STURM RUGER & CO INC (RGR)

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 accounted for approximately 6% of total sales for the six month period ended June 27, 2026 and approximately 5% of total sales for the six month period ended June 28, 2025. 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

During the six months ended June 27, 2026, the Company executed on its Ruger 2030 plan – strengthening operational responsiveness, enhancing the product portfolio and positioning the Company for sustainable long-term growth. Activity in the quarter included:

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As announced on May 4, 2026, Ruger and Beretta entered into an Agreement (the “Beretta Agreement”), which reflects a shared commitment to long-term value creation, constructive engagement, and stability for Ruger’s shareholders, employees, customers and industry partners. Throughout that process, the Company took actions to protect the interests of all shareholders and to maintain focus on executing its long-term strategy. These efforts resulted in professional fees and advisory costs totaling $1.2 million during the quarter and $4.4 million for the six month period ended June 27, 2026. These costs are largely non-recurring in nature and do not reflect the underlying performance of the core business. With the Beretta Agreement now in place, the Company expects these costs to be limited in duration, though some additional expenses may be incurred in the near term.

Additionally, in February 2026, the Company executed a reduction-in-force as part of broader efforts to structurally align the organization to strategic priorities and the future operating model. These actions are consistent with the changes outlined in the 2026 Plan and, more broadly, the Ruger 2030 framework. The moves improve efficiency, enhance accountability and position the Company for long-term profitable growth. The associated severance and related costs of $0.7 million during the quarter and $3.2 million for the six month period ended June 27, 2026 and are not indicative of ongoing operations.

As a result of the factors listed above, the results of operations for the six month period ending June 27, 2026 were negatively impacted, on a non-GAAP basis, by $0.35 per share (see the Non-GAAP Financial Performance Measures below.) The impact was as follows:

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 11% in the first half of 2026 compared to the prior year period. For the same period, National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) increased 3%. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing six quarters follow:

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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. The adjusted NICS checks represent less than half of the total NICS checks.

Adjusted NICS data can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending Backlog

The Company uses the estimated unit sell-through of its 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, average sales price of units ordered, and ending backlog for the trailing six 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.)

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 to plan production levels. The Company’s overall production in the second quarter of 2026 increased 22% from the first quarter of 2026.

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Summary Unit Data

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

Inventories

During the first half of 2026, the Company’s finished goods inventory decreased by 16,900 units and distributor inventories of the Company’s products increased by 12,600 units.

Inventory unit data for the trailing six quarters follows:

[[GREPCENT_TABLE]]
[["","(2)","This total does not include inventory at retailers. The Company does not have access to data on retailer inventories

[Excerpt truncated for page length; source filing is linked above.]

ITEM
7—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.

Results
of Operations - 2025

Product Demand

The estimated sell-through of the Company’s
products from the independent distributors to retailers in 2025 increased 5% from 2024. In 2025, adjusted NICS decreased 4% from 2024.
The increase in the sell-through of the Company’s products despite the decrease in adjusted NICS background checks may be attributable
to new product introductions, like the Ruger American Rifle Generation II bolt-action rifles, the Marlin lever-action rifles, Glenfield
and Harrier rifles, and the RXM pistol, which helped offset aggressive promotions, discounts, rebates, and the extension of payment terms
offered by the Company’s competitors.

Estimated sell-through from distributors to retailers and total adjusted
NICS background checks:

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The adjusted NICS data presented above
was derived by the NSSF by subtracting 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.

Adjusted NICS data can be impacted by
changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending
Backlog

The Company uses the estimated unit sell-through
of its 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 units ordered, value of orders received and ending backlog, net
of Federal Excise Tax, for the trailing three years are as follows (dollars in millions, except average sales price):

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, to plan
production levels and manage inventories. These reviews resulted in an increase in total unit production of 6% in 2025 compared to 2024.

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Annual
Summary Unit Data

Firearms unit data for orders, production, and
shipments follows:

Inventories

The Company’s finished goods inventory decreased
by 47,700 units during 2025, while distributor inventories of the Company’s
products decreased by 33,500 units during the same period.

Inventory data follows:

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Year ended December 31, 2025, as compared to year ended December
31, 2024:

Net Sales,
Cost of Products Sold, and Gross Profit

Net
sales, cost of products sold, and gross profit data for the year ended December 31, (dollars in millions):

Firearms sales increased 2%, driven by a 7% increase
in unit shipments, partially offset by the $5.7 million reduction related to the close out of 67,000 units of discontinued models in the
second quarter of 2025. New products represented $169.5 million or 33% of firearms sales in 2025, an increase from $159.3 million or 32%
of firearms sales in 2024. New product sales include only major new products that were introduced in the past two years. In 2025, new
products included the RXM pistol, American Centerfire Rifle Generation II, Marlin 1894 lever-action rifles, Glenfield rifles, Harrier
rifles, and the Ruger Red Label Shotgun, as well as the Super Wrangler revolver, which was only included for a portion of the year.

The decreased gross profit for the year ended
December 31, 2025 is attributable to inventory rationalization write-offs and the aforementioned sales reductions taken in the second
quarter of 2025, $4.3 million of operating costs at the new Hebron facility that was acquired in July, increased

costs
associated with material and technology, a product mix shift toward products with relatively lower margins that remain in relatively stronger
demand and increased sales promotional expenses, partially off-set by favorable deleveraging of fixed costs resulting from increased production.

The decrease in gross margin for the year ended
December 31, 2025 is attributable to the aforementioned factors.

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Selling,
General and Administrative

Selling and general and administrative expenses data for the year ended
December 31, (dollars in millions):

Selling expenses for the year ended December 31,
2025 were substantially unchanged from 2024, as increases in promotional and marketing initiatives was largely offset by decreases in
spending on industry shows, personnel costs, and shipping expenses.

The increase in general and administrative expenses
for the year ended December 31, 2025 was primarily attributable to expenses incurred due to the Company’s leadership transition
and organizational realignment, as well as increased information technologies related expenses and professional fees associated with the
purchase of the Anderson Manufacturing assets and the implementation of the Rights Plan.

Operating (Loss) Income

Operating loss was $12.3 million or 2.3% of sales
in 2025. This is a decrease of $43.9 million from 2024 operating income of $31.6 million or 5.9% of sales.

Other Operating Income (Expense),
Net

Other income data for the year ended December 31, (dollars
in millions):

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The decrease in other income for the year ended
December 31, 2025 was primarily the result of decreases in interest income due to decreased interest rates earned on short-term investments
and other income, partially offset by increased royalty income.

Income
Taxes and Net Income

The
effective income tax rate was 38.7% in 2025 and 19.1% in 2024. The Company's 2025 and 2024 effective tax rates differ from the
statutory federal tax rate due principally to research and development tax credits, state income taxes, and the nondeductibility of certain
executive compensation.

As a result of the foregoing factors, consolidated
net loss was $4.4 million in 2025. This represents a decrease of $35.0 million from 2024 consolidated net income of $30.6 million.

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Non-GAAP Financial Measure

In an effort to provide investors with additional
information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”)
financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information
to investors. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. In addition,
the Company believes that the non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures.
The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its
underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital
requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability
to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate its financial performance.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

EBITDA is defined as earnings before interest, taxes,
and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense and depreciation
and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income
that was included in net income from net income to arrive at EBITDA. The Company’s EBITDA calculation also excludes certain non-recurring,
non-cash, non-operating expenses.

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Quarterly
Data

To supplement the summary annual unit data and
discussion above, the same data for the last eight quarters follows:

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Orders
Received and Ending Backlog

(in millions
except average sales price, net of Federal Excise Tax)

Fourth Quarter Net Sales and
Gross Profit Analysis

Net sales, cost of products sold, and gross profit
data for the three months ended December 31, (dollars in millions):

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Results
of Operations - 2024

Year ended December 31, 2024, as compared to
year ended December 31, 2023

Annual
Summary Unit Data

Firearms unit data for orders, production, shipments and ending inventory,
and castings setups (a measure of foundry production) are as follows:

Orders
Received and Ending Backlog

(in millions except average sales price, net of
Federal Excise Tax):

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Product Demand

The estimated sell-through of the Company’s
products from the independent distributors to retailers in 2024 increased 5% from 2023. In 2024, adjusted NICS decreased 4% from 2023.
The increase in the sell-through of the Company’s products despite the decrease in adjusted NICS background checks may be attributable
to new product introductions, like the Ruger American Rifle Generation II bolt-action rifles, the Marlin lever-action rifles, and the
RXM pistol, which helped offset aggressive promotions, discounts, rebates, and the extension of payment terms offered by the Company’s
competitors.

Estimated sell-through from distributors to retailers and total adjusted
NICS background checks:

The adjusted NICS data presented above
was derived by the NSSF by subtracting 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.

Adjusted NICS data can be impacted by changes in state laws
and regulations and any directives and interpretations issued by governmental agencies.

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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, to plan
production levels and manage inventories. These reviews resulted in a decrease in total unit production of 1% in 2024 compared to 2023.

Inventories

The Company’s finished goods inventory decreased
by 28,300 units during 2024, while distributor inventories of the Company’s
products decreased by 63,500 units during the same period.

Inventory data follows:

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Quarterly
Data

To supplement the summary annual unit data and
discussion above, the same data for the last eight quarters follows:

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Orders
Received and Ending Backlog

(in millions
except average sales price, net of Federal Excise Tax)

Net Sales,
Cost of Products Sold, and Gross Profit

Net
sales, cost of products sold, and gross profit data for the year ended December 31, (dollars in millions):

Firearms sales decreased 2% and unit shipments
increased 3%, respectively, in 2024. New products represented $159.3 million or 32% of firearms sales in 2024, an increase from $119.0

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million or 23% of firearms sales in 2023. New
product sales include only major new products that were introduced in the past two years. In 2024, new products included the RXM pistol,
American Centerfire Rifle Generation II, Marlin 1894 lever-action rifles, Security-380 pistol, Super Wrangler revolver, LC Carbine, and
the Small-Frame Autoloading Rifle and the Marlin 1895 Marlin lever-action rifles, which were only included for a portion of the year.

The
decreased gross profit for the year ended December 31, 2024 is attributable to the decrease in sales, unfavorable deleveraging
of fixed costs resulting from decreased production, and a product mix shift toward products with relatively lower margins that remain
in stronger demand.

The decrease in gross margin for the year ended
December 31, 2024 is attributable to the aforementioned factors, partially offset by increased pricing.

Selling,
General and Administrative

Selling and general and administrative expenses data for the year ended
December 31, (dollars in millions):

Selling expenses for the year ended December 31,
2024 were substantially unchanged from 2023, as increased spending on advertising was offset by modest reductions in several selling and
marketing initiatives.

The
increase in general, and administrative expenses for the year ended December 31, 2024 was primarily attributable to increased professional
service costs and accrued severances of $1.5 million taken in the first quarter of 2024 related to a reduction in force involving
approximately 80 employees. These increases were partially offset by a reduction in incentive compensation expenses. The aforementioned
accrued severances were settled in cash and consist of one-time termination charges arising from severance obligations and other customary
employee benefit payments in connection with a reduction in force.

Operating Income

Operating income was $31.6 million or 5.9% of
sales in 2024. This is a decrease of $20.4 million from 2023 operating income of $52.1 million or 9.6% of sales.

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Other Operating Income (Expense),
Net

Other income data for the year ended December 31, (dollars
in millions):

The decrease in other income for the year ended
December 31, 2024 was primarily the result of decreases in interest income due to decreased interest rates earned on short-term investments
and other income, partially offset by increased royalty income.

Income
Taxes and Net Income

The
effective income tax rate was 19.1% in 2024 and 18.0% in 2023. The Company's 2024 and 2023 effective tax rates differ from the
statutory federal tax rate due principally to research and development tax credits, state income taxes, and the nondeductibility of certain
executive compensation.

As a result of the foregoing factors, consolidated
net income was $30.6 million in 2024. This represents a decrease of $17.6 million from 2023 consolidated net income of $48.2 million.

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Non-GAAP Financial Measure

In an effort to provide investors with additional
information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”)
financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information
to investors. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. In addition,
the Company believes that the non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures.
The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its
underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital
requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability
to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate its financial performance.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

EBITDA is defined as earnings before interest,
taxes, and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense and
depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest
income that was included in net income from net income to arrive at EBITDA. The Company’s EBITDA calculation also excludes certain
non-recurring, non-cash, non-operating expenses.

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Financial Condition

Liquidity

At
December 31, 2025, the Company had cash and cash equivalents of $18.5 million and $74.1 million in short term investments. The Company’s
pre-LIFO working capital of $223.9 million, less the LIFO reserve of $67.1 million, resulted in working capital of $156.9 million and
a current ratio of 3.9 to 1. The Company also has access to a $40 million unsecured revolving line of credit that is currently
undrawn.

Capital
Resources

The Company believes that its cash flow from operations,
current cash position, and access to capital markets will continue to be sufficient to meet its anticipated cash requirements and contractual
obligations, which includes funding the Company’s capital expenditures, acquisitions, dividend payments, and share repurchases.

Operations

Cash provided by operating activities was $54.3 million,
$55.5 million, and $33.9 million in 2025, 2024, and 2023, respectively. The slight decrease in cash provided in 2025 compared to 2024
is primarily attributable to the decrease in net income, mostly offset by the reduction in inventory in excess of the increase in inventory
reserves related to the Company’s inventory rationalization in 2025.

The decrease in cash provided in 2024 compared
to 2023 is primarily attributable to the decrease in net income in 2024.

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.
If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be
obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations
could be materially adversely affected.

Investing
and Financing

Capital expenditures were $30.9 million, $20.8
million, and $15.8 million in 2025, 2024, and 2023, respectively. In 2026, the Company expects capital expenditures to approximate $30
million, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment.
Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the budgeted amount. The
Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

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Included in capital expenditures amount noted above,
on July 1, 2025 the Company completed the asset purchase
of Anderson Manufacturing, a manufacturer of firearms and firearm accessories based in Hebron, Kentucky for a total purchase price of
$15.8 million, $15 million of which was paid at the closing of such transaction. This strategic purchase included Anderson’s manufacturing
facility and machinery and provided Ruger the opportunity to work with a skilled and experienced workforce, strengthening its production
capabilities and expanding its product offerings.

As
of December 31, 2025, the Company had $39.4 million of United States Treasury instruments which mature within one year. The Company
also invests available cash in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature
within one year. At December 31, 2025, the Company’s investment in this money market fund totaled $34.7 million.

In 2025, the Company repurchased 732,765 shares
of its common stock for $26.1 million in the open market. The average price per share purchased was $35.60. These purchases were funded
with cash on hand.

In 2024, the Company repurchased 835,060 shares
of its common stock for $34.4 million in the open market. The average price per share purchased was $41.19. These purchases were funded
with cash on hand.

In 2023, the Company repurchased
264,062 shares of its common stock for $11.8 million in the open market. The average price per share purchased was $44.71. These purchases
were funded with cash on hand.

At December 31, 2025, approximately $14.3 million
remained authorized for future share repurchases.

On January 5, 2023, the Company paid a $5.00 per
share special dividend to shareholders of record on December 15, 2022.

Including the $5.00 per share special dividend
paid on January 5, 2023, the Company paid dividends totaling $10.1 million, $11.8 million, and $110.8 million in 2025, 2024, and 2023,
respectively. The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount
per share. The Company’s practice is to pay a dividend of approximately 40% of net income.

On March 2, 2026, the Company’s Board of
Directors authorized a dividend of 8¢ per share to shareholders of record on March 16, 2026. The payment of future dividends depends
on many factors, including internal estimates of future performance, then-current cash, and the Company’s need for funds.

The Company provides supplemental discretionary
contributions to substantially all employees’ individual 401(k) accounts.

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Based on its unencumbered assets, the Company
believes it has the ability to raise cash through issuance of short-term or long-term debt.

Contractual
Obligations

At December 31, 2025, the Company had approximately
$31.7 million in agreements to purchase goods or services that are enforceable and legally binding on the Company, all of which are expected
to be settled in less than one year. Additionally, the Company has approximately $1.8 million in operating lease obligations, which will
be payable through 2034. The Company expects to fund all of these commitments with cash flows from operations and current cash.

Firearms
Legislation and Litigation

See Item 1A - Risk Factors and Note 20 to the
financial statements which are included in the Annual Report on Form 10-K for a discussion of firearms legislation and litigation.

Other
Operational Matters

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

Currently, there are 13 domestic distributors.
Additionally, the Company has 44 and 26 distributors servicing the export and law enforcement markets, respectively.

The Company self-insures a significant amount
of its product liability, workers’ compensation, medical, and other insurance. It also carries significant deductible amounts on
various insurance policies.

The Company expects to realize its deferred tax
assets through tax deductions against future taxable income.

On October 14, 2025, the Company’s Board
of Directors (the “Board”) approved the adoption of a limited-duration stockholder rights plan (the “Rights Plan”).
The Rights Plan is effective October 14, 2025 (“Effective Date”) and will expire on October 13, 2026. The Board, in consultation
with its advisors, adopted the Rights Plan in response to the public announcement by Beretta Holding S.A. (“Beretta”) that
it had accumulated a significant economic interest in Ruger’s common stock and intends to engage in discussions with the Company
regarding “potential areas of operational and strategic collaborations”. The Rights Plan is intended to ensure that the Board
remains in the best position to perform its fiduciary duties and to enable all stockholders to receive fair and equal treatment. It is
also designed to allow all stockholders to realize the long-term value of their investment by reducing the likelihood that Beretta would
gain control through open market

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accumulation or other coercive tactics without
appropriately compensating the Company’s stockholders or allowing the Board sufficient time to make informed judgments. The Rights
Plan is a temporary measure to give the Board time to understand Beretta’s intentions and evaluate options. The summary of the terms
of the Rights Plan set forth in Note 22 is hereby incorporated by reference herein; provided, however, that such summary of the Rights
Plan is qualified in its entirety by the Rights Plan.

Critical
Accounting Policies and Estimates

The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the
reported amounts of assets and liabilities as of the balance sheet date and net sales and expenses recognized and incurred during the
reporting period then ended. The Company bases estimates on prior experience, facts and circumstances, and other assumptions, including
those reviewed with actuarial consultants and independent counsel, when applicable, that are believed to be reasonable. However, actual
results may differ from these estimates.

The Company believes that the assumptions
and judgments involved in the accounting estimates below have the greatest potential impact on its financial statements, so the Company
believes these to be its critical accounting estimates. The methodologies applied for determining the estimates related to the below critical
accounting estimates have not changed from the prior year.

Product
Liability Accrual

The Company believes the determination of its
product liability accrual is a critical accounting policy. The Company’s management reviews every lawsuit and claim and is in contact
with independent and corporate counsel on an ongoing basis. The provision for product liability claims is based upon many factors, which
vary for each case. These factors include the type of claim, nature and extent of injuries, historical settlement ranges, jurisdiction
where filed, and advice of counsel. An accrual is established for each lawsuit and claim, when appropriate, based on the nature of each
such lawsuit or claim.

Amounts are charged to product liability expense
in the period in which the Company becomes aware that a claim or, in some instances a threat of a claim, has been made when potential
losses or costs of defense are probable and can be reasonably estimated. Such amounts are determined based on the Company’s experience
in defending similar claims. Occasionally, charges are made for claims made in prior periods because the cumulative actual costs incurred
for that claim, or reasonably expected to be incurred in the future, exceed amounts already provided with respect to such claims. Likewise,
credits may be taken if cumulative actual costs incurred for that claim, or reasonably expected to be incurred in the future, are less
than amounts previously provided.

While it is not possible to forecast the outcome
of litigation or the timing of related costs, in the opinion of management, after consultation with independent and corporate counsel,
there is a remote likelihood that litigation, including punitive damage claims, will have a material adverse effect on the financial position
of the Company, but such litigation may have a material impact on the Company’s financial results and cash flows for a particular
period.

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Inventory
Valuation and Reserves

The Company believes the valuation of its inventory
and the related excess and obsolescence reserve is also a critical accounting policy. Inventories are carried at the lower of cost, principally
determined by the last-in, first-out (LIFO) method, or market. An actual valuation of inventory under the LIFO method is made at the end
of each year based on the inventory levels and the Company’s estimates of the prevailing costs of the many components of inventory
existing at that time.

The Company determines its excess and obsolescence
reserve by projecting the year in which inventory will be consumed into a finished product. Given ever-changing market conditions, customer
preferences and the anticipated introduction of new products, projecting the future usage of inventory is subjective. As such, it does
not seem prudent to carry inventory at full cost beyond what the Company projects to be needed during the next 36 months.

Recent
Accounting Pronouncements

In December of 2023, the FASB issued Accounting
Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The updated
accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the effective
tax rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024. Prospective
application is required, with retrospective application permitted. Refer to Note 13, Income Taxes, for the updated presentation.

In November 2024, the FASB issued ASU No. 2024-03,
“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,” which requires additional
disclosure of certain costs and expenses within the notes to the financial statements. The updated standard is effective for annual reporting
periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027.
The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company
is currently evaluating the effect the updated guidance will have on its financial statement disclosures.

In December 2025, the FASB issued its final ASU which
makes improvements to the Accounting Standards Codification in response to feedback from stakeholders. This standard, issued as ASU 2025-12,
specifically updates the Codification for a broad range of Topics arising from technical corrections, unintended application of the Codification,
clarifications, and other minor improvements. This update is effective for annual reporting periods beginning after December 15, 2026,
including interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of adopting
ASU 2025-12.

In September 2025, the FASB issued ASU No. 2025-06,
“Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal
Use Software.” The standard modernizes and simplifies guidance for internal-use software costs. This guidance is effective for annual
reporting periods beginning after December 15, 2027

46

including interim reporting periods within those annual
reporting periods. The Company is evaluating the impact of this guidance on its Consolidated Financial Statements.

Forward-Looking
Statements and Projections

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