Sturm, Ruger & Company, Inc. (NYSE:RGR) announced today that for the first quarter of 2014 the Company reported net sales of $169.9 million and fully diluted earnings of $1.22 per share, compared with net sales of $155.9 million and fully diluted earnings of $1.20 per share in the first quarter of 2013.

The Company also announced today that its Board of Directors declared a dividend of 49¢ per share for the first quarter, for shareholders of record as of May 16, 2014, payable on May 30, 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 first quarter performance:
  • Our earnings increased 2% from the first quarter of 2013 on a 9% increase in sales. The main driver of the reduced operating margins was a product mix shift away from unusually strong sales of higher-margin firearms accessories that we enjoyed one year ago. Additionally, increased depreciation expense affected operating margins. At the same time, our EBITDA of $47.3 million increased 13% from the first quarter 2013 EBITDA of $41.9 million.
  • A summary of Q1 year-over-year growth follows:
        Sales     9%
 
Earnings 2%
 
EBITDA 13%
  • New products represented $41.3 million or 24% of firearm sales in the first quarter of 2014.
  • Demand for our products significantly outpaced the growth in industry demand as measured by the National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation) for the first quarter of 2014 as illustrated below:
   

Increase in estimated Ruger UnitsSold from Distributors to Retailers
 

10%
 

Increase in total adjusted NICSBackground Checks

(22%)
  • Cash generated from operations during the first quarter of 2014 was $15.8 million. At March 29, 2014, our cash totaled $49.8 million. Our current ratio is 1.9 to 1 and we have no debt.
  • In the first quarter of 2014, capital expenditures totaled $9.6 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 $35 million on capital expenditures during 2014 as we continue to prioritize new product development.
  • In the first quarter of 2014, the Company returned $10.5 million to its shareholders through the payment of dividends.
  • At March 29, 2014, stockholders’ equity was $192.8 million, which equates to a book value of $9.94 per share, of which $2.57 per share was cash.

Today, the Company filed its Quarterly Report on Form 10-Q for 2014. The financial statements included in this Quarterly Report on Form 10-Q are attached to this press release.

Tomorrow, May 6, 2014, Sturm, Ruger will host a webcast of its Annual Meeting of Stockholders at 9:00 a.m. ET. Interested parties can access the webcast at www.ruger.com/corporate or by dialing 866-297-6395, participant code 37122276.

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)
       
  March 29, 2014   December 31, 2013
 
 
Assets
 
Current Assets
Cash $ 49,770 $ 55,064
Trade receivables, net 69,900 67,384
 
Gross inventories 70,620 64,199
Less LIFO reserve (38,904 ) (38,516 )
Less excess and obsolescence reserve   (2,579 )     (2,422 )
Net inventories   29,137       23,261  
 
Deferred income taxes 9,537 7,637
Prepaid expenses and other current assets   2,663       4,280  
Total Current Assets 161,007 157,626
 
Property, plant and equipment 259,701 250,127
Less allowances for depreciation   (157,854 )     (149,099 )
Net property, plant and equipment   101,847       101,028  
 
Other assets   26,519       18,464  
Total Assets $ 289,373     $ 277,118  

STURM, RUGER & COMPANY, INC.
 
CONDENSED BALANCE SHEETS (Continued)

(Dollars in thousands, except share data)
       
  March 29, 2014   December 31, 2013
 
Liabilities and Stockholders’ Equity
 
 
Current Liabilities
Trade accounts payable and accrued expenses $ 45,416 $ 46,991
Product liability 968 971
Employee compensation and benefits 20,926 34,626
Workers’ compensation 5,658 5,339
Income taxes payable   13,453       239  
Total Current Liabilities 86,421 88,166
 
Product liability 283 265
Deferred income taxes 9,821 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 – 23,698,186 issued,
19,398,752 outstanding
2013 – 23,647,350 issued,
19,347,916 outstanding 23,698 23,647
Additional paid-in capital 20,827 20,614
Retained earnings 205,586 192,088
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   192,848       179,086  
Total Liabilities and Stockholders’ Equity $ 289,373     $ 277,118  

STURM, RUGER & COMPANY, INC.
 
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)
 
  Three Months Ended
March 29, 2014   March 30, 2013
 
Net firearms sales $ 169,162 $ 153,440
Net castings sales   722       2,465  
Total net sales 169,884 155,905
 
Cost of products sold 108,761 94,596
       
Gross profit   61,123       61,309  
 
Operating expenses:
Selling 14,421 15,764
General and administrative   8,733       8,443  
Total operating expenses   23,154       24,207  
 
Operating income   37,969       37,102  
 
Other income:
Interest expense, net (36 ) (16 )
Other income, net   365       265  
Total other income, net   329       249  
 
Income before income taxes 38,298 37,351
 
Income taxes   13,979       13,633  
 
Net income and comprehensive income $ 24,319     $ 23,718  
 
Basic earnings per share $ 1.26     $ 1.23  
 
Fully diluted earnings per share $ 1.22     $ 1.20  
 
Cash dividends per share $ 0.540     $ 0.404  

STURM, RUGER & COMPANY, INC.  
 
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)
     
    Three Months Ended
March 29,

2014
  March 30,

2013
 
Operating Activities
Net income $ 24,319 $ 23,718

Adjustments to reconcile net income to cash provided by operatingactivities:
Depreciation and amortization 8,940 4,501
Slow moving inventory valuation adjustment 157 235
Stock-based compensation 1,214 1,330
Gain on sale of assets - (70 )
Deferred income taxes (1,680 ) (2,684 )
Changes in operating assets and liabilities:
Trade receivables (2,516 ) (16,464 )
Inventories (6,033 ) 1,684
Trade accounts payable and accrued expenses (1,256 ) 2,836
Employee compensation and benefits (14,046 ) 3,678
Product liability 15 186
Prepaid expenses, other assets and other liabilities (6,618 ) (2,676 )
Income taxes payable     13,214       14,133  
Cash provided by operating activities     15,710       30,407  
 
Investing Activities
Property, plant and equipment additions (9,579 ) (7,705 )
Proceeds from sale of assets     -       70  
Cash used for investing activities     (9,579 )     (7,635 )
 
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU’s 1,344 1,747
Remittance of taxes withheld from employees related to
share-based compensation

(2,317
)

(2,082
)
Proceeds from exercise of stock options

23

 

 
-
Dividends paid     (10,475 )     (7,804 )
Cash used for financing activities     (11,425 )     (8,139 )
 
Increase (decrease) in cash and cash equivalents (5,294 ) 14,633
 
Cash and cash equivalents at beginning of period 55,064 30,978
         
Cash and cash equivalents at end of period   $ 49,770     $ 45,611  

Non-GAAP Financial Measure

In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and one non-GAAP financial measure 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. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance.

Non-GAAP Reconciliation – EBITDA

EBITDA
 

(Unaudited, dollars in thousands)
 
    Three Months Ended
March 29, 2014   March 30, 2013
 
Net income $ 24,319 $ 23,718
 
Income tax expense 13,979 13,633
Depreciation and amortization expense 8,940 4,501
Interest expense, net 38 16
Interest income     (2 )     --
EBITDA   $ 47,274     $ 41,868

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. The Company believes that disclosure of its EBITDA will be helpful to those reviewing its performance, 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.

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