DEF 14A
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant x
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
ARMSTRONG WORLD INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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Fee paid previously with preliminary materials. |
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ARMSTRONG WORLD INDUSTRIES, INC.
2500 COLUMBIA AVE., LANCASTER, PA 17603 P.O. BOX 3001, LANCASTER, PA
17604 www.armstrong.com
April 30, 2015 |
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Thomas M. Armstrong
Founder 1860
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2015 ANNUAL MEETING OF SHAREHOLDERS
Dear Fellow Shareholders:
We look forward to your attendance virtually via the Internet, in person, or by proxy at
the 2015 Armstrong World Industries, Inc. Annual Shareholders Meeting. We will hold the meeting at 8:00 a.m. Eastern Time on Friday, July 10, 2015.
Please refer to the proxy statement for detailed information on each of the matters to be acted on at the meeting. Your vote is important, and we strongly urge you to cast your vote. For most items, including the
election of directors, your shares will not be voted if you do not provide voting instructions via the Internet, by telephone, or by returning a proxy or voting instruction card. We encourage you to vote promptly, even if you plan to attend the
meeting.
On behalf of your Board of Directors, thank you for your continued support of Armstrong.
Very truly yours,
James J. OConnor
Chairman of the Board
ARMSTRONG WORLD INDUSTRIES, INC.
NOTICE OF 2015 ANNUAL MEETING OF SHAREHOLDERS
Time and Date |
8:00 a.m. Eastern Time on Friday, July 10, 2015 |
Attendance |
Online at www.virtualshareholdermeeting.com/awi2015, or in person at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603 |
Record Date |
April 13, 2015 |
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Agenda |
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Items of Business |
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Board Recommendation |
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1. Elect as directors the 12 nominees named in the attached proxy statement |
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FOR EACH DIRECTOR NOMINEE |
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2. Ratify the selection of KPMG LLP as our independent registered public accounting firm for 2015 |
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How To Vote |
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Please act as soon as possible to vote your shares, even if you plan to attend the annual meeting via the Internet or in person. |
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Your broker will not be able to vote your shares with respect to the election of directors unless you have given your broker specific instructions to
do so. We strongly encourage you to vote. |
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You may vote via the Internet, by telephone, or, if you have received a printed version of these proxy materials, by mail. |
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See ADDITIONAL MEETING INFORMATION on page 52 of this proxy statement for further
information. |
Attending the Meeting |
via the Internet: |
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Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.virtualshareholdermeeting.com/awi2015.
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Shareholders may vote and submit questions while attending the meeting on the Internet. |
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Proof of Armstrong World Industries, Inc. stock ownership and photo identification will be required to attend the annual meeting. |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE ANNUAL MEETING
TO BE HELD ON JULY 10, 2015:
The Notice of Annual Meeting, this Proxy Statement and
the Companys 2014 Annual Report are available at www.proxyvote.com.
PROXY STATEMENT
This proxy statement was prepared under the direction of our Board of Directors (Board) to solicit your proxy for use at the annual meeting. When we refer to we, our,
us, Armstrong and the Company in this proxy statement, we are referring to Armstrong World Industries, Inc. This proxy statement and the related materials are first being distributed to shareholders on or about
May 15, 2015.
ITEM 1
ELECTION OF DIRECTORS
On the recommendation of the Nominating and Governance Committee (Governance Committee), our Board has
nominated the 12 directors listed below for election at the annual meeting. The nominees include 11 independent directors, as determined by the Board in accordance with the New York Stock Exchange (NYSE) listing standards and our
Corporate Governance Principles. The twelfth nominee is our President and Chief Executive Officer (CEO), Matthew J. Espe. Each nominees term would, if elected, run from the date of his election until our next annual
shareholders meeting, or until his successor, if any, is elected or appointed. We have no reason to believe that any of the nominees will be unwilling or unable to serve if elected.
The Governance Committee performs an assessment of the qualifications and experience needed to properly oversee the interests of the Company. In doing so, the Governance Committee believes that aligning director
qualifications and skill sets with our business and strategy is essential to forming a Board that adds value for shareholders. While the Board does not have a formal diversity policy with respect to director nominations, it believes that a Board
composed of individuals with diverse attributes and backgrounds enhances the quality of the Boards deliberations and decisions.
The Board has an expansive view of diversity, going beyond the traditional concepts of race, gender and national origin. The Board believes that the diversity of viewpoints, educational
backgrounds, and differences in professional experiences and expertise represented on the Board evidences diversity in many respects. The Board believes that this diversity, coupled with the personal and professional ethics, integrity and values of
all of the directors, results in a Board that can guide the Company with good business judgment.
The Governance Committee expects each of the
Companys directors to have proven leadership, sound judgment, integrity and a commitment to the success of the Company. In evaluating director candidates and considering incumbent directors for nomination to the Board, the Governance Committee
considers a variety of factors. These include each nominees independence, financial literacy, personal and professional accomplishments, and experience in light of the needs of the Company. For incumbent directors, the factors also include
past performance on the Board and contributions to their respective committees. The Board is also particularly interested in maintaining a mix of skills and qualifications that include the following:
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Company CEO or COO within 5 years |
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Executive Leadership |
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Manufacturing |
& Distribution Operations |
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Significant |
International Experience
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Finance |
and Capital Markets Transactions |
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
Each nominees biography in the pages that follow includes notable skills and qualifications that contributed to his selection as a nominee. Director skills
and qualifications are also featured in the chart immediately following the biographies.
DIRECTOR NOMINEES
OUR BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES:
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Name |
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Age* |
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Director Since |
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Committee(s) |
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Independent^ |
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Stan A. Askren |
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54 |
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2008 |
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MDCC |
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Matthew J. Espe |
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56 |
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2010 |
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James J. Gaffney |
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74 |
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2006 |
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NGC, MDCC |
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Tao Huang |
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52 |
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2010 |
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AC |
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Michael F. Johnston |
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67 |
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2010 |
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MDCC |
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Jeffrey Liaw |
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38 |
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2012 |
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AC |
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Larry S. McWilliams |
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59 |
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2010 |
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AC, MDCC |
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James C. Melville |
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63 |
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2012 |
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MDCC, NGC |
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James J. OConnor (Chair) |
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78 |
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2007 |
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NGC |
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John J. Roberts |
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70 |
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2006 |
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AC, NGC |
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Gregory P. Spivy |
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46 |
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2014 |
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MDCC |
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Richard E. Wenz |
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2010 |
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AC |
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Committees: AC (Audit); MDCC (Management Development & Compensation); NGC (Nominating & Governance) |
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As defined in NYSE listing standards and our Corporate Governance Principles |
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Denotes Chair of the Committee |
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
All nominees currently serve as directors. Information concerning the nominees is provided below:
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STAN A. ASKREN Director since: 2008 Age: 54
Independent |
Mr. Askren has been chairman and CEO of HNI Corporation (HNI), the second largest office furniture manufacturer in
the world and the nations leading manufacturer and marketer of hearth products, since 2004, and president since 2003. Previously, he was executive vice president of HNI from 2001 to 2003. Mr. Askren has worked at HNI for 23 years,
including as vice president of marketing, vice president of human resources, and as an executive vice president and president of HNIs hearth products operating segment. Mr. Askren has also worked in several industries and previously held
multiple executive management and general management positions with Emerson Electric, Thomson S.A. and HNI Corporation. Mr. Askren previously served on the board of directors of Arctic Cat Inc., a designer, engineer and manufacturer of
all-terrain vehicles and snowmobiles, and served as a member of its compensation committee. Mr. Askren also serves on the boards of directors of the Business and Institutional Furniture Manufacturers Association (past chair), the Iowa Business
Council (past chair), and the Iowa Heritage Foundation. Mr. Askren brings to our Board extensive operating, senior executive leadership, manufacturing, sales and distribution expertise, as well as valuable insights from his experience as a
public company chief executive officer.
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MATTHEW J. ESPE Director since: 2010 Age: 56
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Mr. Espe has been our President and CEO since he joined the Company in July 2010. Previously, Mr. Espe was chairman and
chief executive officer of Ricoh Americas Corporation, a subsidiary of Ricoh Company, Ltd., a leading provider of document management solutions and services. Prior to that role, Mr. Espe was chairman of the board of directors and chief
executive officer (2002 to 2008) of IKON Office Solutions, Inc. (IKON), an office equipment distributor and services provider, which was acquired by Ricoh in 2008. Mr. Espe was employed by General Electric for 22 years, serving as
president and chief executive officer of GE Lighting prior to joining IKON in 2002. Mr. Espe previously served on the boards of directors of Unisys Corporation, a worldwide information technology company (2004 to 2014), and Graphic Packaging
Holding Company, a provider of packaging solutions for consumer products companies (2009 to 2010). As our President and CEO, Mr. Espe provides our Board with important insights regarding our operations, strategic planning and senior management
personnel matters. In addition, Mr. Espes long tenure as chairman and chief executive officer at Ricoh and IKON, his prior service on other public company boards of directors and their committees and his senior executive experience at
General Electric, brings management experience, leadership capabilities, financial knowledge and business acumen to our Board.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
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JAMES J. GAFFNEY Director since: 2006 Age: 74
Independent |
From 1997 to 2003, Mr. Gaffney was a consultant to GS Capital Partners, II, LP, a private investment fund affiliated with Water
Street Corporate Recovery Fund I, LP and Goldman, Sachs & Co., and other affiliated investment funds. From 1995 to 1997, Mr. Gaffney served as chairman of the board of directors and chief executive officer of General Aquatics, Inc.,
composed of companies involved in the manufacturing of swimming pool equipment and pool construction. Mr. Gaffney was president and chief executive officer of KDI Corporation, a conglomerate with companies involved in swimming pool construction
and manufactured products (1993 to 1995). Mr. Gaffney serves on the boards of directors of the following companies: Pool Corporation, a distributor of swimming pool supplies, equipment and related leisure products and a distributor of
irrigation and landscape products (since 1998), and Beacon Roofing Inc., a distributor of residential and non-residential roofing materials (since 2004). Mr. Gaffney previously served on the boards of directors of World Color Press Inc. (f/k/a
Quebecor World Inc.) (2009 to 2010), Imperial Sugar Company (2001 to 2012; chairman 2003 to 2012), and C&D Technologies, Inc. (2010 to 2013). Mr. Gaffney brings our Board broad leadership, business and corporate governance expertise, as
well as comprehensive experience in operations, manufacturing, financial, and risk management matters.
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TAO HUANG Director since: 2010 Age: 52
Independent |
Mr. Huang was previously the chief operating officer of Morningstar, Inc., a leading independent provider of investment
research, until his retirement in December 2010. Mr. Huang spent almost 20 years with Morningstar, taking on increasing levels of responsibility from his start as an entry level technical programmer. He was named director of technology in 1992
and chief technology officer in 1996; he started Morningstars International Operation in 1998, held the position of president of International Division until 2000; he was promoted as the Companys chief operating officer in October 2000
and served in this position until his retirement. Mr. Huang led Morningstar initiatives enabling significant growth, both organically and through acquisition, and oversaw continuous improvements in the operations of the firms core
businesses. Mr. Huang brings to our Board expertise developed from his experience in a data-intense and technology-driven organization managing growth and integration of acquisitions, as well as experience in international operations.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
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MICHAEL F. JOHNSTON
Director since: 2010 Age: 67
Independent |
Mr. Johnston was previously with Visteon Corporation, an automotive components supplier, until 2008. At Visteon, he served as
chairman of the board of directors, CEO, president, and chief operating officer at various times from 2000 to 2008. Before joining Visteon, Mr. Johnston held various positions in the automotive and building services industry, including serving
as president, North America/Asia Pacific for Johnson Controls Automotive Systems Group. Mr. Johnston also serves as a member of the boards of directors of the following companies: Whirlpool Corporation, a leading manufacturer and marketer
of major home appliances (since 2003), serving as presiding director and a member of its audit committee; and Dover Corporation, a diversified global manufacturer (since February 2013), serving as a member of its audit committee. Mr. Johnston
previously served on the board of directors of Flowserve Corporation (2007 to 2013) including as the chairman of its corporate governance and nominating committee and a member of its finance committee. Mr. Johnstons executive leadership
and board of directors experience offers our Board a seasoned corporate governance perspective, and he brings to our Board extensive operational, manufacturing and design, innovation, engineering and financial experience.
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JEFFREY LIAW Director since: 2012 Age: 38
Independent |
Mr. Liaw is the chief financial officer of FleetPride, Inc., a nationwide supplier of heavy-duty truck and trailer
parts. Prior to joining FleetPride in December 2012, Mr. Liaw was a principal of TPG Capital for seven years and was active in TPGs energy and industrial investing practice areas. Before joining TPG in 2005, Mr. Liaw was an
associate at Bain Capital, a private equity investment firm, in its Industrials practice. Mr. Liaw previously served on the boards of directors of Graphic Packaging Holding Company, a provider of packaging solutions for consumer products
companies (2008 to 2013), including as a member of its nominating and corporate governance committee, and Oncor Electric Delivery Company, LLC. Mr. Liaw served as an observer to our Board on TPGs behalf from 2009 until June 2012, at which
time he was elected as a member of our Board. In addition to his financial expertise and experience working with a broad range of manufacturing companies, Mr. Liaw possesses intimate knowledge of the Company that he gained through his role as a
Board observer for TPG.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
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LARRY S. MCWILLIAMS
Director since: 2010 Age: 59
Independent |
Mr. McWilliams was previously the president and chief executive officer of Keystone Foods, a producer of proteins, from May
2011 to May 2012. From May 2005 to October 2010, he served as a senior vice president at Campbell Soup Company and subsequently became the president of Campbell International, responsible for all of Campbell Soups business in Europe, Latin
America and Asia Pacific. Mr. McWilliams joined Campbell Soup in March 2001 as senior vice president sales and chief customer officer, overseeing the companys relationships with its global retail partners. In April 2003, he assumed
the position of president North America Soup. Mr. McWilliams was named senior vice president and president Campbell USA in March 2004. Prior to Campbell Soup, Mr. McWilliams held positions at Coca-Cola from 1995 to 2001 and
the Pillsbury Company from 1993 to 1995. Mr. McWilliams also serves on the boards of directors of Bob Evans Farms, a full-service restaurant company (since 2014) and Godiva Chocolatiers International, a privately held company (since 2012).
Mr. McWilliams formerly served on the Board of Governors of St. Josephs University Food Marketing Council and the Grocery Manufacturers Associations Industry Affairs Council. Mr. McWilliams offers our Board senior executive
leadership capabilities and experience, as well as extensive knowledge of sales, marketing, customer service relationships, international markets and distribution channels.
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JAMES C. MELVILLE Director since: 2012 Age: 63
Independent |
Mr. Melville is a member of the Minneapolis-based law firm of Kaplan, Strangis and Kaplan, P.A., where he has practiced in the
corporate, governance, mergers and acquisitions, securities and financial areas since 1994. Prior to joining Kaplan, Strangis and Kaplan, P.A., Mr. Melville practiced with Dorsey and Whitney in their Minneapolis and London, England
offices. Mr. Melville previously served as a member of our Board from September 2009 until July 2010. Mr. Melville is active in numerous local and civic organizations and their boards. Mr. Melville served as an observer of our Board
on behalf of the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust (the Trust) from August 2010 until February 2012. Mr. Melville brings extensive knowledge of the law, mergers and acquisitions, executive
compensation, and corporate governance matters, international experience and financial acumen to our Board. He has also gained intimate knowledge of the Company through his prior service on the Board and his prior role as a Board observer for the
Trust.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
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JAMES J. OCONNOR Director since: 2007 Age: 78
Independent |
Mr. OConnor is a retired chairman of the board of directors and chief executive officer of Unicom Corporation.
Mr. OConnor joined Commonwealth Edison Company in 1963, became president in 1977, a director in 1978 and chairman and chief executive officer in 1980. In 1994, Mr. OConnor was also named chairman and chief executive officer of
Unicom Corporation, which then became the parent company of Commonwealth Edison Company, from which he retired in 1998. Mr. OConnor previously served on the boards of directors of the following companies: Trizec Properties, Inc. (2003 to
2006); Corning, Inc. (1984 to 2011); Smurfit Stone Container Corporation (2000 to 2011); and United Continental Holdings, Inc. (1984 to 2012). Mr. OConnor has a broad business background, having served in several chief and senior
executive positions with large companies and on the boards of companies as diverse as a utility company, an industrial manufacturing company and an airline. Mr. OConnor also offers our Board extensive knowledge and expertise in senior
executive leadership, management, and corporate governance and board practices of other major corporations.
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JOHN J. ROBERTS Director since: 2006 Age: 70
Independent |
Mr. Roberts served as global managing partner for PricewaterhouseCoopers LLP from 1998 until his retirement in June 2002.
Mr. Roberts held numerous positions at Coopers & Lybrand LLP from 1967 until its merger with Pricewaterhouse LLP in 1998. From 1994 to 1998, Mr. Roberts served as one of three members of the Office of the chairman of
Coopers & Lybrands United States operations. Prior to that time, Mr. Roberts held other positions at Coopers & Lybrand, including deputy vice chairman, vice chairman and managing partner. While serving in various
executive capacities at PricewaterhouseCoopers, Mr. Roberts performed and supervised audit, tax and business consultative services, and developed extensive expertise in public company audits and financial reporting matters. Mr. Roberts
serves on the boards of directors and audit committees of the following companies: Safeguard Scientifics, Inc., a provider of capital as well as strategic, operational and management resources to growth-stage businesses (since 2003; also serves on
the compensation committee), the Pennsylvania Real Estate Investment Trust, a business trust with primary investment focus on retail shopping malls (since 2003; also serves on the compensation committee), and Vonage Holdings Corporation, a provider
of communications services (since 2004). Mr. Roberts previously served on the board of directors of Sicor, Inc. (2002 to 2004) and served as a director of our former holding company, Armstrong Holdings, Inc. (2003 to 2006). Mr. Roberts
brings an extensive public accounting background, financial expertise, experience as an accounting executive and as a board member of businesses in diverse industries, and risk management, strategic planning and corporate governance capabilities to
our Board.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
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Gregory P. Spivy Director since: 2014 Age: 46
Independent |
Mr. Spivy is a Partner of ValueAct Capital. Prior to joining ValueAct Capital in September 2004, Mr. Spivy worked with
Gryphon Investors, a private equity fund with $500 million in investments. Previously, Mr. Spivy was a Managing Director at Fremont Partners (Fremont), a private equity firm. Prior to joining Fremont, Mr. Spivy was a Director
with The Bridgeford Group, and began his career in the mergers and acquisitions department of Lehman Brothers. Mr. Spivy is the chairman of Seitel, Inc., a leading provider of seismic data to the oil and gas industry (since 2006).
Mr. Spivy is the former chairman of MSD Performance, Inc., and a former director of KAR Auction Services, Inc., MDS, Inc., MSC Software Corp. and PRA International. Mr. Spivy brings his experience as a director of other public and private
corporations, his advisory experience with ValueAct Capitals portfolio companies as well as his extensive financial services industry experience generally to our Board.
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RICHARD E. WENZ Director since: 2010 Age: 65
Independent |
Mr. Wenz is a private investor. From 2002 to 2003, Mr. Wenz was the chief executive officer of Jenny
Craig International, a weight loss, weight management, and nutrition company. From 2000 to 2002, Mr. Wenz was an operating affiliate of DB Capital Partners. From 1997 to 2000, Mr. Wenz was president and chief operating officer of Safety
1st, Inc. During 1995 and 1996, Mr. Wenz was the partner in charge of the
Chicago office of The Lucas Group, a business strategy consulting firm. Prior to 1995, Mr. Wenz held senior executive positions with Professional Golf Corporation, Electrolux Corporation, The Regina Company and Wilson Sporting Goods Company.
Mr. Wenz began his career in 1971 with Arthur Young & Co. (predecessor of Ernst & Young LLP) and left the firm as a partner in 1983. Mr. Wenz is a certified public accountant, and he serves on the board of directors of
Summer Infant, Inc., a global designer, marketer, and distributor of branded juvenile health, safety and wellness products (since 2007) and serves as Chair of both the audit committee and compensation committee. Mr. Wenz also serves on the
board of directors of Pet Supplies Plus. Mr. Wenz previously served on the boards of directors of Easton-Bell Sports, Inc. (2006 to 2014), Strategic Partners, Inc. (2004 to 2010), Hunter Fan Company (2002 to 2007), and Radica Games, Inc. (2004
to 2006). Mr. Wenz brings extensive senior executive leadership, board service, including audit committee, at companies with diverse businesses, public accounting, risk management, strategic planning and international experience to our Board.
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2015 Proxy Statement |
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ITEM 1 ELECTION OF DIRECTORS (CONTINUED)
Skills and Qualifications of Board of Directors
Agreement with Shareholder
As previously disclosed, we entered into a Nomination and Shareholder Agreement, dated December 15, 2014 (the Nomination Agreement), with ValueAct Capital Master Fund L.P., VA Partners I, LLC,
ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings GP, LLC and Gregory P. Spivy (collectively, the ValueAct Group). Pursuant to the terms of the Nomination Agreement, we
appointed Mr. Spivy to the Board to serve until the 2015 annual meeting of shareholders, and agreed to nominate Mr. Spivy for election to the Board at the annual meeting, provided, however, that if at any time the ValueAct Group ceases to
own at least 7.5% of our common stock, par value $0.01 per share (Common Shares), Mr. Spivy will be required to resign from the Board and we will no longer be required to nominate Mr. Spivy for election at the annual meeting.
Relative to this annual meeting, the ValueAct Group has agreed that it will: (i) vote in favor of our nominees to the Board at the annual meeting; and (ii) vote in accordance with the Boards recommendation with respect to any routine
matters.
Under the Nomination Agreement, the ValueAct Group is entitled to nominate a mutually acceptable replacement in the
event that Mr. Spivy no longer serves as a member of our Board during the term of the Nomination Agreement, so long as the ValueAct Group continues to own at least 7.5% of our outstanding Common Shares. In addition, the ValueAct Group agreed
(subject to certain exceptions) to certain restrictions on transactions involving us or our securities, including a restriction prohibiting the ValueAct Group from acquiring any beneficial ownership interest of 19.0% or more of our outstanding
Common Shares. The Nomination Agreement will remain in effect until the earliest of: (i) our material breach of the Nomination Agreement that has not been cured within thirty (30) days after receipt of notice of such breach; (ii) the
date immediately following the last day on which a shareholder of the Company may timely give notice of its intent to bring a proposal for consideration at the Companys 2016 annual meeting; (iii) the date that is ninety (90) days
after the date any ValueAct Group designee ceases to be a member of the Board; and (iv) a mutually agreed upon date.
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2015 Proxy Statement |
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9 |
CORPORATE GOVERNANCE PRINCIPLES AND OTHER CORPORATE GOVERNANCE DOCUMENTS
Our Corporate Governance Principles include guidelines regarding the responsibilities, duties, service and qualifications of our Board, the
determination of a directors independence and any conflict of interests, Board access to management and independent advisors, director compensation and stock ownership requirements, Board committees and other matters relating to corporate
governance. Our Corporate Governance Principles are available on our website under Company Information and then Corporate Governance http://www.armstrong.com/corporate/corporate-governance.html. Also available at the same
location on our website are the charters of the Audit Committee, the Management Development and Compensation Committee (Compensation Committee), and Governance Committee of the Board, the Armstrong Code of Business Conduct and the
Armstrong Code of Ethics for Financial Professionals. Our website is not part of this proxy statement and references to our website address in this proxy statement are intended to be inactive textual references only.
DIRECTOR INDEPENDENCE
It is the policy of the Company that the Board consist of a majority of directors who are not employees and are independent under all applicable legal and regulatory requirements, including the independence
requirements of the NYSE. For purposes of evaluating the independence of directors, in accordance with our Corporate Governance Principles, the Board will consider all relevant facts and circumstances in making an independence determination, and not
merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation. Consistent with our Corporate Governance Principles, to be considered independent, the Governance
Committee has established qualifications to assist in the determination, which either meet or exceed the independence requirements of the NYSE.
The
Board has determined that all of our directors, with the exception of Mr. Espe, our President and CEO, are independent under NYSE listing
standards and our Corporate Governance Principles. In addition, the Board has further determined that each of the members of the Audit Committee, the Compensation Committee and the Governance
Committee are independent within the meaning of the NYSE listing standards, any applicable minimum standards required by the Securities and Exchange Act of 1934 (the Exchange Act) and enhanced standards required for membership on such
committees by our Bylaws, namely that directors serving on such committees meet the independence criteria under both NYSE rules and Rule 10A-3(b)(1) under the Exchange Act.
BOARDS ROLE IN RISK MANAGEMENT OVERSIGHT
The Board oversees
the Companys risk profile and managements processes for assessing and managing risk, both as a full Board and through its committees, which meet regularly and report to the full Board. Management is charged with managing risk through
robust internal policies and controls.
The Company has maintained an enterprise risk management program since 2005. Risk management is an integral part
of the Companys culture. Managements role is to identify, mitigate, guide and review the efforts of our business units, consider whether the residual risks are acceptable, and approve plans to deal with serious risks. The Boards
role in risk management is to review the performance and functioning of the Companys overall risk management function and managements establishment of appropriate systems for managing risk. Specifically, the Board reviews
managements:
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processes to identify matters that create inappropriate risk to achieving our business plans; |
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processes to assess the likelihood and impact of such risks in order to prioritize them; |
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identification of major risks and how we define major; |
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identification of primary risk mitigation owners; |
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mitigation of major risks, and our view of the resulting residual risk; and |
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monitoring of major risks.
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CORPORATE GOVERNANCE (CONTINUED)
Under the direction of a cross-functional steering committee composed primarily of senior corporate leaders,
management provides its feedback on business unit risks during periodic business reviews and annual strategic planning discussions. The enterprise risk management steering committee periodically meets with designated risk mitigation owners and
assesses control measures. In addition, the steering committee regularly reevaluates the appropriateness of risk assessments and priorities. This process includes identifying risks that could prevent achievement of business goals or plans. The
internal audit group uses the resulting information as a basis for developing its audit plan.
Annually, the Board reviews summary reports that assess
the strategic, operational, infrastructure and external risks facing the Company. Each Board committee, consistent with its charter, assists the Board in overseeing the review of certain risks that are particularly within its purview, including as
described in BOARD MEETINGS AND COMMITTEES below.
BOARDS ROLE IN SUCCESSION PLANNING
The Board is actively engaged and involved in talent management. The Board reviews the Companys Organization Vitality in support
of its business strategy at least annually. This includes a detailed discussion of the Companys global leadership bench and succession plans with a focus on key positions at the senior officer level, including CEO. During 2014, the Board and
the Compensation Committee, as well as an ad hoc CEO succession planning committee, met on several occasions in furtherance of these initiatives. In addition, the committees of the Board regularly discuss the talent pipeline for specific critical
roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including diversity,
recruiting and development programs.
BOARD LEADERSHIP STRUCTURE
Our Bylaws and Corporate Governance Principles provide the Board with the flexibility to determine what leadership structure works best for us, including whether
the same individual should serve as both our Chairman and our CEO. In February
2010, the Board determined to split the positions of Chairman and CEO. At that time, Mr. OConnor, who had been independent Lead Director from February 2008 through February 2010,
was named Chairman and continues to serve in that capacity. The split of these positions allows Mr. Espe, our President and CEO, to focus on managing the business, while Mr. OConnor, as Chairman, oversees the Boards
functions. The Board will continue to evaluate its leadership and governance structure within the context of the specific needs of the business, current Board composition, and the best interests of Company shareholders.
Responsibilities of the Chairman include recruiting new Board members, overseeing the evaluation and compensation of the CEO, ensuring an appropriate succession
plan, overseeing independent evaluation of risk, coordinating Board meeting schedules and agenda, chairing and leading the discussions at the meetings, and overseeing the annual performance evaluations of the Board, its committees and its individual
members. The Chairman ensures information provided by management to the Board is sufficient for the Board to fulfill its duties and communicates with other directors on key issues and concerns outside of regularly scheduled meetings. The Chairman is
also responsible for ensuring the effective functioning of the committees through appropriate delegation to, and membership of, the committees. Finally, the Chairman provides effective leadership for our independent directors to facilitate the
independent oversight required by our Bylaws and Corporate Governance Principles, including by ensuring that:
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a majority of our directors are independent; |
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all of the members of the Audit Committee, the Compensation Committee and the Governance Committee are independent directors; and |
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the Board meets at regularly scheduled executive sessions, outside of the presence of management and those directors not deemed to be Independent Directors (as
defined in our Articles and Bylaws) by the Board. Mr. OConnor, our Chairman, presides at these sessions. In addition, each of the Boards three standing committees regularly meet at similar executive sessions, at which the respective
committee Chairs preside. |
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CORPORATE GOVERNANCE (CONTINUED)
COMMUNICATION WITH THE BOARD
Any person who wishes to communicate with the Board, nonemployee directors as a group, or individual directors, including the Chairman, may direct a written
communication to the attention of the Corporate Secretary at the Companys corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603. The Corporate Secretary will forward these communications to the intended recipient
director(s). You may also send general messages to directors by email to directors@armstrong.com. If you wish to send an email message to the Governance Committee, including a recommendation regarding a prospective director, please send the
message to the CorpGovernance@armstrong.com. The Corporate Secretary will forward these messages, as appropriate.
BOARD MEETINGS AND COMMITTEES
The Board met eight times during 2014, two of which were special meetings.
There are three standing committees of the Board: the Audit Committee, the Compensation Committee, and the Governance Committee, each described below.
Each standing committee has a charter and consists solely of independent or outside directors who meet applicable independence standards
required by the NYSE, the U.S. Securities and Exchange Commission (the SEC), and the Internal Revenue Service, and under our Articles and Bylaws. Each committee reports to the Board regularly and evaluates the effectiveness of its
performance annually. The membership of each committee is determined by the Board on the recommendation of the Governance Committee. The Companys Corporate Governance Principles provide that (i) directors who are currently fully employed
should not serve on more than two other corporate boards and (ii) other directors should not serve on more than four other corporate boards. The Board, after considering the circumstances of Mr. Roberts service on three other public
company audit committees, determined that such service does not impact his ability to effectively serve on the Audit Committee.
All director nominees
who served on the Board during 2014 participated in 100% of the meetings of
the Board and meetings of the Committees on which they served. Board members are expected to attend annual meetings in person or virtually, via the Internet.
Audit Committee The Audit Committee met six times during 2014, one of which was a special meeting. The
members of the Audit Committee are John J. Roberts (Chair), Tao Huang, Jeffrey Liaw, Larry S. McWilliams, and Richard E. Wenz. Under its charter, the Audit Committee:
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oversees (i) auditing and accounting matters, including the selection, supervision and compensation of the Companys independent registered public
accounting firm and other independent auditors, (ii) the scope of the annual audits, non-audit services performed by the Companys independent registered public accounting firm, and (iii) the Companys accounting practices and
internal accounting controls; |
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has sole authority to engage, retain and dismiss the independent registered public accounting firm; |
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reviews and discusses with management and our independent registered public accounting firm the annual audited financial statements and quarterly financial
statements included in our SEC filings; |
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assists the Board in monitoring the integrity of the Companys financial statements and the independent registered public accounting firms
qualifications, independence and performance; |
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considers risks associated with overall financial reporting, legal compliance and disclosure processes; and |
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supervises and reviews the effectiveness of the Companys internal audit and legal compliance functions and compliance by the Company with legal and
regulatory requirements. |
Each member of the Audit Committee meets the NYSE and SEC financial literacy requirements. The Board has
determined that each of Mr. Liaw, Mr. Roberts and Mr. Wenz, qualifies as an Audit Committee Financial Expert as defined in the Exchange Act. The Audit Committee regularly meets independently with the Companys
internal and independent auditors, with the leaders of the Companys compliance function, and with management.
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CORPORATE GOVERNANCE (CONTINUED)
Management Development and Compensation Committee The
Compensation Committee met five times during 2014. The members of the Compensation Committee are Stan A. Askren (Chair), James J. Gaffney, Michael F. Johnston, Larry S. McWilliams, James C. Melville, and Gregory P. Spivy. Under its charter, the
Compensation Committee:
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oversees the design of our executive compensation and benefit programs and employment practices; |
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administers and makes recommendations regarding our incentive and equity compensation plans; |
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reviews and approves corporate goals and individual objectives relevant to the compensation of the CEO and evaluates the CEOs performance relative to those
goals and objectives, and recommends CEO compensation to the independent directors based on the evaluation; |
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oversees the evaluation of the other executive officers and establishes their compensation levels in collaboration with the CEO; |
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reviews incentive compensation to confirm that such compensation does not encourage unnecessary risk-taking; and |
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monitors senior management succession planning. |
Nominating and Governance Committee The Governance Committee met eight times during 2014, three of which
were special meetings. The members of the Governance Committee are James J. Gaffney (Chair), James C. Melville, James J. OConnor and John J. Roberts. Under its charter, the Governance Committee:
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monitors the independence of nonemployee directors; |
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reviews and evaluates director candidates and makes recommendations to the Board concerning nominees for election as Board members; |
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establishes criteria for the selection of candidates to serve on the Board; |
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recommends directors for appointment to Board committees; |
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makes recommendations to the Board regarding corporate governance matters;
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reviews and makes recommendations to the Board regarding the compensation of nonemployee directors; |
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oversees the Companys director education and orientation programs; and |
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coordinates an annual self-evaluation of the performance of the Board and each committee through assistance from an independent, third-party advisor.
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Other Committees In addition to the three standing committees described above, members of the Board
regularly meet on an ad hoc basis to discuss and approve matters through other committees that have been previously established by the Board. Such committees address such matters as refinancing, succession planning and crisis response. In connection
with the Companys secondary public offering transaction in March 2014, the Board established a pricing committee which met to review and approve the terms of the transaction.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of
the members of the Compensation Committee has ever been an officer or employee of the Company or its subsidiaries, or had any relationship with the Company that requires disclosure under applicable SEC regulations.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Any related party transaction that may arise is required to be reviewed and approved by the Governance Committee, who must have no connection with the transaction. Related party transactions would include
transactions by the Company or any subsidiary with any director, director nominee, executive officer, shareholders owning more than 5% of the Companys outstanding Common Shares, or immediate family member of any of the foregoing, and
transactions with businesses affiliated with any director or director nominee that meet the specifications in Item 404 of Regulation S-K under the Exchange Act. The Chair of the Governance Committee has authority to approve transactions
involving sums less than the disclosure threshold set in Item 404. The material details of any such matters are required to be disclosed to the Governance Committee at its next regular meeting.
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13 |
CORPORATE GOVERNANCE (CONTINUED)
In connection with his appointment to the Board pursuant to the Nomination Agreement, Mr. Spivy, a Partner of
ValueAct Capital, is entitled to receive an annual retainer (payable in cash) of $90,000 for his service on the Board, and an annual equity award in the form of restricted stock units (Director RSUs) under the 2008 Directors Stock
Unit Plan, as amended (Directors Stock Unit Plan) having an aggregate fair market value of $105,000 (based on the closing price our Common Shares as reported by the NYSE on the date of grant). The annual retainer and Director RSUs award
for Mr. Spivys service on the Board commencing in December 2014 through this current term were prorated from the date of his appointment to the Board. The Director RSUs are scheduled to vest on December 17, 2015. Mr. Spivy has
directed that his cash retainers be directly paid to ValueAct Capital Management, L.P., and under an agreement with ValueAct Capital, Mr. Spivy is deemed to hold it for the benefit of ValueAct Capital Master Fund L.P., and indirectly for other
members of the ValueAct Group.
SHAREHOLDER-RECOMMENDED DIRECTOR CANDIDATES
The Governance Committee will consider director candidates nominated by shareholders. The
procedures for recommending candidates are posted at www.armstrong.com/corporatena/article9748.html under About Armstrong and Corporate Governance. Shareholders who wish
to suggest individuals for service on the Board are requested to review Article II, Section 4 of our Bylaws and supply the information required in (a) through (k) of that Section in a written request to the Corporate Secretary at the
Companys corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603.
When evaluating the candidacy of nominees proposed by
shareholders, the Governance Committee may request additional information as it may consider reasonable to determine the proposed nominees qualifications to serve as a member of the Board. The procedure by which shareholders may recommend
nominees to the Board described above reflects changes since our 2014 annual meeting. On July 25, 2014, the Board approved amendments to our Bylaws, including amendments to this process, which took effect immediately upon approval by the Board.
The changes are more fully described and summarized in the Current Report on Form 8-K filed by the Company with the SEC on July 28, 2014.
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2015 Proxy Statement |
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COMPENSATION OF DIRECTORS
In establishing director compensation, including the overall value of compensation and the mix of cash and equity,
the Board analyzes competitive market data and any underlying director compensation trends generally, and compares our program to those of similarly sized companies in comparable industries. The Board is compensated through a combination of annual
retainers and equity grants in the form of stock units. The Board believes that this level of compensation supports the Companys ability to attract directors with suitable backgrounds and experiences. A director who is an officer or employee
of the Company or its subsidiaries is not compensated for service on the Board or on any committee of the Board.
In April 2013, the Governance
Committee reviewed the compensation program for nonemployee directors, including the Directors Stock Unit
Plan. The review included an analysis of competitive market data and any underlying director compensation trends with assistance from an independent compensation consultant. Following that
review, and a recommendation by the Governance Committee, the Board approved an increase of $5,000 to each annual retainer fee (cash and equity) for directors, and a $10,000 increase to each annual retainer fee (cash and equity) for the Chair, all
effective June 21, 2013. The Governance Committee conducted a similar review in April 2014 and determined that no changes to the compensation program for nonemployee directors were necessary. On average, the total compensation levels, as well
as cash and equity compensation levels, for our nonemployee directors approximate the 75th percentile, on a per director basis.
The following table describes the elements of
the compensation program for nonemployee directors:
Director Compensation Program
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Element |
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Amount |
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Terms |
Annual Retainer (Cash) |
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$ 90,000 $190,000
(Chair) |
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paid in quarterly installments, in arrears |
Annual Retainer (Equity) |
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$105,000 $205,000 (Chair) |
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annual (or pro-rated) grant of Director RSUs Directors Stock Unit Plan
vest at one year anniversary or earlier change in control if serving on such date
pre-2011 grants deliverable six months following end of service (except removal for
cause) 2011 and later grants deliverable on date of end of service (except removal for
cause) one share per one unit upon delivery
no voting power until delivered
dividend equivalent rights |
Committee Chair Fees |
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$20,000 (AC; MDCC) $10,000 (NGC) |
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paid in quarterly installments, in arrears |
Special Assignment Fees |
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$2,500 per diem ($1,250 for less than four hours) |
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may be paid in connection with:
one-on-one meetings with the CEO
plant visits
other non-scheduled significant activities |
* |
Committees: AC (Audit); MDCC (Management Development & Development); NGC (Nominating & Governance) |
Annual grants for the equity portion of the retainer are effective as of the first business day following the date of
the annual meeting, and the amount of
each grant is determined by the NYSE closing price of our Common Shares on that date.
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2015 Proxy Statement |
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15 |
COMPENSATION OF DIRECTORS (CONTINUED)
Director Compensation Table 2014
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Name
(a) |
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Fees
Earned or Paid
in Cash ($)
(b) |
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Stock
Awards ($)(1) (c) |
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Option
Awards ($)(2)
(d) |
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Non-Equity
Incentive Plan
Compensation ($)
(e) |
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Change in
Pension Value and
Nonqualified Deferred
Compensation Earnings
($)(3) (f) |
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All
Other Compensation
($)(4) (g) |
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Total ($)
(h) |
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S. Askren |
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110,000 |
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105,000 |
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215,000 |
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J. Gaffney |
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100,000 |
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105,000 |
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205,000 |
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T. Huang |
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90,000 |
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105,000 |
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2,300 |
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197,300 |
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M. Johnston |
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90,000 |
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105,000 |
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195,000 |
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J. Liaw |
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90,000 |
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105,000 |
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195,000 |
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L. McWilliams |
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90,000 |
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105,000 |
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1,885 |
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196,885 |
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J. Melville |
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90,000 |
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105,000 |
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22,500 |
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217,500 |
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J. OConnor |
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190,000 |
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205,000 |
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17,500 |
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412,500 |
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J. Roberts |
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110,000 |
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105,000 |
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215,000 |
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G.
Spivy(5) |
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3,825 |
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53,560 |
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57,385 |
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R. Wenz |
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90,000 |
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105,000 |
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800 |
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195,800 |
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(1) |
Represents amounts that are in units of our Common Shares. The amounts reported represent the aggregate grant date fair value for Director RSUs granted during the fiscal year, as
calculated under the Financial Accounting Standards Boards Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our Common Shares on the date of the grant.
For the number of Director RSUs credited to each directors account as of March 31, 2015, see SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS, pages 18 and 19. |
(2) |
The directors do not receive stock options as part of their compensation for service on our Board. |
(3) |
There is no plan or arrangement for directors to defer the compensation that they receive as part of their compensation for service on our Board. |
(4) |
Reflects incremental costs incurred by the Company for spouse travel at the February 2014 Board meeting. The amounts for Messrs. Melville and OConnor also reflect the
amounts they received for special assignment fees in connection with certain non-scheduled significant activities and projects. |
(5) |
Mr. Spivy received a pro-rated payment of the fourth quarterly installment of the 2014 annual cash retainer, and a pro-rated grant of Director RSUs as the equity portion of
his retainer for Board service, in December 2014 following his appointment to the Board on December 15, 2014. Under an agreement with ValueAct Capital, Mr. Spivy is deemed to receive the cash portion of his retainer for Board service and
hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of
ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital
Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P.
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2015 Proxy Statement |
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS
Certain Beneficial Owners
The following table sets forth information regarding persons or groups known to us to be beneficial owners of more than 5% of our outstanding Common Shares as of
March 31, 2015 or the date of any applicable reports filed by such persons or groups prior to that date. Beneficial ownership is determined in accordance with applicable rules of the SEC.
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Name and Address of Beneficial Owner |
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Amount and Nature of Beneficial Ownership |
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Percent of
Class Outstanding(1) |
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ValueAct Capital Master Fund, L.P.
One Letterman Drive, Building D, 4th Floor San Francisco, CA 94129 |
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9,200,000
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(2)
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16.6 |
% |
Armstrong World Industries, Inc.
Asbestos Personal Injury Settlement Trust
c/o Edward E. Steiner Keating Muething & Klekamp PLL One East Fourth Street, Suite
1400 Cincinnati, OH 45202 |
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6,793,174
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(3)
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12.3 |
% |
Eton Park Fund, L.P.
399 Park Ave, 10th Floor New York, NY 10022 |
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4,065,446
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(4)
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7.4 |
% |
T. Rowe Price Associates, Inc.
100 E. Pratt Street Baltimore, MD 21202 |
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2,856,030
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(5) |
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5.2 |
% |
(1) |
Based on 55,273,124 shares of our Common Shares outstanding as of March 31, 2015, as reported to the NYSE (60,330,506 shares reported, less 5,057,382 shares held in
treasury). |
(2) |
On a Schedule 13D Amendment No. 1 filed with the SEC on December 16, 2014, ValueAct Master Fund, L.P. reported shared voting and dispositive power with respect to these
Common Shares. Shares reported as beneficially owned by ValueAct Master Fund are also reported as beneficially owned by (i) ValueAct Management L.P. as the manager of each such investment partnership, (ii) ValueAct Management LLC, as
General Partner of ValueAct Management L.P., (iii) ValueAct Holdings, as the sole owner of the limited partnership interests of ValueAct Management L.P. and the membership interests of ValueAct Management LLC and as the majority owner of the
membership interests of VA Partners I and (iv) ValueAct Holdings GP, as General Partner of ValueAct Holdings. Shares reported as beneficially owned by ValueAct Master Fund are also reported as beneficially owned by VA Partners I, as General
Partner of ValueAct Master Fund. VA Partners I, ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings and ValueAct Holdings GP also, directly or indirectly, may own interests in one or more than one of the partnerships from time to
time. By reason of such relationship ValueAct Master Fund is reported as having shared power to vote or to direct the vote, and shared power to dispose or direct the disposition of, these Common Shares, with VA Partners I (only with respect to
ValueAct Master Fund), ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings and ValueAct Holdings GP. |
(3) |
On a Schedule 13G Amendment No. 1 filed with the SEC on February 25, 2015, the Trust reported that, as of February 24, 2015, it had sole voting and dispositive
power with respect to these Common Shares. |
(4) |
On a Schedule 13G Amendment No. 1 filed on with the SEC on February 17, 2015, Eton Park Fund, L.P. reported, as of December 31, 2014, shared voting and dispositive
power with respect to these Common Shares as follows: Eton Park Master Fund, Ltd. (EP Master Fund), with respect to the Common Shares directly owned by it; Eton Park Associates, L.P. (EP Associates), which serves as the
general partner of EP Fund, with respect to the Common Shares directly owned by EP Fund; Eton Park Capital Management, L.P. (EP Management), which serves as investment manager to EP Master Fund and EP Fund, with respect to the Common
Shares directly owned by each of EP Master Fund and EP Fund; and Eric M. Mindich (Mr. Mindich), (i) as managing member of Eton Park Associates, L.L.C., the general partner of EP Associates, with respect to the Common Shares directly
owned by EP Fund and (ii) as managing member of Eton Park Capital Management, L.L.C., the general partner of EP Management, with respect to the Common Shares directly owned by each of EP Fund and EP Master Fund. Mr. Mindich disclaims
beneficial ownership of any of the securities held by EP Fund and EP Master Fund. |
(5) |
On a Schedule 13G filed with the SEC on February 12, 2015, T. Rowe Price Associates, Inc. reported that, as of December 31, 2014, it had sole voting and dispositive
power with respect to these Common Shares. |
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2015 Proxy Statement |
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17 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND DIRECTORS (CONTINUED)
Management and Directors
The following table sets forth, as of March 31, 2015, the amount of Common Shares beneficially owned by all directors, the Companys currently serving
named executive officers (NEOs) as identified in the COMPENSATION DISCUSSION AND ANALYSIS section on page 24 and all directors and executive officers as a group in accordance with applicable SEC rules.
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Name |
|
Number of Common Shares
Beneficially Owned |
|
|
Number of Shares Subject to Options(1) Exercisable or Which Become Exercisable
Within 60 Days |
|
|
Total Number of Shares Beneficially Owned(2) |
|
|
Restricted Stock Units(3)
/ Unvested Options |
|
|
Total Common Shares Beneficially Owned Plus Restricted Stock Units
and Unvested Options |
|
Stan A. Askren |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
23,309 |
|
|
|
23,309 |
|
Matthew J. Espe |
|
|
63,484 |
|
|
|
650,488 |
|
|
|
713,972 |
|
|
|
136,371 |
|
|
|
850,343 |
|
James J. Gaffney |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
17,309 |
|
|
|
17,309 |
|
Victor D. Grizzle |
|
|
19,333 |
|
|
|
93,213 |
|
|
|
112,546 |
|
|
|
36,581 |
|
|
|
149,127 |
|
Mark A. Hershey |
|
|
5,567 |
|
|
|
46,278 |
|
|
|
51,845 |
|
|
|
25,450 |
|
|
|
77,295 |
|
Tao Huang |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
16,627 |
|
|
|
16,627 |
|
Michael F. Johnston |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
16,627 |
|
|
|
16,627 |
|
Jeffrey Liaw |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
4,758 |
|
|
|
4,758 |
|
Donald R. Maier |
|
|
15,882 |
|
|
|
52,778 |
|
|
|
68,660 |
|
|
|
37,305 |
|
|
|
105,965 |
|
Larry S. McWilliams |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
16,627 |
|
|
|
16,627 |
|
James C. Melville |
|
|
4,229 |
|
|
|
* |
* |
|
|
4,229 |
|
|
|
6,947 |
|
|
|
11,176 |
|
James J. OConnor |
|
|
7,000 |
|
|
|
* |
* |
|
|
7,000 |
|
|
|
37,250 |
|
|
|
44,250 |
|
John J. Roberts |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
17,309 |
|
|
|
17,309 |
|
David S. Schulz |
|
|
803 |
|
|
|
15,337 |
|
|
|
16,140 |
|
|
|
21,957 |
|
|
|
38,097 |
|
Gregory P.
Spivy(4) |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
1,088 |
|
|
|
1,088 |
|
Richard E. Wenz |
|
|
0 |
|
|
|
* |
* |
|
|
0 |
|
|
|
16,627 |
|
|
|
16,627 |
|
Directors and Executive Officers as a group (18 persons)(5) |
|
|
125,261 |
|
|
|
902,662 |
|
|
|
1,027,923 |
|
|
|
449,767 |
|
|
|
1,477,690 |
|
(1) |
Directors do not receive stock option grants under the Directors Stock Unit Plan or as part of the compensation program for directors. |
(2) |
No individual director or executive officer other than Mr. Espe beneficially owns 1% of the Common Shares outstanding as of March 31, 2015. The directors and executive
officers as a group beneficially own approximately 3% of the Common Shares outstanding as of March 31, 2015. |
(3) |
Represents, in the case of NEOs, unvested time-based restricted stock units (NEO RSUs) granted to them under the 2006 and 2011 Long-Term Incentive Plan, as
applicable, and, in the case of nonemployee directors, vested and unvested stock units (Director RSUs) granted to them as part of their annual retainer for Board service that are not acquirable by the director within 60 days of March 31, 2015
under the terms of the Directors Stock Unit Plan. See Directors Aggregate Ownership table below for further information. Neither the unvested NEO RSUs nor the Director RSUs have voting power. |
(4) |
Mr. Spivy received a pro-rated grant of Director RSUs as the equity portion of his retainer for Board service in December 2014 following his appointment to the Board on
December 15, 2014. Under an agreement with ValueAct Capital, Mr. Spivy is deemed to hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct
Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct
Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC
and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P. |
(5) |
Includes amounts for Ellen R. Romano, SVP, Human Resources, and Stephen F. McNamara, VP, Controller. |
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18 |
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|
2015 Proxy Statement |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND DIRECTORS (CONTINUED)
Directors Aggregate Ownership
The table below sets forth, as of March 31, 2015, additional detail as to each nonemployee directors ownership and rights to ownership in
the Companys equity.
|
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|
|
|
|
|
Name |
|
Common Shares |
|
|
Vested Restricted Stock
Units(1) |
|
|
Unvested Restricted Stock Units(2)
|
|
|
Phantom Stock Units(3) |
|
|
Total Equity |
|
|
Total
Value(4) |
|
Stan A. Askren |
|
|
0 |
|
|
|
21,467 |
|
|
|
1,842 |
|
|
|
|
|
|
|
23,309 |
|
|
$ |
1,339,568 |
|
James J. Gaffney |
|
|
0 |
|
|
|
15,467 |
|
|
|
1,842 |
|
|
|
10,038 |
|
|
|
17,309 |
|
|
$ |
1,571,632 |
(5)
|
Tao Huang |
|
|
0 |
|
|
|
14,785 |
|
|
|
1,842 |
|
|
|
|
|
|
|
16,627 |
|
|
$ |
955,553 |
|
Michael F. Johnston |
|
|
0 |
|
|
|
14,785 |
|
|
|
1,842 |
|
|
|
|
|
|
|
16,627 |
|
|
$ |
955,553 |
|
Jeffrey Liaw |
|
|
0 |
|
|
|
2,916 |
|
|
|
1,842 |
|
|
|
|
|
|
|
4,758 |
|
|
$ |
273,442 |
|
Larry S. McWilliams |
|
|
0 |
|
|
|
14,785 |
|
|
|
1,842 |
|
|
|
|
|
|
|
16,627 |
|
|
$ |
955,553 |
|
James C. Melville |
|
|
4,229 |
|
|
|
5,105 |
|
|
|
1,842 |
|
|
|
|
|
|
|
11,176 |
|
|
$ |
642,284 |
|
James J. OConnor |
|
|
7,000 |
|
|
|
33,654 |
|
|
|
3,596 |
|
|
|
|
|
|
|
44,250 |
|
|
$ |
2,543,047 |
|
John J. Roberts |
|
|
0 |
|
|
|
15,467 |
|
|
|
1,842 |
|
|
|
10,038 |
|
|
|
17,309 |
|
|
$ |
1,571,632 |
(5)
|
Gregory P.
Spivy(6) |
|
|
0 |
|
|
|
0 |
|
|
|
1,088 |
|
|
|
|
|
|
|
1,088 |
|
|
$ |
62,527 |
|
Richard E. Wenz |
|
|
0 |
|
|
|
14,785 |
|
|
|
1,842 |
|
|
|
|
|
|
|
16,627 |
|
|
$ |
955,553 |
|
Total |
|
|
11,229 |
|
|
|
153,216 |
|
|
|
21,262 |
|
|
|
20,076 |
|
|
|
185,707 |
|
|
$ |
11,826,344 |
|
(1) |
Under the terms of the Directors Stock Unit Plan, the Director RSUs granted to each director as part of his retainer for Board service are not acquirable by the director until
(i) for those Director RSUs granted prior to June 2011, the earlier of the six-month anniversary of the directors separation from the Board for any reason other than a removal for cause or the date of a Change in Control Event (as defined
in the Directors Stock Unit Plan); or (ii) for those Director RSUs granted during and after June 2011, on the date of the directors separation from the Board for any reason other than a removal for cause or the date of a Change in Control
Event (as defined in the Directors Stock Unit Plan). |
(2) |
Under the terms of the Directors Stock Unit Plan, Director RSUs vest on the first anniversary of the grant date. All of the director RSUs listed in this column will vest on
June 23, 2015, except for the Director RSUs for Mr. Spivy, which vest on December 17, 2015, the first anniversary of the grant date for such Director RSUs. |
(3) |
Phantom Stock Units awarded under the Companys 2006 Phantom Stock Unit Plan (Phantom Stock Unit Plan) become payable (Phantom Units Payment Date) in
cash on the earlier of the six-month anniversary of the directors separation from the Board for any reason other than a removal for cause or the date of a Change in Control Event (as defined in the Phantom Stock Unit Plan). The cash payment
amount will be equal to the number of units multiplied by the closing price of the Common Shares on the stock exchange on which such shares are traded on the Phantom Units Payment Date. |
(4) |
Represents an amount equal to the sum of the number of Common Shares beneficially owned, plus the number of vested and unvested Director RSUs, plus the number of Phantom Stock
Units held, as applicable, multiplied by $57.47, which was the closing price of the Common Shares on the NYSE on March 31, 2015. |
(5) |
Amount excludes $276,151.32 in accrued dividends (non-interest bearing). |
(6) |
Mr. Spivy received a pro-rated grant of Director RSUs as the equity portion of his retainer for Board service in December 2014 following his appointment to the Board on
December 15, 2014. Under an agreement with ValueAct Capital, Mr. Spivy is deemed to hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct
Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct
Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC
and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P. |
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|
2015 Proxy Statement |
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|
19 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND DIRECTORS (CONTINUED)
Stock Ownership Guidelines
In accordance with our Corporate Governance Principles, each nonemployee director must acquire and then hold until six months following the end of his service, phantom units and/or Common Shares equal in value to
three times the directors annual retainer at the time he joined the Board. Directors endeavor to reach that level of ownership within five
years of joining the Board. With the exception of Messrs. Liaw and Spivy, all of the current directors have already achieved this ownership requirement. Mr. Espe is an officer of the Company
and, therefore, not subject to the stock ownership guidelines for nonemployee directors. Messrs. Liaw and Spivy first became eligible to participate in the nonemployee director compensation program in February 2013 and December 2014, respectively.
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20 |
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|
2015 Proxy Statement |
|
|
ITEM 2 RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee selected KPMG LLP to audit our consolidated financial statements and our internal control over
financial reporting for 2015. In accordance with past practice, this selection will be presented to the shareholders for ratification at the annual meeting; however, consistent with the requirements of the Sarbanes-Oxley Act of 2002, the Audit
Committee has ultimate authority in respect of the selection of our independent
registered public accounting firm. The Audit Committee may reconsider its selection if the appointment is not ratified by the shareholders.
A representative of KPMG LLP will be in attendance at the annual meeting to respond to appropriate questions and will be afforded the opportunity to make a
statement at the meeting, if he or she desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG
LLP.
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|
2015 Proxy Statement |
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|
21 |
The Audit Committee engaged KPMG LLP as the Companys independent registered public accounting firm for 2014. In making this selection, the Audit Committee
considered KPMG LLPs qualifications, discussed with KPMG LLP its independence, and reviewed the audit and non-audit services provided by KPMG LLP to the Company.
Management of the Company has primary responsibility for preparing the Companys financial statements and establishing effective internal control over financial reporting. KPMG LLP is responsible for auditing
those financial statements and expressing an opinion on the conformity of the Companys audited financial statements with accounting principles generally accepted in the United States and on the effectiveness of the Companys internal
control over financial reporting based on the criteria established in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission. Accordingly, the Audit Committee reviewed and discussed the audited consolidated financial statements
for fiscal 2014 with the Companys management. The Audit Committee also reviewed and discussed with management the critical accounting policies applied by the Company in the preparation of those financial statements. The Audit Committee also
discussed with KPMG LLP the matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board, and had the opportunity to ask KPMG LLP questions relating to such matters. The discussions included the quality,
and not just the acceptability, of the accounting principles utilized, the reasonableness of significant accounting judgments, and the clarity of disclosures in the financial statements.
The Audit Committee considers the independence, qualifications and performance of KPMG. Such consideration includes reviewing the written disclosures and the letter received from KPMG required by applicable
requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountants communications with the Audit Committee concerning independence, and discussing with KPMG their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included
in Armstrongs Annual Report on Form 10-K for the year ended December 31, 2014. The Audit Committee has also engaged KPMG as the Companys independent registered public accounting firm for 2015. The Audit Committee and the Board
believe that the continued retention of KPMG to serve as the Companys independent registered public accounting firm is in the best interests of the Company and its shareholders and have recommended that shareholders ratify the appointment of
KPMG as the Companys independent registered public accounting firm for the fiscal year 2015.
Submitted by the Audit Committee
John J. Roberts (Chair)
Tao Huang
Jeffrey Liaw
Larry S. McWilliams
Richard E. Wenz
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22 |
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|
2015 Proxy Statement |
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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table presents fees for professional audit services rendered by KPMG LLP for the audit of our annual consolidated financial statements for 2014 and 2013 and fees billed for other services rendered by
KPMG LLP. All fees in 2014 and 2013 were pre-approved by the Audit Committee.
|
|
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|
|
|
|
|
|
(amounts in thousands) |
|
|
|
2014 |
|
|
2013 |
|
Audit
Fees(1) |
|
$ |
4,274 |
|
|
$ |
4,203 |
|
Audit Related
Fees(2) |
|
|
246 |
|
|
|
215 |
|
Audit and Audit Related Fees Subtotal |
|
|
4,520 |
|
|
|
4,418 |
|
Tax
Fees(3) |
|
|
1,630 |
|
|
|
1,490 |
|
All Other
Fees(4) |
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
6,150 |
|
|
$ |
5,908 |
|
(1) |
Audit Fees are for services rendered in connection with the integrated audit of Armstrongs consolidated financial statements as of and for the year, for which a portion of
the billings occurred the following year. Audit fees were also incurred for reviews of consolidated financial statements included in Armstrongs quarterly reports on Form 10-Q, services normally provided in connection with statutory and
regulatory filings, and services for comfort letters. |
(2) |
Audit Related Fees consisted principally of fees for audits of financial statements of certain employee benefit plans, agreed-upon procedures, accounting research assistance on
technical topics and other matters with respect to non-U.S. statutory financial statements. |
(3) |
Tax Fees were primarily for preparation of tax returns in non-U.S. jurisdictions, assistance with tax audits and appeals and other tax consultation and compliance services.
|
The Audit Committee has considered whether the provision by KPMG LLP of the non-audit services described above was allowed under Rule
2-01(c)(4) of Regulation S-X and was compatible with maintaining auditor independence, and has concluded that KPMG LLP was and is independent of the Company in all respects.
Audit Committee Pre-Approval Policy
The Audit Committee adheres to a policy that requires the
Audit Committees prior approval of any audit, audit-related and non-audit services provided by the firm that serves as our independent registered public accounting firm. Pursuant to this policy, management cannot engage the firm for any
services without the Audit Committees pre-approval. The Audit Committee delegates to the Audit Committee Chair the authority to pre-approve non-audit services not exceeding 5% of the total audit fees for the year for purposes of handling
immediate needs, with a report to the full Audit Committee of such approvals at its next meeting. The policy complies with Section 10A(i) of the Exchange Act.
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|
2015 Proxy Statement |
|
|
|
23 |
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
This compensation discussion and analysis
(CD&A) includes a detailed description of our executive compensation programs and philosophy, which are generally applicable to all of our management employees. However, this CD&A focuses primarily on the material components of
our executive compensation program as they apply to our NEOs. In 2014, our NEOs were(1):
Matthew J. Espe President and CEO
David S. Schulz Senior Vice President and CFO
Victor D. Grizzle Executive Vice President and CEO, Armstrong Building Products (ABP)
Donald R. Maier(2) Executive Vice President and CEO, Armstrong Floor Products (AFP) and former Senior Vice President Global Operations
Excellence
Mark A Hershey Senior Vice President, General Counsel, and Chief Compliance Officer
Thomas B. Mangas(3) Former Executive Vice President and CEO, AFP
|
(1) |
We determined the above NEOs for 2014 in accordance with SEC rules, which require that we include: all individuals who served as our principal executive officer (Mr. Espe) and
principal financial officer (Mr. Schulz), regardless of compensation level during the year; our three most highly compensated executive officers other than the principal executive officer and principal financial officer who were serving as executive
officers at the end of the last completed fiscal year (Messrs. Grizzle, Maier and Hershey); and up to two additional individuals for whom disclosure would have been provided under the applicable rules except for the fact that the individual was not
serving as an executive officer at the end of the last completed fiscal year (Mr. Mangas). |
|
|
(2) |
Mr. Maier was appointed EVP & CEO, AFP effective September 26, 2014, succeeding Mr. Mangas. This appointment superseded a previous Transition Agreement
(filed with the SEC on Form 8-K on April 4, 2014), under which his role was to terminate on December 31, 2014. |
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|
(3) |
Mr. Mangas served as our global AFP leader until September 26, 2014, when he resigned from his position with the Company. |
|
Executive Summary
Our Business
We are a global leader in the design and manufacture of floors and
ceilings. As of December 31, 2014, we operated 31 plants in eight countries and had approximately 7,400 employees worldwide.
Executive Compensation Programs
Our executive compensation programs are designed to attract and retain high caliber talent, reward performance, and closely align the interests of our executives
with the interests of our shareholders. We execute this philosophy through the payment of base salaries, cash incentive awards under our Management Achievement Plan (MAP), and grants of a combination of time-based and
performance-based restricted stock units (RSU and PSU, respectively) and stock options under our 2011 Long-Term Incentive Plan (LTIP).
To focus our NEOs on delivering both short- and long-term results, a significant amount of their target total direct
compensation (TDC, composed of base salary, short-term and long-term incentive compensation) mix is dependent upon achieving specified results and is, therefore, at risk. We also employ specific policies and practices to
supplement our compensation philosophy, including:
|
|
Stock ownership guidelines to ensure NEOs have exposure to changes in our stock price, thereby aligning NEO and long-term shareholder interests.
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|
|
Ability to recoup certain stock-based awards in the event of termination of employment for willful, deliberate or gross misconduct or in the event a participant
engages in injurious conduct after termination of employment. To the extent the SEC adopts future rules for clawback policies that require changes to our policies, we will revise our policies as appropriate.
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24 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
|
Insider trading policy prohibiting derivative transactions in our Common Shares, including: trading in puts, calls, covered calls, or other derivative products
involving our securities; prohibiting engaging in any hedging or monetization transaction with respect to our securities; and, prohibiting holding company securities in a margin account or pledging our securities as collateral for a loan.
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|
|
Double trigger vesting of equity grants upon a change in control. |
|
|
No plans or agreements that provide tax gross-ups to our NEOs under Section 280G of the Internal Revenue Code (Code).
|
2014 Business Highlights
In 2014, we focused on growing our core businesses in established and emerging markets and continued our disciplined effort to create an efficient and productive culture while facing challenging market conditions
that included continued contraction of key commercial segments in the Americas and Europe.
Key performance highlights included:
|
|
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)* of $384 million was up $12 million, or 3 percent, from 2013, driven
by favorable price and mix, manufacturing productivity and higher earnings from our WAVE joint venture with Worthington Industries. |
|
|
Consolidated net sales decreased $12 million, or 0.5 percent. The decrease was driven by unfavorable impact of foreign exchange of approximately $19 million.
Lower volumes of $100 million were more than offset by $106 million of favorable price and mix. |
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|
$64 million of Free Cash Flow, which was lower than 2013, primarily due to changes in working capital, which was unusually favorable in 2013, and increased
capital expenditures, which were partially offset by the cash settlement of a Ruble
|
|
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hedge related to the funding of our Russia plant construction project, higher cash earnings, increased dividends from our WAVE joint venture and lower interest expense.
|
We also made significant progress with respect to a variety of strategic, financial and operational initiatives.
|
|
On February 19, 2015, our Board approved a plan to separate our flooring business from our ceilings (building products) business through a tax-free spinoff
of the flooring business, which would result in two independent, publicly-traded companies. |
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Record EBITDA in our ABP business despite a challenged demand environment. |
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Progressed plant construction projects in Russia (operational and shipping as of February) for ceilings and Lancaster, PA for Luxury Vinyl Tile for
flooring. We also executed manufacturing investments in Somerset, KY for wood flooring and in Hilliard, OH for ceilings. |
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In the Pacific Rim, we continued to grow our business with our three new plants and had double digit sales growth in China and India. We added metal ceiling
capability within our plant in Wujang, China to support continued growth in Architectural Specialties. |
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We closed flooring plants in Kunshan, China (wood) and Thomastown, Australia (resilient tile) to improve our cost position. |
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We decided to cease funding and discontinue our unprofitable flooring business in Europe. |
* |
Continuing operations basis. Please refer to Annex A for a reconciliation of Adjusted EBITDA to U.S. GAAP.
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2015 Proxy Statement |
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25 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
2014 Executive Compensation Highlights
The MAP opportunity for NEOs with primary responsibilities at the Corporate level is weighted 100% to consolidated results. NEOs with business unit responsibilities
are weighted 30% to consolidated results and 70% to the individual business unit. Our 2014 EBITDA performance resulted in a 76% MAP payout factor at the consolidated level, 24% below target. NEOs whose MAP was based on consolidated results received
payouts at 76% of target, and one NEO whose MAP was based on both consolidated and business unit results received a payout at 85% of target. One NEO received a performance bonus based on an agreement entered into connection with his promotion.
Our three-year cumulative Return on Invested Capital (ROIC) performance (2012 2014 PSU plan) resulted in a
66% payout factor, 34% below target, reflecting actual performance relative to a goal that we did not achieve primarily due to an expectation of market recovery at the time the goal was established.
Our Compensation Committee did not make significant changes to our executive compensation philosophy or design but
completed the following key activities:
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Conducted a project with Towers Watson, the Committees independent consultant, focused on value creation to confirm our short- and long-term metrics are
appropriate drivers of performance. |
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Determined EBITDA to be the performance metric against which to measure and reward for annual MAP performance in 2014. |
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Approved a 2014 EBITDA target of $425 million and established a corresponding payout factor. |
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Approved 2014 MAP payments in line with below target performance during 2014. |
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Reviewed and revised our peer group. |
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Conducted an in-depth review of long-term performance metrics under our LTIP and determined ROIC as the metric for the 2014-2016 PSU plan.
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Conducted a pay-for-performance analysis of our MAP to test the pay-for-performance linkage and to assure that program outcomes are aligned with the objectives
of the plan. |
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Renewed its engagement with Towers Watson as the Committees independent consultant.
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26 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
The table below summarizes TDC paid or awarded to our NEOs during 2014. This table is not intended to be a substitute
for the Summary Compensation Table (SCT) or Grants of Plan-Based Awards Table (GPBAT). Base salary reflects the total salary paid for 2014. 2014 MAP awards and LTIP awards are reflected in the SCT and
GPBAT. LTIP awards represent an incentive for future performance, not current cash compensation, and are at risk of forfeiture.
2014 NEO TDC
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Name |
|
2014 Salary $ |
|
|
2014 Final MAP $ |
|
|
2014 LTIP $ (1) |
|
|
TDC $ |
|
Mr. Espe |
|
|
1,002,050 |
|
|
|
837,720 |
|
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3,150,000 |
|
|
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4,989,770 |
|
Mr. Schulz |
|
|
435,367 |
|
|
|
248,160 |
|
|
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520,000 |
|
|
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1,203,527 |
|
Mr. Grizzle |
|
|
479,848 |
|
|
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305,910 |
|
|
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832,500 |
|
|
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1,618,258 |
|
Mr. Maier |
|
|
428,466 |
|
|
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188,790 |
|
|
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838,000 |
|
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1,455,256 |
|
Mr. Hershey |
|
|
429,450 |
|
|
|
195,830 |
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|
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588,000 |
|
|
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1,213,280 |
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Mr. Mangas
(2) |
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|
393,742 |
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|
|
0 |
|
|
|
1,040,000 |
|
|
|
1,433,742 |
|
(1) |
Amounts represent the aggregate grant date fair value for long-term incentive equity awards granted in 2014, as calculated under the Financial Accounting Standards Boards
Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our common stock on the date of the grant. |
(2) |
Mr. Mangas resigned in September 2014. Consistent with plan rules, he did not receive a MAP award for 2014. |
Consideration of Last Years Advisory
Shareholder Vote on Executive Compensation
At our 2011 annual meeting, our shareholders
expressed a preference that advisory votes on executive compensation occur every three years. In accordance with the results of this vote, the Board determined to implement an advisory vote on executive compensation every three years until the next
required vote on the frequency of shareholder votes on the compensation of executives, which is scheduled to occur at the 2017 annual meeting. Accordingly, our most recent advisory shareholder vote on executive compensation took place at the 2014
annual meeting.
The Board and the Compensation Committee appreciate and value the views of our shareholders. In considering the results of the 2014
favorable (97%) advisory vote on executive compensation, the Compensation Committee noted our current executive compensation program has been
effective in implementing our stated compensation philosophy and objectives.
The Compensation
Committee recognizes executive pay practices and notions of sound governance principles continue to evolve. While no specific changes were implemented as a result of the vote, the Compensation Committee intends to continue to pay close attention to
ongoing trends and invites our shareholders to communicate any concerns or opinions on executive pay directly to the Compensation Committee or the Board. Please refer to Communication with the Board on page 12 for further information.
PHILOSOPHY AND OBJECTIVES OF OUR EXECUTIVE COMPENSATION PROGRAM
Our long-term success and growth depend on highly capable global leaders with the experience and skills to deliver our strategy in a volatile and changing market environment. Thus, our executive compensation
programs are designed to attract, motivate and retain those high-quality leaders. Generally, the same principles that apply to our NEOs also apply to the compensation of our salaried employees. In developing and maintaining our executive
compensation program, the Compensation Committee focuses on the following key objectives:
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Align executive interests with shareholders interests. |
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Create a strong link between pay and performance by placing a significant portion of compensation at risk based on performance against
pre-established goals. |
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Structure sufficiently competitive compensation packages globally, to enable access to high-quality executives in a highly competitive talent environment.
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HOW WE MAKE COMPENSATION DECISIONS
The Compensation Committee is responsible for executive compensation program design and the decision-making process relative to NEOs specifically, and broadly, as these programs apply to other senior leaders and
participating employees. The Compensation Committee solicits input from the independent members of the Board, the CEO, other members of management, and its independent compensation consultant to assist it with its responsibilities. The following
summarizes the roles of each of the key participants in the executive compensation decision-making process.
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2015 Proxy Statement |
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27 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
Roles of Key Participants
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Compensation Committee |
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Sets the philosophy and principles that guide the
executive compensation program
Oversees the design of our executive compensation programs in context of our culture, competitive practices,
legal and regulatory landscape, and governance trends Reviews and approves short- and long-term incentive compensation design, including performance goals and the reward consequences for delivering above or below target performance
Reviews and approves corporate goals and
individual objectives relevant to the compensation of the CEO, evaluates the CEOs performance relative to those goals and objectives, and recommends CEO compensation to the independent directors based on the evaluation
Oversees the evaluation of the other
executive officers and establishes their compensation levels in collaboration with the CEO |
Independent Members of the Board |
|
Participate in the performance assessment process for the CEO
Approve CEO compensation decisions,
including base salary, MAP, and LTIP awards |
Committee Consultant Towers Watson |
|
Provides analysis, advice and recommendations with regard to executive
compensation Attends
Compensation Committee meetings, as requested, and communicates between meetings with the Compensation Committee Chair
Advises the Compensation Committee on market trends, regulatory issues and developments and how they may impact
our executive compensation programs |
CEO |
|
Provides input to the Compensation Committee on senior executive performance and
compensation recommendations |
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28 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
Independent Compensation Consultant
In July 2014, the Compensation Committee renewed its engagement of Towers Watson as its independent consultant on executive compensation matters.
Towers Watson serves as our Pension Plan Actuary in Canada (an arrangement that has been in place for several years, prior to Towers Watson becoming the Compensation Committees consultant) and typical actuary
annual fees are $200,000. We also purchase select compensation and HR survey data from the firm. Towers Watson does not perform any other services for Armstrong. At the request of the Compensation Committee, in addition to providing general
executive compensation advice outlined above, Towers Watson performed the following services during 2014:
|
|
Advised on the design considerations with respect to the 2015 MAP and the 2015 LTIP, to ensure appropriate linkage between short- and long-term performance and
pay and performance. |
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Advised the Compensation Committee on the composition of a revised peer group. |
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Advised the Compensation Committee on setting the CEOs compensation. |
The Compensation Committee determined the work of Towers Watson did not raise any conflicts of interest in 2014. In making this assessment, the Compensation Committee considered the independence factors enumerated
in Rule 10C-1(b) under the Exchange Act and corresponding rules of NYSE, including the fact Towers Watson provides limited other services to us, the level of fees received from us as a percentage of Towers Watsons total revenue, policies and
procedures
employed by Towers Watson to prevent conflicts of interest, and whether the individual Towers Watson advisors to the Compensation Committee own any Common Shares or have any business or personal
relationships with members of the Compensation Committee or our executive officers.
After considering all of the factors required by the NYSE rules and
all other factors relevant to Towers Watsons independence from management, the Compensation Committee has determined Towers Watson is independent.
Use of Competitive Data
In setting NEO compensation, the
Compensation Committee considers various types of information, including survey data, peer compensation data, tally sheets, wealth accumulation analyses and related benchmark information.
Annual Compensation Benchmarking
Annually, the Compensation Committee reviews all
components of NEO compensation versus competitive market data.
In general, we target NEO pay to be at or near the 50th percentile of the competitive market, but we may deviate from this target due to an
individuals performance, internal equity with peers situated at similar levels, and to attract the required level of global business knowledge and leadership needed to achieve our strategic objectives.
The principal sources of market data include (combined Competitive Market):
|
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Survey data (all NEOs), including surveys by AonHewitt and Towers Watson (Market) |
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Peer Group data (CEO and CFO) (Peer Group)
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2015 Proxy Statement |
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29 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
Peer Group
The Compensation Committee
uses compensation data compiled from a group of peer companies based on a number of pre-established criteria, including business model comparability, company size measured by revenues (one half to two times Armstrong revenue) and market
capitalization, global presence, and competition for executive talent and investor capital.
During 2014, the Committee conducted an in-depth review of
the Peer Group, and the selection criteria.
The review resulted in the following changes to the Peer Group for 2014:
|
|
Removed The Sherwin-Williams Company, which no longer met the revenue size considerations |
|
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Added AO Smith Corporation, Fortune Brands Home & Security, Inc. and The Valspar Corporation |
Our Peer Group consists of 18 manufacturing companies in the building and construction industries and is reflected below:
|
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Acuity Brands, Inc. |
|
Louisiana-Pacific Corporation |
|
Steelcase, Incorporated |
AO Smith Corp. |
|
Martin Marietta Materials |
|
The Valspar Corporation |
Fortune Brands Home & Security, Inc. |
|
Masco Corporation |
|
Universal Forest Products, Inc |
Herman Miller, Incorporated |
|
Mohawk Industries, Inc. |
|
USG Corporation |
Leggett & Platt, Inc. |
|
Nortek, Inc. |
|
Vulcan Materials Company |
Lennox International Inc. |
|
Owens Corning |
|
W. R. Grace & Company |
Tally Sheets and Wealth Accumulation Analyses
The Compensation Committee uses tally sheets and wealth accumulation analyses when evaluating compensation-related decisions for each NEO.
|
|
Tally sheets provide historic information on each executives equity and non-equity compensation, and other compensation such as potential payments upon
termination of employment. |
|
|
Wealth accumulation analysis assesses the total Armstrong-specific wealth that could be earned by each NEO given certain stock price assumptions.
|
Compensation Mix
To facilitate the link between NEO pay and company performance, a significant amount of TDC is performance-based and at risk.
81% of our CEOs target TDC and 68% of the average target TDC of our other NEOs is performance-based and at risk.
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30 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
ELEMENTS, CHARACTERISTICS & OBJECTIVES OF OUR EXECUTIVE COMPENSATION
Elements, Objectives and Key 2014 NEO Actions
|
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|
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|
|
Type |
|
Compensation Elements |
|
Objectives |
|
Key 2014 NEO Actions |
Performance-Based |
|
Long-Term Incentive (LTIP) |
|
Promotes long- term value-creation
for our shareholders, and fosters retention, by rewarding execution and achievement of goals linked to our longer term strategic initiatives and cost of capital
Incents achievement of ROIC targets over three-year period
Target opportunity
generally set at Peer Group and/or Market median |
|
NEOs received long-term incentive
grants with values ranging from 130% to 312% of base salary 2012-2014 PSU award paid out at 66% of target |
|
Annual Incentive (MAP) |
|
Provides an annual incentive
opportunity for achieving financial results based on performance goals tied to our annual operating plan
Drives EBITDA performance
Awards tied to Company,
business unit and individual performance, including leadership behaviors Target opportunity generally set at Peer Group and/or Market median |
|
NEOs received MAP payments ranging from 76% to 85% of
target |
|
|
|
|
Fixed |
|
Base Salary |
|
Provides reasonable and Market
competitive fixed pay reflective of an executives role, responsibility and individual performance
Generally set at Peer Group and/or Market median |
|
NEOs received merit increases
effective April 1, 2014
Mr. Schulz received a mid-year increase to align his base salary closer to Market
median Mr.
Maier received an increase effective with his move into the AFP CEO role. |
|
Benefits |
|
Standard range of health, welfare,
and retirement benefits generally similar to those provided to other salaried employees, except that executives:
pay approximately 40% more in health care premiums than those paid by most of our salaried
employees with comparable coverage;
are eligible to receive enhanced Company-paid long-term disability benefits;
are eligible for
non-qualified retirement savings benefits |
|
|
|
Limited Perquisites |
|
Very limited perquisites or
personal benefits
Personal financial counseling at a cost generally less than $4,500 per NEO
Executive physicals at a
cost typically less than $5,000 per NEO
Executive Long-Term Disability at a cost generally less than $5,000 per NEO |
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2015 Proxy Statement |
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31 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
Alignment of Compensation Elements and Objectives
The following table illustrates how our executive compensation elements align with our compensation objectives:
2014 COMPENSATION DESIGN AND OUTCOMES
Base Salary
The Compensation Committees decision on 2014 base salaries was largely driven by the
competitiveness of each NEOs base salary compared to the Competitive Market; increases were effective April 1, 2014. The table below represents the base salary rate as of December 31. This information differs from the SCT, which
reflects the total base salary received for the year.
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|
Name |
|
2013 Base Salary ($) |
|
|
2014 Base Salary ($) |
|
|
Change in Base Salary |
|
Mr.
Espe(1) |
|
|
980,000 |
|
|
|
1,009,400 |
|
|
|
3.0% |
|
Mr.
Schulz(2) |
|
|
400,000 |
|
|
|
460,000 |
|
|
|
15.0% |
|
Mr.
Grizzle(3) |
|
|
462,500 |
|
|
|
485,630 |
|
|
|
5.0% |
|
Mr.
Maier(4) |
|
|
412,000 |
|
|
|
475,000 |
|
|
|
15.3% |
|
Mr.
Hershey(3) |
|
|
420,000 |
|
|
|
432,600 |
|
|
|
3.0% |
|
Mr. Mangas(3) |
|
|
520,000 |
|
|
|
535,600 |
|
|
|
3.0% |
|
(1) |
Mr. Espe did not receive a merit increase for 2015.
|
(2) |
Reflects increase effective April 1, 2014 as well as a mid-year increase effective August 1, 2014 in an attempt to more closely align with competitive pay levels.
|
(3) |
Standard merit increase. |
(4) |
Mr. Maier did not receive a merit increase effective April 1, 2014. Upon his promotion into the EVP & CEO, AFP role, his pay was adjusted.
|
Management Achievement Plan
MAP
awards provide an annual incentive opportunity for achieving financial results based on performance goals tied to annual operating plan.
Each
NEOs target MAP opportunity (expressed as a percent of base salary) is based on role responsibility, alignment with similar positions internally, and external Competitive Market. Actual payout will vary with actual business performance
relative to performance targets.
MAP awards were determined based on the following formula, measures and weightings. The Compensation Committee
approves these factors at the beginning of each fiscal year. Additional details follow below the table.
2014 MAP Design
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32 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
2014 Target MAP Opportunity
2014 Target MAP opportunity (expressed as a percentage of base salary) for NEOs were as set forth in the table below. With the exception of Messrs. Espe and Maier, as described below, there were no changes to
these targets when expressed as a percentage of base salary from 2013.
|
|
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|
|
|
|
Name |
|
Target MAP % Opportunity |
|
Target MAP $ |
|
Mr.
Espe(1) |
|
110% |
|
|
1,102,255 |
|
Mr. Schulz |
|
75% |
|
|
326,525 |
|
Mr. Grizzle |
|
75% |
|
|
359,886 |
|
Mr.
Maier(2) |
|
50% / 75% |
|
|
245,270 |
|
Mr. Hershey |
|
60% |
|
|
257,670 |
|
Mr. Mangas |
|
75% |
|
|
398,775 |
|
(1) |
After a review of Competitive Market data provided by Towers Watson, the Compensation Committee set Mr. Espes 2014 MAP target at 110% of base salary.
|
(2) |
Mr. Maiers target increased from 50% to 75% upon his appointment to EVP & CEO, AFP in September 2014. The amount shown above reflects his actual target for
2014 based on the prorated split role. However, in connection with Mr. Maiers appointment to EVP & CEO, AFP, effective September 26, 2014, and the termination of his existing Transition Agreement (SEC Form 8-K filing on
August 22, 2014), the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal to $257,500 |
2014 MAP Performance Metrics and Weighting
The
Compensation Committee selected EBITDA (for both the consolidated as well as at the business unit level) as the 2014 MAP performance metric. The Compensation Committee determined that EBITDA aligned to key elements of our 2014 operating plan and
financial plans and is a good measure of operating performance (pre-financing and pre-tax).
In establishing MAP performance and payout ranges for the
Company, AFP and ABP, the Compensation Committee considered a number of factors:
|
|
The amount of year over year improvement in EBITDA required to achieve target performance |
|
|
The degree of difficulty and probability of achieving the various EBITDA performance targets |
|
|
The percent of incremental EBITDA to be split between participants and shareholders
|
The MAP opportunity for NEOs with primary responsibilities at the Corporate level is weighted 100% to consolidated
results. NEOs with business unit responsibilities are weighted 30% to consolidated results and 70% to the individual business unit.
|
|
|
|
|
|
|
Weighting |
|
Consolidated |
|
|
Business Unit |
Mr. Espe |
|
|
100% |
|
|
|
Mr. Schulz |
|
|
100% |
|
|
|
Mr. Grizzle |
|
|
30% |
|
|
70% (ABP) |
Mr.
Maier(1) |
|
|
100% |
|
|
|
Mr. Hershey |
|
|
100% |
|
|
|
Mr. Mangas |
|
|
N/A |
|
|
|
(1) |
Mr. Maier had a cash bonus performance award of $257,500. Mr. Maier received a MAP award based on 100% consolidated results; he received a supplemental payment in
excess of the calculated MAP award to equal the $257,500 amount. |
Individual Performance
The Board and the Compensation Committee considered individual performance when finalizing MAP awards for the CEO and other NEOs and decided not to make individual
performance adjustments in determining the final 2014 MAP awards. For MAP awards intended to qualify as performance-based compensation under Section 162(m) of the Code, any individual performance adjustment cannot exceed the maximum
level determined by EBITDA performance.
2014 Final Performance and Payout Factors
Our 2014 EBITDA performance resulted in a 76% MAP payout factor at the consolidated level.
Further details are shown in the table below:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
2014 Target $M |
|
|
2014 Actual $M* |
|
|
Performance % |
|
Payout % |
|
Consolidated |
|
|
425 |
|
|
|
389 |
|
|
92% |
|
|
76% |
|
AFP |
|
|
157 |
|
|
|
115 |
|
|
73% |
|
|
0% |
|
ABP |
|
|
342 |
|
|
|
330 |
|
|
96% |
|
|
89% |
|
* |
Please refer to Annex A for a reconciliation of Adjusted EBITDA to U.S. GAAP. We achieved full year adjusted EBITDA of $389 million after giving effect to the specific items that
the Compensation Committee pre-determined in February 2014 were eligible for exclusion from the achievement calculation.
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2015 Proxy Statement |
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33 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
2014 Final MAP Awards
The Compensation Committee determined the final 2014 MAP payouts by multiplying the NEOs target MAP amount by the final weighted payout factors, as outlined below.
For NEOs who were weighted 100% to consolidated results, the Compensation Committee approved a final payout factor of 76%.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Target MAP $ |
|
|
Payout Factor |
|
|
2014 Final MAP Award $ |
|
Mr. Espe |
|
|
1,102,255 |
|
|
|
76% |
|
|
|
837,720 |
|
Mr. Schulz |
|
|
326,525 |
|
|
|
76% |
|
|
|
248,160 |
|
Mr. Maier |
|
|
248,391 |
|
|
|
76% |
|
|
|
188,790* |
|
Mr. Hershey |
|
|
257,670 |
|
|
|
76% |
|
|
|
195,830 |
|
* |
In connection with Mr. Maiers promotion to EVP & CEO AFP, the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal
to $257,500. Mr. Maier received a supplemental payment in excess of the amount shown above to equal the $257,500 amount. The excess payment was considered a one-time non- performance based payment and reflected in the Bonus column
of the SCT. |
For Mr. Grizzle, who was weighted 30% to consolidated results and 70% to Business Unit results, the Compensation
Committee approved a final payout factor of 85%.
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Name |
|
Target MAP $ |
|
|
Weighted Cons. Payout Factor (wtd. 30%) |
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|
Weighted Business Unit Payout Factor (wtd. 70%) |
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|
2014 Final MAP Payout Factor % |
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|
2014 Final MAP Award $ |
|
Mr. Grizzle |
|
|
359,886 |
|
|
|
76% |
|
|
|
89% |
|
|
|
85% |
|
|
|
305,910 |
|
Mr. Mangas resigned in September 2014. Consistent with plan rules, he did not receive a MAP award for 2014.
Long Term Incentive Plan
The goal of the
LTIP is to provide equity-based long-term incentive awards that link management interests to shareholder returns and focus management on our long-term performance.
In determining long-term incentive award opportunity for the CEO and other NEOs, the Board and the Compensation Committee generally consider a number of factors, including Competitive
Market, internal equity, and cost (dilution and accounting cost) and also take into consideration tally sheet and wealth accumulation analyses.
LTIP awards for a given year are typically made two business days following the release of our prior fiscal years fourth quarter and full year financial
results. This allows sufficient time for the market to absorb the announcement of earnings and current year performance guidance.
In 2014, our LTI
awards for NEOs consisted of 60% non-qualified stock options and 40% performance-based restricted stock units (PSU).
2014 Target LTIP
The Compensation Committee annually determines LTIP target opportunity (expressed as a percent of base salary) based on role responsibility,
alignment with similar positions internally, and external Competitive Market, as well as a review of tally sheets and wealth accumulation analyses.
The
respective target percentages for LTIP grants to our NEOs in 2014 and the resulting Grant Date Fair Value were as set forth in the table below.
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|
Name |
|
2014 LTIP Target as % of Base Salary |
|
|
2014 LTIP Grant Date Fair Value
$(1) |
|
Mr. Espe |
|
|
312% |
|
|
|
3,150,000 |
|
Mr. Schulz |
|
|
130% |
|
|
|
520,000 |
|
Mr. Grizzle |
|
|
180% |
|
|
|
832,500 |
|
Mr.
Maier(2) |
|
|
150% / 180% |
|
|
|
618,000 |
|
Mr. Hershey |
|
|
140% |
|
|
|
588,000 |
|
Mr. Mangas |
|
|
200% |
|
|
|
1,040,000 |
|
(1) |
Amounts represent the grant date fair value for the long-term incentive equity award granted in February 2014, as calculated under the Financial Accounting Standards Boards
Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our Common Shares ($53.87) on the date of the grant (February 25, 2014). |
(2) |
In February 2014, Mr. Maier was granted LTIP with a value of $618,000 (150% of base salary). Upon Mr. Maiers promotion to EVP & CEO, AFP, the
Compensation Committee increased his target LTIP percent to 180% of base salary to be effective at the next regular scheduled annual grant date. The Committee also approved an additional one-time equity grant with an award value of $220,000,
comprised of 60% nonqualified stock options and 40% restricted stock units. |
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34 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
After a review of the Competitive Market data provided by Towers Watson, the Compensation Committee set
Mr. Espes 2015 LTIP award at $3,150,000.
Stock Options
Stock option awards generally have a term of ten years and vest in equal installments on each of the first three anniversaries of the date of grant. The exercise price is based on the closing price of our Common
Shares on the NYSE on the date of grant. The number of non-qualified stock options granted to each NEO for our annual grant in February was determined using a Black-Scholes value of $24.90. On the effective date of the grant, the exercise price for
the stock options was $53.87. We also made a stock option grant to Mr. Maier in September with an exercise price of $56.52 and a Black-Scholes value of $26.94.
The assumptions used to determine the valuation of our option awards can be found in the footnote section of the GPBAT.
Performance-based Awards
The Compensation Committee established ROIC as the single financial measure
for the 2014 2016 PSU program. ROIC aligns to our strategic plan and correlates to stock price performance over a multi-year performance period. ROIC also serves as a measure for tracking managements performance in generating the
required return on previously invested capital, and in effectively allocating capital to profitable investments during the three-year performance period.
Three-Year Cumulative ROIC Performance Targets (2014 2016)
The actual number of shares earned for the PSUs granted in 2014 will be based on our performance against the internal ROIC target established by the Compensation Committee during the three-year performance period.
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Performance
to Target |
|
|
Payout
Opportunity |
|
Threshold |
|
|
85 |
% |
|
|
50 |
% |
Target |
|
|
100 |
% |
|
|
100 |
% |
Maximum |
|
|
115 |
% |
|
|
175 |
% |
ADDITIONAL INFORMATION REGARDING OUR COMPENSATION PROGRAMS
Qualified and Non-qualified Defined Benefit Pension Plans
Our NEOs do not participate in the Companys qualified defined benefit pension plan, the Retirement Income Plan (RIP), which was closed to newly
hired employees after January 1, 2005.
Qualified Defined Contribution Savings Plan and Non-qualified Deferred Compensation Plan
For salaried employees who do not participate in the RIP, we provide a 401(k) match of 100% on the first 4% of employee contributions and a 50% match on the next 4%
of employee contributions, up to a maximum company match of $17,500 for 2014. All NEOs are eligible to participate in this program.
The company offers
an unfunded, nonqualified deferred compensation plan, the Armstrong Nonqualified Deferred Compensation Plan (NQDCP). This plan is to restore Company contributions that would be lost due to Code limits on compensation that can be taken
into account under the Companys tax-qualified 401(k) and to allow participants to voluntarily elect to defer some portion of base salary and MAP until a future date. Participants receive a Company match identical to the 401(k) company match up
to a maximum contribution of 6% of eligible earnings. All NEOs are eligible to participate in this program.
Bonus Replacement Retirement Plan
(BRRP)
The BRRP was established to allow executives to defer a portion of income (up to $20,000) into a qualified, tax-deferred plan.
The Company will make a non-elective contribution to the executives account, and will make a corresponding reduction to the amount of the MAP payment. The executive may choose from the same investment options provided under the 401(k) plan.
Change in Control (CIC) Agreements
The Board and Compensation Committee provide individual CIC agreements to the NEOs to establish a competitive level of financial security in the event of a CIC. In
2010, the Compensation Committee determined the level of CIC benefits for the NEOs based on research conducted by Cook & Co. and an assessment of contemporary market practices.
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2015 Proxy Statement |
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35 |
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
The CIC agreements are subject to conditions under which a CIC would be triggered. In 2014, the Compensation
Committee determined that the CIC conditions continue to be appropriate given our ownership structure. None of the CIC agreements provides for tax gross-ups under Sections 280G and 4999 of the Code. For more information regarding our NEO CIC
agreements, please refer to CIC Agreements on page 50.
Stock Ownership Guidelines
The Compensation Committee instituted stock ownership guidelines for our NEOs in August 2010 in an effort to ensure that our NEOs have significant long-term value
creation tied to stock price appreciation. Ownership requirements and progress toward their achievement are reviewed annually as part of the compensation planning process. A significant percentage of each NEOs compensation is directly linked
to our stock price appreciation.
The stock ownership guidelines for our NEOs are calculated as a fixed number of shares using a required ownership
multiple, the executives annualized base salary as of a certain date, and the stock price as of a fixed date. The required ownership multiple for our CEO is six times annual base pay and is three times annual base pay for our other NEOs.
Shares may be counted toward the policys ownership guidelines whether held directly by the NEO or owned jointly with a partner, provided shares
are vested. For stock options, the value must exceed the exercise price (in-the-money options). We also include vested, unexercised, but in-the-money stock options in the calculation.
Stock ownership guidelines must be met within five years from the date of adoption of the guidelines for Mr. Espe since he joined the Company prior to the
adoption of the guidelines, and within five years from date of hire or promotion into the role for Messrs. Schulz, Grizzle, Maier and Hershey.
The
Compensation Committee last reviewed the NEOs progress toward meeting the ownership requirements in February 2015. As of the date of the review, Messrs. Espe and Grizzle had met their ownership requirements. Mr. Schulz was promoted
on November 16, 2013 and Mr. Maier was promoted on September 26, 2014. Mr. Hershey was hired on July 1, 2011. Messrs. Schulz, Maier and
Hershey are expected to meet ownership requirements within the requisite five-year period.
Recoupment Policy
Our Compensation Committee has the
ability to exercise discretion and take action to recoup certain stock-based awards from a plan participant in the event his or her employment is terminated for willful, deliberate or gross misconduct, as, for example, if we were required to prepare
an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws as a result of such participants misconduct which led to his or her termination of employment, or if a participant
engages in injurious conduct after termination of employment. To the extent that in the future the SEC adopts rules for clawback policies that require changes to our policies, we will revise our policies as appropriate.
Prohibition on Hedging and Derivative Trading
All members
of our Board and senior management, including our NEOs and certain other employees, are required to clear any transaction involving Company securities with our General Counsels office prior to entering into such transaction.
By policy, we prohibit derivative transactions in our Company securities, including:
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Trading in puts, calls, covered calls, or other derivative products involving Company securities. |
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Engaging in any hedging or monetization transaction with respect to Company securities. |
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Holding company securities in a margin account or pledging Company securities as collateral for a loan. |
Beginning in 2011, we permitted senior management to utilize stock trading plans that comply with Rule 10b5-1 of the Exchange Act. All such plans are subject to
our pre-approval, and the ability to enter into such plans remains subject to prohibitions on trading while in possession of material non-public information.
Assessment of Risk
We monitor the risks associated with our compensation program on an ongoing basis.
At the conclusion of the most recent analysis (conducted in 2014) of our compensation programs and
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36 |
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2015 Proxy Statement |
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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
associated risks, it was the assessment of the Compensation Committee, with the assistance of Towers Watson and management, our compensation programs are designed and administered with an
appropriate balance of risk and reward and, by their design, do not encourage executives to take unnecessary, excessive, or inappropriate risks and do not create risks reasonably likely to have a material adverse effect on the Company. In arriving
at this determination, the Compensation Committee considered the following with respect to our compensation programs:
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Whether the underlying pay philosophy, Peer Group and market positioning to support business objectives were appropriate. |
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Short- and long-term performance focus, with performance goals tied to profitability and absolute stock price performance. |
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Use of multiple performance metrics in the annual and long-term incentive plans. |
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Performance objectives are established using a reasonable probability of achievement. |
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Long-term incentive plan is tied to operating performance over a multi-year performance period. |
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The Compensation Committees ability to exercise discretion to reduce MAP amounts earned based on subjective evaluation of quality of earnings and
individual performance. |
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The presence of meaningful risk mitigation policies, such as stock ownership guidelines, claw-back provisions, and independent
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Compensation Committee oversight; and prohibitions on hedging against and pledging of our Common Shares. |
Tax Deductibility of Compensation
The Code imposes a $1 million limit on the amount a public company may
deduct for compensation paid to the companys CEO or any of the companys three other most highly compensated executive officers (other than the CFO) who are employed as of the end of the year.
This limitation does not apply to compensation that meets the tax code requirements for qualifying performance-based compensation
(i.e., compensation paid only if the individuals performance meets pre-established objective goals based on performance criteria approved by shareowners).
Although our Compensation Committee retains discretion to determine otherwise, it is generally our policy to structure and administer our annual and long-term incentive compensation plans for the NEOs to maximize
the tax deductibility of the payments as qualifying performance-based compensation under Section 162(m) of the Code to the extent practicable. The Compensation Committee considers both tax and accounting treatment in establishing
our compensation program. The Compensation Committee retains discretion to authorize compensation arrangements not fully tax deductible, as, for example, may be appropriate to attract and retain global business leaders who can drive financial and
strategic growth objectives that maximize long-term shareholder value. In 2014, all incentive compensation, including MAP and LTIP awards, for the NEOs who were affected by Section 162(m) limit was designed to be exempt from the
Section 162(m) deduction limit.
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2015 Proxy Statement |
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37 |
COMPENSATION COMMITTEE REPORT
The Management Development and Compensation Committee of Armstrongs Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
the Companys management. Based on this review and discussion, the Management Development and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Submitted by the Management Development and Compensation Committee
Stan A. Askren, Chair
James J. Gaffney
Michael F. Johnston
Larry S. McWilliams
James C. Melville
Gregory P. Spivy
This report shall not be deemed to be soliciting material or to be filed with the SEC, nor incorporated by reference into any future SEC filing under the Securities Act of 1933 or the
Exchange Act, except to the extent that Armstrong specifically incorporates it by reference therein.
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38 |
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2015 Proxy Statement |
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2014 SUMMARY COMPENSATION TABLE
The table below sets forth the total compensation for our NEOs during fiscal 2014. The table also sets forth the information
regarding the fiscal 2013 and 2012 compensation for Messrs. Espe, Grizzle, Maier and Mangas because they were NEOs in those fiscal years. Fiscal 2013 was the first year Messrs. Schulz and Hershey met the criteria for inclusion as an NEO in the SCT.
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|
Name and Principal Position |
|
Year |
|
|
Salary
($) |
|
|
Bonus(2) ($) |
|
|
Stock Awards(3) ($) |
|
|
Option
Awards(3)
($) |
|
|
Non-Equity Incentive Plan Compensation(4) ($) |
|
|
Change in Pension Value
& Nonqualified Deferred Compensation Earnings ($) |
|
|
All
Other Compensation(5) ($) |
|
|
Total
($) |
|
Mr. Espe |
|
|
2014 |
|
|
|
1,002,050 |
|
|
|
|
|
|
|
1,260,000 |
|
|
|
1,890,000 |
|
|
|
837,720 |
|
|
|
|
|
|
|
212,401 |
(6) |
|
|
5,202,171 |
|
President and Chief |
|
|
2013 |
|
|
|
980,000 |
|
|
|
|
|
|
|
1,260,000 |
|
|
|
1,890,000 |
|
|
|
764,400 |
|
|
|
|
|
|
|
694,231 |
|
|
|
5,588,631 |
|
Executive Officer |
|
|
2012 |
|
|
|
980,000 |
|
|
|
|
|
|
|
1,200,001 |
|
|
|
1,800,019 |
|
|
|
627,200 |
|
|
|
|
|
|
|
738,459 |
|
|
|
5,345,679 |
|
Mr. Schulz |
|
|
2014 |
|
|
|
435,367 |
|
|
|
|
|
|
|
208,000 |
|
|
|
312,000 |
|
|
|
248,160 |
|
|
|
|
|
|
|
40,678 |
(6) |
|
|
1,244,205 |
|
Senior Vice |
|
|
2013 |
|
|
|
262,912 |
|
|
|
|
|
|
|
51,880 |
|
|
|
77,820 |
|
|
|
128,900 |
|
|
|
|
|
|
|
20,290 |
|
|
|
541,802 |
|
President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Grizzle |
|
|
2014 |
|
|
|
479,848 |
|
|
|
|
|
|
|
333,000 |
|
|
|
499,500 |
|
|
|
305,910 |
|
|
|
|
|
|
|
102,028 |
(6) |
|
|
1,720,286 |
|
Executive Vice |
|
|
2013 |
|
|
|
459,375 |
|
|
|
|
|
|
|
324,000 |
|
|
|
486,000 |
|
|
|
361,800 |
|
|
|
|
|
|
|
34,207 |
|
|
|
1,665,382 |
|
President and CEO, Armstrong Building Products |
|
|
2012 |
|
|
|
450,000 |
|
|
|
|
|
|
|
324,044 |
|
|
|
486,018 |
|
|
|
216,000 |
|
|
|
|
|
|
|
193,893 |
|
|
|
1,669,955 |
|
Mr. Maier |
|
|
2014 |
|
|
|
428,466 |
|
|
|
68,710 |
|
|
|
335,200 |
|
|
|
502,800 |
|
|
|
188,790 |
|
|
|
|
|
|
|
140,427 |
(6) |
|
|
1,664,393 |
|
Executive Vice |
|
|
2013 |
|
|
|
409,000 |
|
|
|
|
|
|
|
240,000 |
|
|
|
360,000 |
|
|
|
159,600 |
|
|
|
|
|
|
|
87,464 |
|
|
|
1,256,064 |
|
President and CEO Armstrong Flooring Products |
|
|
2012 |
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
600,006 |
|
|
|
128,000 |
|
|
|
|
|
|
|
187,321 |
|
|
|
1,315,327 |
|
Mr. Hershey |
|
|
2014 |
|
|
|
429,450 |
|
|
|
|
|
|
|
235,200 |
|
|
|
352,800 |
|
|
|
195,830 |
|
|
|
|
|
|
|
60,142 |
(6) |
|
|
1,273,422 |
|
Senior Vice President, General Counsel and Chief Compliance Officer |
|
|
2013 |
|
|
|
413,750 |
|
|
|
|
|
|
|
221,200 |
|
|
|
331,800 |
|
|
|
193,700 |
|
|
|
|
|
|
|
39,356 |
|
|
|
1,199,806 |
|
Mr. Mangas (1) |
|
|
2014 |
|
|
|
393,742 |
|
|
|
|
|
|
|
416,000 |
|
|
|
624,000 |
|
|
|
|
|
|
|
|
|
|
|
243,095 |
(6) |
|
|
1,676,838 |
|
Former Executive Vice |
|
|
2013 |
|
|
|
515,000 |
|
|
|
|
|
|
|
400,000 |
|
|
|
600,000 |
|
|
|
301,300 |
|
|
|
|
|
|
|
203,584 |
|
|
|
2,019,884 |
|
President and CEO, Armstrong Floor
Products |
|
|
2012 |
|
|
|
500,000 |
|
|
|
|
|
|
|
400,017 |
|
|
|
1,600,010 |
|
|
|
240,000 |
|
|
|
|
|
|
|
320,866 |
|
|
|
3,060,893 |
|
|
(1) |
Mr. Mangas served as the EVP and CEO of AFP until September 26, 2014 when he resigned from his position with the Company. |
|
|
(2) |
In connection with Mr. Maiers promotion to EVP & CEO, AFP, the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal
to $257,500. The amount reflected in this column is the supplemental payment, in excess of the amount shown in the Non-Equity incentive Plan Compensation column, to equal the $257,500 amount. The details of this arrangement were outlined in the SEC
form 8-K filing on August 22, 2014. |
|
|
(3) |
The amounts reflect the aggregate grant date fair value of stock units and option awards granted in the fiscal year, computed in accordance with the Financial Accounting
Standards Boards Accounting Standards Codification Topic 718. The assumptions used to determine the valuation of our option awards are set forth on page 41. The potential maximum fair value of the performance restricted stock unit award
at the grant date market price would be $2,205,000 for Mr. Espe, $364,000 for Mr. Schulz, $582,750 for Mr. Grizzle, $586,000 for Mr. Maier, and $411,600 for Mr. Hershey. |
|
|
(4) |
The 2014 amounts disclosed are the awards under the 2014 MAP. As specified under the MAP, award amounts are subject to a mandatory reduction of up to $20,000 to the extent a
corresponding contribution can be made to the Bonus Replacement Retirement Plan, which is a qualified, tax-deferred profit sharing plan. For 2014, a $17,000 reduction was made for Messrs. Espe and Grizzle, $20,000 for Mr. Schulz, $17,043 for
Mr. Maier, and $17,978 for Mr. Hershey. |
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|
(5) |
The amounts shown in the All Other Compensation column include: (i) cash dividends paid; (ii) Company matching contribution to the Savings and Investment
401(k) Plan and to the NQDCP; (iii) premiums for long-term disability insurance; (iv) relocation expenses, and (v) personal benefits (perquisites) consisting of medical examinations and financial planning expense
reimbursements to the extent the total perquisite value is $10,000 or greater per individual. For each person the total value of all such perquisites did not reach $10,000 except for Mr. Grizzle. Mr. Grizzles perquisite value was
$10,719, the amount is included in the All Other Compensation column. |
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|
2015 Proxy Statement |
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|
|
39 |
2014 SUMMARY COMPENSATION TABLE (CONTINUED)
(6) |
The following table provides the detail for the amounts reported in the All Other Compensation for 2014 for each NEO: |
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|
|
|
Name |
|
Perquisites and Other Benefits(a) ($) |
|
|
Cash Dividends(b) ($) |
|
|
Company Match Savings Plan Contributions
($) |
|
|
Executive Long- Term Disability
($) |
|
|
Relocation(c) ($) |
|
|
All Other Compensation ($) |
|
Mr. Espe |
|
|
|
|
|
|
141,032 |
|
|
|
69,023 |
|
|
|
2,346 |
|
|
|
|
|
|
|
212,401 |
|
Mr. Schulz |
|
|
|
|
|
|
5,198 |
|
|
|
35,480 |
|
|
|
|
|
|
|
|
|
|
|
40,678 |
|
Mr. Grizzle |
|
|
10,719 |
|
|
|
48,444 |
|
|
|
42,865 |
|
|
|
|
|
|
|
|
|
|
|
102,028 |
|
Mr. Maier |
|
|
|
|
|
|
63,612 |
|
|
|
40,815 |
|
|
|
|
|
|
|
36,000 |
|
|
|
140,427 |
|
Mr. Hershey |
|
|
|
|
|
|
15,570 |
|
|
|
39,985 |
|
|
|
4,588 |
|
|
|
|
|
|
|
60,142 |
|
Mr. Mangas |
|
|
|
|
|
|
195,624 |
|
|
|
43,366 |
|
|
|
4,105 |
|
|
|
|
|
|
|
243,095 |
|
(a) |
Represents annual physical, personal financial planning and travel for spouse to Board meetings. The spouses of Board members and NEOs were invited to attend the Boards
regularly scheduled February 2014 meeting. The incremental costs incurred by the Company for spouse travel and lodging are included. |
(b) |
Cash dividends were paid upon vesting of RSUs and PSUs in 2014. |
(c) |
Commuting expense assistance of $9,000 for twelve months following his promotion to the global EVP & CEO AFP role on September 26, 2014 details of which are
outlined in SEC form 8-K filing on August 22, 2014. The amount shown in this table represents four months of relocation assistance in 2014. The commuting expense is to cover housing, car lease and flight travel. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
2015 Proxy Statement |
|
|
GRANTS OF PLAN-BASED AWARDS
The table below shows information on MAP awards, stock options and PSUs granted to each NEO in 2014. There is no assurance that the grant date fair value of PSU and option awards will be realized by the executive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future
Payouts Under Non-Equity Incentive Plan Awards |
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards |
|
|
All Other Stock Awards: Number of Shares
of Stock or Units (#) |
|
|
All Other Option Awards: Number of Securities Under-Lying Options (#) |
|
|
Exercise or Base Price of
Option Awards ($/Sh) |
|
|
Grant Date Fair Value of Stock and Option Awards(4) ($) |
|
Name |
|
|
|
|
Grant
Date |
|
Threshold ($) |
|
|
Target ($) |
|
|
Maximum ($) |
|
|
Threshold (#) |
|
|
Target (#) |
|
|
Maximum (#) |
|
|
|
|
|
Mr. Espe |
|
|
(1 |
) |
|
N/A |
|
|
551,178 |
|
|
|
1,102,255 |
|
|
|
2,204,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,904 |
|
|
|
53.87 |
|
|
|
1,890,000 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,695 |
|
|
|
23,390 |
|
|
|
40,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260,000 |
|
Mr. Schulz |
|
|
(1 |
) |
|
N/A |
|
|
163,263 |
|
|
|
326,525 |
|
|
|
653,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,531 |
|
|
|
53.87 |
|
|
|
312,000 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,931 |
|
|
|
3,862 |
|
|
|
6,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,000 |
|
Mr. Grizzle |
|
|
(1 |
) |
|
N/A |
|
|
179,943 |
|
|
|
359,886 |
|
|
|
719,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,061 |
|
|
|
53.87 |
|
|
|
499,500 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,091 |
|
|
|
6,182 |
|
|
|
10,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,000 |
|
Mr. Maier |
|
|
(1 |
) |
|
N/A |
|
|
124,195 |
|
|
|
248,391 |
|
|
|
496,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,892 |
|
|
|
53.87 |
|
|
|
370,800 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295 |
|
|
|
4,589 |
|
|
|
8,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,200 |
|
|
|
|
(3 |
) |
|
9/26/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900 |
|
|
|
56.52 |
|
|
|
132,000 |
|
|
|
|
(3 |
) |
|
9/26/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,557 |
|
|
|
|
|
|
|
|
|
|
|
88,000 |
|
Mr. Hershey |
|
|
(1 |
) |
|
N/A |
|
|
128,835 |
|
|
|
257,670 |
|
|
|
515,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,169 |
|
|
|
53.87 |
|
|
|
352,800 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,184 |
|
|
|
4,367 |
|
|
|
7,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,200 |
|
Mr. Mangas |
|
|
(1 |
) |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,061 |
|
|
|
53.87 |
|
|
|
624,000 |
|
|
|
|
(2 |
) |
|
2/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,862 |
|
|
|
7,723 |
|
|
|
13,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416,000 |
|
|
(1) |
The amounts shown represent the 2014 MAP target opportunity for each NEO. Actual payouts are included in the Non-Equity Incentive Plan Compensation column of the SCT.
|
|
|
(2) |
In 2014, our LTI program for NEOs consisted of 60% stock options and 40% PSU. The exercise price of the stock options was $53.87. The stock options vest and become exercisable in
three equal installments on the first, second and third anniversaries of the effective date of the grant. PSUs have a three-year performance period based on ROIC; participants earn 100% of the performance restricted shares if the Company achieves
100% of the ROIC target. Any cash dividends declared will be accrued in a non-interest bearing account and paid when the restrictions on the underlying shares lapse. |
|
|
(3) |
Mr. Maier received an off-cycle grant on September 26, 2014 upon transition to the EVP & CEO AFP role with a grant date value of $220,000. Mr. Maier
received 4,900 stock options and 1,557 restricted stock units. The stock options vest and become exercisable in three installments at one, two and three years. The restricted stock units will vest three years from the effective date of grant.
|
|
|
(4) |
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes option pricing model and the assumptions set forth in the table below. The
grant date fair value of options granted on February 25, 2014 was $24.90. |
|
|
|
|
|
|
|
|
2014 |
|
Dividend yield |
|
|
0.0% |
|
Volatility |
|
|
47.4% |
|
Risk-free interest rate |
|
|
1.9% |
|
Expected life (years) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Proxy Statement |
|
|
|
41 |
GRANTS OF PLAN-BASED AWARDS (CONTINUED)
The grant date fair value of options granted on September 26, 2014 was $26.94
|
|
|
|
|
|
|
2014 |
|
Dividend yield |
|
|
0.0% |
|
Volatility |
|
|
47.84% |
|
Risk-free interest rate |
|
|
2.1% |
|
Expected life (years) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
2015 Proxy Statement |
|
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The table below shows the number of shares covered by exercisable and unexercisable stock options, and unvested RSUs and PSUs held
by each NEO on December 31, 2014. Market or payout values in the table below are based on the closing price of our Common Shares on that date, $51.12.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Grant Date |
|
|
Number of Securities Underlying Unexercised Options |
|
|
Number of Securities Underlying Unexercised Options (#) |
|
|
Option Exercise Price ($) |
|
|
Option Expiration Date |
|
|
Number of Shares or Units of Stock That Have
Not Vested (#) |
|
|
Market Value of Shares
or Units of Stock That Have Not Vested ($) |
|
|
Equity Incentive
Plans Awards: Number
of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
|
|
Equity Incentive Plans Awards Market or Payout Value of
Unearned Shares or Other Rights That Have Not Vested ($) |
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Exercisable |
|
|
Unexercisable |
|
|
|
|
|
|
|
Mr. Espe |
|
|
8/10/10 |
|
|
|
343,835 |
|
|
|
|
|
|
|
24.73 |
|
|
|
08/10/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/11 |
|
|
|
121,399 |
|
|
|
|
|
|
|
35.57 |
|
|
|
03/02/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/12 |
|
|
|
67,764 |
|
|
|
33,883 |
(1) |
|
|
43.21 |
|
|
|
02/28/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/13 |
|
|
|
29,153 |
|
|
|
58,307 |
(1) |
|
|
51.76 |
|
|
|
02/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/25/14 |
|
|
|
|
|
|
|
75,904 |
(1) |
|
|
53.87 |
|
|
|
02/25/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,819 |
(3) |
|
|
1,217,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,344 |
(3) |
|
|
1,244,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,390 |
(3) |
|
|
1,195,697 |
|
Mr. Schulz |
|
|
6/1/11 |
|
|
|
4,472 |
|
|
|
|
|
|
|
40.71 |
|
|
|
06/01/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/12 |
|
|
|
2,858 |
|
|
|
1,429 |
(1) |
|
|
43.21 |
|
|
|
02/28/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/13 |
|
|
|
1,200 |
|
|
|
2,402 |
(1) |
|
|
51.76 |
|
|
|
02/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/25/14 |
|
|
|
|
|
|
|
12,531 |
(1) |
|
|
53.87 |
|
|
|
02/25/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,005 |
(3) |
|
|
51,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003 |
(3) |
|
|
51,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,862 |
(3) |
|
|
197,425 |
|
Mr. Grizzle |
|
|
1/17/11 |
|
|
|
16,773 |
|
|
|
|
|
|
|
36.58 |
|
|
|
01/17/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/11 |
|
|
|
27,315 |
|
|
|
|
|
|
|
35.57 |
|
|
|
03/02/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/12 |
|
|
|
18,296 |
|
|
|
9,149 |
(1) |
|
|
43.21 |
|
|
|
02/28/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/13 |
|
|
|
7,496 |
|
|
|
14,994 |
(1) |
|
|
51.76 |
|
|
|
02/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/25/14 |
|
|
|
|
|
|
|
20,061 |
(1) |
|
|
53.87 |
|
|
|
02/25/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,432 |
(3) |
|
|
328,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,260 |
(3) |
|
|
320,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,182 |
(3) |
|
|
316,024 |
|
Mr. Maier |
|
|
3/2/11 |
|
|
|
8,094 |
|
|
|
|
|
|
|
35.57 |
|
|
|
03/02/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/11 |
|
|
|
6,026 |
|
|
|
|
|
|
|
33.15 |
|
|
|
11/01/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/12 |
|
|
|
11,294 |
|
|
|
11,294 |
(1) |
|
|
43.21 |
|
|
|
02/28/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/13 |
|
|
|
5,553 |
|
|
|
11,106 |
(1) |
|
|
51.76 |
|
|
|
02/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/25/14 |
|
|
|
|
|
|
|
14,892 |
(1) |
|
|
53.87 |
|
|
|
02/25/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/26/14 |
|
|
|
|
|
|
|
4,900 |
(1) |
|
|
56.52 |
|
|
|
09/26/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,637 |
(3) |
|
|
237,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,589 |
(3) |
|
|
234,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,557 |
(2) |
|
|
79,594 |
|
|
|
|
|
|
|
|
|
Mr. Hershey |
|
|
7/1/11 |
|
|
|
13,530 |
|
|
|
|
|
|
|
40.30 |
|
|
|
07/01/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/12 |
|
|
|
11,859 |
|
|
|
5,930 |
(1) |
|
|
43.21 |
|
|
|
02/28/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/13 |
|
|
|
5,118 |
|
|
|
10,237 |
(1) |
|
|
51.76 |
|
|
|
02/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/25/14 |
|
|
|
|
|
|
|
14,169 |
(1) |
|
|
53.87 |
|
|
|
02/25/24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,169 |
(3) |
|
|
213,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,274 |
(3) |
|
|
218,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,367 |
(3) |
|
|
223,241 |
|
|
(1) |
Grant will vest in three equal installments one, two and three years from the date of grant. |
|
|
(2) |
Grant will vest three years from the date of grant. |
|
|
(3) |
The number of Common Shares reflected in this column represents the target shares if the ROIC goal is achieved. The awards would vest on December 31, 2014, December 31,
2015 and December 31, 2016 respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Proxy Statement |
|
|
|
43 |
OPTION EXERCISED AND STOCK VESTED
The following table shows the exercise of stock options made by each NEO during 2014 as well as stock awards held by each NEO that became free of restrictions during 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1) |
|
|
Stock Awards(2) |
|
|
|
|
|
|
Name |
|
Number
of Shares Acquired
on Exercise (#) |
|
|
Value
Realized on Exercise
($) |
|
|
Number
of Shares Acquired
on Vesting (#) |
|
|
Value
Realized on Vesting
($) |
|
Mr. Espe |
|
|
|
|
|
|
|
|
|
|
16,495 |
|
|
$ |
980,463 |
|
Mr. Schulz |
|
|
|
|
|
|
|
|
|
|
608 |
|
|
|
36,140 |
|
Mr. Grizzle |
|
|
|
|
|
|
|
|
|
|
5,666 |
|
|
|
340,558 |
|
Mr. Maier |
|
|
100,522 |
|
|
|
2,936,297 |
|
|
|
7,440 |
|
|
|
396,611 |
|
Mr. Hershey |
|
|
|
|
|
|
|
|
|
|
1,821 |
|
|
|
108,240 |
|
Mr. Mangas |
|
|
234,925 |
|
|
|
5,061,787 |
|
|
|
12,166 |
|
|
|
692,812 |
|
(1) |
Represents the number of stock options exercised in 2014. The value realized upon exercise is computed by determining the difference between the market price at exercise and the
exercise price of the options |
(2) |
Represents the number of RSUs and PSUs that vested in 2014. The value realized upon vesting is computed by multiplying the number of units by the value of the underlying shares
on the vesting date. |
The following table lists the details of the PSU and RSA/RSU awards that vested in 2014 for the NEOs. The cash
dividends associated with these vesting events are represented in the All Other Compensation column in the SCT.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Type |
|
|
Grant Date |
|
|
Payout Date |
|
|
Number of
Shares Granted |
|
|
Number of
Shares Acquired on
Vesting |
|
|
Value Realized on
Vesting ($) |
|
Mr. Espe |
|
|
PSU |
|
|
|
03/02/11 |
|
|
|
12/31/14 |
|
|
|
28,937 |
|
|
|
16,495 |
|
|
$ |
980,463 |
|
Mr. Schulz |
|
|
PSU |
|
|
|
06/01/11 |
|
|
|
12/31/14 |
|
|
|
1,066 |
|
|
|
608 |
|
|
|
36,140 |
|
Mr. Grizzle |
|
|
PSU |
|
|
|
03/02/11 |
|
|
|
12/31/14 |
|
|
|
6,511 |
|
|
|
3,712 |
|
|
|
220,641 |
|
Mr. Grizzle |
|
|
RSU |
|
|
|
01/17/11 |
|
|
|
01/17/14 |
|
|
|
1,954 |
|
|
|
1,954 |
|
|
|
119,917 |
|
Mr. Maier |
|
|
PSU |
|
|
|
03/02/11 |
|
|
|
12/31/14 |
|
|
|
5,788 |
|
|
|
3,300 |
|
|
|
196,152 |
|
Mr. Maier |
|
|
RSU |
|
|
|
10/31/11 |
|
|
|
10/31/14 |
|
|
|
4,140 |
|
|
|
4,140 |
|
|
|
200,459 |
|
Mr. Hershey |
|
|
PSU |
|
|
|
07/01/11 |
|
|
|
12/31/14 |
|
|
|
3,193 |
|
|
|
1,821 |
|
|
|
108,240 |
|
Mr. Mangas |
|
|
PSU |
|
|
|
03/02/11 |
|
|
|
12/31/14 |
|
|
|
9,646 |
|
|
|
5,499 |
|
|
|
326,861 |
|
Mr. Mangas |
|
|
RSA |
|
|
|
03/02/10 |
|
|
|
03/02/14 |
|
|
|
6,667 |
|
|
|
6,667 |
|
|
|
365,951 |
|
The performance period for PSUs granted in 2012 ended on December 31, 2014. The final payout was not determinable as of
December 31, 2014. The final payout determination was made in February 2015 by the Compensation Committee after a review of the Companys performance. The final 2012 PSU shares paid out and the value realized in March 2015 are set forth
below. Target units and year-end values for the PSUs awarded in 2012 are included in the Outstanding Equity Awards table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
2012 PSU Final Payout(a) (#) |
|
|
PSU Value on Vesting(b) ($) |
|
|
Cash Dividends Paid
($) |
|
Mr. Espe |
|
|
15,721 |
|
|
$ |
847,205 |
|
|
$ |
134,415 |
|
Mr. Schulz |
|
|
664 |
|
|
|
35,783 |
|
|
|
5,677 |
|
Mr. Grizzle |
|
|
4,246 |
|
|
|
228,817 |
|
|
|
36,303 |
|
Mr. Hershey |
|
|
2,752 |
|
|
|
148,305 |
|
|
|
23,530 |
|
(a) |
Represents 66% of target award achieved. |
(b) |
Valued at $53.89, the closing price of our Common Shares on February 19, 2015, the date of Compensation Committee final payout determination. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
2015 Proxy Statement |
|
|
Our NEOs do not participate in the Companys qualified defined pension plan, which was closed to newly hired employees after January 1,
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Proxy Statement |
|
|
|
45 |
NONQUALIFIED DEFERRED COMPENSATION
The table below shows the executive contributions, earnings and account balances for each NEO who participates in the NQDCPs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Executive Contributions
in 2014(1)
($) |
|
|
Registrant
Contributions in 2014(2)
($) |
|
|
Aggregate
Earnings in 2014
($) |
|
|
Aggregate
Withdrawals / Distributions
($) |
|
Aggregate Balance at 12/31/14(3) ($) |
|
Mr. Espe |
|
|
67,097 |
|
|
|
50,323 |
|
|
|
19,687 |
|
|
0 |
|
|
440,945 |
|
Mr. Schulz |
|
|
26,441 |
|
|
|
20,731 |
|
|
|
3,597 |
|
|
0 |
|
|
73,727 |
|
Mr. Grizzle |
|
|
32,221 |
|
|
|
24,166 |
|
|
|
1,226 |
|
|
0 |
|
|
57,613 |
|
Mr. Maier |
|
|
28,173 |
|
|
|
22,159 |
|
|
|
10,029 |
|
|
0 |
|
|
241,334 |
|
Mr. Hershey |
|
|
30,846 |
|
|
|
24,264 |
|
|
|
7,416 |
|
|
0 |
|
|
165,485 |
|
Mr. Mangas |
|
|
36,823 |
|
|
|
27,618 |
|
|
|
47,094 |
|
|
0 |
|
|
542,355 |
|
(1) |
The amount in this column is also reported as either Salary or Non-Equity Incentive Plan Compensation in the SCT, |
(2) |
The amount in this column is also reported in the All Other Compensation column of the SCT. |
(3) |
The table below reflects amounts reported in the aggregate balance at last fiscal year end that were previously reported as compensation to the NEO in the SCT for previous years.
|
|
|
|
|
|
Name |
|
Amount Previously Reported
($) |
|
Mr. Espe |
|
|
245,702 |
|
Mr. Schulz |
|
|
6,309 |
|
Mr. Maier |
|
|
145,192 |
|
Mr. Hershey |
|
|
46,862 |
|
Mr. Mangas |
|
|
328,728 |
|
The Companys defined benefit pension plans were closed to new salaried participants effective January 1,
2005 and to existing salaried participants who did not meet the age and service requirements as of March 1, 2006. None of the NEOs participates in the Companys pension plans. Instead, each NEO is eligible to participate in a 401(k)
savings plan with an enhanced Company match. Armstrong matches 100% on the first 4% of employee contributions and 50% on the next 4% of employee contributions in the enhanced plan. The NQDCP was established to provide benefits similar to the 401(k)
as it applies to eligible managers whose eligible earnings (base salary plus annual incentive) exceed 12.5 times the Code 402(g) elective deferral limit in effect for the plan year. For 2014, the eligible earnings limit was $218,750. A participant
may elect to defer up to 25% of eligible base salary earnings and up to 25% of eligible annual incentive earnings. The Company matching contribution will be the same as that provided under the qualified 401(k) savings plan with the enhanced Company
match. Participants may transfer account balances between any of the plans available investment options.
Participants become 100% vested in the Company match account after completing three years of continuous employment
having worked at least 1,000 hours in each year.
Except in the case of an unforeseeable emergency or having reached age 70, no in-service distributions
are permitted. Participants can elect to receive plan benefits as a single lump sum or in 120 monthly installments commencing after the date of the participants termination of employment. All elections must comply with the Code requirements.
If the total account value is less than $10,000, the entire account balance will be paid as a single sum at the time of termination. In the event of a participants death, any remaining payments shall be paid to the participants
designated beneficiary or estate.
The Company reserves the right to cause the participant to forfeit or require repayment of the Company match benefits
where the participant is discharged for willful, deliberate or gross misconduct or where the participant has engaged in conduct that is injurious to the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
2015 Proxy Statement |
|
|
POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL
The tables below summarize the estimated value of the potential payments and benefits under the Companys
plans and arrangements to which each NEO would be entitled upon termination of employment under the circumstances indicated. Except for the continuation of health and welfare benefits and outplacement support, amounts would be paid as a lump sum at
termination. The amounts shown assume that such termination was effective December 31, 2014. Severance benefits for the NEOs were reviewed and modified in February 2015. There is no table for Mr. Mangas whose CIC agreement terminated upon
his termination on September 26, 2014.
Each NEO who participates in the Companys NQDCPs is eligible for the benefits shown in the tables
above. The Change in Control column assumes that there is no limitation on payments under the best net provision in each CIC agreement. Amounts in the Change in Control column are double trigger
payments and are therefore applicable only in the event both a change in control (CIC) event and either an involuntary (without cause) termination or a Termination for Good Reason under the CIC agreement occur.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Espe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit |
|
Resignation $ |
|
|
Involuntary
for Cause $ |
|
|
Involuntary
without Cause $ |
|
|
Termination
for Good Reason $ |
|
|
Change in
Control $ |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
2,018,800 |
|
|
|
2,108,800 |
|
|
|
5,299,350 |
|
Health & Welfare Benefit Continuation |
|
|
|
|
|
|
|
|
|
|
17,862 |
|
|
|
17,862 |
|
|
|
100,362 |
|
Outplacement Support |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
30,000 |
|
Pro-rated MAP |
|
|
|
|
|
|
|
|
|
|
1,110,340 |
|
|
|
1,110,340 |
|
|
|
1,110,340 |
|
Accelerated LTIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,440,162 |
|
RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,015 |
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Applicable |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
3,172,002 |
|
|
$ |
3,172,002 |
|
|
$ |
9,248,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Schulz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit |
|
Resignation $ |
|
|
Involuntary
for Cause $ |
|
|
Involuntary
without Cause $ |
|
|
Termination
for Good Reason $ |
|
|
Change in
Control $ |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
230,000 |
|
|
|
230,000 |
|
|
|
1,610,000 |
|
Health & Welfare Benefit Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,548 |
|
Outplacement Support |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
30,000 |
|
Pro-rated MAP |
|
|
|
|
|
|
|
|
|
|
345,000 |
|
|
|
345,000 |
|
|
|
345,000 |
|
Accelerated LTIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,699 |
|
RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,303 |
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Applicable |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
600,000 |
|
|
$ |
600,000 |
|
|
$ |
2,326,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Proxy Statement |
|
|
|
47 |
POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Grizzle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit |
|
Resignation $ |
|
|
Involuntary
for Cause $ |
|
|
Involuntary
without Cause $ |
|
|
Termination
for Good Reason $ |
|
|
Change in
Control $ |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
485,630 |
|
|
|
485,630 |
|
|
|
1,699,705 |
|
Health & Welfare Benefit Continuation |
|
|
|
|
|
|
|
|
|
|
4,169 |
|
|
|
4,169 |
|
|
|
85,237 |
|
Outplacement Support |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
30,000 |
|
Pro-rated MAP |
|
|
|
|
|
|
|
|
|
|
364,223 |
|
|
|
364,223 |
|
|
|
364,223 |
|
Accelerated LTIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636,035 |
|
RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,369 |
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Applicable |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
879,022 |
|
|
$ |
879,022 |
|
|
$ |
2,887,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Maier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit |
|
Resignation $ |
|
|
Involuntary
for Cause $ |
|
|
Involuntary
without Cause $ |
|
|
Termination
for Good Reason $ |
|
|
Change in
Control $ |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
237,500 |
|
|
|
237,500 |
|
|
|
1,662,500 |
|
Health & Welfare Benefit Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,433 |
|
Outplacement Support |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
30,000 |
|
Pro-rated MAP |
|
|
|
|
|
|
|
|
|
|
356,250 |
|
|
|
356,250 |
|
|
|
356,250 |
|
Accelerated LTIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,336 |
|
RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,594 |
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,633 |
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Applicable |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
618,750 |
|
|
$ |
618,750 |
|
|
$ |
2,780,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
2015 Proxy Statement |
|
|
POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Hershey |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit |
|
Resignation $ |
|
|
Involuntary
for Cause $ |
|
|
Involuntary
without Cause $ |
|
|
Termination
for Good Reason $ |
|
|
Change in
Control $ |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
432,600 |
|
|
|
432,600 |
|
|
|
1,384,320 |
|
Health & Welfare Benefit Continuation |
|
|
|
|
|
|
|
|
|
|
3,498 |
|
|
|
3,498 |
|
|
|
80,344 |
|
Outplacement Support |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
30,000 |
|
Pro-rated MAP |
|
|
|
|
|
|
|
|
|
|
259,560 |
|
|
|
259,560 |
|
|
|
259,560 |
|
Accelerated LTIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,728 |
|
RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,906 |
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Applicable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
720,658 |
|
|
$ |
720,658 |
|
|
$ |
2,242,858 |
|
Resignation or Involuntary Termination for Cause
No incremental benefits are provided to any of the NEOs in the event of a voluntary resignation or an involuntary termination for Cause. Cause is defined as
(i) the willful and continued failure by the executive to substantially perform the executives duties after a written demand for substantial performance is delivered to the executive by the Board, or (ii) the willful engaging by the
executive in conduct which is demonstrably and materially injurious to the Company, or (iii) the executives conviction of any felony.
Involuntary Termination without Cause
Under the Companys severance plan, which applies
to the NEOs in the absence of a CIC event and in the absence of an employment agreement, severance benefits for executive participants provide a minimum of 26 weeks and a maximum of 52 weeks of base salary based on years of service, or a
separate contractual arrangement. A Severance Pay Committee, composed of members of management, reserves the right to depart from the severance pay schedule where factors justify an upward or downward adjustment in the level of benefits. In no event
may the severance payment exceed two times the participants annual compensation.
In the event of involuntary termination where severance applies,
all salaried employees are eligible for continuation of health care and life insurance benefits at active employee premium contributions for a period of six months unless the employee is eligible for and elects retiree health care coverage. In
addition, senior executives are
eligible for twelve months of executive outplacement support provided by an outside service provider.
Pursuant to Mr. Espes employment agreement, he will be entitled to the following severance pay and benefits, conditioned on the execution of a release and his compliance with certain restrictive
covenants: (1) payment of 200% of his base salary, (2) welfare benefit continuation for 24 months and (3) a pro rata MAP payment. Mr. Espe will be subject to a two-year non-competition and non-solicitation agreement
following his termination of employment. Please refer to the 2011 Proxy Statement for a summary of Mr. Espes employment agreement. In February 2015, Mr. Espes employment agreement was amended to provide severance payment equal
to 200% of base salary plus target annual incentive under the Companys MAP. In addition, the amendment states that a termination of employment under the Severance Agreement will not result in accelerated vesting of outstanding equity awards.
The amendment was disclosed in our SEC Form 8-K filing on March 8, 2015.
The offer letters for Messrs. Grizzle and Hershey state that minimum of 52
weeks of base salary in severance and health care and life insurance benefits will continue at the active employee contribution levels for 12 months.
Information in the tables above assumes that any termination was effective December 31, 2014 and is based on the program parameters in effect as of
December 31, 2014 as outlined above. During a review of our severance practices in February 2015, the Compensation Committee revised severance benefits for Messrs. Schulz, Hershey and Grizzle to more closely align with competitive practices and
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Proxy Statement |
|
|
|
49 |
POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL (CONTINUED)
create internal equity among participants (disclosed in our SEC Form 8-K filing on March 8, 2015). The severance is equal to one and one-half times the executives then current annual
base salary plus target annual incentive under the Companys MAP program, payable in lump sum, and a pro-rated annual incentive bonus based on actual performance for the year of termination, payable at the time that bonuses are paid to
employees of the Company.
Termination for Good Reason
Under the CIC agreements, an executive is eligible to receive severance pay upon a Termination for Good Reason following a CIC. Termination for Good Reason is defined in each executives individual CIC
agreement and includes any one of the following events following a CIC:
(i) |
the assignment to the executive of any duties inconsistent with the executives status as an executive officer of the Company or a substantial adverse alteration in the
nature or status of the executives responsibilities; |
(ii) |
a reduction by the Company in the executives annual base salary; |
(iii) |
failure by the Company to pay to the executive any portion of the executives current compensation; or |
(iv) |
failure by the Company to continue in effect any compensation or benefit plan in which the executive participates immediately prior to a CIC which is material to the
executives total compensation unless an equitable arrangement has been made. |
CIC Agreements
We do not provide tax gross-ups under Sections 280G and 4999 of the Code to any of our NEOs. Set forth below are certain key terms of the CIC
agreements for the NEOs:
|
|
|
Term of Agreement |
|
Fixed one-year term that automatically renews for an additional year unless notice is given at least 90 days prior to the anniversary of intent not to renew; term automatically continues
for two years if the CIC occurs during term |
|
|
Severance Benefits |
|
2.5 times base salary plus target MAP for Mr. Espe, two times base salary plus target MAP for Messrs. Schulz, Grizzle, Maier, and Hershey |
|
|
Pro rata MAP |
|
Based on actual results achieved under MAP year during which the termination occurs if a change in control termination occurs prior to the completion of the applicable performance
period |
|
|
Accelerated Equity Vesting |
|
Double-trigger accelerated vesting (requires a CIC and qualifying termination of employment) for stock options and other equity grants to vest if assumed by the acquirer; the Compensation
Committee may cash out equity grants if not assumed by the acquirer |
|
|
280G Taxation |
|
Any amounts paid under the CIC Agreement will be reduced to the maximum amount that can be paid without being subject to the excise tax imposed under Section 280G of the Code, but
only if the after-tax benefit of the reduced amount is higher than the after-tax benefit of the unreduced amount |
The CIC agreements contain a definition of CIC that the Compensation Committee has determined to be appropriate.