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Sturm, Ruger & Co. Inc. Message Board

  • sunviper251 sunviper251 Mar 10, 2013 8:15 PM Flag

    Inside Trading Officers Locked & Loaded

    This shows and confirms the strength of the company, that these latest transactions on March 3rd about 50% stock purchase using some stock options. Not real clear on this topic myself, but would ask others on board with knowledge, could this be the signs, these officers are in for the next new high?

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    • Correction......
      I was not sufficiently precise when I labeled this free option scheme as "tax-free". The shares are, in effect, received tax-free by the insiders who receive them because the income tax payment which the insider sends to the IRS is, in effect, paid by the rest of us shareholders from the Ruger corporate bank account.

    • Some of you may have "no beef" with these arrangements for insiders but I think they are wrongful and unfair to regular shareholders.

      First, they are not "arms-length" transactions. These schemes are put in place by insiders, for insiders, and without any effective way for shareholders to restrain them.

      Second, the practice which has been established by insiders, for insiders, is to give BOTH substantial salary and bonuses PLUS free options to insiders. This practice is unfair to shareholders and makes no economic sense. Sensible compensation would be to pay wages for labor, not part ownership. Paying part ownership to labor only makes economic sense when the laborer provides "sweat equity", which is to take part ownership instead of wages.

      If insiders want to own part of the company, they should either buy shares on the market or work without cash wages and take a specific number of shares instead.

      Third, giving free options is also wrong because the recipient has no downside risk. The essence of ownership is having both upside and downside risk.

      Fourth, another unfair aspect to these free option schemes is that the insiders give them to themselves as "tax-free" payments from the corporation. What they do is award themselves extra options, then have the corporation buy a portion of the awarded shares at current market price sufficient to pay the tax on all of the free shares. That seems to be what happened here. These shares were "sold" in non-market transactions. The "non-market" was probably Ruger's bank account.

    • There were 23 SEC Form 4's filed, showing insider sales or purchases, since the earnings report Feb 28, 2013. I looked these over, and found the transactions involved acquisition of RSU's (Restricted Stock Units) and sales of Common Stock shares. The RSU's convert to common stock when time and performance criteria are fulfilled.

      I looked at Michale Fifer, President and CEO transactions for the last 3 years. He seems to sell shares constantly, based on RSU's he is awarded.

      In March 2010, he owned 66,669 Common Shares with his wife. He owned 494,970 Derivative Securities, which seemed to be unvested RSU's.

      In March 2011, he owned 183,809 shares of Common Stock, with his wife, and 361,552 RSU's.

      In March, 2012, he (and wife) owned 213,550 shares of Common Stock, and 231,740 RSU's.

      In March 2013, he and spouse owned 104,292 shares of Common Stock, and 226,795 RSU's.

      Summarizing, he is awarded RSU's in lumps of about 50,000 shares at a time, and sells Common Stock in lumps of about 10,000 shares at a time.

      I assume some of these huge sales are occurring on days like today, when volume for Ruger was 707,000 shares. The good news is that he doesn't have too many shares left to sell.

      The next step for me is to look at the 10-K, to see how many RSU's are being awarded to management every year. On the whole, I think Ruger is extremely good to shareholders, not taking on long-term debt and paying a special dividend before year-end. But I haven't studied the compensation structure in the 10- yet.


    • After a little more reading of the SEC forms filed, it looks to me that they acted together because these options were all about to expire (they were probably all granted at the same time). It also looks like these were all free or nearly free shares given by the insiders to themselves. Now they are exercising the options for the free shares, and having the company buy many of the shares back at current market price. None of this is good for non-insider shareholders. The real tell will be whether these guys at least hold on to the rest of their free shares or dump those in the market as they continue to unload their shares as the market price has risen.

      There is a reason why puts on this company are much more expensive than calls.

    • I'm not sure what is going on here either. But I don't think it looks so good. It looks like these guys acted together, exercised their options and sold much of them (probably to pay the tax thereon and realize some cash). But the since they were not open market sales and they all acted together, my bet is they sold the shares back to the company and thereby drained cash from the company. Looks like typical behavior of corporate insiders acting for themselves at expense of shareholders.

      • 1 Reply to imarugerfan
      • The 10-K, in footnote 11, Earnings Per Share, states there were 19,160,489 shares of RGR common stock, and 474,392 shares of RSU's and options. That's about 5% dilution.

        [It appears that the CEO owns about 1/2 of these RSU's and options, or about 226,795 according to his Form 4 filing.]

        Footnote 13 discusses Compensation Plans, and explains that the 2007 Stock Incentive Plan reserved 2.55 million shares for issuance for stock options, restricted stock, deferred stock awards, restricted stock units (RSU's), and stock appreciation rights. In December 2012, 830,000 of these shares remain available for grant under the Plan.

        67,877 nonvested options outstanding, exercise price $9.22. About 10,644 deferred stock awards issued in 2012. 139,000 RSU's issued in 2012, compared with 524,000 in 2011.

        Summarizing, most of the stock based compensation is RSU's, and most of it appears to go to the CEO, Mr. Fifer. My opinion is that this is a fair and balanced compensation plan. Just for contrast, consider Goldman Sachs, where 50% of revenue goes for compensation!

        I have no beef with these incentives.


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