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Sturm, Ruger & Company, Inc. Reports Third Quarter Fully Diluted Earnings of 34c Per Share and Declares Dividend of 14c Per Share

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Sturm, Ruger & Company, Inc. (NYSE-RGR) announced today that for the third quarter of 2014 the Company reported net sales of $98.3 million and fully diluted earnings of 34c per share, compared with net sales of $170.9 million and fully diluted earnings of $1.44 per share in the third quarter of 2013.

For the nine months ended September 27, 2014, net sales were $421.9 million and fully diluted earnings were $2.69 per share. For the corresponding period in 2013, net sales were $506.4 million and fully diluted earnings were $4.25 per share.

The Company also announced today that its Board of Directors declared a dividend of 14c per share for the third quarter for shareholders of record as of November 12, 2014, payable on November 26, 2014. This dividend varies every quarter because the Company pays a percent of earnings rather than a fixed amount per share. This dividend is approximately 40% of net income.

Chief Executive Officer Michael O. Fifer made the following observations related to the Company’s 2014 third quarter performance:

  • The decline in demand for the Company’s products accelerated during the third quarter of 2014, with sales declining 43% year over year and estimated sell-through from the independent distributors to retail declining 44% year over year. During this period, consumer demand appeared to decline only 3% year over year (as evidenced by the change in National Instant Criminal Background Check System (“NICS”) background checks, as adjusted by the National Shooting Sports Foundation).
  • The primary causes for the year over year decline in demand for the Company’s products during the third quarter included:
    • the reduction in overall consumer demand, combined with high inventory levels at retail,
    • retailers buying fewer firearms than they were selling, in an effort to reduce their inventories and generate cash,
    • these factors led to aggressive price discounting by many of our competitors (this price discounting was not matched by the Company, and likely resulted in lost market share).
  • The reduction in consumer demand for the Company’s products was further exacerbated by:
    • the lack of significant new product introductions from the Company, and
    • the continued limited availability of rimfire ammunition (which the Company believes adversely affected retail sales of .22 rifles, pistols and revolvers).
  • Our earnings decreased 76% and our EBITDA decreased 61% from the third quarter of 2013. The main drivers of the reduced operating margins were:
    • reduced sales of firearms and firearms accessories,
    • the de-leveraging of fixed costs, including depreciation, indirect labor, engineering, and product development costs,
    • approximately $2 million of increased depreciation expense due to the reduction in the estimated useful lives of the Company’s capital assets, and
    • approximately $2 million of increased depreciation expense due to the $151 million of capital equipment purchases as the Company increased firearm sales from $144 million in 2007 to $679 million in 2013.
  • New products represented $72.3 million or 17% of firearm sales in the first nine months of 2014. At the end of September, the Company launched the AR-556 modern sporting rifle. Shipments of the AR-556 were limited in the third quarter and therefore did not meaningfully impact the financial results of the period.
  • During the third quarter of 2014, inventories of finished goods increased 24,000 units at the independent wholesale distributors and 39,000 units at the Company.
  • Cash generated from operations during the nine months ended September 27, 2014 was $31.0 million. At September 27, 2014, our cash totaled $28.1 million. Our current ratio is 2.7 to 1 and we have no debt.
  • In the first nine months of 2014, capital expenditures totaled $28.7 million, much of it related to tooling fixtures and equipment for new product introductions, and to upgrade and modernize manufacturing equipment. We expect to invest approximately $40 million on capital expenditures during 2014 as we continue to prioritize new product development.
  • In the first nine months of 2014, the Company returned $28.7 million to its shareholders through the payment of dividends.
  • At September 27, 2014, stockholders’ equity was $206.2 million, which equates to a book value of $10.62 per share, of which $1.44 per share was cash.

The Company previously disclosed that it expects to terminate its frozen defined benefit pension plans in the fourth quarter of 2014. The settlement and termination of the frozen pension plans are expected to result in a pre-tax cash payment of approximately $8 million, an income statement expense of approximately $40 million in the fourth quarter of 2014, and a reduction in stockholders’ equity of approximately $20 million.

Today, the Company filed its Quarterly Report on Form 10-Q. The financial statements included in this Quarterly Report on Form 10-Q are attached to this press release.

Tomorrow, October 30, 2014, Sturm, Ruger will host a webcast at 9:00 a.m. ET to discuss the third quarter operating results. Interested parties can access the webcast at www.ruger.com/corporate or by dialing 866-271-6130, participant code 75506015.

The Quarterly Report on Form 10-Q is available on the SEC website at www.sec.gov and the Ruger website at www.ruger.com/corporate. Investors are urged to read the complete Quarterly Report on Form 10-Q to ensure that they have adequate information to make informed investment judgments.

About Sturm, Ruger

Sturm, Ruger & Co., Inc. is one of the nation’s leading manufacturers of rugged, reliable firearms for the commercial sporting market. The only full-line manufacturer of American-made firearms, Ruger offers consumers over 400 variations of more than 30 product lines. For more than 60 years, Ruger has been a model of corporate and community responsibility. Our motto, “Arms Makers for Responsible Citizens,” echoes the importance of these principles as we work hard to deliver quality and innovative firearms.

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.

STURM, RUGER & COMPANY, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands)

September 27,
2014

December 31,
2013

Assets
Current Assets
Cash $ 28,054 $ 55,064
Trade receivables, net 45,842 67,384
Gross inventories 92,401 64,199
Less LIFO reserve (39,679 ) (38,516 )
Less excess and obsolescence reserve (5,018 ) (2,422 )
Net inventories 47,704 23,261
Deferred income taxes 7,381 7,637
Prepaid expenses and other current assets 2,534 4,280
Total Current Assets 131,515 157,626
Property, plant and equipment 277,508 250,127
Less allowances for depreciation (174,236 ) (149,099 )
Net property, plant and equipment 103,272 101,028
Other assets 30,490 18,464
Total Assets $ 265,277 $ 277,118

STURM, RUGER & COMPANY, INC.

CONDENSED BALANCE SHEETS (Continued)

(Dollars in thousands, except share data)

September 27,
2014

December 31,
2013

Liabilities and Stockholders’ Equity
Current Liabilities
Trade accounts payable and accrued expenses $ 24,605 $ 46,991
Product liability 643 971
Employee compensation and benefits 18,053 34,626
Workers’ compensation 5,310 5,339
Income taxes payable 370 239
Total Current Liabilities 48,981 88,166
Product liability 234 265
Deferred income taxes 9,856 9,601
Contingent liabilities
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
2014 – 23,717,321 issued,
19,417,887 outstanding
2013 – 23,647,350 issued,
19,347,916 outstanding 23,717 23,647
Additional paid-in capital 24,018 20,614
Retained earnings 215,734 192,088
Less: Treasury stock – at cost
2014 and 2013 – 4,299,434 shares (37,884 ) (37,884 )
Accumulated other comprehensive loss (19,379 ) (19,379 )
Total Stockholders’ Equity 206,206 179,086
Total Liabilities and Stockholders’ Equity $ 265,277 $ 277,118

STURM, RUGER & COMPANY, INC.

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

Three Months Ended Nine Months Ended

September 27,
2014

September 28,
2013

September 27,
2014

September 28,
2013

Net firearms sales $ 97,847 $ 167,234 $ 420,026 $ 497,461
Net castings sales 480 3,708 1,843 8,915
Total net sales 98,327 170,942 421,869 506,376
Cost of products sold 74,589 108,002 286,655 311,403
Gross profit 23,738 62,940 135,214 194,973
Operating expenses:
Selling 7,586 9,662 32,069 37,250
General and administrative 6,192 8,207 22,168 24,967
Other operating expenses, net 287 49
Total operating expenses 13,778 18,156 54,237 62,266
Operating income 9,960 44,784 80,977 132,707
Other income:
Interest expense, net (37 ) (40 ) (110 ) (95 )
Other income, net 673 408 1,168 769
Total other income, net 636 368 1,058 674
Income before income taxes 10,596 45,152 82,035 133,381
Income taxes 3,815 16,481 28,648 48,684
Net income and comprehensive income $ 6,781 $ 28,671 $ 53,387 $ 84,697
Basic earnings per share $ 0.35 $ 1.48 $ 2.75 $ 4.38
Fully diluted earnings per share $ 0.34 $ 1.44 $ 2.69 $ 4.25
Cash dividends per share $ 0.450 $ 0.650 $ 1.480 $ 1.544

STURM, RUGER & COMPANY, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

Nine Months Ended

September 27,
2014

September 28,
2013

Operating Activities
Net income $ 53,387 $ 84,697
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 26,820 14,177
Slow moving inventory valuation adjustment 2,615 237
Stock-based compensation 4,193 3,973
Gain on sale of assets (8 ) (99 )
Deferred income taxes 511 607
Changes in operating assets and liabilities:
Trade receivables 21,542 (20,815 )
Inventories (27,058 ) (4,196 )
Trade accounts payable and accrued expenses (22,414 ) 709
Employee compensation and benefits (17,586 ) 15,350
Product liability (360 ) 508
Prepaid expenses, other assets and other liabilities (10,819 ) (14,309 )
Income taxes payable 131 2,901
Cash provided by operating activities 30,954 83,740
Investing Activities
Property, plant and equipment additions (28,696 ) (30,600 )
Proceeds from sale of assets 179 120
Cash used for investing activities (28,517 ) (30,480 )
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU’s 1,621 2,290
Remittance of taxes withheld from employees related to
share-based compensation (2,363 ) (2,414 )
Proceeds from exercise of stock options 23
Dividends paid (28,728 ) (29,858 )
Cash used for financing activities (29,447 ) (29,982 )
(Decrease) increase in cash and cash equivalents (27,010 ) 23,278
Cash and cash equivalents at beginning of period 55,064 30,978
Cash and cash equivalents at end of period $ 28,054 $ 54,256

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 EBITDA, a non-GAAP financial measure 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 this non-GAAP financial measure 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 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 decreased 61% and 26% for the three and nine months ended September 27, 2014 compared to the prior year periods.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)
Three Months Ended Nine Months Ended

September 27,
2014

September 28,
2013

September 27,
2014

September 28,
2013

Net income $ 6,781 $ 28,671 $ 53,387 $ 84,697
Income tax expense 3,815 16,481 28,648 48,684
Depreciation and amortization expense

8,940

4,743

26,820

14,177

Interest expense, net 37 40 110 95
EBITDA $ 19,573 $ 49,935 $ 108,965 $ 147,653

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