10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________

FORM 10-Q

(Mark One)

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

            EXCHANGE ACT OF 1934

            For the quarterly period ended June 28, 2014

OR

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

            EXCHANGE ACT OF 1934

            For the transition period from _______________  to  _______________               

Commission file number 1-10435

STURM, RUGER & COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-0633559
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)
Lacey Place, Southport, Connecticut	06890
(Address of principal executive offices)	(Zip code)

(203) 259-7843

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.  Yes x      No o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x      No o
 

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

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

The number of shares outstanding of the issuer's common stock as of July 30, 2014: Common Stock, $1 par value –19,416,935.

Page 1 of 30

INDEX

STURM, RUGER & COMPANY, INC.

PART I.     FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed balance sheets – June 28, 2014 and December 31, 2013	3
	Condensed statements of income and comprehensive income – Three and six months ended June 28, 2014 and June 29, 2013	5
	Condensed statement of stockholders' equity – Six months ended June 28, 2014	6
	Condensed statements of cash flows – Six months ended June 28, 2014 and June 29, 2013	7
	Notes to condensed financial statements – June 28, 2014	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.     OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mining Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURES		30

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

STURM, RUGER & COMPANY, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands)

	June 28,  2014			December 31,  2013
				(Note)
Assets
Current Assets
Cash	$	47,435		$	55,064
Trade receivables, net		51,704			67,384
Gross inventories		83,033			64,199
Less LIFO reserve		(39,291	)		(38,516	)
Less excess and obsolescence reserve		(3,363	)		(2,422	)
Net inventories		40,379			23,261
Deferred income taxes		8,092			7,637
Prepaid expenses and other current assets		2,802			4,280
Total Current Assets		150,412			157,626
Property, plant and equipment		271,882			250,127
Less allowances for depreciation		(165,826	)		(149,099	)
Net property, plant and equipment		106,056			101,028
Other assets		27,222			18,464
Total Assets	$	283,690		$	277,118

Note:

The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed financial statements.

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STURM, RUGER & COMPANY, INC.

CONDENSED BALANCE SHEETS (Continued)

(Dollars in thousands, except share data)

	June 28,  2014			December 31,  2013
				(Note)
Liabilities and Stockholders’ Equity
Current Liabilities
Trade accounts payable and accrued expenses	$	36,565		$	46,991
Product liability		941			971
Employee compensation and benefits		22,573			34,626
Workers’ compensation		5,583			5,339
Income taxes payable		--			239
Total Current Liabilities		65,662			88,166
Product liability		260			265
Deferred income taxes		10,679			9,601
Contingent liabilities – Note 10		--			--
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 – 23,716,369 issued,
19,416,935 outstanding
2013 – 23,647,350 issued,
19,347,916 outstanding		23,716			23,647
Additional paid-in capital		22,629			20,614
Retained earnings		218,007			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		207,089			179,086
Total Liabilities and Stockholders’ Equity	$	283,690		$	277,118

Note:

The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

See notes to condensed financial statements.

4

STURM, RUGER & COMPANY, INC.

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 28,  2014			June 29,  2013			June 28,  2014			June 29,  2013
Net firearms sales	$	153,016		$	176,787		$	322,179		$	330,227
Net castings sales		641			2,741			1,363			5,207
Total net sales		153,657			179,528			323,542			335,434
Cost of products sold		103,304			108,804			212,066			203,401
Gross profit		50,353			70,724			111,476			132,033
Operating expenses:
Selling		10,062			11,823			24,483			27,588
General and administrative		7,244			8,317			15,976			16,760
Other operating expenses (income), net		--			(168	)		--			(238	)
Total operating expenses		17,306			19,972			40,459			44,110
Operating income		33,047			50,752			71,017			87,923
Other income:
Interest expense, net		(36	)		(39	)		(73	)		(55	)
Other income, net		130			166			495			361
Total other income, net		94			127			422			306
Income before income taxes		33,141			50,879			71,439			88,229
Income taxes		10,855			18,571			24,834			32,203
Net income and comprehensive income	$	22,286		$	32,308		$	46,605		$	56,026
Basic earnings per share	$	1.15		$	1.67		$	2.40		$	2.90
Fully diluted earnings per share	$	1.12		$	1.63		$	2.34		$	2.83
Cash dividends per share	$	0.490		$	0.490		$	1.030		$	0.894

See notes to condensed financial statements.

5

STURM, RUGER & COMPANY, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

	CommonStock	Additional  Paid-in  Capital	Retained  Earnings	Treasury  Stock	Accumulated  Other  Comprehensive  Loss	Total
Balance at December 31, 2013	$23,647	$20,614	$192,088	$(37,884)	$(19,379)	$179,086
Net income and comprehensive income			46,605			46,605
Dividends paid			(19,989)			(19,989)
Unpaid dividends accrued			(697)			(697)
Recognition of stock-based compensation expense		2,758				2,758
Exercise of stock options and vesting of RSU’s		(2,294)				(2,294)
Tax benefit realized from exercise of stock options and vesting of RSU’s		1,620				1,620
Common stock issued – compensation plans	69	(69)				-
Balance at June 28, 2014	$23,716	$22,629	$218,007	$(37,884)	$(19,379)	$207,089

See notes to condensed financial statements.

6

STURM, RUGER & COMPANY, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

	Six Months Ended
	June 28, 2014			June 29, 2013
Operating Activities
Net income	$	46,605		$	56,026
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		17,880			9,434
Slow moving inventory valuation adjustment		960			(261	)
Stock-based compensation		2,758			2,659
Gain on sale of assets		(7	)		(70	)
Deferred income taxes		623			(2,691	)
Changes in operating assets and liabilities:
Trade receivables		15,680			(14,326	)
Inventories		(18,078	)		216
Trade accounts payable and accrued expenses		(10,181	)		5,483
Employee compensation and benefits		(12,751	)		10,861
Product liability		(35	)		170
Prepaid expenses, other assets and other liabilities		(7,639	)		(3,296	)
Income taxes payable		(239	)		5,634
Cash provided by operating activities		35,576			69,839
Investing Activities
Property, plant and equipment additions		(22,817	)		(18,820	)
Proceeds from sale of assets		275			70
Cash used for investing activities		(22,542	)		(18,750	)
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU’s		1,620			2,078
Remittance of taxes withheld from employees related to share-based compensation		(2,317	)		(2,082	)
Proceeds from exercise of stock options		23			-
Dividends paid		(19,989	)		(17,282	)
Cash used for financing activities		(20,663	)		(17,286	)
Increase (decrease) in cash and cash equivalents		(7,629	)		33,803
Cash and cash equivalents at beginning of period		55,064			30,978
Cash and cash equivalents at end of period	$	47,435		$	64,781

See notes to condensed financial statements.

7

STURM, RUGER & COMPANY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods.  Operating results for the six months ended June 28, 2014 may not be indicative of the results to be expected for the full year ending December 31, 2014.  These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2013.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers.  Approximately 99.6% of the Company’s total sales for the three and six months ended June 28, 2014 were firearms sales, and approximately 0.4% were investment castings sales.  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 manufactures investment castings made from steel alloys for internal use in its firearms and utilizes available investment casting capacity to manufacture and sell castings to unaffiliated, third-party customers.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

8

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from  those estimates.

NOTE 3 - INVENTORIES

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

Inventories consist of the following:

	June 28,2014			December 31,2013
Inventory at FIFO
Finished products	$	16,796		$	6,552
Materials and work in process		66,237			57,647
Gross inventories		83,033			64,199
Less:  LIFO reserve		(39,291	)		(38,516	)
Less:  excess and obsolescence reserve		(3,363	)		(2,422	)
Net inventories	$	40,379		$	23,261

NOTE 4 - LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2015.  Borrowings under this facility bear interest at LIBOR (0.555% at June 28, 2014) plus 200 basis points. The Company is charged three-eighths of a percent (0.375%) per year on the unused portion.  At June 28, 2014 and December 31, 2013, the Company was in compliance with the terms and covenants of the credit facility, which remains unused. 

NOTE 5 - EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

In 2007, the Company amended its hourly and salaried defined benefit pension plans to freeze the benefits for current participants and to discontinue the plans for all future employees. All active participants became fully vested in the amount of benefit services accrued through December 31, 2007 and no benefits have accrued since that date. Currently, the Company provides supplemental discretionary contributions to substantially all employees’ individual 401(k) accounts.

The Company expects to satisfy all of its obligations under the frozen pension plans and to terminate the plans when market conditions are favorable.  Late in the fourth quarter of 2013, 94% of the pension plans’ assets were allocated to money market funds to capture the investment returns in 2013.  This was an initial step to prepare to fully fund and terminate the plans in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, which, if successful, will occur in late 2014 or early 2015. Plan participants will not be adversely affected by the plan terminations, but rather will have their benefits either converted into a lump sum cash payment or an annuity contract placed with an insurance carrier.

9

It is expected that the settlement and termination of the frozen pension plans would have a material impact on the financial results of the period in which it occurs, and may have a material financial impact on the financial position of the Company.

If the settlement and termination of the frozen pension plans does not occur in 2014, the estimated cost of the frozen defined benefit plans for 2014 is not expected to be significant.

Defined Contribution Plan

Effective January 1, 2007, the Company modified the terms of its 401(k) plan and now matches a certain portion of employee contributions. Expenses related to these matching contributions totaled $0.7 million and $1.9 million for the three and six months ended June 28, 2014, respectively, and $0.9 million and $1.6 million for the three and six months ended June 29, 2013, respectively.  The Company plans to contribute approximately $1.5 million to the plan in matching employee contributions during the remainder of 2014.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.3 million and $3.7 million for the three and six months ended June 28, 2014, respectively, and $1.5 million and $2.5 million for the three and six months ended June 29, 2013, respectively.  The Company plans to contribute approximately $3.5 million in supplemental contributions to the plan during the remainder of 2014.

NOTE 6 - INCOME TAXES

The Company's 2014 and 2013 effective tax rates differ from the statutory federal tax rate due principally to state income taxes partially offset by tax benefits related to the American Jobs Creation Act of 2004.  The Company’s effective income tax rate in the three and six months ended June 28, 2014 was 32.8% and 34.8%, respectively.  The Company’s effective income tax rate in the three and six months ended June 29, 2013 was 36.5%.  The decrease in the effective income tax rate in 2014 is due to the recognition of an increase in the 2013 domestic production activities deduction.

Income tax payments in the three and six months ended June 28, 2014 totaled $22.4 million and $22.5 million, respectively.  Income tax payments in the three and six months ended June 29, 2013 totaled $26.7 million and $27.1 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2011.

The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable.  The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position.

10

NOTE 7 - EARNINGS PER SHARE

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

	Three Months Ended				Six Months Ended
	June 28,  2014		June 29,  2013		June 28,  2014		June 29,  2013
Numerator:
Net income	$	22,286	$	32,308	$	46,605	$	56,026
Denominator:
Weighted average number of common shares outstanding – Basic		19,410,102		19,333,589		19,388,396		19,308,066
Dilutive effect of options and restricted stock units outstanding under the Company’s employee compensation plans		533,411		514,841		511,610		506,494
Weighted average number of common shares outstanding – Diluted		19,943,513		19,848,430		19,900,006		19,814,560

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

NOTE 8 - COMPENSATION PLANS

In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives.  Vesting requirements are determined by the Compensation Committee of the Board of Directors.  The Company has reserved 2,550,000 shares for issuance under the 2007 SIP, of which 698,000 shares remain available for future grants as of June 28, 2014.

Compensation costs related to all share-based payments recognized in the statements of operations aggregated $1.5 million and $2.8 million for the three and six months ended June 28, 2014, respectively, and $1.3 million and $2.7 million for the three and six months ended June 29, 2013, respectively.

11

Stock Options

A summary of changes in options outstanding under the plans is summarized below:

	Shares			Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2013		57,221		$	8.66	$	6.65
Granted		-			-		-
Exercised		(16,244	)	$	8.25	$	7.54
Expired		-			-		-
Outstanding at June 28, 2014		40,977		$	8.82	$	6.29

The aggregate intrinsic value (mean market price at June 28, 2014 less the weighted average exercise price) of options outstanding under the plans was approximately $2.0 million.

Restricted Stock Units

Beginning in the second quarter of 2009, the Company began granting restricted stock units to senior employees in lieu of incentive stock options. The vesting of these awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors.  Beginning in 2011, a three year vesting period was added to the performance criteria, which had the effect of requiring both the achievement of the corporate performance objectives and the satisfaction of the vesting period. 

There were 6,568 and 65,908 restricted stock units issued during the three and six months ended June 28, 2014.  Total compensation costs related to these restricted stock units are $4.2 million. These costs are being recognized ratably over the vesting period of three years. Total compensation cost related to restricted stock units was $1.5 million and $2.8 million for the three and six months ended June 28, 2014, respectively, and $1.3 million and $2.5 million for the three and six months ended June 29, 2013, respectively.

12

NOTE 9 - OPERATING SEGMENT INFORMATION

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

Selected operating segment financial information follows:

(in thousands)	Three Months Ended						Six Months Ended
	June 28,  2014			June 29,  2013			June 28,  2014			June 29,  2013
Net Sales
Firearms	$	153,016		$	176,787		$	322,179		$	330,227
Castings
Unaffiliated		641			2,741			1,363			5,207
Intersegment		9,452			8,027			18,906			15,755
		10,093			10,768			20,269			20,962
Eliminations		(9,452	)		(8,027	)		(18,906	)		(15,755	)
	$	153,657		$	179,528		$	323,542		$	335,434
Income (Loss) Before Income Taxes
Firearms	$	33,547		$	52,019		$	72,238		$	89,323
Castings		(542	)		(1,041	)		(1,071	)		(946	)
Corporate		136			(99	)		272			(148	)
	$	33,141		$	50,879		$	71,439		$	88,229
								June 28,  2014			December 31,  2013
Identifiable Assets
Firearms							$	218,096		$	201,660
Castings								13,284			11,402
Corporate								52,310			64,056
							$	283,690		$	277,118

NOTE 10 - CONTINGENT LIABILITIES

As of June 28, 2014, the Company was a defendant in approximately four (4) lawsuits and is aware of certain other such claims.  The lawsuits fall into three general categories, traditional products liability, municipal litigation, and commercial litigation, discussed in turn below.

Product Liability Litigation

Two of the four lawsuits mentioned above involve claims for damages related to allegedly defective product design and/or manufacture.  These lawsuits stem from a specific incident of personal injury and are based on traditional product liability theories such as strict liability, negligence and/or breach of warranty.

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The Company management believes that the allegations in these cases are unfounded, and that the incidents were caused by the negligence and/or misuse of the firearms by third-parties or the claimant, and that there should be no recovery against the Company. 

Municipal Litigation

Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third-parties. 

There is only one remaining lawsuit of this type, filed by the City of Gary in Indiana State Court, over ten years ago.  The complaint in that case seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages.  In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants.  The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising.  The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company’s products.

After a long procedural history, the case was scheduled for trial on June 15, 2009.  The case was not tried on that date and no subsequent scheduling order has been entered.  There has been no activity since that time.

Commercial Litigation

From time to time, the Company may be involved in commercial disputes that result in litigation.  These disputes run the gamut and may involve intellectual property, real property, supply or distribution agreements, contract disputes, or other, general commercial matters.  As of June 28, 2014, the Company was involved in one such lawsuit and is aware of certain other such claims.

Summary of Claimed Damages and Explanation of Product Liability Accruals

Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and claims.  Aggregate claimed amounts presently exceed product liability accruals and applicable insurance coverage.  For claims made after July 10, 2000, coverage is provided on an annual basis for losses exceeding $5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage.

The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims.  While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company’s financial results for a particular period.

Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims.  Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case.  A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case.

14

Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience.  Because the Company’s experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs.  In most cases, an accrual is established only for estimated legal defense costs.  Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future.  Threatened product liability claims are reflected in the Company’s product liability accrual on the same basis as actual claims; i.e., an accrual is made for reasonably anticipated possible liability and claims-handling expenses on an ongoing basis.

A range of reasonably possible loss relating to unfavorable outcomes cannot be made.  However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $1.3 million and $0.2 million at December 31, 2013 and 2012, respectively, are set forth as an indication of possible maximum liability that the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

NOTE 11 - SUBSEQUENT EVENTS

On July 29, 2014, Board of Directors authorized a dividend of 45¢ per share, for shareholders of record as of August 15, 2014, payable on August 29, 2014. 

On July 29, 2014, the Board of Directors expanded the Company’s authorization to repurchase shares of its common stock from $25 million to $100 million.

The Company has evaluated events and transactions occurring subsequent to June 28, 2014 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

15

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 99.6% of the Company’s total sales for the three and six months ended June 28, 2014 were firearms sales, and 0.4% were investment castings sales.  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 for internal use in its firearms and for sale to unaffiliated, third-party customers. 

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.  This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Results of Operations

Demand

During the first half of 2014, there was a significant industry-wide reduction in firearms demand.  National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) during the second quarter and first half of 2014 decreased 12% and 18%, respectively, from the comparable prior year periods. 

During the second quarter and first half of 2014, the estimated unit sell-through of our products from the independent distributors to retailers decreased 31% and 11%, respectively, from the comparable prior year periods.  The estimated sell-through of our products from distributors to retailers in the second quarter was adversely impacted by the following:

• the reduction in overall industry demand,
• the aggressive discounting of many of our competitors, and
• the absence of recent significant new product introductions from the Company. 

Nonetheless, the estimated sell-through of our products from the independent distributors to retailers for the six months ended June 28, 2014 was the second highest in the Company’s history, exceeding the estimated sell-through from the first half of 2012 by 83,100 units or 10%.

New products represented $57.1 million or 18% of firearm sales in the first half of 2014.

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Estimated sell-through from the independent distributors to retailers and total NICS background checks for the trailing six quarters follows:

	2014		2013
	Q2	Q1	Q4	Q3	Q2	Q1
Estimated Units Sold from Distributors to Retailers (1)	388,900	565,400	495,300	521,700	560,200	514,200
Total adjusted NICS Background Checks (thousands) (2)	2,672	3,830	3,932	2,907	3,032	4,926

(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:

• Rely on data provided by independent distributors that are not verified by the Company,
• Do not consider potential timing issues within the distribution channel, including goods-in-transit, and
• Do not consider fluctuations in inventory at retail.

(2)        While NICS background checks are not a precise measure of retail activity, they are commonly used as a proxy for retail demand.  NICS background checks are performed when the ownership of most firearms, either new or used, is transferred by a Federal Firearms Licensee.  NICS background checks are also performed for permit applications, permit renewals, and other administrative reasons.  

The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (CCW) permit application checks as well as checks on active CCW permit databases.  While not a direct correlation to firearms sales, the NSSF-adjusted NICS data provides a more accurate picture of current market conditions than raw NICS data.  

Orders Received and Ending Backlog

Net orders received in the first half of 2014 decreased 66% from the comparable prior year period and our ending order backlog of 1.0 million units at June 28, 2014 decreased 1.0 million units from backlog of 2.0 million units at June 29, 2013.  This decrease is due to the reduction in demand discussed above and the unprecedented level of orders received in the first quarter of 2013. 

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The units ordered, value of orders received and ending backlog, net of excise tax, 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.)

	2014				2013
	Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered		145,200		395,000		249,700		390,400		525,600		1,085,300
Orders Received	$	42.2	$	119.8	$	79.5	$	94.9	$	150.9	$	310.7
Average Sales Price of Orders Received	$	291	$	303	$	318	$	243	$	286	$	291
Ending Backlog	$	289.1	$	396.5	$	440.6	$	534.1	$	590.3	$	602.3
Average Sales Price of Ending Backlog	$	293	$	293	$	290	$	285	$	290	$	288

Production

Total unit production in the first half of 2014 increased 7% from the first half of 2013.  During the three months ended June 28, 2014, production rates were reduced in response to the decline in estimated sell-through of our products from the independent distributors to retailers. 

The Company reviews the estimated sell-through from the independent distributors to retailers semi-monthly in an effort to regulate production and mitigate increases in inventory.  As estimated sell-through began to slow, the Company managed its labor force by limiting the hiring of new employees, reducing overtime hours, and allowing attrition to reduce its total employee base.  The Company’s compensation structure, under which at least 25% of individual employee compensation was variable in 2013, allows for a more rapid reduction in labor cost.

Capital expenditures have been curtailed by the cancellation or delay of purchase orders and the redeployment of manufacturing equipment from mature production lines to new production lines for products in development.

           In 2013, the Company revised its estimate of the useful life of machinery and equipment from 10 to 7 years.  This change, which became effective December 31, 2013, resulted in increased depreciation expense of $2 million and $4 million for the three and six months ended June 28, 2014, respectively.  The Company estimates that this change will increase depreciation expense for the machinery and equipment on hand at December 31, 2013 by approximately $8 million in 2014.

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Summary Unit Data

Firearms unit data for the trailing six quarters are as follows:

	2014				2013
	Q2		Q1		Q4		Q3		Q2		Q1
Units Ordered		145,200		395,000		249,700		390,400		525,600		1,085,300
Units Produced		552,200		598,300		615,800		554,700		575,400		503,600
Units Shipped		513,700		561,400		604,900		553,000		577,200		502,300
Average Sales Price (3)	$	298	$	301	$	299	$	309	$	306	$	305
Units on Backlog		985,900		1,354,400		1,520,800		1,876,000		2,038,600		2,090,200

(3)       Net of Federal Excise Tax of 10% for handguns and 11% for long guns.

Inventories

            The Company’s finished goods inventory increased by 75,400 units during the first half of 2014.  This is the first significant replenishment of finished goods inventory in several years.  Additional replenishment of finished goods inventory could increase the FIFO value of finished goods inventory by as much as $10 million.

           Distributor inventories of the Company’s products increased by 120,800 units during the first half of 2014 and approximate a reasonable level to support rapid fulfillment of retailer demand.The Company reviews the estimated sell-through from the independent distributors to retailers semi-monthly in an effort to regulate production and mitigate further increases in distributor inventory.

             Inventory data for the trailing six quarters follows:

	2014		2013
	Q2	Q1	Q4	Q3	Q2	Q1
Units – Company Inventory	103,100	64,600	27,700	16,800	15,100	16,900
Units – Distributor Inventory (4)	325,900	201,100	205,100	95,500	64,200	47,300
Total inventory (5)	429,000	265,700	232,800	112,300	79,300	64,200

(4)         Distributor ending inventory is provided by the Company’s independent distributors.  These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors.

(5)         This total does not include inventory at retailers.  The Company does not have access to data on retailer inventories of the Company’s products.

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Net Sales

Consolidated net sales were $153.7 million for the three months ended June 28, 2014, a decrease of 14.4% from $179.5 million in the comparable prior year period.

For the six months ended June 28, 2014, consolidated net sales were $323.5 million, a decrease of 3.5% from $335.4 million in the comparable prior year period.

Firearms net sales were $153.0 million for the three months ended June 28, 2014, a decrease of 13.4% from $176.8 million in the comparable prior year period.

For the six months ended June 28, 2014, firearms net sales were $322.2 million, a decrease of 2.4% from $330.2 million in the comparable prior year period.

Firearms unit shipments decreased 11.0% for the three months ended June 28, 2014 but remained virtually unchanged for the six months ended June 28, 2014 from the comparable prior year periods.  The greater percentage decrease in firearms net sales compared to firearms unit shipments is attributable to decreased accessory sales in the three and six months ended June 28, 2014.

Casting net sales were $0.6 million for the three months ended June 28, 2014, a decrease of 76.6% from $2.7 million in the comparable prior year period.

For the six months ended June 28, 2014, castings net sales were $1.4 million, a decrease of 73.8% from $5.2 million in the comparable prior year period.

During 2013, the Company prioritized its internal casting needs and terminated many of its outside casting customers.  As a result net casting sales decreased.

Cost of Products Sold and Gross Profit

Consolidated cost of products sold was $103.3 million for the three months ended June 28, 2014, a decrease of 5.1% from $108.8 million in the comparable prior year period.

For the six months ended June 28, 2014, consolidated cost of products sold was $212.1 million, an increase of 4.3% from $203.4 million in the comparable prior year period.

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              Gross margin was 32.8% and 34.5% for the three and six months ended June 28, 2014, respectively, compared to 39.4%  in the comparable prior year periods as illustrated below (in thousands):

	Three Months Ended
	June 28, 2014					June 29, 2013
Net sales	$	153,657		100.0	%	$	179,528	100.0	%
Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory and product liability		103,123		67.1	%		107,628	59.9	%
LIFO expense		387		0.3	%		410	0.2	%
Overhead rate adjustments to inventory		(477	)	(0.3	)%		500	0.3	%
Labor rate adjustments to inventory		4		-			2	-
Product liability		267		0.1	%		264	0.2	%
Total cost of products sold		103,304		67.2	%		108,804	60.6	%
Gross profit	$	50,353		32.8	%	$	70,724	39.4	%

	Six Months Ended
	June 28, 2014					June 29, 2013
Net sales	$	323,542		100.0	%	$	335,434	100.0	%
Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory and product liability		211,243		65.3	%		201,207	60.0	%
LIFO expense		775		0.2	%		542	0.1	%
Overhead rate adjustments to inventory		(622	)	(0.2	)%		886	0.3	%
Labor rate adjustments to inventory		(3	)	-			37	-
Product liability		673		0.2	%		729	0.2	%
Total cost of products sold		212,066		65.5	%		203,401	60.6	%
Gross profit	$	111,476		34.5	%	$	132,033	39.4	%

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, and product liability — During the three and six months ended June 28, 2014, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, and product liability increased as a percentage of sales by 7.2% and 5.3% compared with the comparable 2013 periods due principally to reduced sales volume, a product mix shift away from higher-margin firearms accessories, and increased depreciation expense due to the reduction in the estimated useful lives of the Company’s capital assets.

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LIFO — For the three months ended June 28, 2014, gross inventories increased by $12.4 million and the Company recognized LIFO expense resulting in increased cost of products sold of $0.4 million.  In the comparable 2013 period, gross inventories increased by $1.9 million and the Company recognized LIFO expense resulting in increased cost of products sold of $0.4 million.

For the six months ended June 28, 2014, gross inventories increased by $18.8 million and the Company recognized LIFO expense resulting in increased cost of products sold of $0.8 million.  In the comparable 2013 period, gross inventories increased by $0.3 million and the Company recognized LIFO expense resulting in increased cost of products sold of $0.5 million.

Overhead Rate Adjustments — The Company uses actual overhead expenses incurred as a percentage of sales-value-of-production over a trailing six month period to absorb overhead expense into inventory. 

During the three and six months ended June 28, 2014, the Company was less efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory increased, resulting in increases in inventory value of $0.5 million and $0.6 million, respectively, and corresponding decreases to cost of products sold.

During the three and six months ended June 29, 2013, the Company was more efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory decreased, resulting in decreases in inventory value of $0.5 million and $0.9 million, respectively, and corresponding increases to cost of products sold.

Labor Rate Adjustments — The Company uses actual direct labor expense incurred as a percentage of sales-value-of-production over a trailing six month period to absorb direct labor expense into inventory. 

During the three and six months ended June 28, 2014 and June 29, 2013, the impact of the labor rate adjustment was de minimis.

Product Liability — This expense includes the cost of outside legal fees, insurance, and other expenses incurred in the management and defense of product liability matters. 

For the three and six months ended June 28, 2014 product liability costs totaled $0.3 million and $0.7 million, respectively.  For the three and six months ended June 29, 2013, product liability costs totaled $0.3 million and $0.7 million, respectively.  See Note 10 to the notes to the condensed financial statements “Contingent Liabilities” for further discussion of the Company’s product liability.

Gross Profit — As a result of the foregoing factors, for the three and six months ended June 28, 2014, gross profit was $50.4 million and $111.5 million, respectively, a decrease of $20.3 million and $20.5 from $70.7 million and $132.0 million in the comparable prior year periods.  Gross profit as a percentage of sales decreased to 32.8% and 34.5% in the three and six months ended June 28, 2014 from 39.4% in the comparable prior year periods.

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Selling, General and Administrative, and Other Operating Expenses

Selling, general and administrative, and other operating expenses were $17.3 million and $40.5 million for the three and six months ended June 28, 2014, respectively, a decrease of $2.7 million and $3.6 million from the comparable prior year periods.  This decrease is attributable to decreased volume-driven promotional selling expenses.

Other income, net

Other income, net was $0.1 million and $0.4 million in the three and six months ended June 28, 2014, compared to $0.1 million and $0.3 million in the three and six months ended June 29, 2013, respectively.

Income Taxes and Net Income

The Company’s effective income tax rate in the three and six months ended June 28, 2014 was 32.8% and 34.8%, respectively.  The Company’s effective income tax rate in the three and six months ended June 29, 2013 was 36.5%.  The decrease in the effective income tax rate in 2014 is due to the recognition of an increase in the 2013 domestic production activities deduction.

As a result of the foregoing factors, consolidated net income was $22.3 million and $46.6 million for the three and six months ended June 28, 2014.  This represents a decrease of 31.0% and 16.8% from $32.3 million and $56.0 million in the comparable prior year periods.

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.

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EBITDA decreased 25% and 9% for the three and six months ended June 28, 2014 compared to the prior year periods.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Net income	$	22,286	$	32,308	$	46,605	$	56,026
Income tax expense		10,855		18,571		24,834		32,203
Depreciation and amortization expense		8,940		4,933		17,880		9,434
Interest expense, net		36		39		73		55
EBITDA	$	42,117	$	55,851	$	89,392	$	97,718

Financial Condition

Liquidity

At the end of the second quarter of 2014, the Company’s cash totaled $47.4 million.  Pre-LIFO working capital of $124.0 million, less the LIFO reserve of $39.3 million, resulted in working capital of $84.7 million and a current ratio of 2.3 to 1. 

Operations

Cash provided by operating activities was $35.6 million for the six months ended June 28, 2014 compared to $69.8 million for the comparable prior year period.  The decrease in cash provided by operations is primarily attributable to the increases in inventory and other assets during the six months ended June 28, 2014 and the decreases in accounts payable and employee compensation during such period.

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.  The Company believes that it has adequate quantities of raw materials in inventory or on order to provide sufficient time to locate and obtain additional items at then-current market cost without interruption of its manufacturing operations.  However, if market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

Capital expenditures for the six months ended June 28, 2014 totaled $22.8 million.  In 2014, the Company expects to spend approximately $40 million on capital expenditures to purchase tooling fixtures and equipment for new product introductions and to upgrade and modernize manufacturing equipment.  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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Dividends of $20.0 million were paid during the six months ended June 28, 2014. 

On July 29, 2014, the Board of Directors authorized a dividend of 45¢ per share, for shareholders of record as of August 15, 2014, payable on August 29, 2014.  The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.  The Company has financed its dividends with cash provided by operations and current cash.

During the six months ended June 28, 2014, the Company did not repurchase any shares of its common stock.  As of June 28, 2014, $25 million remained available for future stock repurchases.

On July 29, 2014, the Board of Directors expanded the Company’s authorization to repurchase shares of its common stock from $25 million to $100 million.

The Company has migrated its retirement benefits from defined-benefit pension plans to defined-contribution retirement plans, utilizing its current 401(k) plan.

The Company amended its hourly and salaried defined-benefit pension plans so that employees no longer accrued benefits under them effective December 31, 2007.  This action “froze” the benefits for all employees and prevented future hires from joining the plans.  Currently, the Company provides supplemental discretionary contributions to substantially all employees’ individual 401(k) accounts.

The Company contributed $3 million in both 2013 and 2012.  In future years, the Company may be required to make cash contributions to the two defined-benefit pension plans.  The annual contributions will be based on the amount of the unfunded plan liabilities derived from the frozen benefits and will not include liabilities for any future accrued benefits for any new or existing participants.  The total amount of these future cash contributions will depend on the investment returns generated by the plans’ assets and the then-applicable discount rates used to calculate the plans’ liabilities. 

         The Company expects to satisfy all of its obligations under the frozen pension plans when market conditions are favorable.  Late in the fourth quarter of 2013, 94% of the pension plans’ assets were allocated to money market funds to capture the investment returns in 2013.  This was an initial step to prepare to fully fund and terminate the plans in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, which, if successful, would not occur before late 2014 or early 2015. Plan participants will not be adversely affected by the plan terminations, but rather will have their benefits either converted into a lump sum cash payment or an annuity contract placed with an insurance carrier.

It is expected that the settlement of the frozen pension plans would have a material impact on the financial results of the period in which it occurs, and may have a material impact on the financial position of the Company.

          Based on its unencumbered assets, the Company believes it has the ability to raise cash through issuance of short-term or long-term debt.  The Company’s unsecured $40 million credit facility, which expires on June 15, 2015, remained unused at June 28, 2014 and the Company has no debt. 

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Other Operational Matters

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

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

           The Company has transitioned to a new enterprise resource planning system and has converted all of its manufacturing facilities and its support functions during the past two years.

The valuation of the future defined-benefit pension obligations at December 31, 2013 and 2012 indicated that these plans were overfunded by $0.5 million and underfunded by $19.6 million, respectively, which resulted in a cumulative other comprehensive loss of $19.4 million and $29.6 million on the Company’s balance sheet at December 31, 2013 and 2012, respectively.

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

Adjustments to Critical Accounting Policies

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2013 Annual Report on Form 10-K filed on February 25, 2014, or the judgments affecting the application of those estimates and assumptions.

Forward-Looking Statements and Projections 

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

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ITEM 3.              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Historically, the Company has been exposed to changing interest rates on its investments, which consisted primarily of United States Treasury instruments with short-term (less than one year) maturities and cash.  The interest rate market risk implicit in the Company’s investments at any given time is typically low, as the investments mature within short periods and the Company does not have significant exposure to changing interest rates on invested cash.

ITEM 4.              CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (the “Disclosure Controls and Procedures”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 28, 2014.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 28, 2014, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure. 

Additionally, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, there have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 28, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

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PART II.            OTHER INFORMATION

ITEM 1.             LEGAL PROCEEDINGS

         The nature of the legal proceedings against the Company is discussed at Note 10 to the consolidated financial statements in this Form 10-Q report, which is incorporated herein by reference.

         The Company has reported all cases instituted against it through March 29, 2014, and the results of those cases, where terminated, to the S.E.C. on its previous Form 10-Q and 10-K reports, to which reference is hereby made.

         There were no lawsuits formally instituted against the Company during the three months ending June 28, 2014.

ITEM 1A.          RISK FACTORS

There have been no material changes in the Company’s risk factors from the information provided in Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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

                            Not applicable

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES

                            Not applicable

ITEM 4.             MINING SAFETY DISCLOSURES             

                            Not applicable

ITEM 5.             OTHER INFORMATION

                            None

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ITEM 6.              EXHIBITS

(a)          Exhibits:

10.1  Sixth Amendment to Credit Agreement dated June 9, 2014 between the Company and Bank of America, N.A. (1)

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

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

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

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

(1)     Incorporated by reference to the Company’s Form 8-K filed with the S.E.C. on June 16, 2014.

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STURM, RUGER & COMPANY, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 28, 2014

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STURM, RUGER & COMPANY, INC.
Date:  July 29, 2014	S/THOMAS A. DINEEN
	Thomas A. Dineen
	Principal Financial Officer,
	Principal Accounting Officer,
	Vice President, Treasurer and Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael O. Fifer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: July 29, 2014

S/MICHAEL O. FIFER

Michael O. Fifer

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Thomas A. Dineen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Sturm, Ruger & Company, Inc. (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  July 29, 2014

S/THOMAS A. DINEEN                           

Thomas A. Dineen

Vice President, Treasurer and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended June 28, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael O. Fifer, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company.

Date:  July 29, 2014	S/MICHAEL O. FIFER
	Michael O. Fifer
	Chief Executive Officer

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sturm, Ruger & Company, Inc. (the “Company”) for the period ended June 28, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Dineen, Treasurer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company.

Date:  July 29, 2014	S/THOMAS A. DINEEN
	Thomas A. Dineen
	Vice President, Treasurer and
	Chief Financial Officer

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

SUBSEQUENT EVENTS (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	0 Months Ended
	Jul. 29, 2014
SUBSEQUENT EVENTS [Abstract]
Dividend price per share	$ 0.45
Amount authorized for repurchase of shares of common stock before expansion by the Board of Directors	$ 25
Amount authorized for repurchase of shares of common stock	$ 100

XML

LINE OF CREDIT (Details) (Credit Facility [Member], USD $) In Millions, unless otherwise specified	1 Months Ended
	Feb. 28, 2013
Credit Facility [Member]
Line of Credit Facility [Line Items]
Credit facility with a bank	$ 40
Description of interest rate of credit facility	LIBOR
Line of credit interest rate (in percent)	0.555%
Line of credit basis points	2.00%
Line of credit unused portion per year (in percent)	0.375%
Revolving credit facility, expiration date	Jun. 15, 2015

XML

INVENTORIES

6 Months Ended

Jun. 28, 2014

INVENTORIES [Abstract]

INVENTORIES

NOTE 3 - INVENTORIES

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

Inventories consist of the following:

	June 28,2014			December 31,2013
Inventory at FIFO
Finished products	$	16,796		$	6,552
Materials and work in process		66,237			57,647
Gross inventories		83,033			64,199
Less:  LIFO reserve		(39,291	)		(38,516	)
Less:  excess and obsolescence reserve		(3,363	)		(2,422	)
Net inventories	$	40,379		$	23,261

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COMPENSATION PLANS (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense recognized			$ 4,200,000
Stock-based compensation	1,500,000	1,300,000	2,758,000	2,659,000
Issued restricted stock, shares	6,568		65,908
Total compensation cost	$ 1,500,000	$ 1,300,000	$ 2,800,000	$ 2,500,000
Vesting period of compensation expense recognized			3 years
Stock Incentive Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance	2,550,000		2,550,000
Shares available for future grants	698,000		698,000

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EARNINGS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013
Numerator:
Net income	$ 22,286	$ 32,308	$ 46,605	$ 56,026
Denominator:
Weighted average number of common shares outstanding - Basic	19,410,102	19,333,589	19,388,396	19,308,066
Dilutive effect of options and restricted stock units outstanding under the Company's employee compensation plans	533,411	514,841	511,610	506,494
Weighted average number of common shares outstanding - Diluted	19,943,513	19,848,430	19,900,006	19,814,560

XML

COMPENSATION PLANS (Stock Options) (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Jun. 28, 2014
Shares
Outstanding at December 31, 2013	57,221
Granted shares
Exercised shares	(16,244)
Expired shares
Outstanding at June 28, 2014	40,977
Weighted Average Exercise Price
Outstanding weighted average excercise price at December 31, 2013	$ 8.66
Granted weighted average excercise price
Exercised weighted average exercise price	$ 8.25
Expired weighted average exercise price
Outstanding weighted average exercise price at June 28, 2014	$ 8.82
Outstanding grant date fair value at December 31, 2013	$ 6.65
Granted grant date fair value
Exercised grant date fair value	$ 7.54
Expired grant date fair value
Outstanding grant date fair value at June 28, 2014	$ 6.29
The aggregate instrinsic value of options outstanding	$ 2.0
Vesting period of compensation expense recognized	3 years

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OPERATING SEGMENT INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Net Sales	$ 153,657	$ 179,528	$ 323,542	$ 335,434
Income (Loss) Before Income Taxes	33,141	50,879	71,439	88,229
Identifiable Assets	283,690		283,690		277,118
Net firearms sales [Member]
Segment Reporting Information [Line Items]
Net Sales	153,016	176,787	322,179	330,227
Income (Loss) Before Income Taxes	33,547	52,019	72,238	89,323
Identifiable Assets	218,096		218,096		201,660
Castings [Member]
Segment Reporting Information [Line Items]
Net Sales	10,093	10,768	20,269	20,962
Income (Loss) Before Income Taxes	(542)	(1,041)	(1,071)	(946)
Identifiable Assets	13,284		13,284		11,402
Unaffiliated [Member]
Segment Reporting Information [Line Items]
Net Sales	641	2,741	1,363	5,207
Intersegment [Member]
Segment Reporting Information [Line Items]
Net Sales	9,452	8,027	18,906	15,755
Eliminations [Member]
Segment Reporting Information [Line Items]
Net Sales	(9,452)	(8,027)	(18,906)	(15,755)
Corporate [Member]
Segment Reporting Information [Line Items]
Income (Loss) Before Income Taxes	136	(99)	272	(148)
Identifiable Assets	$ 52,310		$ 52,310		$ 64,056

XML

SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 28, 2014

SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers.  Approximately 99.6% of the Company's total sales for the three and six months ended June 28, 2014 were firearms sales, and approximately 0.4% were investment castings sales.  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 manufactures investment castings made from steel alloys for internal use in its firearms and utilizes available investment casting capacity to manufacture and sell castings to unaffiliated, third-party customers.

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from  those estimates.

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CONTINGENT LIABILITIES (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 28, 2014	Dec. 31, 2013	Dec. 31, 2012
Loss Contingencies [Line Items]
Number of lawsuits against the company	4
Minimum limit of per claim for providing insurance coverage on annual basis	$ 5
Maximum limit of aggregate loss incurred annually for providing insurance coverage on annual basis	10
Total amount of damages claimed		$ 1.3	$ 0.2

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CONDENSED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Dec. 31, 2013
Current Assets
Cash	$ 47,435	$ 55,064
Trade receivables, net	51,704	67,384
Gross inventories	83,033	64,199
Less LIFO reserve	(39,291)	(38,516)
Less excess and obsolescence reserve	(3,363)	(2,422)
Net inventories	40,379	23,261
Deferred income taxes	8,092	7,637
Prepaid expenses and other current assets	2,802	4,280
Total Current Assets	150,412	157,626
Property, plant and equipment	271,882	250,127
Less allowances for depreciation	(165,826)	(149,099)
Net property, plant and equipment	106,056	101,028
Other assets	27,222	18,464
Total Assets	283,690	277,118
Current Liabilities
Trade accounts payable and accrued expenses	36,565	46,991
Product liability	941	971
Employee compensation and benefits	22,573	34,626
Workers' compensation	5,583	5,339
Income taxes payable		239
Total Current Liabilities	65,662	88,166
Product liability	260	265
Deferred income taxes	10,679	9,601
Contingent liabilities - Note 10
Stockholders' Equity
Additional paid-in capital	22,629	20,614
Retained earnings	218,007	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	207,089	179,086
Total Liabilities and Stockholders' Equity	283,690	277,118
Nonvoting Common Stock [Member]
Stockholders' Equity
Common Stock
Voting Common Stock [Member]
Stockholders' Equity
Common Stock	$ 23,716	$ 23,647

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CONDENSED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013
Operating Activities
Net income	$ 46,605	$ 56,026
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	17,880	9,434
Slow moving inventory valuation adjustment	960	(261)
Stock-based compensation	2,758	2,659
Gain on sale of assets	(7)	(70)
Deferred income taxes	623	(2,691)
Changes in operating assets and liabilities:
Trade receivables	15,680	(14,326)
Inventories	(18,078)	216
Trade accounts payable and accrued expenses	(10,181)	5,483
Employee compensation and benefits	(12,751)	10,861
Product liability	(35)	170
Prepaid expenses, other assets and other liabilities	(7,639)	(3,296)
Income taxes payable	(239)	5,634
Cash provided by operating activities	35,576	69,839
Investing Activities
Property, plant and equipment additions	(22,817)	(18,820)
Proceeds from sale of assets	275	70
Cash used for investing activities	(22,542)	(18,750)
Financing Activities
Tax benefit from exercise of stock options and vesting of RSU's	1,620	2,078
Remittance of taxes withheld from employees related to share-based compensation	(2,317)	(2,082)
Proceeds from exercise of stock options	23
Dividends paid	(19,989)	(17,282)
Cash used for financing activities	(20,663)	(17,286)
Increase (decrease) in cash and cash equivalents	(7,629)	33,803
Cash and cash equivalents at beginning of period	55,064	30,978
Cash and cash equivalents at end of period	$ 47,435	$ 64,781

XML

OPERATING SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 28, 2014

OPERATING SEGMENT INFORMATION [Abstract]

Schedule of Financial Information of Selected Operating Segment

Selected operating segment financial information follows:

(in thousands)	Three Months Ended						Six Months Ended
	June 28,  2014			June 29,  2013			June 28,  2014			June 29,  2013
Net Sales
Firearms	$	153,016		$	176,787		$	322,179		$	330,227
Castings
Unaffiliated		641			2,741			1,363			5,207
Intersegment		9,452			8,027			18,906			15,755
		10,093			10,768			20,269			20,962
Eliminations		(9,452	)		(8,027	)		(18,906	)		(15,755	)
	$	153,657		$	179,528		$	323,542		$	335,434
Income (Loss) Before Income Taxes
Firearms	$	33,547		$	52,019		$	72,238		$	89,323
Castings		(542	)		(1,041	)		(1,071	)		(946	)
Corporate		136			(99	)		272			(148	)
	$	33,141		$	50,879		$	71,439		$	88,229
								June 28,  2014			December 31,  2013
Identifiable Assets
Firearms							$	218,096		$	201,660
Castings								13,284			11,402
Corporate								52,310			64,056
							$	283,690		$	277,118

XML

INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	Jun. 28, 2014	Dec. 31, 2013
Inventory at FIFO
Finished products	$ 16,796	$ 6,552
Materials and work in process	66,237	57,647
Gross inventories	83,033	64,199
Less LIFO reserve	(39,291)	(38,516)
Less excess and obsolescence reserve	(3,363)	(2,422)
Net inventories	$ 40,379	$ 23,261

XML

BASIS OF PRESENTATION

6 Months Ended

Jun. 28, 2014

BASIS OF PRESENTATION [Abstract]

BASIS OF PRESENTATION

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods.  Operating results for the six months ended June 28, 2014 may not be indicative of the results to be expected for the full year ending December 31, 2014.  These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2013.

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CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 28, 2014	Dec. 31, 2013
Treasury stock, shares	4,299,434	4,299,434
Nonvoting Common Stock [Member]
Common Stock, par value per share	$ 1	$ 1
Common Stock, shares authorized	50,000	50,000
Common Stock, shares issued	0	0
Voting Common Stock [Member]
Common Stock, par value per share	$ 1	$ 1
Common Stock, shares authorized	40,000,000	40,000,000
Common Stock, shares issued	23,716,369	23,647,350
Common Stock, shares outstanding	19,416,935	19,347,916

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 28, 2014

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 11 - SUBSEQUENT EVENTS

On July 29, 2014, Board of Directors authorized a dividend of 45¢ per share, for shareholders of record as of August 15, 2014, payable on August 29, 2014. 

On July 29, 2014, the Board of Directors expanded the Company's authorization to repurchase shares of its common stock from $25 million to $100 million.

The Company has evaluated events and transactions occurring subsequent to June 28, 2014 and determined that there were no other unreported events or transactions that would have a material impact on the Company's results of operations or financial position.

XML

Document and Entity Information	6 Months Ended
	Jun. 28, 2014	Jul. 30, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 28, 2014
Entity Registrant Name	STURM RUGER & CO INC
Entity Central Index Key	0000095029
Trading Symbol	RGR
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		19,416,935

XML

SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 28, 2014

SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Organization

Organization:

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers.  Approximately 99.6% of the Company's total sales for the three and six months ended June 28, 2014 were firearms sales, and approximately 0.4% were investment castings sales.  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 manufactures investment castings made from steel alloys for internal use in its firearms and utilizes available investment casting capacity to manufacture and sell castings to unaffiliated, third-party customers.

Fair Value of Financial Instruments

Fair Value of Financial Instruments:

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Use of Estimates

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from  those estimates.

XML

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013
Segment Reporting Information [Line Items]
Net Sales	$ 153,657	$ 179,528	$ 323,542	$ 335,434
Cost of products sold	103,304	108,804	212,066	203,401
Gross profit	50,353	70,724	111,476	132,033
Operating expenses:
Selling	10,062	11,823	24,483	27,588
General and administrative	7,244	8,317	15,976	16,760
Other operating expenses (income), net		(168)		(238)
Total operating expenses	17,306	19,972	40,459	44,110
Operating income	33,047	50,752	71,017	87,923
Other income:
Interest expense, net	(36)	(39)	(73)	(55)
Other income, net	130	166	495	361
Total other income, net	94	127	422	306
Income before income taxes	33,141	50,879	71,439	88,229
Income taxes	10,855	18,571	24,834	32,203
Net income and comprehensive income	22,286	32,308	46,605	56,026
Basic earnings per share	$ 1.15	$ 1.67	$ 2.40	$ 2.90
Fully diluted earnings per share	$ 1.12	$ 1.63	$ 2.34	$ 2.83
Cash dividends per share	$ 0.490	$ 0.490	$ 1.030	$ 0.894
Net firearms sales [Member]
Segment Reporting Information [Line Items]
Net Sales	153,016	176,787	322,179	330,227
Other income:
Income before income taxes	33,547	52,019	72,238	89,323
Net castings sales [Member]
Segment Reporting Information [Line Items]
Net Sales	$ 641	$ 2,741	$ 1,363	$ 5,207

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INCOME TAXES

6 Months Ended

Jun. 28, 2014

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 6 - INCOME TAXES

The Company's 2014 and 2013 effective tax rates differ from the statutory federal tax rate due principally to state income taxes partially offset by tax benefits related to the American Jobs Creation Act of 2004.  The Company's effective income tax rate in the three and six months ended June 28, 2014 was 32.8% and 34.8%, respectively.  The Company's effective income tax rate in the three and six months ended June 29, 2013 was 36.5%.  The decrease in the effective income tax rate in 2014 is due to the recognition of an increase in the 2013 domestic production activities deduction.

Income tax payments in the three and six months ended June 28, 2014 totaled $22.4 million and $22.5 million, respectively.  Income tax payments in the three and six months ended June 29, 2013 totaled $26.7 million and $27.1 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2011.

The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable.  The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position.

XML

EMPLOYEE BENEFIT PLANS

6 Months Ended

Jun. 28, 2014

EMPLOYEE BENEFIT PLANS [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 5 - EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

In 2007, the Company amended its hourly and salaried defined benefit pension plans to freeze the benefits for current participants and to discontinue the plans for all future employees. All active participants became fully vested in the amount of benefit services accrued through December 31, 2007 and no benefits have accrued since that date. Currently, the Company provides supplemental discretionary contributions to substantially all employees' individual 401(k) accounts.

The Company expects to satisfy all of its obligations under the frozen pension plans and to terminate the plans when market conditions are favorable.  Late in the fourth quarter of 2013, 94% of the pension plans' assets were allocated to money market funds to capture the investment returns in 2013.  This was an initial step to prepare to fully fund and terminate the plans in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, which, if successful, will occur in late 2014 or early 2015. Plan participants will not be adversely affected by the plan terminations, but rather will have their benefits either converted into a lump sum cash payment or an annuity contract placed with an insurance carrier.

It is expected that the settlement and termination of the frozen pension plans would have a material impact on the financial results of the period in which it occurs, and may have a material financial impact on the financial position of the Company.

If the settlement and termination of the frozen pension plans does not occur in 2014, the estimated cost of the frozen defined benefit plans for 2014 is not expected to be significant.

Defined Contribution Plan

Effective January 1, 2007, the Company modified the terms of its 401(k) plan and now matches a certain portion of employee contributions. Expenses related to these matching contributions totaled $0.7 million and $1.9 million for the three and six months ended June 28, 2014, respectively, and $0.9 million and $1.6 million for the three and six months ended June 29, 2013, respectively.  The Company plans to contribute approximately $1.5 million to the plan in matching employee contributions during the remainder of 2014.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.3 million and $3.7 million for the three and six months ended June 28, 2014, respectively, and $1.5 million and $2.5 million for the three and six months ended June 29, 2013, respectively.  The Company plans to contribute approximately $3.5 million in supplemental contributions to the plan during the remainder of 2014.

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SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended	6 Months Ended
	Jun. 28, 2014	Jun. 28, 2014
Net firearms sales [Member]
Segment Reporting Information [Line Items]
Percentage of sales	99.60%	99.60%
Net castings sales [Member]
Segment Reporting Information [Line Items]
Percentage of sales	0.40%	0.40%
Export Sales [Member]
Segment Reporting Information [Line Items]
Percentage of sales	5.00%	5.00%

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INVENTORIES (Tables)

6 Months Ended

Jun. 28, 2014

INVENTORIES [Abstract]

Schedule of Inventories

Inventories consist of the following:

	June 28,2014			December 31,2013
Inventory at FIFO
Finished products	$	16,796		$	6,552
Materials and work in process		66,237			57,647
Gross inventories		83,033			64,199
Less:  LIFO reserve		(39,291	)		(38,516	)
Less:  excess and obsolescence reserve		(3,363	)		(2,422	)
Net inventories	$	40,379		$	23,261

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OPERATING SEGMENT INFORMATION

6 Months Ended

Jun. 28, 2014

OPERATING SEGMENT INFORMATION [Abstract]

OPERATING SEGMENT INFORMATION

NOTE 9 - OPERATING SEGMENT INFORMATION

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

Selected operating segment financial information follows:

(in thousands)	Three Months Ended						Six Months Ended
	June 28,  2014			June 29,  2013			June 28,  2014			June 29,  2013
Net Sales
Firearms	$	153,016		$	176,787		$	322,179		$	330,227
Castings
Unaffiliated		641			2,741			1,363			5,207
Intersegment		9,452			8,027			18,906			15,755
		10,093			10,768			20,269			20,962
Eliminations		(9,452	)		(8,027	)		(18,906	)		(15,755	)
	$	153,657		$	179,528		$	323,542		$	335,434
Income (Loss) Before Income Taxes
Firearms	$	33,547		$	52,019		$	72,238		$	89,323
Castings		(542	)		(1,041	)		(1,071	)		(946	)
Corporate		136			(99	)		272			(148	)
	$	33,141		$	50,879		$	71,439		$	88,229
								June 28,  2014			December 31,  2013
Identifiable Assets
Firearms							$	218,096		$	201,660
Castings								13,284			11,402
Corporate								52,310			64,056
							$	283,690		$	277,118

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EARNINGS PER SHARE

6 Months Ended

Jun. 28, 2014

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE 7 - EARNINGS PER SHARE

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

	Three Months Ended				Six Months Ended
	June 28,  2014		June 29,  2013		June 28,  2014		June 29,  2013
Numerator:
Net income	$	22,286	$	32,308	$	46,605	$	56,026
Denominator:
Weighted average number of common shares outstanding – Basic		19,410,102		19,333,589		19,388,396		19,308,066
Dilutive effect of options and restricted stock units outstanding under the Company's employee compensation plans		533,411		514,841		511,610		506,494
Weighted average number of common shares outstanding – Diluted		19,943,513		19,848,430		19,900,006		19,814,560

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

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COMPENSATION PLANS

6 Months Ended

Jun. 28, 2014

COMPENSATION PLANS [Abstract]

COMPENSATION PLANS

NOTE 8 - COMPENSATION PLANS

In April 2007, the Company adopted and the shareholders approved the 2007 Stock Incentive Plan (the “2007 SIP”) under which employees, independent contractors, and non-employee directors may be granted stock options, restricted stock, deferred stock awards, and stock appreciation rights, any of which may or may not require the satisfaction of performance objectives.  Vesting requirements are determined by the Compensation Committee of the Board of Directors.  The Company has reserved 2,550,000 shares for issuance under the 2007 SIP, of which 698,000 shares remain available for future grants as of June 28, 2014.

Compensation costs related to all share-based payments recognized in the statements of operations aggregated $1.5 million and $2.8 million for the three and six months ended June 28, 2014, respectively, and $1.3 million and $2.7 million for the three and six months ended June 29, 2013, respectively.

Stock Options

A summary of changes in options outstanding under the plans is summarized below:

	Shares			Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2013		57,221		$	8.66	$	6.65
Granted		-			-		-
Exercised		(16,244	)	$	8.25	$	7.54
Expired		-			-		-
Outstanding at June 28, 2014		40,977		$	8.82	$	6.29

The aggregate intrinsic value (mean market price at June 28, 2014 less the weighted average exercise price) of options outstanding under the plans was approximately $2.0 million.

Restricted Stock Units

Beginning in the second quarter of 2009, the Company began granting restricted stock units to senior employees in lieu of incentive stock options. The vesting of these awards is dependent on the achievement of corporate objectives established by the Compensation Committee of the Board of Directors.  Beginning in 2011, a three year vesting period was added to the performance criteria, which had the effect of requiring both the achievement of the corporate performance objectives and the satisfaction of the vesting period. 

There were 6,568 and 65,908 restricted stock units issued during the three and six months ended June 28, 2014.  Total compensation costs related to these restricted stock units are $4.2 million. These costs are being recognized ratably over the vesting period of three years. Total compensation cost related to restricted stock units was $1.5 million and $2.8 million for the three and six months ended June 28, 2014, respectively, and $1.3 million and $2.5 million for the three and six months ended June 29, 2013, respectively.

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CONTINGENT LIABILITIES

6 Months Ended

Jun. 28, 2014

CONTINGENT LIABILITIES [Abstract]

CONTINGENT LIABILITIES

NOTE 10 - CONTINGENT LIABILITIES

As of June 28, 2014, the Company was a defendant in approximately four (4) lawsuits and is aware of certain other such claims.  The lawsuits fall into three general categories, traditional products liability, municipal litigation, and commercial litigation, discussed in turn below.

Product Liability Litigation

Two of the four lawsuits mentioned above involve claims for damages related to allegedly defective product design and/or manufacture.  These lawsuits stem from a specific incident of personal injury and are based on traditional product liability theories such as strict liability, negligence and/or breach of warranty.

The Company management believes that the allegations in these cases are unfounded, and that the incidents were caused by the negligence and/or misuse of the firearms by third-parties or the claimant, and that there should be no recovery against the Company. 

Municipal Litigation

Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third-parties. 

There is only one remaining lawsuit of this type, filed by the City of Gary in Indiana State Court, over ten years ago.  The complaint in that case seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages.  In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants.  The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising.  The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products.

After a long procedural history, the case was scheduled for trial on June 15, 2009.  The case was not tried on that date and no subsequent scheduling order has been entered.  There has been no activity since that time.

Commercial Litigation

From time to time, the Company may be involved in commercial disputes that result in litigation.  These disputes run the gamut and may involve intellectual property, real property, supply or distribution agreements, contract disputes, or other, general commercial matters.  As of June 28, 2014, the Company was involved in one such lawsuit and is aware of certain other such claims.

Summary of Claimed Damages and Explanation of Product Liability Accruals

Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and claims.  Aggregate claimed amounts presently exceed product liability accruals and applicable insurance coverage.  For claims made after July 10, 2000, coverage is provided on an annual basis for losses exceeding $5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage.

The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims.  While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company's financial results for a particular period.

Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims.  Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case.  A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case.

Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience.  Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs.  In most cases, an accrual is established only for estimated legal defense costs.  Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future.  Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims; i.e., an accrual is made for reasonably anticipated possible liability and claims-handling expenses on an ongoing basis.

A range of reasonably possible loss relating to unfavorable outcomes cannot be made.  However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $1.3 million and $0.2 million at December 31, 2013 and 2012, respectively, are set forth as an indication of possible maximum liability that the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal.

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COMPENSATION PLANS (Tables)

6 Months Ended

Jun. 28, 2014

COMPENSATION PLANS [Abstract]

Schedule of Changes in Options Outstanding under the Plans

A summary of changes in options outstanding under the plans is summarized below:

	Shares			Weighted Average Exercise Price		Grant Date Fair Value
Outstanding at December 31, 2013		57,221		$	8.66	$	6.65
Granted		-			-		-
Exercised		(16,244	)	$	8.25	$	7.54
Expired		-			-		-
Outstanding at June 28, 2014		40,977		$	8.82	$	6.29

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EMPLOYEE BENEFIT PLANS (Details) (Defined Contribution Plan [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013
Defined Contribution Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Future defined contribution plans			$ 1.5
Expenses related to defined contribution plan	0.7	0.9	1.9	1.6
Supplemental discretionary contributions	1.3	1.5	3.7	2.5
Supplemental contributions to the plan during the remainder of fiscal year			$ 3.5

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CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Loss [Member]
Balance at Dec. 31, 2013	$ 179,086	$ 23,647	$ 20,614	$ 192,088	$ (37,884)	$ (19,379)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income and comprehensive income	46,605			46,605
Dividends paid	(19,989)			(19,989)
Unpaid dividends accrued	(697)			(697)
Recognition of stock-based compensation expense	2,758		2,758
Exercise of stock options and vesting of RSU's	(2,294)		(2,294)
Tax benefit realized from exercise of stock options and vesting of RSU's	1,620		1,620
Common stock issued - compensation plans		69	(69)
Balance at Jun. 28, 2014	$ 207,089	$ 23,716	$ 22,629	$ 218,007	$ (37,884)	$ (19,379)

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LINE OF CREDIT

6 Months Ended

Jun. 28, 2014

LINE OF CREDIT [Abstract]

LINE OF CREDIT

NOTE 4 - LINE OF CREDIT

The Company has a $40 million revolving line of credit with a bank. This facility is renewable annually and terminates on June 15, 2015.  Borrowings under this facility bear interest at LIBOR (0.555% at June 28, 2014) plus 200 basis points. The Company is charged three-eighths of a percent (0.375%) per year on the unused portion.  At June 28, 2014 and December 31, 2013, the Company was in compliance with the terms and covenants of the credit facility, which remains unused. 

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INCOME TAXES (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 28, 2014	Jun. 29, 2013	Jun. 28, 2014	Jun. 29, 2013
INCOME TAXES [Abstract]
Effective income tax rates	32.80%	36.50%	34.80%	36.50%
Income tax payments	$ 22.4	$ 26.7	$ 22.5	$ 27.1

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 28, 2014

EARNINGS PER SHARE [Abstract]

Schedule of Reconciliation of Numerator and Denominator for Basic and Diluted Earnings Per Share

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

	Three Months Ended				Six Months Ended
	June 28,  2014		June 29,  2013		June 28,  2014		June 29,  2013
Numerator:
Net income	$	22,286	$	32,308	$	46,605	$	56,026
Denominator:
Weighted average number of common shares outstanding – Basic		19,410,102		19,333,589		19,388,396		19,308,066
Dilutive effect of options and restricted stock units outstanding under the Company's employee compensation plans		533,411		514,841		511,610		506,494
Weighted average number of common shares outstanding – Diluted		19,943,513		19,848,430		19,900,006		19,814,560