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 March 30, 2019

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 every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). 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

o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	RGR	New York Stock Exchange

The number of shares outstanding of the issuer's common stock as of April 25, 2019: 17,458,020.

Page 1 of 30

INDEX

STURM, RUGER & COMPANY, INC.

PART I.         FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed consolidated balance sheets – March 30, 2019 and December 31, 2018	3
	Condensed consolidated statements of income and comprehensive income – Three months ended March 30, 2019 and March 31, 2018	5
	Condensed consolidated statement of stockholders’ equity – Three months ended March 30, 2019	6
	Condensed consolidated statements of cash flows – Three months ended March 30, 2019 and March 31, 2018	7
	Notes to condensed consolidated financial statements – March 30, 2019	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II.        OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURES		30

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

	March 30, 2019			December 31, 2018
				(Note)
Assets
Current Assets
Cash	$	35,394		$	38,492
Short-term investments		99,524			114,326
Trade receivables, net		52,219			45,031
Gross inventories (Note 4)		86,362			80,288
Less LIFO reserve		(46,944	)		(46,341	)
Less excess and obsolescence reserve		(2,936	)		(2,527	)
Net inventories		36,482			31,420
Prepaid expenses and other current assets		3,098			2,920
Total Current Assets		226,717			232,189
Property, plant and equipment		361,276			358,756
Less allowances for depreciation		(283,263	)		(276,045	)
Net property, plant and equipment		78,013			82,711
Deferred income taxes		2,558			2,969
Other assets		24,423			17,663
Total Assets	$	331,711		$	335,532

Note:

The consolidated balance sheet at December 31, 2018 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.

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STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)

(Dollars in thousands, except per share data)

	March 30, 2019			December 31, 2018
				(Note)
Liabilities and Stockholders’ Equity
Current Liabilities
Trade accounts payable and accrued expenses	$	28,418		$	33,021
Contract liabilities with customers (Note 3)		3,959			7,477
Product liability		1,602			1,073
Employee compensation and benefits		12,572			20,729
Workers’ compensation		5,669			5,551
Income taxes payable		3,347			3,340
Total Current Liabilities		55,567			71,191
Product liability		71			99
Lease liability (Note 5)		2,144			—
Contingent liabilities (Note 13)		—			—
Stockholders’ Equity
Common Stock, non-voting, par value $1:
Authorized shares 50,000; none issued		—			—
Common Stock, par value $1:
Authorized shares – 40,000,000             2019 – 24,123,418 issued,                         17,458,020 outstanding             2018 – 24,123,418 issued,                         17,458,020 outstanding		24,123			24,123
Additional paid-in capital		34,832			33,291
Retained earnings		358,569			350,423
Less: Treasury stock – at cost               2019 – 6,665,398 shares               2018 – 6,665,398 shares		(143,595	)		(143,595	)
Total Stockholders’ Equity		273,929			264,242
Total Liabilities and Stockholders’ Equity	$	331,711		$	335,532

Note:

The consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed consolidated financial statements.

4 

STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

	Three Months Ended
	March 30, 2019			March 31, 2018
Net firearms sales	$	112,932		$	129,883
Net castings sales		1,106			1,276
Total net sales		114,038			131,159
Cost of products sold		81,441			95,339
Gross profit		32,597			35,820
Operating expenses:
Selling		8,131			8,337
General and administrative		8,014			8,887
Total operating expenses		16,145			17,224
Operating income		16,452			18,596
Other income:
Interest Income		679			—
Interest expense		(26	)		(27	)
Other income, net		295			332
Total other income, net		948			305
Income before income taxes		17,400			18,901
Income taxes		4,367			4,637
Net income and comprehensive income	$	13,033		$	14,264
Basic earnings per share	$	0.75		$	0.82
Diluted earnings per share	$	0.74		$	0.81
Cash dividends per share	$	0.28		$	0.23

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, 2018	$	24,123	$	33,291	$	350,423		$	(143,595	)	$	264,242
Net income and comprehensive      income						13,033						13,033
Dividends paid						(4,887	)					(4,887	)
Recognition of stock-based      compensation expense				1,541								1,541
Balance at March 30, 2019	$	24,123	$	34,832	$	358,569		$	(143,595	)	$	273,929

See notes to condensed consolidated financial statements.

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STURM, RUGER & COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

	Three Months Ended
	March 30, 2019			March 31, 2018
Operating Activities
Net income	$	13,033		$	14,264
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		7,486			8,172
Slow moving inventory valuation adjustment		409			360
Stock-based compensation		1,541			1,144
Deferred income taxes		411			(744	)
Changes in operating assets and liabilities:
Trade receivables		(7,187	)		(1,047	)
Inventories		(5,471	)		13,242
Trade accounts payable and accrued expenses		(4,485	)		(3,974	)
Contract liability to customers		(3,518	)		7,081
Employee compensation and benefits		(8,157	)		1,361
Product liability		501			(70	)
Prepaid expenses, other assets and other liabilities		(4,872	)		898
Income taxes payable		7			4,625
Cash (used for) provided by operating activities		(10,302	)		45,312
Investing Activities
Property, plant and equipment additions		(2,711	)		(1,402	)
Purchases of short-term investments		(44,961	)		—
Proceeds from maturities of short-term investments		59,763			—
Cash provided by (used for) investing activities		12,091			(1,402	)
Financing Activities
Remittance of taxes withheld from employees related to         share-based compensation		—			(718	)
Dividends paid		(4,887	)		(4,012	)
Cash used for financing activities		(4,887	)		(4,730	)
(Decrease) increase in cash and cash equivalents		(3,098	)		39,180
Cash and cash equivalents at beginning of period		38,492			63,487
Cash and cash equivalents at end of period	$	35,394		$	102,667

See notes to condensed consolidated financial statements.

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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 March 30, 2019 may not be indicative of the results to be expected for the full year ending December 31, 2019. 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, 2018.

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 4% 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. Approximately 1% of sales are from the castings segment.

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition:

The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which became effective January 1, 2018. Substantially all product sales are sold FOB (free on board) shipping point. Customary payment terms are 2% 30 days, net 40 days. Generally, all performance obligations are satisfied when product is shipped and the customer takes ownership and assumes the risk of loss. In some instances,

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sales include multiple performance obligations. The most common of these instances relate to sales promotion programs under which downstream customers are entitled to receive no charge products based on their purchases of certain of the Company’s products from the independent distributors. The fulfillment of these no charge products is the Company’s responsibility. In such instances, the Company allocates the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the firearms included in the promotional program, including the no charge firearms. Revenue is recognized proportionally as each performance obligation is satisfied, based on the relative customary price of each product. Customary prices are generally determined based on the prices charged to the independent distributors. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, 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 February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), its 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 results 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 was effective in fiscal years beginning after December 15, 2018 and interim periods thereafter. The company adopted ASU 2016-02 effective January 1, 2019. As more fully discussed in Note 5, as a result of adopting ASU 2016-02 the Company recorded right-of-use assets totaling $2.7 million and lease liabilities of $2.7 million on its Consolidated Balance Sheets for the quarter ended March 30, 2019. There was no impact on the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Stockholders’ Equity, or Condensed Consolidated Statements of Cash Flows as a result of this adoption.

NOTE 3 – REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, applied to those contracts for which all performance obligations were not completed as of that date. Under the modified retrospective method, results for reporting periods beginning after January 1, 2018 are presented using the guidance of ASC 606, while prior period amounts were not adjusted and will

9 

continue to be presented in accordance with the previous guidance provided in ASC Topic 605, Revenue Recognition, when those periods are reported.

The impact of the adoption of ASC 606 on revenue recognized during the three months ended March 30, 2019 and March 31, 2018 is as follows:

	Three Months Ended
	March 30, 2019			March 31, 2018
Contract liabilities with customers at beginning of period	$	7,477		$	6,950
Revenue deferred		1,066			7,180
Revenue recognized		(4,584	)		(4,822	)
Contract liabilities with customers at end of period	$	3,959		$	9,308

As more fully described in the Revenue Recognition section of Note 1, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products. The Company expects the deferred revenue from this contract liability with customers to be recognized in the second quarter of 2019.

Practical Expedients and Exemptions

The Company has elected to account for shipping and handling activities that occur after control of the related product transfers to the customer as fulfillment activities that are recognized upon shipment of the goods.

NOTE 4 - INVENTORIES

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

Inventories consist of the following:

	March 30, 2019			December 31, 2018
Inventory at FIFO
Finished products	$	21,430		$	17,313
Materials and work in process		64,932			62,975
Gross inventories		86,362			80,288
Less:  LIFO reserve		(46,944	)		(46,341	)
Less:  excess and obsolescence reserve		(2,936	)		(2,527	)
Net inventories	$	36,482		$	31,420

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NOTE 5 – LEASED ASSETS

The Company leases certain of its real estate and equipment. The Company has evaluated all its leases and determined that all are operating leases under the definitions of the guidance of ASU 2016-02. The Company’s lease agreements generally do not include material variable lease payments, residual value guarantees or restrictive covenants.

The Company adopted the provisions of ASU 2016-02 using the effective date method on January 1, 2019 and recorded right-of-use assets equal to the present value of the contractual liability for future lease payments. The table below presents the right-of-use assets and related lease liabilities recognized on the condensed consolidated balance sheet as of March 30, 2019:

	Balance Sheet Line Item	March 30, 2019
Right-of-use assets	Other assets	$	2,728
Operating lease liabilities
Current portion	Trade accounts payable and accrued expenses		584
Noncurrent portion	Lease liabilities		2,144
Total operating lease liabilities		$	2,728

The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight line basis over the life of the lease..

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company uses its incremental borrowing rate enumerated in its revolving line of credit (see Note 6) to determine the present value of its operating lease liabilities. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the condensed consolidated balance sheet as of March 30, 2019:

Remainder of 2019	$	439
2020		540
2021		508
2022		192
2023		160
Thereafter		1,760
Total undiscounted future minimum lease payments		3,599
Less: Difference between undiscounted lease payments and the present value of future lease payments		871
Total operating lease liabilities	$	2,728

Certain of the Company’s lease agreements contain renewal options at the Company’s discretion. The Company does not recognize right-of-use assets or lease liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception of the lease or when a triggering event occurs. The Company’s weighted average remaining lease term for operating leases as of March 30, 2019 is 11.85 years.

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NOTE 6 - LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on August 31, 2019. Borrowings under this facility bear interest at the one-month LIBOR rate (2.501% at March 30, 2019) plus 150 basis points. The Company is charged one-quarter of a percent (0.25%) per year on the unused portion. At March 30, 2019 and December 31, 2018, the Company was in compliance with the terms and covenants of the credit facility, which remains unused.

NOTE 7 - EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $1.2 million for the three months ended March 30, 2019, and $0.8 million for the three months ended March 31, 2018. The Company plans to contribute approximately $3.2 million to the plan in matching employee contributions during the remainder of 2019.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.7 million for the three months ended March 30, 2019, and $1.3 million for the three months ended March 31, 2018. The Company plans to contribute approximately $5.0 million in supplemental contributions to the plan during the remainder of 2019.

NOTE 8 - INCOME TAXES

The Company's 2019 and 2018 effective tax rates differ from the statutory federal tax rate due principally to state income taxes. The Company’s effective income tax rate was 25.1% and 24.5% for the three months ended March 30, 2019 and March 31, 2018, respectively.

Income tax payments for the three months ended March 30, 2019 totaled $4.0 million. There were no income tax payments during the three months ended March 31, 2018.

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 2015.

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.

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NOTE 9 - EARNINGS PER SHARE

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

	Three Months Ended
	March 30, 2019		March 31, 2018
Numerator:
Net income	$	13,033	$	14,264
Denominator:
Weighted average number of common shares outstanding – Basic		17,458,020		17,432,829
Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		263,718		203,226
Weighted average number of common shares outstanding – Diluted		17,721,738		17,636,055

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

NOTE 10 - COMPENSATION PLANS

In May 2017, the Company’s shareholders approved the 2017 Stock Incentive Plan (the “2017 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives. Vesting requirements are determined by the Compensation Committee of the Board of Directors. The Company has reserved 750,000 shares for issuance under the 2017 SIP, of which 475,000 shares remain available for future grants as of March 30, 2019.

Restricted Stock Units

The Company grants performance-based and retention-based restricted stock units to senior employees in lieu of incentive stock options. The vesting of the performance-based awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors and a three-year vesting period. The retention-based awards are subject only to the three-year vesting period. There were 67,900 restricted stock units issued during the three months ended March 30, 2019. Total compensation costs related to these restricted stock units are $3.7 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $1.5 million and $1.1 million for the three months ended March 30, 2019 and March 31, 2018, respectively.

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Stock Options

A summary of changes in options outstanding under a prior plan is detailed below:

	Shares		Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2018		5,472	$	9.60	$	7.20
Granted		—		—		—
Exercised		—		—		—
Expired		—		—		—
Outstanding at March 30, 2019		5,472	$	9.60	$	7.20

The aggregate intrinsic value (mean market price at March 30, 2019 less the weighted average exercise price) of options outstanding under the prior plan was approximately $0.2 million.

NOTE 11 - OPERATING SEGMENT INFORMATION

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

Selected operating segment financial information follows:

(in thousands)	Three Months Ended
	March 30, 2019			March 31, 2018
Net Sales
Firearms	$	112,932		$	129,883
Castings
Unaffiliated		1,106			1,276
Intersegment		5,601			5,408
		6,707			6,684
Eliminations		(5,601	)		(5,408	)
	$	114,038		$	131,159
Income (Loss) Before Income Taxes
Firearms	$	17,153		$	19,130
Castings		(477	)		(488	)
Corporate		724			259
	$	17,400		$	18,901
	March 30, 2019			December 31, 2018
Identifiable Assets
Firearms	$	179,664		$	166,975
Castings		10,806			10,850
Corporate		141,241			157,707
	$	331,711		$	335,532

 14

NOTE 12 – RELATED PARTY TRANSACTIONS

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities. Payments made to the NRA in the three months ended March 30, 2019 and March 31, 2018 totaled $147,000 and $79,000, respectively. One of the Company’s Directors also serves as a Director on the Board of the NRA.

NOTE 13 - CONTINGENT LIABILITIES

As of March 30, 2019, the Company was a defendant in seven (7) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: traditional product liability litigation, non-product litigation, and municipal litigation, discussed in turn below.

Traditional Product Liability Litigation

Five of the seven lawsuits mentioned above involve claims for damages related to an allegedly defective product due to its 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 are unrelated to the design or manufacture of the firearm, and that there should be no recoveries against the Company.

Non-Product Liability

David S. Palmer, on behalf of himself and all others similarly situated vs. Sturm, Ruger & Co. is a putative class-action suit filed in Florida state court on behalf of Florida consumers. The suit alleges breach of warranty and deceptive trade practices related to the sale of 10/22 Target Rifles. The Company filed an Answer denying all material allegations and a Motion to Strike the putative class representative’s claims. That motion remains pending.

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.

 15

After a long procedural history, the case was scheduled for trial on June 15, 2009. The case was not tried on that date and was largely dormant until a status conference was held on July 27, 2015. At that time, the court entered a scheduling order setting deadlines for plaintiff to file a Second Amended Complaint, for defendants to answer, and for defendants to file dispositive motions. The plaintiff did not file a Second Amended Complaint by the deadline.

In 2015, Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. The defendants filed a joint motion for judgment on the pleadings, asserting immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce in Arms Act inapplicable to the City's claims. The motion was fully briefed by the parties.

On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v. Runnels, which presented related issues. The Indiana Supreme Court decided KS&E Sports on April 24, 2017, and the City of Gary court lifted the stay. The City of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of the KS&E Sports decision on defendants' motion for judgment on the pleadings.

A hearing on the motion for judgment on the pleadings was held on December 12, 2017. On January 2, 2018, the court issued an order granting defendants’ motion for judgment on the pleadings, but denying defendants’ request for attorney’s fees and costs. On January 8, 2018, the court entered judgment for the defendants. The City filed a Notice of Appeal on February 1, 2018. Defendants cross-appealed the order denying attorney’s fees and costs. The matter has been briefed fully and the parties are awaiting a ruling.

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.

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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 December 31, 2018 and 2017, 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.

NOTE 14 - SUBSEQUENT EVENTS

On May 7, 2019, the Company’s Board of Directors authorized a dividend of 29¢ per share, for shareholders of record as of May 17, 2019, payable on May 31, 2019.

The Company has evaluated events and transactions occurring subsequent to March 30, 2019 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.

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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 4% 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. Approximately 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 32% in the first quarter of 2019 compared to the 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 8%.

Sales of new products, including the Pistol Caliber Carbine, the EC9s pistol, the Security-9 pistol, and the Precision Rimfire Rifle, represented $20.9 million or 20% of firearm sales in the first quarter of 2019. New product sales include only major new products that were introduced in the past two years.

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

	2019		2018
	Q1		Q4		Q3		Q2		Q1
Estimated Units Sold from Distributors to Retailers (1)		347,100		400,000		364,000		381,100		509,500
Total adjusted NICS Background Checks (thousands) (2)		3,414		3,813		2,708		2,863		3,731

(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:

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· 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.

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.)

	2019		2018
	Q1		Q4		Q3		Q2		Q1
Units Ordered		327,100		312,800		237,800		344,600		635,900
Orders Received	$	104.3	$	92.9	$	66.6	$	95.4	$	175.1
Average Sales Price of Units Ordered	$	319	$	297	$	280	$	277	$	275
Ending Backlog	$	58.9	$	55.6	$	81.5	$	125.0	$	149.2
Average Sales Price of Ending Unit Backlog	$	372	$	364	$	347	$	326	$	331

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.

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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):

	2019		2018
	Q1		Q4		Q3		Q2		Q1
Units Ordered		327,100		312,800		237,800		344,600		635,900
Units Produced		374,000		402,400		404,200		415,200		388,500
Units Shipped		322,000		394,800		386,200		411,600		440,400
Average Sales Price of Units Shipped	$	351	$	304	$	295	$	309	$	295
Ending Unit Backlog		158,100		153,000		235,000		383,400		450,400

Inventories

During the first quarter of 2019, the Company’s finished goods inventory increased by 52,000 units and distributor inventories of the Company’s products decreased by 25,000 units. In the aggregate, total Company and distributor inventories increased 27,000 units during the first quarter of 2018.

Inventory data for the trailing five quarters follows:

	2019		2018
	Q1		Q4		Q3		Q2		Q1
Units – Company Inventory		132,300		80,300		72,700		54,700		51,000
Units – Distributor Inventory (1)		274,700		299,700		304,800		282,700		252,300
Total  Inventory (2)		407,000		380,000		377,500		337,400		303,300

(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 $114.0 million for the three months ended March 30, 2019, a decrease of 13.1% from $131.2 million in the comparable prior year period.

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Firearms net sales were $112.9 million for the three months ended March 30, 2019, a decrease of 13.1% from $129.9 million in the comparable prior year period. Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which modified the timing of revenue recognition related to certain sales promotion activities that include the shipment of no charge firearms. Consequently, net sales in the three months ended March 30, 2019 were increased by $3.5 million and net sales in the three months ended March 31, 2018 were decreased by $2.4 million.

Firearms unit shipments decreased 26.9% for the three months ended March 30, 2019 from the comparable prior year period.

Casting net sales were $1.1 million for the three months ended March 30, 2019, a decrease of 13.3% from $1.3 million in the comparable prior year period.

Cost of Products Sold and Gross Profit

Consolidated cost of products sold was $81.4 million for the three months ended March 30, 2019, a decrease of 14.6% from $95.3 million in the comparable prior year period.

Gross margin was 28.6% for the three months ended March 30, 2019, compared to 27.3% in the comparable prior year period.

Gross margin for the three months ended March 30, 2019 and March 31, 2018 is illustrated below (in thousands):

	Three Months Ended
	March 30, 2019					March 31, 2018
Net sales	$	114,038		100.0	%	$	131,159	100.0	%
Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls		80,424		70.5	%		94,731	72.2	%
LIFO expense		604		0.5	%		131	0.1	%
Overhead rate adjustments to inventory		(197	)	(0.2	)%		97	0.1	%
Labor rate adjustments to inventory		70		0.1	%		135	0.1	%
Product liability		740		0.7	%		245	0.2	%
Product safety bulletins and recalls		(200	)	(0.2	)%		—	—
Total cost of products sold		81,441		71.4	%		95,339	72.7	%
Gross profit	$	32,597		28.6	%	$	35,820	27.3	%

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls — During the three months ended March 30, 2019,

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cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls decreased as a percentage of sales by 1.7%, compared with the corresponding 2018 period, due in part to a 5% price increase, effective January 1, 2019, on most of the Company’s products. In addition, the adoption of ASC 606, which resulted in a net increase of $3.5 million in net sales for the three months ended March 30, 2019 and a net decrease of $2.4 million in net sales for the three months ended March 31, 2018, did not impact the gross margin for the three months ended March 30, 2019, but adversely impacted the gross margin for the three months ended March 31, 2018.

LIFO — For the three months ended March 30, 2019, the Company recognized LIFO expense resulting in increased cost of products sold of $0.6 million. In the comparable 2018 period, the Company recognized LIFO expense resulting in increased cost of products sold of $0.1 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 March 30, 2019, 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 March 31, 2018, the Company became more efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory decreased, resulting in a decrease in inventory values of $0.1 million, and a corresponding increase 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 March 30, 2019 and March 31, 2018, the Company became slightly more efficient in direct labor utilization and the labor rates used to absorb labor expenses into inventory decreased, resulting in decreases in inventory value of $0.1 million and corresponding increases to cost of products sold in both periods.

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.

During the three months ended March 30, 2019 and March 31, 2018, product liability expense was $0.7 million and $0.2 million, respectively.

Product Safety Bulletins and Recalls – During the three months ended March 30, 2019, the estimated costs remaining for the product safely bulletin was reduced, which reduced cost of sales $0.2 million.

Gross Profit — As a result of the foregoing factors, for the three months ended March 30, 2019, gross profit was $32.6 million, a decrease of $3.2 million from $35.8 million in the comparable prior year period.

Gross profit as a percentage of sales increased to 28.6% and in the three months ended March 30, 2019, from 27.3% in the comparable prior year period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $16.1 million for the three months ended March 30, 2019, a decrease of $1.1 million or 6.3% from $17.2 million in the comparable prior year

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period. This decrease was primarily attributable to expenses related to a personnel reduction in the three months ended March 31, 2018, respectively.

Other income, net

Other income, net was $0.9 million in the three months ended March 30, 2019, increased significantly from $0.3 million in the three months ended March 31, 2018 as a result of interest income on short-term investments in the three months ended March 30, 2019.

Income Taxes and Net Income

The Company's 2018 and 2017 effective tax rates differ from the statutory federal tax rate due principally to state income taxes. The Company’s effective income tax rate was 25.1% and 24.5% for the three months ended March 30, 2019 and March 31, 2018 .

As a result of the foregoing factors, consolidated net income was $13.0 million for the three months ended March 30, 2019. This represents a decrease of 8.6% from $14.3 million in the comparable prior year period.

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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 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 $24.2 million for the three months ended March 30, 2019, a decrease of 10.6% from $27.1 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

	Three Months Ended
	March 30, 2019			March 31, 2018
Net income	$	13,033		$	14,264
Income tax expense		4,367			4,637
Depreciation and amortization expense		7,486			8,172
Interest income		(679	)		—
Interest expense		26			27
EBITDA	$	24,233		$	27,100

Financial Condition

Liquidity

At the end of the first quarter of 2019, the Company’s cash and short-term investments totaled $134.9 million. Pre-LIFO working capital of $218.1 million, less the LIFO reserve of $46.9 million, resulted in working capital of $171.2 million and a current ratio of 4.1 to 1.

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Operations

Cash used by operating activities was $10.3 million for the three months ended March 30, 2019, compared to cash provided by operating activities of $45.3 million for the comparable prior year period. The reduction in cash provided in the three months ended March 30, 2019 is primarily attributable to the increase in inventory in the current period compared to a significant reduction in the prior year period, the decrease in contract liability to customers in the current period compared to an increase in the prior year period, and other balance sheet fluctuations.

Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts. 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, including the impact of tariffs, result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

Capital expenditures for the three months ended March 30, 2019 totaled $2.7 million, an increase from $1.4 million in the comparable prior year period. In 2019, the Company expects to spend approximately $25 million on capital expenditures, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment. Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the projected amount. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations, current cash, and short-term investments.

Dividends of $4.9 million were paid during the three months ended March 30, 2019.

On May 7, 2019, the Board of Directors authorized a dividend of 29¢ per share, for shareholders of record as of May 17, 2019, payable on May 31, 2019. 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, current cash, and short term investments.

In late 2018, the Company purchased United States Treasury instruments which mature within one year with available cash. At March 30, 2019, the Company investment in these instruments totaled $99.5 million.

No shares were repurchased in the three months ended March 30, 2019. As of March 30, 2019, $88.7 million remained authorized for future stock repurchases.

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 August 31, 2019, was unused at March 30, 2019 and the Company has no debt.

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Other Operational Matters

In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms serial number tracking and control, waste disposal, air emissions and water discharges into the environment. The Company believes that it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company. If these regulations become more stringent in the future and we are not able to comply with them, such noncompliance could have a material adverse impact on the Company.

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.

Adjustments to Critical Accounting Policies

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2018 Annual Report on Form 10-K filed on February 20, 2019, 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

The interest rate market risk implicit to the Company at any given time is typically low, as the Company does not have significant exposure to changing interest rates on invested cash. There has been no material change in the Company’s exposure to interest rate risks during the three months ended March 30, 2019.

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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 March 30, 2019.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 30, 2019, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

The Company’s Chief Executive Officer and Chief Financial Officer have further concluded that, as of March 30, 2019, there have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the quarter ended March 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019 and implemented internal controls to ensure we adequately evaluated our lease obligations and properly assessed the impact of the new accounting standard related to recognition of right-of-use assets and lease liabilities on our financial statements. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard. 

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

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The nature of the legal proceedings against the Company is discussed at Note 13 to the financial statements, which are included in this Form 10-Q.

The Company has reported all cases instituted against it through December 31, 2018, 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.

Two lawsuits were formally instituted against the Company during the three months ending March 30, 2019. Aaron Yuhas v. Sturm, Ruger & Co., Inc., et al, was filed in Harris County, Texas on March 5, 2019, and Austin Hilde v. Sturm, Ruger & Co., Inc. was filed in Flathead County, Montana on March 29, 2019.

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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, 2018.

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

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

(a) Exhibits:

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

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

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

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

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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STURM, RUGER & COMPANY, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 30, 2019

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 7, 2019	S/THOMAS A. DINEEN
	Thomas A. Dineen Principal Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Chief Financial Officer

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