months ended April 1, 2017. This represents a decrease of 4.5% from $23.3 million in the comparable prior year period.

Non-GAAP Financial Measure

In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and one non-GAAP financial measure, EBITDA, which management believes provides useful information to investors. This non-GAAP financial measure may not be comparable to similarly titled financial measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measure should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA is 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

22 

to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance.

EBITDA is defined as earnings before interest, taxes, and depreciation and amortization. The Company calculates its EBITDA 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.

EBITDA was $43.6 million for the three months ended April 1, 2017, a decrease of 2.7% from $44.8 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

	Three Months Ended
	April 1, 2017		April 2, 2016
Net income	$	22,224	$	23,278
Income tax expense		11,967		13,094
Depreciation and amortization expense		9,326		8,344
Interest expense, net		34		35
EBITDA	$	43,551	$	44,751

Financial Condition

Liquidity

At the end of the first quarter of 2017, the Company’s cash totaled $35.1 million. Pre-LIFO working capital of $136.1 million, less the LIFO reserve of $43.3 million, resulted in working capital of $92.8 million and a current ratio of 2.2 to 1.

Operations

Cash provided by operating activities was $18.9 million for the three months ended April 1, 2017, compared to $29.4 million for the comparable prior year period. This decrease is primarily due to an increase in inventories in the current period compared to a decrease in inventories in the prior year period, a greater increase in receivables in the current period than the prior period, and various other working capital fluctuations in both periods.

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, if market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw

23 

materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

Capital expenditures for the three months ended April 1, 2017 totaled $7.2 million, an increase from $6.3 million in the comparable prior year period. In 2017, the Company expects to spend approximately $40 million on capital expenditures to purchase tooling fixtures and equipment 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 projected amount. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

Dividends of $7.8 million were paid during the three months ended April 1, 2017.

On May 5, 2017, the Board of Directors authorized a dividend of 48¢ per share, for shareholders of record as of May 19, 2017, payable on May 31, 2017. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds. The Company has financed its dividends with cash provided by operations and current cash.

During the three months ended April 1, 2017, the Company repurchased 1,074,285 shares of its common stock for $53.4 million in the open market. The average price per share purchased was $49.73. These purchases were funded with cash on hand. As of April 1, 2017, $5.5 million remained authorized for future stock repurchases. On May 5, 2017, the Company’s Board of Directors expanded its authorization to repurchase shares of its common stock to $100 million. No shares were repurchased in the three months ended April 2, 2016.

Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt. The Company’s unsecured $40 million credit facility, which expires on June 15, 2017, remained unused at April 1, 2017 and the Company has no debt.

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.

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.

24 

Adjustments to Critical Accounting Policies

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2016 Annual Report on Form 10-K filed on February 22, 2017, or the judgments affecting the application of those estimates and assumptions.

Forward-Looking Statements and Projections

The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, the impact of future firearms control and environmental legislation, and accounting estimates, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Historically, the Company has been exposed to changing interest rates on its investments, which consisted 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 typically low, as the investments mature within short periods and the Company does not have significant exposure to changing interest rates on invested cash, and there has been no material change in the Company’s exposure to interest rate risks during the three months ended April 1, 2017.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (the “Disclosure Controls and Procedures”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of April 1, 2017.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of April 1, 2017, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

25 

Additionally, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, there have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended April 1, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The effectiveness of any system of internal controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that the Disclosure Controls and Procedures will detect all errors or fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system will be attained.

26 

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The nature of the legal proceedings against the Company is discussed at Note 11 to the financial statements, which are included in this Form 10-Q.

The Company has reported all cases instituted against it through December 31, 2016, and the results of those cases, where terminated, to the SEC on its previous Form 10-Q and 10-K reports, to which reference is hereby made.

There were no lawsuits formally instituted against the Company during the three months ending April 1, 2017.

During the three months ending April 1, 2017, the previously reported case of Rice-Lum v. Sturm, Ruger & Co., Inc. was dismissed.

ITEM 1A. RISK FACTORS

There have been no material changes in the Company’s risk factors from the information provided in Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINING SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

27 

ITEM 6. EXHIBITS

(a) Exhibits:

31.1 Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

28 

STURM, RUGER & COMPANY, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 1, 2017

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STURM, RUGER & COMPANY, INC.
Date:  May 8, 2017	S/THOMAS A. DINEEN
	Thomas A. Dineen Principal Financial Officer, Principal Accounting Officer, Vice President, Treasurer and Chief Financial Officer

29 

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael O. Fifer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 8, 2017

S/MICHAEL O. FIFER                   

Michael O. Fifer

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Thomas A. Dineen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 8, 2017

S/THOMAS A. DINEEN                  

Thomas A. Dineen

Vice President, Treasurer and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended April 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael O. Fifer, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company.

Date:  May 8, 2017	S/MICHAEL O. FIFER
	Michael O. Fifer
	Chief Executive Officer

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended April 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Dineen, Treasurer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company.

Date:  May 8, 2017	S/THOMAS A. DINEEN
	Thomas A. Dineen
	Vice President, Treasurer and
	Chief Financial Officer

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Apr. 01, 2017	Apr. 25, 2017
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Apr. 01, 2017
Entity Registrant Name	STURM RUGER & CO INC
Entity Central Index Key	0000095029
Trading Symbol	RGR
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		17,664,248

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Current Assets
Cash	$ 35,098	$ 87,126
Trade receivables, net	77,593	69,442
Gross inventories	100,778	99,417
Less LIFO reserve	(43,267)	(42,542)
Less excess and obsolescence reserve	(2,553)	(2,340)
Net inventories	54,958	54,535
Prepaid expenses and other current assets	3,250	3,660
Total Current Assets	170,899	214,763
Property, plant and equipment	338,725	331,639
Less allowances for depreciation	(236,522)	(227,398)
Net property, plant and equipment	102,203	104,241
Deferred income taxes		334
Other assets	31,029	27,541
Total Assets	304,131	346,879
Current Liabilities
Trade accounts payable and accrued expenses	45,287	48,493
Product liability	1,282	1,733
Employee compensation and benefits	15,647	25,467
Workers' compensation	5,713	5,200
Income taxes payable	10,495
Total Current Liabilities	78,424	80,893
Product liability	84	86
Deferred income taxes	599
Contingent liabilities - Note 11
Stockholders' Equity
Common Stock	24,084	24,034
Additional paid-in capital	25,355	27,211
Retained earnings	307,799	293,400
Less: Treasury stock - at cost 2017 - 6,419,975 shares 2016 - 5,345,690 shares	(132,214)	(78,745)
Total Stockholders' Equity	225,024	265,900
Total Liabilities and Stockholders' Equity	304,131	346,879
Nonvoting Common Stock [Member]
Stockholders' Equity
Common Stock
Common Stock [Member]
Stockholders' Equity
Common Stock	$ 24,084	$ 24,034

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Apr. 01, 2017	Dec. 31, 2016
Treasury stock, shares	6,419,975	5,345,690
Nonvoting Common Stock [Member]
Common Stock, par value per share	$ 1	$ 1
Common Stock, shares authorized	50,000	50,000
Common Stock, shares issued
Common Stock [Member]
Common Stock, par value per share	$ 1	$ 1
Common Stock, shares authorized	40,000,000	40,000,000
Common Stock, shares issued	24,084,223	24,034,201
Common Stock, shares outstanding	17,664,248	18,688,511

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Segment Reporting Information [Line Items]
Total net sales	$ 167,355	$ 173,109
Cost of products sold	111,602	113,996
Gross profit	55,753	59,113
Operating expenses:
Selling	13,539	15,074
General and administrative	8,343	7,838
Total operating expenses	21,882	22,912
Operating income	33,871	36,201
Other income:
Interest expense, net	(34)	(35)
Other income, net	354	206
Total other income, net	320	171
Income before income taxes	34,191	36,372
Income taxes	11,967	13,094
Net income and comprehensive income	$ 22,224	$ 23,278
Basic earnings per share	$ 1.22	$ 1.23
Diluted earnings per share	1.21	1.21
Cash dividends per share	$ 0.44	$ 0.35
Firearms [Member]
Segment Reporting Information [Line Items]
Total net sales	$ 166,365	$ 171,520
Other income:
Income before income taxes	34,031	36,371
Unaffiliated Castings [Member]
Segment Reporting Information [Line Items]
Total net sales	990	1,589
Other income:
Income before income taxes	$ 101	$ (68)

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 3 months ended Apr. 01, 2017 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2016	$ 24,034	$ 27,211	$ 293,400	$ (78,745)	$ 265,900
Net income and comprehensive income			22,224		22,224
Dividends paid			(7,772)		(7,772)
Unpaid dividends accrued			(53)		(53)
Recognition of stock-based compensation expense		686			686
Vesting of RSU's		(2,492)			(2,492)
Common stock issued - compensation plans	50	(50)
Repurchase of shares of common stock				(53,469)	(53,469)
Balance at Apr. 01, 2017	$ 24,084	$ 25,355	$ 307,799	$ (132,214)	$ 225,024

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical)	3 Months Ended
	Apr. 01, 2017 shares
Statement of Stockholders' Equity [Abstract]
Repurchase of common stock, shares	1,074,285

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Operating Activities
Net income	$ 22,224	$ 23,278
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	9,326	8,344
Slow moving inventory valuation adjustment	615	(91)
Stock-based compensation	686	632
Loss on sale of assets	31	4
Deferred income taxes	933	865
Changes in operating assets and liabilities:
Trade receivables	(8,151)	(3,025)
Inventories	(1,038)	4,916
Trade accounts payable and accrued expenses	(2,693)	5,308
Employee compensation and benefits	(9,873)	(9,798)
Product liability	(453)	580
Prepaid expenses, other assets and other liabilities	(3,165)	(471)
Income taxes payable and prepaid income taxes	10,495	(1,113)
Cash provided by operating activities	18,937	29,429
Investing Activities
Property, plant and equipment additions	(7,232)	(6,346)
Cash used for investing activities	(7,232)	(6,346)
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU's		8,792
Remittance of taxes withheld from employees related to share-based compensation	(2,492)	(14,001)
Repurchase of common stock	(53,469)
Dividends paid	(7,772)	(6,636)
Cash used for financing activities	(63,733)	(11,845)
(Decrease) Increase in cash and cash equivalents	(52,028)	11,238
Cash and cash equivalents at beginning of period	87,126	69,225
Cash and cash equivalents at end of period	$ 35,098	$ 80,463

XML

BASIS OF PRESENTATION

3 Months Ended

Apr. 01, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. Operating results for the three months ended April 1, 2017 may not be indicative of the results to be expected for the full year ending December 31, 2017. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2016.

XML

SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Apr. 01, 2017

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales represent approximately 5% of total 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 also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

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.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications:

Certain prior period balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements:

On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The new guidance requires that all deferred tax assets and liabilities be presented as a net noncurrent asset or liability on the balance sheet. Previously such items were presented as a net current asset or liability and a net noncurrent asset or liability. The new guidance was effective for fiscal years beginning after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2015-17 in the first quarter of 2017 and applied it retroactively to all prior periods presented in the financial statements. The impact of adopting this change in accounting principle on the December 31, 2016 balance sheet was to reduce current deferred tax assets and working capital by $8,859 and noncurrent deferred tax liabilities by $8,526 from the amounts previously reported for these items.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in 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. The new guidance was effective in fiscal years beginning after December 15, 2016 and interim periods thereafter. 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 1% for the period ending April 1, 2017. This did not have a material impact on the Company’s results of operations or financial position.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning after December 15, 2017. We plan to adopt the provisions of ASU 2014-09 on a modified retrospective basis. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated revenue. We continue to assess the overall impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), its long-awaited final standard on the accounting for leases. The most significant change in the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S. GAAP. The new lease guidance is effective in fiscal years beginning after December 15, 2018 and interim periods thereafter. Early application is permitted for all entities. The Company is currently evaluating the effect that the standard will have on the consolidated financial statements.

XML

INVENTORIES

3 Months Ended

Apr. 01, 2017

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 3 - INVENTORIES

Inventories are valued using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation.

During the three month period ended April 1, 2017, inventory quantities were reduced.  If this reduction remains through year-end, it will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases.  Although the effect of such a liquidation cannot be precisely quantified at the present time, management believes that if a LIFO liquidation occurs in 2017, the impact may be material to the Company’s results of operations for the period but will not have a material impact on the financial position of the Company.

Inventories consist of the following:

	April 1, 2017			December 31, 2016
Inventory at FIFO
Finished products	$	27,193		$	24,100
Materials and work in process		73,585			75,317
Gross inventories		100,778			99,417
Less:  LIFO reserve		(43,267	)		(42,542	)
Less:  excess and obsolescence reserve		(2,553	)		(2,340	)
Net inventories	$	54,958		$	54,535

XML

LINE OF CREDIT

3 Months Ended

Apr. 01, 2017

Line of Credit Facility [Abstract]

LINE OF CREDIT

NOTE 4 - LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2017. Borrowings under this facility bear interest at LIBOR (1.802% at April 1, 2017) plus 200 basis points. The Company is charged three-eighths of a percent (0.375%) per year on the unused portion. At April 1, 2017 and December 31, 2016, the Company was in compliance with the terms and covenants of the credit facility, which remains unused.

XML

EMPLOYEE BENEFIT PLANS

3 Months Ended

Apr. 01, 2017

Retirement Benefits [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 5 - EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $1.0 million and $1.0 million for the three months ended April 1, 2017 and April 2, 2016, respectively. The Company plans to contribute approximately $3.0 million to the plan in matching employee contributions during the remainder of 2017.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.9 million and $1.7 million for the three months ended April 1, 2017 and April 2, 2016, respectively. The Company plans to contribute approximately $4.0 million in supplemental contributions to the plan during the remainder of 2017.

XML

INCOME TAXES

3 Months Ended

Apr. 01, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 6 - INCOME TAXES

The Company's 2016 and 2015 effective tax rates differ from the statutory federal tax rate due principally to state income taxes partially offset by tax benefits related to the American Jobs Creation Act of 2004. The Company’s effective income tax rate in the three months ended April 1, 2017 and April 2, 2016 was 35.0% and 36.0%, respectively. This reduction is primarily the result of the Company’s adoption of ASU 2016-09 on January 1, 2017, as previously discussed in the Recent Accounting Pronouncements section of Note 1.

Income tax payments for the three months ended April 1, 2017 and April 2, 2016 totaled $0.1 million and $4.6 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2013.

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.

XML

EARNINGS PER SHARE

3 Months Ended

Apr. 01, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 7 - EARNINGS PER SHARE

Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:

	Three Months Ended
	April 1, 2017		April 2, 2016
Numerator:
Net income	$	22,224	$	23,278
Denominator:
Weighted average number of common shares outstanding – Basic		18,219,557		18,943,427
Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		168,554		225,150
Weighted average number of common shares outstanding – Diluted		18,388,111		19,168,577

The dilutive effect of outstanding options and restricted stock units is calculated using the treasury stock method. There were no stock options that were anti-dilutive and therefore not included in the diluted earnings per share calculation.

XML

COMPENSATION PLANS

3 Months Ended

Apr. 01, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

COMPENSATION PLANS

NOTE 8 - COMPENSATION PLANS

In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 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 2,550,000 shares for issuance under the 2007 SIP, of which 369,000 shares remain available for future grants as of April 1, 2017.

Compensation costs related to all share-based payments recognized in the statements of operations aggregated $0.7 million and $0.6 million for the three months ended April 1, 2017 and April 2, 2016, respectively.

Stock Options

A summary of changes in options outstanding under the 2007 SIP is summarized below:

	Shares		Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2016		11,838	$	8.95	$	6.69
Granted		—		—		—
Exercised		—		—		—
Expired		—		—		—
Outstanding at April 1, 2017		11,838	$	8.95	$	6.69

The aggregate intrinsic value (mean market price at April 1, 2017 less the weighted average exercise price) of options outstanding under the 2007 SIP was approximately $0.5 million.

Restricted Stock Units

Beginning in 2009, the Company began granting restricted stock units to senior employees in lieu of incentive stock options. The vesting of these awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors. Beginning in 2011, a three year vesting period was added to the performance criteria, which had the effect of requiring both the achievement of the corporate performance objectives and the satisfaction of the vesting period.

There were 102,500 restricted stock units issued during the three months ended April 1, 2017. Total compensation costs related to these restricted stock units are $2.7 million. These costs are being recognized ratably over the vesting period of three years. Total compensation cost related to restricted stock units was $0.7 million and $0.6 million for the three months ended April 1, 2017 and April 2, 2016, respectively.

XML

OPERATING SEGMENT INFORMATION

3 Months Ended

Apr. 01, 2017

Segment Reporting [Abstract]

OPERATING SEGMENT INFORMATION

NOTE 9 - OPERATING SEGMENT INFORMATION

The Company has two reportable segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a select number of independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding parts.

Selected operating segment financial information follows:

(in thousands)	Three Months Ended
	April 1, 2017			April 2, 2016
Net Sales
Firearms	$	166,365		$	171,520
Castings
Unaffiliated		990			1,589
Intersegment		8,840			8,949
		9,830			10,538
Eliminations		(8,840	)		(8,949	)
	$	167,355		$	173,109
Income (Loss) Before Income Taxes
Firearms	$	34,031		$	36,371
Castings		101			(68	)
Corporate		59			69
	$	34,191		$	36,372

	April 1, 2017		December 31, 2016
Identifiable Assets
Firearms	$	253,531	$	242,758
Castings		15,118		16,096
Corporate		35,482		88,025
	$	304,131	$	346,879

XML

RELATED PARTY TRANSACTIONS

3 Months Ended

Apr. 01, 2017

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities, primarily the 2016 “Ruger $5 Million Match Campaign” and the 2015-16 “2.5 Million Gun Challenge”. Payments made to the NRA in the three months ended April 1, 2017 were insignificant. The Company paid the NRA $1.0 million in the three months ended April 2, 2016. One of the Company’s Directors also serves as a Director on the Board of the NRA.

XML

CONTINGENT LIABILITIES

3 Months Ended

Apr. 01, 2017

Commitments and Contingencies Disclosure [Abstract]

CONTINGENT LIABILITIES

NOTE 11 - CONTINGENT LIABILITIES

As of April 1, 2017, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: traditional product liability litigation, patent litigation, and municipal litigation, discussed in turn below.

Traditional Product Liability Litigation

Two of the four lawsuits mentioned above involve claims for damages related to allegedly defective products due to their design and/or manufacture. These lawsuits stem from specific incidents of personal injury and are 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 were unrelated to the design or manufacture of the firearm, and that there should be no recovery against the Company.

Patent Litigation

Davies Innovations, Inc. v. Sturm, Ruger & Company, Inc. is a patent litigation suit originally filed in the United States District Court for the Southern District of Texas, Galveston Division. Upon motion by the Company, the case was transferred to the United States District Court for the District of New Hampshire. The suit is based upon alleged patent infringement as the plaintiff claims that certain features of the Ruger SR-556 and SR-762 modern sporting rifles infringe its patent. The complaint seeks a judgment of infringement and unspecified monetary damages including costs, fees and treble damages.

Pursuant to the Company’s Motion for Summary Judgment, on February 15, 2017, the Court dismissed the plaintiff’s claim of literal infringement, but allowed the case to proceed to discovery on alternate theories.

The Company management believes that the allegations in this case are unfounded, that there is no infringement of plaintiff’s patent, that plaintiff’s patent is invalid, and that there should be no recovery against the Company.

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 lawsuit of this type, filed by the City of Gary in Indiana State Court in 1999. The 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 have 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 has been briefed by the parties and is awaiting a hearing.

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 million and $0.1 million at April 1, 2017 and December 31, 2016, 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.

XML

SUBSEQUENT EVENTS

3 Months Ended

Apr. 01, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 12 - SUBSEQUENT EVENTS

On May 5, 2017, the Company’s Board of Directors authorized a dividend of 48¢ per share, for shareholders of record as of May 19, 2017, payable on May 31, 2017.

On May 5, 2017, the Company’s Board of Directors expanded its authorization to repurchase shares of its common stock to $100 million.

The Company has evaluated events and transactions occurring subsequent to April 1, 2017 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

XML

SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Apr. 01, 2017

Accounting Policies [Abstract]

Organization

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales represent approximately 5% of total 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 also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

Principles of Consolidation

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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Use of Estimates

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Reclassifications:

Certain prior period balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements:

On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The new guidance requires that all deferred tax assets and liabilities be presented as a net noncurrent asset or liability on the balance sheet. Previously such items were presented as a net current asset or liability and a net noncurrent asset or liability. The new guidance was effective for fiscal years beginning after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2015-17 in the first quarter of 2017 and applied it retroactively to all prior periods presented in the financial statements. The impact of adopting this change in accounting principle on the December 31, 2016 balance sheet was to reduce current deferred tax assets and working capital by $8,859 and noncurrent deferred tax liabilities by $8,526 from the amounts previously reported for these items.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The most significant change in 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. The new guidance was effective in fiscal years beginning after December 15, 2016 and interim periods thereafter. 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 1% for the period ending April 1, 2017. This did not have a material impact on the Company’s results of operations or financial position.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning after December 15, 2017. We plan to adopt the provisions of ASU 2014-09 on a modified retrospective basis. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated revenue. We continue to assess the overall impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), its long-awaited final standard on the accounting for leases. The most significant change in the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S. GAAP. The new lease guidance is effective in fiscal years beginning after December 15, 2018 and interim periods thereafter. Early application is permitted for all entities. The Company is currently evaluating the effect that the standard will have on the consolidated financial statements.

XML

INVENTORIES (Tables)

3 Months Ended

Apr. 01, 2017

Inventory Disclosure [Abstract]

Schedule of Inventories

	April 1, 2017			December 31, 2016
Inventory at FIFO
Finished products	$	27,193		$	24,100
Materials and work in process		73,585			75,317
Gross inventories		100,778			99,417
Less:  LIFO reserve		(43,267	)		(42,542	)
Less:  excess and obsolescence reserve		(2,553	)		(2,340	)
Net inventories	$	54,958		$	54,535

XML

EARNINGS PER SHARE (Tables)

3 Months Ended

Apr. 01, 2017

Earnings Per Share [Abstract]

Schedule of Reconciliation of Numerator and Denominator for Basic and Diluted Earnings Per Share

	Three Months Ended
	April 1, 2017		April 2, 2016
Numerator:
Net income	$	22,224	$	23,278
Denominator:
Weighted average number of common shares outstanding – Basic		18,219,557		18,943,427
Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		168,554		225,150
Weighted average number of common shares outstanding – Diluted		18,388,111		19,168,577

XML

COMPENSATION PLANS (Tables)

3 Months Ended

Apr. 01, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock Option Activity

	Shares		Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2016		11,838	$	8.95	$	6.69
Granted		—		—		—
Exercised		—		—		—
Expired		—		—		—
Outstanding at April 1, 2017		11,838	$	8.95	$	6.69

XML

OPERATING SEGMENT INFORMATION (Tables)

3 Months Ended

Apr. 01, 2017

Segment Reporting [Abstract]

Schedule of Operating Segment Financial Information

(in thousands)	Three Months Ended
	April 1, 2017			April 2, 2016
Net Sales
Firearms	$	166,365		$	171,520
Castings
Unaffiliated		990			1,589
Intersegment		8,840			8,949
		9,830			10,538
Eliminations		(8,840	)		(8,949	)
	$	167,355		$	173,109
Income (Loss) Before Income Taxes
Firearms	$	34,031		$	36,371
Castings		101			(68	)
Corporate		59			69
	$	34,191		$	36,372

	April 1, 2017		December 31, 2016
Identifiable Assets
Firearms	$	253,531	$	242,758
Castings		15,118		16,096
Corporate		35,482		88,025
	$	304,131	$	346,879

XML

SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016	Dec. 31, 2016
Segment Reporting Information [Line Items]
Noncurrent deferred income tax liabilities	$ 599
Effective income tax rate	35.00%	36.00%
Accounting Standards Update 2016-09 [Member]
Segment Reporting Information [Line Items]
Effective income tax rate	(1.00%)
Scenario Previously Reported [Member]
Segment Reporting Information [Line Items]
Current deferred income tax assets			$ 8,859
Noncurrent deferred income tax liabilities			$ 8,526
Sales [Member] | Unaffiliated Castings [Member]
Segment Reporting Information [Line Items]
Percentage of sales	1.00%
Sales [Member] | Firearms [Member]
Segment Reporting Information [Line Items]
Percentage of sales	99.00%
Sales [Member] | Non-US [Member]
Segment Reporting Information [Line Items]
Percentage of sales	5.00%

XML

INVENTORIES (Details) - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Inventory at FIFO
Finished products	$ 27,193	$ 24,100
Materials and work in process	73,585	75,317
Gross inventories	100,778	99,417
Less: LIFO reserve	(43,267)	(42,542)
Less: excess and obsolescence reserve	(2,553)	(2,340)
Net inventories	$ 54,958	$ 54,535

XML

LINE OF CREDIT (Details) $ in Millions	3 Months Ended
	Apr. 01, 2017 USD ($)
Line of Credit Facility [Line Items]
Credit facility with a bank	$ 40
Line of Credit [Member]
Line of Credit Facility [Line Items]
Description of interest rate of credit facility	LIBOR
Line of credit interest rate (in percent)	1.802%
Line of credit basis points	2.00%
Line of credit unused portion per year (in percent)	0.375%
Revolving credit facility, expiration date	Jun. 15, 2017

XML

EMPLOYEE BENEFIT PLANS (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Retirement Benefits [Abstract]
Expenses related to defined contribution plan	$ 1.0	$ 1.0
Future defined contribution plans	3.0
Supplemental discretionary contributions	1.9	$ 1.7
Supplemental contributions to the plan during the remainder of fiscal year	$ 4.0

XML

INCOME TAXES (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Income Tax Disclosure [Abstract]
Effective income tax rate	35.00%	36.00%
Income tax payments	$ 0.1	$ 4.6

XML

EARNINGS PER SHARE (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Numerator:
Net income	$ 22,224	$ 23,278
Denominator:
Weighted average number of common shares outstanding - Basic	18,219,557	18,943,427
Dilutive effect of options and restricted stock units outstanding under the Company's employee compensation plans	168,554	225,150
Weighted average number of common shares outstanding - Diluted	18,388,111	19,168,577

XML

COMPENSATION PLANS (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016	Apr. 30, 2007
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	$ 686	$ 632
Stock Incentive Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance			2,550,000
Shares available for future grants	369,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Restricted stock units issued	102,500
Total compensation costs	$ 2,700
Compensation expense recognized	$ 700	$ 600

XML

COMPENSATION PLANS (Schedule of Stock Option Activity) (Details) $ / shares in Units, $ in Millions	3 Months Ended
	Apr. 01, 2017 USD ($) $ / shares shares
Shares
Outstanding at Beginning of Year | shares	11,838
Granted | shares
Exercised | shares
Expired | shares
Outstanding at End of Period | shares	11,838
Weighted-Average Exercise Price
Outstanding at Beginning of Year	$ 8.95
Granted
Exercised
Expired
Outstanding at End of Period	8.95
Grant Date Fair Value
Outstanding at Beginning of Year	6.69
Granted
Exercised
Expired
Outstanding at End of Period	$ 6.69
Weighted-Average Remaining Contractual Life
Aggregate intrinsic value of options outstanding | $	$ 0.5

XML

OPERATING SEGMENT INFORMATION (Schedule of Operating Segment Financial Information) (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016	Dec. 31, 2016
Segment Reporting Information [Line Items]
Net Sales	$ 167,355	$ 173,109
Income (Loss) Before Income Taxes	34,191	36,372
Identifiable Assets	304,131		$ 346,879
Firearms [Member]
Segment Reporting Information [Line Items]
Net Sales	166,365	171,520
Income (Loss) Before Income Taxes	34,031	36,371
Identifiable Assets	253,531		242,758
Unaffiliated Castings [Member]
Segment Reporting Information [Line Items]
Net Sales	990	1,589
Income (Loss) Before Income Taxes	101	(68)
Identifiable Assets	15,118		16,096
Corporate [Member]
Segment Reporting Information [Line Items]
Income (Loss) Before Income Taxes	59	69
Identifiable Assets	35,482		$ 88,025
Intersegment Elimination [Member]
Segment Reporting Information [Line Items]
Net Sales	(8,840)	(8,949)
Intersegment Elimination [Member] | Unaffiliated Castings [Member]
Segment Reporting Information [Line Items]
Net Sales	(8,840)	(8,949)
Operating Segments [Member] | Unaffiliated Castings [Member]
Segment Reporting Information [Line Items]
Net Sales	$ 9,830	$ 10,538

XML

OPERATING SEGMENT INFORMATION (Narrative) (Details)	3 Months Ended
	Apr. 01, 2017
Segment Reporting [Abstract]
Number of Operating Segments	2

XML

RELATED PARTY TRANSACTIONS (Details) $ in Millions	3 Months Ended
	Apr. 02, 2016 USD ($)
National Rifle Association [Member]
Related Party Transaction [Line Items]
Amount of payments	$ 1.0

XML

CONTINGENT LIABILITIES (Narrative) (Details) $ in Millions	3 Months Ended	12 Months Ended
	Apr. 01, 2017 USD ($)	Dec. 31, 2016 USD ($)
Loss Contingencies [Line Items]
Number of lawsuits against the company	4
Minimum limit of per claim for providing insurance coverage on annual basis	$ 5.0
Maximum limit of aggregate loss incurred annually for providing insurance coverage on annual basis	10.0
Total amount of damages claimed	$ 0.1	$ 0.1

XML

SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] $ / shares in Units, $ in Millions	May 05, 2017 USD ($) $ / shares
Subsequent Event [Line Items]
Dividend authorized | $ / shares	$ 0.48
Stock repurchase program | $	$ 100