# STURM RUGER & CO INC (RGR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from STURM RUGER & CO INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/95029/000117494723000239/rgr-20221231.htm
Accession: 0001174947-23-000239
Filing date: 2023-02-22
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RGR/
All MD&A years: /company/RGR/mda/
Previous year: /company/RGR/mda/fy2021/ (FY 2021)
Next year: /company/RGR/mda/fy2023/ (FY 2023)

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 6% of total sales. The Company’s design and manufacturing operations are located in the United
States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale
distributors, principally to the commercial sporting market.

The Company also manufactures investment castings
made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated,
third-party customers. Less than 1% of sales are from the castings segment.

Orders of 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.

Impact of COVID-19

The global outbreak of the Coronavirus disease 2019
was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020. The COVID-19 pandemic
has created significant uncertainty and adversely impacted many industries throughout the global economy. In 2022, the Company was able
to mitigate the adverse impact on its business resulting from government restrictions on the movement of people, goods, and services.
The impact of the COVID-19 pandemic is fluid and continues to evolve, and, therefore, the Company cannot predict the extent to which its
business, results of operations, financial condition, or cash flows will ultimately be impacted. Management, with guidance from a dedicated
Company COVID-19 Task Force, continues to monitor and assess the situation, take proactive steps to promote the health and safety of its
employees, and prepare for potential implications for the Company’s business, supply chain and customer demand.

From a liquidity perspective, the Company believes
it is currently well positioned to continue to manage through this global crisis. At the end of 2022, the Company was debt-free and had
cash and short-term investments totaling $224.3 million.

The impact of COVID-19 in 2022 and future years on
consumer demand and the Company’s business, operations, financial results financial condition, and cash flows is dependent on future
developments, including the duration of the pandemic and the related impact on the global economy, which remains uncertain.

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Results of Operations - 2022

Product Demand

The estimated sell-through of
the Company’s products from the independent distributors to retailers in 2022 decreased 25% from 2021. For the same period, adjusted
NICS decreased 11%. These decreases are attributable to decreased consumer demand for firearms from the unprecedented levels of the surge
that began in 2020 and remained for most of 2021.The greater reduction in the sell-through of the Company’s products relative to
adjusted NICS background checks may be attributable to the following:

[[GREPCENT_TABLE]]
[["","\u25cf","More aggressive promotions, discounts, rebates, and the extension of payment terms offered by our competitors,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","An apparent increase in sales of used firearms at retail, which are included in the adjusted NICS checks, but are not distinguished from new gun sales, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Decreased retailer inventories as the anticipation of further discounting may be encouraging cautious buying behavior by retailers."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2022","","2021","","2020"],["Estimated Units Sold from Distributors to Retailers (1)","","","1,506,800","","","","2,017,800","","","","1,948,900"],["Total Adjusted NICS Background Checks (2)","","","16,425,000","","","","18,515,000","","","","21,084,000"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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:"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Rely on data provided by independent distributors that are not verified by the Company,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Do not consider potential timing issues within the distribution channel, including goods-in-transit, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Do not consider fluctuations in inventory at retail."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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."]]
[[/GREPCENT_TABLE]]

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

22 

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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
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 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):

[[GREPCENT_TABLE]]
[["","","2022","","2021","","2020"],["Orders Received","","$","451.2","","","$","606.5","","","$","992.9"],["Average Sales Price of Orders Received","","$","416","","","$","330","","","$","326"],["Ending Backlog","","$","314.4","","","$","429.7","","","$","516.6"],["Average Sales Price of Ending Backlog","","$","486","","","$","357","","","$","342"]]
[[/GREPCENT_TABLE]]

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 20% in 2022 compared to 2021.

23 

Table of Contents 

Annual Summary Unit Data

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

[[GREPCENT_TABLE]]
[["","","2022","","2021","","2020"],["Units Ordered","","","1,083,800","","","","1,835,500","","","","3,041,700"],["Units Produced","","","1,733,200","","","","2,154,600","","","","1,659,100"],["Units Shipped","","","1,641,000","","","","2,142,900","","","","1,717,700"],["Average Sales Price","","$","362","","","$","340","","","$","329"],["Units \u2013 Backlog","","","647,300","","","","1,204,500","","","","1,511,900"]]
[[/GREPCENT_TABLE]]

Inventories

The Company’s finished goods inventory increased
by 92,200 units during 2022.

Distributor
inventories of the Company’s products increased by 134,200 units during 2022, and approximate a reasonable level to support rapid
fulfillment of retailer demand for most product families.

Inventory data follows:

[[GREPCENT_TABLE]]
[["","","","2022","","","","2021","","","","2020"],["Units \u2013 Company Inventory","","","112,800","","","","20,600","","","","8,800"],["Units \u2013 Distributor Inventory (3)","","","298,400","","","","164,200","","","","39,200"],["Total inventory (4)","","","411,200","","","","184,800","","","","48,000"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(3)","Distributor ending inventory as provided by the independent distributors of the Company\u2019s products. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors."]]
[[/GREPCENT_TABLE]]

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

24 

Table of Contents 

Year ended December 31, 2022, as compared to year
ended December 31, 2021:

Net Sales, Cost of Products Sold, and Gross Profit

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

[[GREPCENT_TABLE]]
[["","","","December 31, 2022","","","","December 31, 2021","","","","Change","","","% Change"],["Net firearms sales","","$","593.3","","","$","728.1","","","$","(134.8",")","","","(18.5",")%"],["Net casting sales","","","2.5","","","","2.6","","","","(0.1",")","","","(1.6",")%"],["Total net sales","","","595.8","","","","730.7","","","","(134.9",")","","","(18.5",")%"],["Cost of products sold","","","415.7","","","","451.2","","","","(35.5",")","","","(7.8",")%"],["Gross profit","","$","180.1","","","$","279.5","","","$","(99.4",")","","","(35.6",")%"],["Gross margin","","","30.2%","","","","38.3%","","","","(8.1",")%","","","(29.7",")%"]]
[[/GREPCENT_TABLE]]

Firearms sales and unit shipments decreased 18.5% and 23.4%, respectively, in 2022.
New products represented $78.4 million or 14% of firearms sales in 2022, compared to $155.5 million or 22% of firearms sales in 2021.
New product sales include only major new products that were introduced in the past two years. In 2022, new products included the MAX-9
pistol, LCP MAX, Marlin 1895 lever-action rifles, PC Charger, LC Carbine, and Small-Frame Autoloading Rifle.

The decreased gross profit for the year ended December 31, 2022 is attributable to the significant decrease in sales,
as well as inflationary cost increases in materials, commodities, services, energy, fuel and transportation, which were partially offset
by increased pricing.

The
decrease in gross margin for the year ended December 31, 2022 is attributable to the
aforementioned inflationary cost increases and unfavorable deleveraging of fixed costs resulting from decreased production and sales.

Selling, General and Administrative

Selling,
general and administrative expenses were $76.6 million in 2022, a slight increase of $0.1 million from $76.5 million in 2021, and an increase
from 10.5% of sales in 2021 to 12.9% of sales in 2022. The increase in these expenses was primarily attributable to increased shipping
costs and to the resumption of trade show participation costs, travel expenditures, and advertising that had been deferred during the
height of the COVID-19 restrictions, almost entirely offset by decreased

25 

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incentive compensation expenses and decreased variable costs,
such as shipping, as a result of the reduced sales volume.

Other Operating Income (Expense), Net

Other operating income (expense), net was de minimis
in 2022 and an expense of $0.1 million in 2021.

Operating Income

Operating income was $103.5 million or 17.3% of sales
in 2022. This is a decrease of $99.6 million from 2021 operating income of $203.1 million or 27.8% of sales.

Royalty Income

Royalty income was $0.8 million in 2022 and $2.0 million
in 2021.

Interest Income

Interest income was $2.6 million in 2022, an increase
from de minimis earnings in 2021, due to significantly increased interest rates earned on short-term investments beginning in the second
quarter of 2022.

Interest Expense

Interest expense was $0.3 million in 2022 and $0.2
million and 2021.

Other Income, Net

Other income, net was $1.7 million in 2022, an increase
of $0.1 million from $1.6 million in 2021.

Income Taxes and Net Income

The
effective income tax rate was 18.4% in 2022 and 24.5% in 2021. The Company's 2022 and 2021 effective tax rate differs from the
statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes, and the nondeductibility
of certain executive compensation. The decrease in the 2022 effective tax rate was primarily attributable to research and development
tax credits, some of which related to amended prior year income tax returns. The impact related to research and development tax credits
on the effective tax rate is expected to decline in future years.

As a result of the foregoing factors, consolidated
net income was $88.3 million in 2022. This represents a decrease of $67.6 million from 2021 consolidated net income of $155.9 million.

26 

Table of Contents 

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)

[[GREPCENT_TABLE]]
[["Year ended December 31,","","2022","","","2021"],["Net income","","$","88,332","","","$","155,899"],["Income tax expense","","","19,947","","","","50,695"],["Depreciation and amortization expense","","","25,789","","","","26,152"],["Interest expense","","","256","","","","164"],["Interest income","","","(2,552",")","","","(49",")"],["EBITDA","","$","131,772","","","$","232,861"],["EBITDA margin","","","22.1%","","","","31.9%"]]
[[/GREPCENT_TABLE]]

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

27 

Table of Contents 

Quarterly Data

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

[[GREPCENT_TABLE]]
[["","","2022"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Units Ordered","","","156,000","","","","295,600","","","","250,600","","","","381,600"],["Units Produced","","","397,300","","","","382,800","","","","431,800","","","","521,300"],["Units Shipped","","","393,100","","","","373,800","","","","382,600","","","","491,500"],["Estimated Units Sold from Distributors to Retailers","","","397,800","","","","343,500","","","","354,300","","","","411,200"],["Total Adjusted NICS Background Checks","","","4,531,000","","","","3,764,000","","","","3,917,000","","","","4,213,000"],["Average Unit Sales Price","","$","378","","","$","371","","","$","366","","","$","338"],["Units \u2013 Backlog","","","647,300","","","","884,400","","","","962,600","","","","1,094,600"],["Units \u2013 Company Inventory","","","112,800","","","","108,600","","","","99,700","","","","50,400"],["Units \u2013 Distributor Inventory (5)","","","298,400","","","","303,100","","","","272,800","","","","244,600"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2021"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Units Ordered","","","373,000","","","","218,800","","","","453,400","","","","790,300"],["Units Produced","","","512,100","","","","525,200","","","","575,400","","","","541,900"],["Units Shipped","","","502,300","","","","524,800","","","","580,800","","","","535,000"],["Estimated Units Sold from Distributors to Retailers","","","458,200","","","","457,400","","","","583,300","","","","518,900"],["Total Adjusted NICS Background Checks","","","4,763,000","","","","3,971,000","","","","4,298,000","","","","5,483,000"],["Average Unit Sales Price","","$","334","","","$","338","","","$","343","","","$","343"],["Units \u2013 Backlog","","","1,204,500","","","","1,333,800","","","","1,639,800","","","","1,767,200"],["Units \u2013 Company Inventory","","","20,600","","","","10,900","","","","10,400","","","","15,700"],["Units \u2013 Distributor Inventory (5)","","","164,200","","","","120,100","","","","52,800","","","","55,300"]]
[[/GREPCENT_TABLE]]

28 

Table of Contents 

[[GREPCENT_TABLE]]
[["","(5)","Distributor ending inventory as provided by the independent distributors of the Company\u2019s products."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2022"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Orders Received","","$","81.0","","","$","124.3","","","$","98.9","","","$","147.0"],["Average Sales Price of Orders Received","","$","519","","","$","421","","","$","395","","","$","385"],["Ending Backlog","","$","314.4","","","$","377.6","","","$","389.6","","","$","420.5"],["Average Sales Price of Ending Backlog","","$","486","","","$","427","","","$","405","","","$","384"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2021"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Orders Received","","$","119.2","","","$","61.1","","","$","158.3","","","$","267.9"],["Average Sales Price of Orders Received","","$","320","","","$","279","","","$","349","","","$","339"],["Ending Backlog","","$","429.7","","","$","471.7","","","$","582.3","","","$","612.3"],["Average Sales Price of Ending Backlog","","$","357","","","$","354","","","$","355","","","$","346"]]
[[/GREPCENT_TABLE]]

29 

Table of Contents 

Fourth Quarter Net Sales and Gross Profit Analysis

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

[[GREPCENT_TABLE]]
[["","","","December 31, 2022","","","","December 31, 2021","","","","Change","","","","% Change"],["Net firearms sales","","$","148.7","","","$","167.5","","","$","(18.8",")","","","(11.3",")%"],["Net casting sales","","","0.5","","","","0.5","","","","\u2014","","","","14.8%"],["Total net sales","","","149.2","","","","168.0","","","","(18.8",")","","","(11.2",")%"],["Cost of products sold","","","109.6","","","","104.6","","","","5.0","","","","4.8%"],["Gross profit","","$","39.6","","","$","63.4","","","$","(23.8",")","","","(37.6",")%"],["Gross margin","","","26.5%","","","","37.7%","","","","(11.2",")%","","","(21.1",")%"]]
[[/GREPCENT_TABLE]]

30 

Table of Contents 

Results of Operations - 2021

Year ended December 31, 2021, as compared to year
ended December 31, 2020:

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:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Units Ordered","","","1,835,500","","","","3,041,700","","","","1,361,100"],["Units Produced","","","2,154,600","","","","1,659,100","","","","1,313,400"],["Units Shipped","","","2,142,900","","","","1,717,700","","","","1,326,200"],["Average Sales Price","","$","340","","","$","329","","","$","306"],["Units \u2013 Backlog","","","1,204,500","","","","1,511,900","","","","187,900"],["Units \u2013 Company Inventory","","","20,600","","","","8,800","","","","67,400"],["Units \u2013 Distributor Inventory (1)","","","164,200","","","","39,200","","","","270,400"],["Castings Setups","","","68,469","","","","66,044","","","","62,548"]]
[[/GREPCENT_TABLE]]

Orders Received and Ending Backlog

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

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Orders Received","","$","606.5","","","$","992.9","","","$","398.4"],["Average Sales Price of Orders Received (2)","","$","330","","","$","326","","","$","293"],["Ending Backlog","","$","429.7","","","$","516.6","","","$","57.8"],["Average Sales Price of Ending Backlog (2)","","$","357","","","$","342","","","$","308"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Distributor ending inventory as provided by the independent distributors of the Company\u2019s products."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Average sales price for orders received and ending backlog is net of Federal Excise Tax of 10% for handguns and 11% for long guns."]]
[[/GREPCENT_TABLE]]

31 

Table of Contents 

Product Demand

The estimated sell-through of
the Company’s products from the independent distributors to retailers in 2021 increased 3.5% from 2020. For the same period, adjusted
NICS decreased 12%.

The increase in the sell-through
of the Company’s products compared favorably to the decrease in adjusted NICS background checks in 2021 and may be attributable
to the following:

[[GREPCENT_TABLE]]
[["","\u25cf","Strong consumer demand for the Company\u2019s products,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Increased production in 2021, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The introduction of popular new products."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Estimated Units Sold from Distributors to Retailers (1)","","","2,017,800","","","","1,948,900","","","","1,355,500"],["Total Adjusted NICS Background Checks (2)","","","18,515,000","","","","21,084,000","","","","13,199,000"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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:"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Rely on data provided by independent distributors that are not verified by the Company,"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Do not consider potential timing issues within the distribution channel, including goods-in-transit, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Do not consider fluctuations in inventory at retail."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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."]]
[[/GREPCENT_TABLE]]

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.

32 

Table of Contents 

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 29.9% in 2021 compared to 2020.

Inventories

The Company’s finished goods inventory increased
by 11,800 units during 2021, but remain significantly below pre-COVID-19 pandemic levels.

Distributor
inventories of the Company’s products increased by 125,000 units during 2021, but remain significantly below the level needed to
support rapid fulfillment of retailer demand for most product families.

Inventory data follows:

[[GREPCENT_TABLE]]
[["","","","2021","","","","2020","","","","2019"],["Units \u2013 Company Inventory","","","20,600","","","","8,800","","","","67,400"],["Units \u2013 Distributor Inventory (3)","","","164,200","","","","39,200","","","","270,400"],["Total inventory (4)","","","184,800","","","","48,000","","","","337,800"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(3)","Distributor ending inventory as provided by the independent distributors of the Company\u2019s products. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors."]]
[[/GREPCENT_TABLE]]

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

33 

Table of Contents 

Quarterly Summary Unit Data

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

[[GREPCENT_TABLE]]
[["","","2021"],["","","","Q4","","","","Q3","","","","Q2","","","","Q1"],["Units Ordered","","","373,000","","","","218,800","","","","453,400","","","","790,300"],["Units Produced","","","512,100","","","","525,200","","","","575,400","","","","541,900"],["Units Shipped","","","502,300","","","","524,800","","","","580,800","","","","535,000"],["Estimated Units Sold from Distributors to Retailers","","","458,200","","","","457,400","","","","583,300","","","","518,900"],["Total Adjusted NICS Background Checks","","","4,763,000","","","","3,971,000","","","","4,298,000","","","","5,483,000"],["Average Unit Sales Price","","$","334","","","$","338","","","$","343","","","$","343"],["Units \u2013 Backlog","","","1,204,500","","","","1,333,800","","","","1,639,800","","","","1,767,200"],["Units \u2013 Company Inventory","","","20,600","","","","10,900","","","","10,400","","","","15,700"],["Units \u2013 Distributor Inventory (5)","","","164,200","","","","120,100","","","","52,800","","","","55,300"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2020"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Units Ordered","","","733,200","","","","935,200","","","","746,600","","","","626,700"],["Units Produced","","","491,000","","","","430,400","","","","374,400","","","","363,300"],["Units Shipped","","","493,000","","","","430,700","","","","395,100","","","","398,900"],["Estimated Units Sold from Distributors to Retailers","","","513,100","","","","457,400","","","","501,600","","","","476,800"],["Total Adjusted NICS Background Checks","","","5,626,000","","","","5,165,000","","","","5,452,000","","","","4,841,000"],["Average Unit Sales Price","","$","342","","","$","337","","","$","328","","","$","285"],["Units \u2013 Backlog","","","1,511,900","","","","1,271,700","","","","767,200","","","","415,700"],["Units \u2013 Company Inventory","","","8,800","","","","10,700","","","","11,100","","","","31,900"],["Units \u2013 Distributor Inventory (5)","","","39,200","","","","59,300","","","","86,000","","","","192,500"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","(5)","Distributor ending inventory as provided by the independent distributors of the Company\u2019s products."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","2021"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Orders Received","","$","119.2","","","$","61.1","","","$","158.3","","","$","267.9"],["Average Sales Price of Orders Received","","$","320","","","$","279","","","$","349","","","$","339"],["Ending Backlog","","$","429.7","","","$","471.7","","","$","582.3","","","$","612.3"],["Average Sales Price of Ending Backlog","","$","357","","","$","354","","","$","355","","","$","346"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2020"],["","","Q4","","","Q3","","","Q2","","","Q1"],["Orders Received","","$","277.1","","","$","284.0","","","$","228.8","","","$","203.0"],["Average Sales Price of Orders Received","","$","352","","","$","304","","","$","306","","","$","324"],["Ending Backlog","","$","516.6","","","$","410.1","","","$","255.6","","","$","142.7"],["Average Sales Price of Ending Backlog","","$","342","","","$","322","","","$","333","","","$","343"]]
[[/GREPCENT_TABLE]]

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Net Sales, Cost of Products Sold, and Gross Profit

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

[[GREPCENT_TABLE]]
[["","","","December 31, 2021","","","","December 31, 2020","","","","Change","","","","% Change"],["Net firearms sales","","$","728.1","","","$","565.9","","","$","162.2","","","","28.7%"],["Net casting sales","","","2.6","","","","3.0","","","","(0.4",")","","","(13.6)%"],["Total net sales","","","730.7","","","","568.9","","","","161.8","","","","28.5%"],["Cost of products sold","","","451.2","","","","377.5","","","","73.7","","","","19.5%"],["Gross profit","","$","279.5","","","$","191.4","","","$","88.1","","","","46.0%"],["Gross margin","","","38.3%","","","","33.7%","","","","4.6%","","","","13.6%"]]
[[/GREPCENT_TABLE]]

Firearms sales and unit shipments increased 28.7% and 24.8%, respectively, in 2021.
New products represented $155.5 million or 22% of firearms sales in 2021, compared to $111.2 million or 22% of firearms sales in 2020.
New product sales include only major new products that were introduced in the past two years. In 2021, new products included the Ruger-57
pistol, the PC Charger, the MAX-9 pistol, the LCP II in .22 LR pistol, the LCP MAX pistol, the Wrangler revolver, and the Marlin 1895
lever-action rifle.

The increased gross profit for the year ended December
31, 2021 is attributable to the significant increase in sales and profitability.

The increase in gross margin for the year ended December
31, 2021 is attributable to favorable leveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting
from the increased sales and production, labor efficiencies, and reduced sales promotional activities.

Selling, General and Administrative

Selling,
general and administrative expenses were $76.5 million in 2021, an increase of $4.2 million from $72.3 million in 2020, and a decrease
from 12.7% of sales in 2020 to 10.5% of sales in 2021. The increase in expense was primarily attributable to increased sales and
incentive compensation expenses and the decrease in the percentage of sales was attributable to the significant increase in sales.

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Other Operating Income, net

Other operating income, net was $0.1 million in 2021
and was de minimis in 2020.

Operating Income

Operating income was $203.1 million or 27.8% of sales
in 2021. This is an increase of $84.0 million from 2020 operating income of $119.1 million or 20.9% of sales.

Royalty Income

Royalty income was $2.0 million in 2021 and $0.8 million
in 2020.

Interest Income

Interest income was de minimis in 2021, a decrease
from $1.1 million in 2020, due to significantly decreased interest rates earned on short-term investments in 2021.

Interest Expense

Interest expense was $0.2 million in 2021 and 2020.

Other Income, Net

Other income, net was $1.6 million in 2021, an increase
of $1.5 million from $0.1 million in 2020.

Income Taxes and Net Income

The
effective income tax rate was 24.5% in 2021 and 25.3% in 2020. The Company's 2021 effective tax rate differs from the statutory
federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation. The Company's 2020
effective tax rate differs from the statutory federal tax rate due principally to state income taxes.

As a result of the foregoing factors, consolidated
net income was $155.9 million in 2021. This represents an increase of $65.5 million from 2020 consolidated net income of $90.4 million.

Non-GAAP Financial Measure

In an effort to provide investors with additional
information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”)
financial measures and 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

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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)

[[GREPCENT_TABLE]]
[["Year ended December 31,","","2021","","","2020"],["Net income","","$","155,899","","","$","90,398"],["Income tax expense","","","50,695","","","","30,583"],["Depreciation and amortization expense","","","26,152","","","","27,576"],["Interest expense","","","164","","","","191"],["Interest income","","","(49",")","","","(1,126",")"],["EBITDA","","$","232,861","","","$","147,622"],["EBITDA margin","","","31.9%","","","","26.0%"]]
[[/GREPCENT_TABLE]]

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

Financial Condition

Liquidity

At
December 31, 2022, the Company had cash and cash equivalents of $65.2 million and $159.1 million
in short term investments. Our pre-LIFO working capital of $258.3 million, less the LIFO reserve of $59.5 million, resulted in working
capital of $198.7 million and a current ratio of 2.2 to 1. The Company’s current ratio is lower than previous years primarily due
to the dividends payable of $88 million related to the $5.00 per share special dividend that was declared on November 30, 2022 and paid
on January 5, 2023. 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

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contractual
obligations, which includes funding the Company’s capital expenditures, acquisitions, dividend payments, and share repurchases.

Operations

Cash provided by operating activities was $77.2 million,
$172.3 million, and $143.8 million in 2022, 2021, and 2020, respectively. The decrease in cash provided in 2022 compared to 2021 is primarily
attributable to significantly decreased earnings in 2022 and increased inventories in 2022.

The increase in cash provided in 2021 compared to
2020 is primarily attributable to significantly increased earnings in 2021.

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 $27.7 million, $28.8 million,
and $24.2 million in 2022, 2021, and 2020, respectively. In 2023, the Company expects capital expenditures to approximate $20 million,
much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment.
Due to market conditions and business circumstances, actual capital expenditures could vary significantly from the budgeted amount. The
Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

Included in capital expenditures amount noted above,
on October 3, 2022 the Company purchased a 225,000 square foot facility, which it had previously been leasing, in Mayodan, North Carolina
for $8.3 million for use in its manufacturing and warehousing operations.

On November
23, 2020, the Company acquired substantially all of the Marlin Firearms assets, consisting of inventory, machinery and equipment, and
intangible assets. The agreement to purchase these assets emanated from the Remington Outdoor Company, Inc. bankruptcy and was approved
by the United States Bankruptcy Court for the Northern District of Alabama on September 30, 2020. The purchase price of approximately
$28.3 million was paid with available cash on hand. Shipments of Ruger-made, Marlin lever-action rifles commenced in the fourth quarter
of 2021.

As
of December 31, 2022, the Company had $107.0 million of United States Treasury instruments which mature within one year. The Company
also invests available cash in a bank-managed

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money market fund that invests exclusively in United States Treasury instruments which mature
within one year. At December 31, 2022, the Company’s investment in this money market fund totaled $52.1 million.

In 2022, the Company repurchased
4,440 shares of its common stock for $0.2 million in the open market. The average price per share purchased was $49.87. These purchases
were funded with cash on hand. No shares were repurchased in 2020 or 2021.

At December 31, 2022, approximately $86.5 million
remained authorized for future share repurchases.

The
Company paid dividends totaling $42.7 million, $59.1 million, and $113.9 million in 2022, 2021, and 2020, respectively. The increased
dividends paid in 2020 were attributable to a $5.00 per share special dividend paid in August 2020. The
quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share. The Company’s
practice is to pay a dividend of approximately 40% of net income.

On January 5, 2023, the Company paid a $5.00 per share special dividend to shareholders of
record on December 15, 2022. On February 17, 2023, the Company’s Board of Directors authorized a dividend of 42¢ per share
to shareholders of record on March 10, 2023. The payment of future dividends depends on many factors, including internal estimates of
future performance, then-current cash, and the Company’s need for funds.

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

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

Contractual Obligations

At December 31, 2022, the Company had approximately $84.6 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 $4.4 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 21 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

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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 15 domestic distributors. Additionally,
the Company has 45 and 25 distributors servicing the export and law enforcement markets, respectively.

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

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

Critical Accounting Policies and Estimates

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

The Company believes 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

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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.

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

None.

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.

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