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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
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o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
AAR CORP. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
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o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERSTO BE HELD ON WEDNESDAY, OCTOBER 12, 2011
Notice of Annual Meeting of Stockholders to be Held on Wednesday, October 8, 2014 |
August 29, 2014
To Our Stockholders:
We cordially invite you to attend our 20112014 annual meeting of stockholders — our 45th annual meeting as a public company.stockholders. Information about the annual meeting is set forth below and in the accompanying proxy statement.
| | Wednesday, October | ||
| | 9:00 a.m., Chicago time | ||
| | AAR CORP. | ||
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| • Elect four Class III | |||
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Ratify the appointment of KPMG LLP as | ||||
• | Transact any other business that may properly come before the | |||
Record | | You may vote your shares at the annual meeting if you were a stockholder | ||
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By Order of the Board of Directors,
Robert J. Regan
Vice President, General Counsel and Secretary
PROXY STATEMENT FOR THE2011 ANNUAL MEETING OF STOCKHOLDERSProxy Statement for the 2014 Annual Meeting of Stockholders
TABLE OF CONTENTS
Table of Contents
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QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING | 1 | |||||
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PROPOSAL 1 — ELECTION OF OUR DIRECTORS | ||||||
Information about | ||||||
PROPOSAL 2 — ADVISORY | ||||||
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PROPOSAL | ||||||
Independent Registered Public Accounting Firm Fees and Services | ||||||
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Audit Committee Report for Fiscal | |||||
CORPORATE GOVERNANCE | |||||
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Director Independence | |||||
Board Leadership | |||||
Risk Management Oversight | |||||
Executive Sessions | 19 | ||||
Communications with the Board of Directors | |||||
Corporate Governance Guidelines | |||||
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Code of Business Ethics and Conduct | |||||
Related Person Transaction Policy | |||||
Board Committees | |||||
Board Meetings and Attendance | |||||
Director Compensation | |||||
Director Compensation Table | |||||
Compensation Committee Interlocks and Insider Participation | |||||
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EXECUTIVE COMPENSATION | ||
Compensation Discussion and Analysis | ||
Compensation Committee Report on Executive Compensation for Fiscal | 51 | |
Summary Compensation Table | 52 | |
Fiscal | 55 | |
Outstanding Equity Awards at Fiscal | 57 | |
Fiscal | 59 | |
Retirement Program Benefits | 60 | |
Fiscal | 60 | |
Fiscal | 63 | |
Potential Payments Upon a Termination of Employment or a Change in Control of the Company | 66 | |
Tables of Potential Payments Upon a Termination of Employment or a Change in Control | 71 |
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SECURITY OWNERSHIP OF OUR MANAGEMENT AND OTHERS | ||||||
Security Ownership of Management | ||||||
Security Ownership of Certain Beneficial Owners | ||||||
Section 16(a) Beneficial Ownership Reporting Compliance | ||||||
EQUITY COMPENSATION PLAN INFORMATION | 77 | |||||
STOCKHOLDER PROPOSALS FOR OUR 2015 ANNUAL MEETING | 78 | |||||
OTHER BUSINESS | ||||||
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Important Notice Regarding the Availability of Our Proxy Materials
For Our Annual Meeting of Stockholders to be Held on Wednesday, October 8, 2014:
Copies of this Notice and Proxy Statement, our 2014 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 2014 are available free of charge at www.proxyvote.com.
iii
2011 PROXY STATEMENT SUMMARY
2014 Proxy Statement Summary
This summary highlights certain information addressed in more detail elsewhere in this proxy statement. You shouldPlease read carefully the entire proxy statement before voting your shares.
Annual Meeting Information
| | Wednesday, October | ||
Place | | AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, Illinois 60191 | ||
Record | | |||
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Proposals To Be Voted On By Our Stockholders
Election of four Class III directors (Proposal 1 — pages 5-9):
| | Age | | Brief Biography | | Board Recommendation | ||||||||||||
Patrick J. Kelly | 59 | Since 1986, Managing Director of KMK & Associates, LLC (a private equity firm with interests in companies operating in the food, distribution, technology, financial services, real estate and energy industries). | ||||||||||||||||
Peter Pace | 68 | General, U.S. Marine Corps (Retired). From 2005 to 2007, (Chairman of the Joint Chiefs of Staff. | ||||||||||||||||
Timothy J. Romenesko | 57 | Since 2007, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP. From 1991 to 1994, Corporate Controller of AAR CORP. | FOR | |||||||||||||||
Ronald B. Woodard | Since 2003, Chairman of MagnaDrive, Inc. (an industrial torque transfer equipment company, which he co founded following his retirement from The Boeing Company after 32 years). From 1995 to 1998, President of the Boeing Commercial Airplane Group. | FOR | ||||||||||||||||
Advisory | FOR | |||||||||||||||||
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm (Proposal 3 — page 12). | FOR |
| Name | Age | Brief Biography | Director Since | |||||||
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Ronald R. Fogleman | 69 | President and Chief Operating Officer of B Bar J Cattle & Consulting Company; previously, General, Chief of Staff of the United States Air Force (Retired) | 2001 | ||||||||
Patrick J. Kelly | 56 | Managing Director of KMK & Associates, LLC | 2006 | ||||||||
Peter Pace | 65 | General, U.S. Marine Corps(Retired), Former Chairman of the Joint Chiefs of Staff | 2011 | ||||||||
Ronald B. Woodard | 68 | Chairman of MagnaDrive, Inc.; previously, President of the Boeing Commercial Airplane Group | 2004 |
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Fiscal 2014 Business Performance Highlights
AAR CORP. (the "Company") is a leading provider of diversified products and services to the worldwide aviation and government and defense markets. We delivered solid financial results for our fiscal year ended May 31, 2014 ("Fiscal 2014"), despite reductions in demand from our government and defense customers owing principally to the drawdown of the U.S. military presence in Afghanistan.
Our continued focus on our core businesses — aviation services and technology products — together with ongoing efforts to manage costs and strengthen our balance sheet, contributed to the following performance highlights in Fiscal 2014:
For more information about our financial and operating performance in Fiscal 2014, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 17, 2014. For more information about our stock price performance, please see "Comparison of Cumulative Five Year Total Return" in our Form 10-K.
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| Description of Fees | Fiscal 2011 | Fiscal 2010 | ||||||
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Audit Fees | $ | 1,275,000 | $ | 1,490,000 | |||||
Audit Related Fees | 63,386 | 243,090 | |||||||
Tax Fees | 335,536 | 268,588 | |||||||
All Other Fees | 0 | 40,000 |
Executive Compensation Highlights
Stockholder Outreach Program
We conducted a formal stockholder outreach program in Fiscal 2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns related to our executive compensation program and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the outreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedback from two proxy advisory firms, Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
The following table identifies the concerns raised by our stock-holders, ISS and Glass Lewis, and the actions we took in Fiscal 2014:
Stockholder Concern | AAR Action | |||||
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Tax gross-ups | | Eliminated all tax gross-ups in the new employment agreement of the Company's Chairman and Chief Executive | ||||
"Single-trigger" vesting upon a change in control | | Eliminated automatic "single-trigger" vesting and imposed "double-trigger" vesting (which requires a change in control and a termination of employment) in all award agreements under the Company's 2013 stock plan and in Mr. Storch's new employment agreement | ||||
Annual cash bonuses | | Exercised negative discretion to reduce by 30% the performance-based cash bonuses paid to the five named executive officers | ||||
Variable performance-based compensation | Awarded performance-based compensation (consisting of | |||||
Return metric and burn rate under long-term incentive plan | | Added return on invested capital, together with three-year cumulative net income, as the | ||||
CEO retirement contribution under the non-qualified deferred compensation plan | | Reduced this contribution by 50% for Fiscal 2014 and amended the non-qualified deferred compensation plan to provide the Compensation Committee with the ability to exercise negative discretion with respect to contributions for all plan participants | ||||
Peer group composition | | Made changes to our peer group in Fiscal | ||||
Hedging and pledging of Company stock | | Prohibited hedging and pledging of Company stock by our directors, officers and employees under our insider trading policy | ||||
Independence of Compensation Consultant | | Determined affirmatively that Mercer (US) Inc. ("Mercer"), the compensation | ||||
Stockholder rights plan | | Reviewed by the Board in Fiscal 2014 with outside advisors; confirmed its appropriateness for the | ||||
Protections in CEO's employment agreement | | See "New Employment Agreement with Our Chairman and Chief Executive Officer" on page | ||||
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Chief Executive Officer Compensation
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| | Fiscal 2013 ($) | | Fiscal 2014 ($) | | |||||||||||||
Compensation Element | | Actual | | Target | | Per Formula | | Actual | | |||||||||
Base Salary | 877,838 | 906,449 | N/A | 906,449 | ||||||||||||||
Annual Cash Incentive | 1,350,685 | 1,133,061 | 1,216,498 | 851,548 | ||||||||||||||
Long Term Incentive Compensation | 1,314,720 | 2,964,720 | N/A | 2,964,720 |
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Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the Company's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance in Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
Key Compensation Policies and Practices
The following policies and practices are key elements of the Company's executive compensation program:
viii
Corporate Governance Highlights
Good corporate governance is an essential part of the Company's culture. The Board of Directors annually reviews the Company's key corporate governance documents, including the Corporate Governance Guidelines and the Board Committee charters, to ensure that they reflect best practices consistent with the Company's culture and strategy. The creation of a Lead Director position is one recent example of the Company's commitment to corporate governance best practices.
The following table identifies the Company's key corporate governance practices and related information:
Corporate Governance Information | As of August 29, 2014 | |||
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Number of Directors | | 11 | ||
Number of Independent Directors | | 9 | ||
Average Age of Directors | | 65 | ||
Average Tenure of Directors | | 10 years | ||
Director Retirement Age | | 72 on nomination date | ||
Lead Director | | Yes | ||
Stock Ownership Guidelines | | Yes | ||
Annual Stock Grant to Non Employee Directors | | Yes | ||
Independent Directors — Executive Sessions | | Yes | ||
Independent Compensation Consultant | | Yes | ||
Annual Board and Committee Self Evaluations | | Yes | ||
Code of Business Ethics and Conduct | | Yes | ||
Ethics Hotline Policy | | Yes | ||
Related Person Transaction Policy | | Yes | ||
Disclosure Committee for Financial Reporting | | Yes | ||
Annual Advisory Stockholder Approval of Executive Compensation | | Yes |
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One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
We will hold our 20112014 annual meeting of stockholders on Wednesday, October 12, 2011,8, 2014, at 9:00 a.m., Chicago time, at AAR CORP.'s corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. We cordially invite you to attend the annual meeting and ask that you vote on the proposals described in this proxy statement.
Information about the annual meeting is presented below in question-and-answer format.
Why am I receiving the proxy materials?
Our Board of Directors has madeis providing these proxy materials available to you, beginning on or about September 2, 2011,August 29, 2014, in connection with its solicitation of proxies for use at the Company's 20112014 annual meeting of stockholders.
What information is contained in the proxy materials?
The proxy materials contain information about the proposals to be voted on at the annual meeting, the compensation of our directors and our most highly paid executive officers, corporate governance and other information about the Company.
How do I access the proxy materials electronically?
Again this year we are pleased to be distributing our proxy materials via the Internet under the "notice and access" approach permitted by the rules of the Securities and Exchange Commission ("SEC"). This approach reduces the cost and environmental impact of printing and distributing the proxy materials for our annual meeting.
We mailed a "Notice of Internet Availability of Proxy Materials,"Materials" to all of our stockholders so thaton or about August 29, 2014. The Notice gives you can choosethe choice to receive your proxy materials and vote your shares over the Internet.Internet or receive your proxy materials in printed form and vote by mailing back your proxy card. The Notice provides you with instructions on how to:
This proxy statement, and our Fiscal 2011 annual report to stockholders for the fiscal year ended May 31, 2014 (referred to in this proxy statement as "Fiscal 2014") and our Fiscal 2014 annual report on Form 10-K may be viewed online atwww.proxyvote.com.
What proposals are stockholders voting on at the annual meeting?
Stockholders will vote on fivethree proposals at the annual meeting:
The Board of Directors unanimously recommends that stockholders vote FOR ALL NOMINEESon Proposal 1, FOR each of Proposals 2, 4 and 5 and for an annual (1 year) advisory vote on Proposal 3.
You are entitled to vote your shares if you were an AAR CORP. stockholder at the close of business on August 19, 2011.2014. This date is sometimes referred to in this proxy statement as the "record date."
Stockholder of Record.If you were a stockholder"stockholder of record (i.e., you held your shares in your own name rather than through a broker, bank or other nominee)record" at the close of business on the record date, you may vote your shares at the 2011 annual meeting. You are a "stockholder of record" if your shares are registered in your name with the Company's transfer agent.
Beneficial Owner.If you were a street-name stockholder (i.e., you held your"beneficial owner" of shares through a broker, bank or other nominee)at the close of business on the record date, you are considered a "beneficial owner" of the stock. Tomay vote those shares at the annual meeting, you must giveby giving voting instructions to your broker, bank or other intermediarynominee who is the "nominee holder""stockholder of record" of your shares. You are a "beneficial owner" of shares if your shares are held in a stock brokerage account or by a bank or other nominee. The Company has directed brokers, banks and other nominee holdersnominees to obtain voting instructions from their beneficial owners. Proxies submitted by nominee holdersnominees on behalf of beneficial owners will count toward a quorum and will be voted as instructed by the beneficial owners. You will receive additional instructions from your broker, bank or other nominee explaining how you may vote your shares held in street name.by your nominee.
A list of stockholders of record entitled to vote will be available at the Company's corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191 for 10 days prior to the meeting and at the meeting location during the meeting.
On the record date, 40,460,58339,891,158 shares of common stock of the Company ("Common Stock") were outstanding. You will haveEach share of common stock is entitled to one vote onfor each proposaldirector nominee and one vote for each of the other proposals to be voted on for each share of Common Stock you owned onat the record date.annual meeting.
How do stockholders vote by proxy or in person?
Stockholders of record at the close of business on the record date may vote on the matters that are before the annual meeting by proxy by completing, signing, dating and returning the enclosed proxy card or by voting by telephone or over the Internet, or in person by attending and voting at the annual meeting and voting in person.meeting.
How do stockholders vote by telephone or over the Internet?
YouSpecific instructions for using the telephone and Internet voting methods are encouraged to vote either by telephone or overset forth on the Internet. This will eliminate the need to sign, date and return your proxy card. These instructions are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded. You canmay vote by telephone or over the Internet 24 hours a day, seven days a week, until 10:59 p.m. (Chicago
(Chicago time) on the day prior to the annual meeting. Specific instructions for using the telephone and Internet voting methods are set forth on the proxy card. If you vote by telephone or over the Internet, please do not return your proxy card.
How do stockholders revoke a proxy?
You may revoke your proxy (e.g., to change your vote) at any time before it is exercised by:
How will the proxy holders vote the shares?
The proxy holders will vote shares in accordance with instructions on the proxy card. If no instructions are specified,given, the proxy holders will vote the shares as follows:
If any other matter properly comes before the annual meeting, the proxy holders will use their judgment to vote in a manner consistent with the best interest of stockholders. If any director nominee becomes unavailable for election for any reason prior to the annual meeting vote, the Board may reduce the number of directors to be elected or substitute another person as nominee, in which case the proxy holders will vote for the substitute nominee.
How willWhat are the votes be counted?quorum and vote requirements?
All votes cast in person or by proxyA quorum of stockholders is necessary to hold a valid meeting. A quorum will be tabulated by the inspectors of election appointed for the annual meeting. Aexist if a majority of the outstanding shares of Common Stockcommon stock entitled to vote at the meeting is present in person or represented by proxy at the annual meeting, will constitute a quorum.
The inspectors of election will treat directions to withhold authority, abstentionsmeeting. Abstentions and broker non-votes, (i.e., whereif any, will be counted as present for purposes of determining whether there is a quorum. A "broker non-vote" will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner with respect to a particular matter and such nominee does not possess or choose to exercise hisowner.
Please note that brokers will have discretionary authority with respect to such matter) asvote shares that are present for purposeson the ratification of determining a quorum. Directions to withhold authority will have no effectKPMG; however, brokers may not vote shares on the election of directors because directors are elected by a plurality of votes cast. Abstentions and broker non-votes will be disregarded for purposes of determining whether a proposal has been approved because they are not considered votes cast. It is not anticipated that there will be any broker non-votesor on the ratification of the appointment of KPMG LLP since brokers will have discretionadvisory resolution to vote on this proposal even if they do not receive votingapprove executive compensation without specific instructions from their beneficial owners. Accordingly, please follow your broker's instructions so that your vote may be counted.
Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each matter to be presented to the stockholders at the annual meeting and the effect of "withhold" votes, abstentions, and broker non-votes.
Required Vote | Effect of "Withhold" Votes, Abstentions and Broker Non-Votes | |||||||||||
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Proposal 1 — | Affirmative vote of a plurality of the shares of common stock present and entitled to vote (the three nominees who receive the greatest number of votes will be elected directors of the Company). | "Withhold" votes and broker non-votes will have no effect on the voting for the election of directors." | ||||||||||
Proposal 2 — | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | Abstentions will have the effect of a vote "against" and broker non-votes will have no effect on the voting for this matter. | ||||||||||
Proposal 3 — | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | Abstentions will have the effect of a vote "against"; there will be no broker non-votes for this matter. |
Who is the Company's proxy solicitor?
The Company has engaged D. F. King & Co., Inc., 48 Wall Street, New York, New York 10005, to assist the Company in soliciting proxies at a total estimated cost of $11,500, plus reasonable out-of-pocket expenses. The cost of soliciting proxies will be paid by the Company. D. F. King & Co., Inc. may solicit proxies by mail, telephone, facsimile, e-mail, or in person. Certain officers, directors and employees of the Company may also solicit proxies for no additional compensation.
The Company's Restated Certificate of Incorporation and By-Laws provide that the Board of Directors shall consist of between three and 15 directors, with the exact number of directors to be set from time to time by the Board. The number of directors is currently set at 11. The members of the Board are divided into three classes, each having a three-year term that expires in successive years: Class I (three directors), Class II (four directors), and Class III (four directors).
The Board of Directors has nominated four directorsindividuals to be elected inas Class III directors at the annual meeting, each to serve a three-year term expiring at the 20142017 annual meeting or until the individual is succeeded by another qualified director who has been duly elected. The nominees for director in Class III at the annual meeting are Ronald R. Fogleman, Patrick J. Kelly, Peter Pace, Timothy J. Romenesko and Ronald B. Woodard.
Each nominee is currently serving as a director of the Company. Each nominee, other than Mr. Romenesko, has been determined by the Board to be "independent" within the meaning of the rules of the New York Stock Exchange ("NYSE") and Securitiesthe SEC. As President and Exchange Commission ("SEC"). Under Delaware law and the Company's By-Laws, the four nominees for director who individually receive the greatest number of votes will be elected directorsChief Operating Officer of the Company.Company, Mr. Romenesko does not qualify as an independent director under the NYSE and SEC rules.
THEOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS
YOU VOTEFOR THE ELECTION OF ALL OF OUR DIRECTOR NOMINEES.
Information about theOur Director Nominees and Our Continuing Directors
Information about the director nominees and continuing directors whose terms expire in future years is set forth below:
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Table of ContentsOUR DIRECTOR NOMINEES
Class III Directors whose terms expire at the 2014 annual meeting | Director Since | ||||
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PATRICK J. KELLY, | 2006 | ||||
Director Qualifications: The Board of Directors concluded that Mr. Kelly should serve as a director of the Company based on his leadership and operational experience at various businesses, his background as a long-term chief executive officer and his business expertise gained through his experience at a private equity firm with a diversified portfolio of operating companies. |
PETER PACE, | |||||
Current public company | |||||
Other public company directorships held in the past five years: Laserlock Technologies, Inc. and Wi2Wi Corporation. | |||||
Director Qualifications: The Board of Directors concluded that General Pace should serve as a director of the Company based on his leadership and management skills and experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the | |||||
TIMOTHY J. ROMENESKO, 57: Since 2007, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP. From 1991 to 1994, Corporate Controller of AAR CORP. | 2007 | ||||
Director Qualifications: The Board of Directors concluded that Mr. Romenesko should serve as a director of the Company based on his current leadership position as President and Chief Operating Officer of the Company, his experience in various accounting and financial capacities during his 33-year career with the Company and his knowledge of the Company's commercial aviation and government and defense services markets. | |||||
RONALD B. WOODARD, | 2004 | ||||
Current public company directorship: | |||||
Other public company | |||||
Director Qualifications: The Board of Directors concluded that Mr. Woodard should serve as a director of the Company based on his |
OUR CONTINUING DIRECTORS
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Class I Directors whose terms expire at the 2015 annual meeting | |||||
ANTHONY K. ANDERSON, 58: Since 2012, | 2012 | ||||
Current public company directorships: Avery Dennison Corp., Exelon Corp. and First American Financial Corporation. | |||||
Director Qualifications: The Board of Directors concluded that Mr. Anderson should serve as a director of the Company based on his 35 years working with a global accounting firm, his accounting and financial knowledge, his leadership in developing management talent programs, his service as a director of other public companies, and his professional, civic and charitable service, including as a director of numerous not-for-profit organizations. | |||||
MICHAEL R. BOYCE, | 2005 | ||||
Current public company directorship: Stepan Company. | |||||
Director Qualifications: The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience as Chairman and Chief Executive Officer of two leading global organizations, his insight into global manufacturing, supply and distribution practices and his international business development skills. | |||||
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DAVID P. STORCH, | 1989 | ||||
Current public company directorships: KapStone Paper and Packaging Corp. and | |||||
Director Qualifications: The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his current position as Chairman and Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company's businesses gained during his |
Class II Directors whose terms expire at the | ||||||||
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NORMAN R. BOBINS, | 2007 | |||||||
Current public company directorships: | ||||||||
Other public company directorships held in the past five years: Global Hyatt Corp. and Nicor Inc. | ||||||||
Director Qualifications: The Board of Directors concluded that Mr. Bobins should serve as a director of the Company based on his | ||||||||
RONALD R. FOGLEMAN, 72: Since 1997, President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company). From 1994 to 1997, General, Chief of Staff of the United States Air Force, Washington, D.C. | 2001 | |||||||
Current public company directorship: Alliant Techsystems, Inc. | ||||||||
Director Qualifications: The Board of Directors concluded that General Fogleman should serve as a director of the Company based on his leadership skills and record of accomplishment during a 34-year career with the United States Air Force, his business experience and business relationships gained through his senior management positions at two consulting organizations, his understanding of the government defense and services markets and his service as a director of other public companies. General Fogleman was elected as the Company's Lead Director in April 2013. |
JAMES E. GOODWIN, | 2002 | ||||
Current public company directorships: Federal Signal Corporation and John Bean Technologies Corporation. | |||||
Other public company directorship held in the past five years: First Chicago Bancorp. | |||||
Director Qualifications: The Board of Directors concluded that Mr. Goodwin should serve as a director of the Company based on his airline industry experience and expertise, including his leadership positions at UAL, Inc. and United Airlines, Inc., his management experience and his financial expertise, as well as his global consulting experience and his service as a director of other public companies. | |||||
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MARC J. WALFISH, | 2003 | ||||
Director Qualifications: The Board of Directors concluded that Mr. Walfish should serve as a director of the Company based on his experience in the finance industry, including as a founding partner of Merit Capital Partners, a mezzanine investor company, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management. |
We are asking our stockholders to approve anthe following advisory resolution (commonly known as a say-on-pay proposal) on the compensation awarded to our five named executive officers for Fiscal 2011,2014 as disclosed in this proxy statement:
"RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the named executive officers for Fiscal 2014 as reported in this proxy statement as required pursuant to Section 14AItem 402 of Regulation S-K under the Securities Exchange Act of 1934, as amended. including the Compensation Discussion and Analysis, compensation tables and narrative discussion."
We encourage our stockholders to read the "Compensation Discussion and Analysis" beginning on page 32pages 27-50 and the "Summary Compensation Table" and other related compensation tables and related narrative beginningstarting on page 52 of this proxy statement. These sections describe our executive compensation policies and practices and provide detailed information about the compensation of our named executive officers.
Our Compensation CommitteeAs described under "Stockholder Outreach Program" in the "2014 Proxy Statement Summary" and Board of Directors believe that:"Compensation Discussion and Analysis," the Company conducted a stockholder outreach program in Fiscal 2014 to understand, consider and respond to stockholder concerns. With respect to executive compensation matters, the Company's key actions in Fiscal 2014 included the following:
Our Board of Directors recommends a vote"FOR" the Company's Equity compensation plans not approved by securities holders Total The Company's independent registered public accounting firm reports to, and is engaged at the direction of, the Audit Committee of the Company's Board of Directors. The Audit Committee appointed KPMG LLP ("KPMG") as the Company's independent registered public accounting firm for Fiscal The following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal Audit Fees Audit Committee pre-approval is required for any audit, audit-related, tax or other services to be provided by the independent registered public accounting firm. Directors. The Company's management is primarily responsible for the Company's financial statements and the quality and integrity of the reporting process and systems of internal control. The Company's independent registered public accounting firm is responsible for auditing the Company's financial statements and the effectiveness of internal controls over financial reporting and for expressing opinions thereon. In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the Company's audited financial statements for The Audit Committee reviewed and discussed with the independent registered public accounting firm and management the overall scope and plans for the audit, the quality, adequacy and assessment of the effectiveness of internal controls over financial reporting, and the Internal Audit Department's management, organization, responsibilities, budget and staffing. The Audit Committee also met with the independent registered public accounting firm representatives without management present and discussed the results of their audits, their evaluation of the Company's internal controls over financial reporting, disclosure controls and the overall quality (not just acceptability) of the Company's accounting policies and financial reporting. The Audit Committee also discussed with the representatives of the independent registered public accounting firm (i) the matters required to be discussed by In reliance on its review of the audited financial statements and the discussions referred to above and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in its charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for The Audit Committee also reviewed and assessed the adequacy of the Audit Committee Respectfully submitted, Audit Committee James E. Goodwin, Chairman The Company is committed to good corporate governance. We regularly review our policies and procedures, giving due consideration to current developments and "best practices." We believe that we comply with all applicable SEC and NYSE rules and regulations, and we have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders. Copies of the following corporate governance documents are available on the Company's website atwww.aarcorp.com under "Investor Relations/Corporate Governance": These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement. The Company maintains an Ethics The Board of Directors, acting through The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to assure that the Company maintains the benefit of a diverse, balanced and effective Board. A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company's website atsuccessful business results, including in Fiscal 2011: (i) a 34.9% increase in net sales to $1.78 billion; (ii) a 56.5% increase in net income to $69.8 million; and (iii) a 49.1% increase in diluted earnings per share to $1.73.Accordingly, we ask that you consider and vote on the following advisory resolution:"RESOLVED,2014 say-on-pay proposal. The Board believes that the stockholders of the Company approve, on an advisory basis, theexecutive compensation ofpaid to the named executive officers forwas fair and appropriate in Fiscal 2011, as reported2014 and that the Company has responded appropriately to stockholder concerns in this proxy statement."revising its executive compensation program.This advisory resolution, commonly known as a "say on pay"Our stockholders, upon the recommendation of our Board of Directors, previously voted that our say-on-pay proposal should be considered by stockholders at each annual meeting given the importance of the Company's executive compensation program. While the say-on-pay vote is not binding on the Board of Directors. TheDirectors, the Board however, will reviewreviews and considerconsiders the results of the "say on pay"say-on-pay vote (as it did in response to the Fiscal 2013 say-on-pay vote), the opinions of our stockholders and other relevant factors in making future decisions regarding the Company's executive compensation program.THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFORTHE APPROVAL OF THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION.Table Our stockholders will vote next on the frequency of ContentsPROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCYOF FUTURE EXECUTIVE COMPENSATION VOTESWe are asking our stockholderssay-on-pay proposal (i.e., whether to hold a say-on-pay vote on how frequently the advisory vote on executive compensation (the subject of Proposal 2 above) should be presented to our stockholders, as required pursuant to Section 14A of the Securities Exchange Act of 1934, as amended. You may vote your shares to have the advisory vote on executive compensation held every year,annually, every two years or every three years, or you may abstain from voting.Our Compensation Committee and Boardyears) at our 2017 annual meeting of Directors believe that holding an advisory vote on executive compensation on an annual (1 year) basis is the most appropriate policy for the Company and its stockholders. Decisions on our executive compensation policies and practices are made annually, and an annual (1 year) vote will permit our stockholders to provide direct and timely feedback to the Company's Board and management on these important issues.Accordingly, we ask that you consider and vote on the following advisory resolution:"RESOLVED, that the stockholders of the Company approve, on an advisory basis, the holding of an advisory vote on executive compensation on an annual (1 year) basis."This advisory vote is not binding on the Board of Directors. The Board, however, will review and consider the voting results and other relevant factors in recommending a voting frequency to stockholders.THEOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERSYOU VOTEFORVOTE TO HOLD THE ADVISORY VOTE ONRESOLUTION TO APPROVE OUR FISCAL 2014 EXECUTIVE COMPENSATIONON AN ANNUAL (1 YEAR) BASIS.COMPENSATION.PROPOSAL 4 — APPROVAL OF AN AMENDMENT TO THE AAR CORP. STOCKBENEFIT PLAN TO ADD SECTION 162(m) PERFORMANCE CRITERIAWe are asking our stockholders to approve an amendment to the AAR CORP. Stock Benefit Plan (the "Plan"). The amendment will add performance criteria to the Plan so that performance-based stock awards under the Plan are tax deductible for the Company under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). This amendment was unanimously adopted by the Board of Directors, subject to stockholder approval.Under Section 162(m), compensation paid to a company's named executive officers in any one year in excess of $1 million must qualify as "performance-based compensation" in order to be tax deductible. Qualification under Section 162(m) requires that the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by a company's stockholders. In addition, if the targets under a performance goal may be changed, the material terms must be re-approved every five years. The Company's stockholders last approved the performance criteria relating to equity awards under the Plan at the 2006 annual meeting of stockholders.Section 162(m) provides that the material terms of the performance goals include:•The individuals eligible to receive compensation;•A description of the business criteria on which the performance goals are based; and•The maximum amount of compensation that can be paid to an individual under the performance goals.Each of these material terms is described below. Stockholder approval of the amendment constitutes approval of each material term for purposes of the approval requirements of Section 162(m).Individuals Eligible to Receive Compensation. The Compensation Committee administers the Plan. It has the authority to determine the key employees and non-employee directors to whom awards are to be granted under the Plan. All non-employee directors and all employees, officers and other employees with executive, managerial, supervisory or professional responsibilities (which includes the five named executive officers) are eligible for the grant of awards under the Plan. In Fiscal 2011, 112 employees, including the five named executive officers and nine non-employee directors, received awards under the Plan.Description of the Business Criteria on Which the Performance Goals Are Based. Awards that the Compensation Committee seek to qualify as "performance-based compensation" will be subject to the attainment of performance goals based on one or more of the following business criteria, as selected and defined by the Compensation Committee: earnings, earnings per share or earnings per share growth; earnings before interest and taxes, or earnings before interest, taxes, depreciation and/or amortization; stock price; total stockholder return; return on assets; net asset turnover; return on capital or return on invested capital; return on equity; cash flow; net income; profit margin; market share; expense management; revenue; revenue growth; stockholder equity; leverage ratio; investment rating; and debt coverage; provided, that these criteria shall includeany derivations of the foregoing (e.g., net income shall include pre-tax income). Any of these criteria may be used to measure the performance of the Company as a whole or any business unit or division of the Company. Performance criteria may be stated in absolute terms or relative to comparison companies or indices to be achieved during a given time period.The Compensation Committee may provide, at the time it establishes the performance goals for any award, that any evaluation of performance shall include or exclude any one or more of the following events that occurs during a performance period: (i) significant acquisitions or dispositions of business or assets by the Company; (ii) litigation, judgments or settlements; (iii) the effect of changes in the tax laws, accounting principles, or other laws or provisions affecting reported results; (iv) any reorganization or restructuring programs; (v) extraordinary items as described in FASB ASC Section 225-20-20; (vi) significant, non-recurring charges or credits; and (vii) foreign exchange rates.Maximum Amount of Compensation. Subject to certain adjustments, the aggregate number of shares subject to awards intended to qualify as performance-based that are granted under the Plan during any one year to any one participant shall not exceed 300,000 shares.General. The Plan, previously approved by stockholders, was amended and restated by the Board of Directors in 2001. The Board of Directors has subsequently amended the Plan, including most recently in July 2011 to include performance-based compensation provisions, as discussed above, and to add restricted stock units to the types of awards eligible for grant under the Plan. The following is a summary of the current Plan.Administration. The Compensation Committee administers the Plan and has the authority to determine the key employees and non-employee directors to whom awards are to be granted under the Plan, the types and amount of awards, the term of each award and other terms and conditions of each award, including the applicable vesting schedule, and the number of shares of common stock covered by an award.Available Shares. As of May 31, 2011, 3,766,606 shares of our Common Stock were available for issuance under the Plan (this number reflects the shares not subject to outstanding awards). Any shares subject to an award that are not issued due to a lapse, expiration or cancellation of the award, or that are issued pursuant to a restricted stock award that is subsequently cancelled or forfeited will again be available for issuance pursuant to subsequent awards. Shares delivered by the participant or withheld by the Company as payment of the exercise price or withholding taxes for an option will again be available for issuance pursuant to subsequent awards. Shares delivered as payment of any withholding taxes for a restricted stock award will not again be available for issuance under the Plan. The Compensation Committee will adjust this maximum annual award limit in the case of a stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding shares in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the Plan.Awards. The Plan provides for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights. To date, the Company has granted stock options and restricted stock but has not granted any restricted stock units or stock appreciation rights. BeginningJuly 15, 2002, the Plan provides that only non-qualified stock options (as opposed to incentive stock options) may be granted under the Plan.Stock Options: The Compensation Committee may grant non-qualified stock options to key employees and non-employee directors. The Compensation Committee has discretion to set the terms and conditions of each stock option, provided that: (i) the exercise price of an option will be the fair market value of a share of common stock on the date of the grant, (ii) each option will expire no later than ten years from the date of grant, and (iii) the option is subject to certain vesting and exercise provisions set forth in the Plan in the case of a participant's death, disability or retirement (as defined in the Plan).Restricted Stock: The Compensation Committee also may grant awards of restricted stock to key employees and non-employee directors. The Compensation Committee has discretion to set the terms and conditions, including the restrictions on transfer of the award. A participant will be a stockholder with respect to the shares of restricted stock awarded to him, and will have the rights of a stockholder, although dividends otherwise payable on any performance-based restricted stock awards will be held by the Company and will be paid only to the extent the restrictions on the shares lapse, and the Compensation Committee has the discretion to hold dividends on other restricted stock awards until the restrictions lapse. In the case of restricted stock granted in tandem with an option, the exercise of an option results in a forfeiture of the restricted stock related to the option, and the lapse of restrictions on the restricted stock results in the cancellation of the unexercised related option.Restricted Stock Units: The Compensation Committee may grant restricted stock units to key employees and non-employee directors. Each restricted stock unit entitles the participant to receive, on a specified date or event set forth in the award agreement, one share of common stock or cash equal to the fair market value of one share on such date or event, as provided in the award agreement. The number of restricted stock units awarded to each participant, and the terms and conditions of the award, will be at the discretion of the Compensation Committee. A participant will not be a stockholder with respect to the restricted stock units awarded to him prior to the date they are settled in shares of common stock. The award agreement may provide that until the restrictions lapse, the participant will be paid an amount equal to the dividends that would have been paid had the restricted stock units been actual shares (although such dividend equivalents payable on any performance-based restricted stock units will be held by the Company and paid only to the extent the restrictions lapse, and the Compensation Committee has the discretion to hold such amounts payable on any other restricted stock units until the restrictions lapse).Stock Appreciation Rights: The Compensation Committee may grant stock appreciation rights ("SARs") to key employees. SARs may be granted in tandem with a related stock option (a "tandem SAR") or as a separate award (a "non-tandem SAR"). A tandem SAR will be exercisable only at the same time as the related option and will be subject to the same restrictions applicable to such option. A tandem SAR will expire upon exercise of a related option and a related option will expire upon exercise of the tandem SAR. The Compensation Committee has the discretion to set the terms and conditions of an SAR, provided that (i) the exercise price of each SAR will be the fair market value of a share of common stock on the date of grant and (ii) the SAR is subject to certain vesting and exercise provisions set forth in the Plan in the case of a participant's death, disability or retirement (as defined in the Plan). Upon exercise of anSAR, a participant will receive the following amount, in the form of cash or shares, as determined by the Compensation Committee: (i) in the case of a non-tandem SAR, the difference between the fair market value of a share of common stock on the date of exercise, and the exercise price of the SAR, multiplied by the number of shares for which the SAR is exercised; or (ii) in the case of a tandem SAR, the difference between the fair market value of a share of common stock on the date of exercise and the exercise price of the related stock option, multiplied by the number of shares for which the SAR is exercised.Payment and Withholding Taxes. A participant may pay the exercise price of a stock option and/or the withholding taxes due with respect to an award by one or more of the following payment methods: (i) cash; (ii) cash received from a broker-dealer to whom the participant has submitted an exercise notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding taxes; (iii) delivery of shares (either subject to the award or already owned) that have an aggregate fair market value equal to the exercise price or withholding taxes; (iv) or by directing the Company to withhold shares otherwise issuable in connection with the award having a fair market value equal to the exercise price or withholding taxes.Change in Control. If a change in control of the Company does not have the prior written approval of a majority of the Board, the following rules will apply to awards made to key employees: (i) in the case of non-tandem awards, all outstanding stock options and SARs will vest and be exercisable and all restrictions on restricted stock and restricted stock units will lapse; and (ii) in the case of tandem awards, a participant may elect whether the restrictions on tandem restricted stock will lapse (in which case the related option will expire), or whether the option will be immediately exercisable (in which case the related restricted stock will be forfeited). If a change in control is approved by a majority of the Board, the Compensation Committee will decide whether outstanding stock options and SARs will vest and be exercisable and/or all restrictions on restricted stock will lapse, or the awards will be exchanged for similar awards of the surviving or acquiring corporation. If a non-employee director's membership on the Board terminates within one year following a change in control that did not have the prior written approval of a majority of the Board, all outstanding stock options will vest and be exercisable and all restrictions on restricted stock and restricted stock units will lapse.Amendment or Termination of Plan. The Board of Directors may terminate, suspend or modify the Plan, without the authorization of the stockholders, to the extent allowed by law, provided that neither the Plan nor any award agreement can be amended in a way that results in the repricing of a stock option without stockholder approval. No termination, suspension or modification of the Plan may adversely affect any rights of a holder of an award granted under the Plan before the date of such termination, suspension or modification without the consent of such holder.Federal Income Tax Consequences. The following is a summary of the federal income tax consequences of the Plan. It is based on the federal tax laws and regulations currently in effect and existing administrative rules of the Internal Revenue Service. Participants also may be subject to state and local taxes in connection with the grant of awards under the Plan. Participants should consult with their individual tax advisors to determine the tax consequences associated with awards granted under the Plan. This information may not be applicable to employees of foreign subsidiaries or to employees who are not residents of the United States.Nonqualified Stock Options. A participant will not recognize any income upon the grant of a nonqualified stock option. On the date the participant exercises the nonqualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock on the date of exercise over the exercise price (the amount paid for the shares). The participant will be responsible for remitting to the Company any withholding tax obligation that arises at the time the option is exercised. The Company generally will receive a tax deduction for the same amount of ordinary income the participant recognizes. The participant's tax basis for the shares acquired upon exercise will be the exercise price paid for the shares plus the amount of ordinary income recognized. When the participant sells these shares, any gain or loss recognized is treated as either short-term or long-term capital gain or loss depending on whether the participant has held the shares for more than one year.Restricted Stock/Restricted Stock Units. If a participant receives a restricted stock award, he will recognize ordinary income upon becoming entitled to transfer the shares of common stock at the end of the restriction period without forfeiture or, if earlier, when there is no substantial risk of forfeiture of the common stock. A participant generally will recognize ordinary income when he receives shares or cash pursuant to the settlement of stock units, provided that if the shares are subject to any further restrictions on transfer, the participant will recognize ordinary income upon becoming entitled to transfer the shares at the end of the restriction period without forfeiture. In each case, the amount of income recognized will be equal to the fair market value of the shares or cash received on such date less the amount, if any, the participant paid for the shares. This amount will also be the participant's tax basis for the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. In addition, the holding period begins on the day the restrictions lapse for purposes of determining whether the participant has long-term or short-term capital gain or loss on a subsequent sale of the shares. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.Stock Appreciation Rights. A participant will not recognize any income at the time of the grant of an SAR. Upon exercise of the SAR, the participant will recognize ordinary income equal to the amount received upon exercise. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. The Company generally will be entitled to a deduction with respect to the ordinary income the participant recognizes.It is not possible at this time to determine the specific awards that will be made in Fiscal 2012 and future years under the Plan. As of August 1, 2011, a total of 13,624,302 stock options with exercise prices ranging from $3.20 to $34.02 have been granted under the Plan since it was first adopted. Included in this number are grants as follows: David P. Storch (Chairman of the Board and Chief Executive Officer and a 33-year employee): 4,218,044; Timothy J. Romenesko (President and Chief Operating Officer and a 29-year employee): 504,900; Richard J. Poulton (Vice President, Chief Financial Officer and Treasurer): 108,357; Terry D. Stinson (Group Vice President — Structures and Systems): 30,000; Robert J. Regan (Vice President, General Counsel and Secretary): 58,357; all current executive officers as a group: 4,919,658; all current non-employee directors as a group: 71,500; all current nominees for election as a director as a group: 20,500; and all current employees as a group (excluding current executive officers): 8,704,644. On August 1,2011, the last reported sales price for the common stock on the New York Stock Exchange was $29.11 per share.The affirmative vote of a majority of the shares of common stock present in person or represented by proxy and voting at the annual meeting is required to approve the amendment to the Plan.THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERSVOTEFOR THE AMENDMENT TO THE PLAN TO ADD SECTION 162(m)PERFORMANCE CRITERIA.Equity Compensation Plan InformationThe following table provides information as of May 31, 2011 with respect to the Company's compensation plans under which equity securities of the Company are authorized for issuance (shares in thousands): Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
(a) Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c) Equity compensation plans approved by securities holders 1,994 $ 18.56 3,767 — — — 1,994 $ 18.56 3,767
PROPOSAL 53 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP
AS THECOMPANY'SOUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM2011,2015, after consideration and determination of KPMG's independence in light of all services rendered to the Company and its past performance as the Company's independent registered public accounting firm. The Board of Directors asks that stockholders ratify the appointment of KPMG as the Company's independent registered public accounting firm for Fiscal 2011.2015. Representatives of KPMG are expected to be present at the annual meeting, with the opportunity to make a statement if they so desire and to respond to appropriate questions of stockholders.
Independent Registered Public Accounting Firm Fees and Services20112013 and Fiscal 20102014 for audit, audit-related tax, and othertax services provided by the Company's independent registered public accounting firm. As noted, audit fees decreased in Fiscal 2011, principally as a result of additional assistance provided by the Company's internal audit department. Description of Fees Fiscal 2011 ($) Fiscal 2010 ($) Audit Fees 1,275,000 1,490,000 Audit-Related Fees1 63,386 243,090 Tax Fees2 335,536 268,588 All Other Fees3 0 40,000 Description of Fees Fiscal 2013 ($) Fiscal 2014 ($) 1,689,980 1,794,370 Audit-Related Fees1 136,375 136,000 Tax Fees2 373,317 387,109 Audit-relatedFiscal 2013 audit-related fees in Fiscal 2011 were for atwo comfort letterletters, purchase price allocation and related acquisition work, technical research and statutory audits of foreign subsidiaries. Audit-relatedFiscal 2014 audit-related fees in Fiscal 2010 were for a comfort letter, statutory audits of foreign subsidiaries andtwo consents on registration statement filings, acquisition due diligence.diligence assistance and SEC comment letter services.3All other fees represent consultation and assistance regarding government contract accounting.Vote Required for RatificationThe affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy and voting at the annual meeting is required to ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm.THEOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
YOU VOTEFOR
THE RATIFICATION OF THE APPOINTMENT OF KPMG AS THEOURCOMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.FIRM FOR FISCAL 2015.
Audit Committee Report for Fiscal 20112014On May 31, 2011, theThe Audit Committee was comprised of six independent directors. The Board has determined that each memberreviews the Company's financial reporting process on behalf of the Audit Committee is independent within the meaningBoard of the applicable SEC regulations, NYSE rules and the Company's Categorical Standards and Policy for Determining Director Independence. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors, as the Audit Committee deems necessary, to carry out its duties with funding from the Company.the fiscal year ended May 31, 2011Fiscal 2014 with the Company's management and representatives of the Company's independent registered public accounting firm, including a discussion of the reasonableness of significant judgments and accounting estimates, and clarity of disclosures in the financial statements. The Audit Committee also reviewed with management and the independent registered public accounting firm the preparation of the financial statements and related disclosures contained in the Company's earnings announcements and quarterly reports. Management has represented to the Audit Committee that the Company's financial statements were prepared in accordance with the United States generally accepted accounting principles ("GAAP"), and the independent registered public accounting firm has expressed an opinion based on their audit that the financial statements are in conformance with GAAP in all material respects. The Audit Committee is not responsible for planning or conducting audits, or the determination that the Company's financial statements are complete and accurate and in accordance with GAAP. That is the responsibility of management and the independent registered public accounting firm. Statement onPublic Company Accounting Oversight Board Auditing StandardsStandard No. 16 ("SAS"), No. 61,Communications with Audit Committees,Committees") as amended by SAS 90Audit Committee Communications,, and (ii) the independent registered public accounting firm's independence from the Company and its management, including the matters in the written disclosures and letter furnished to the Audit Committee by the independent registered public accounting firm and required by applicable requirements of the Public Company Accounting Oversight Board, andBoard. The Audit Committee determined that the non-audit services provided to the Company by the independent registered public accounting firm are compatible with maintaining the independent registered public accounting firm's independence.the year ended May 31, 2011Fiscal 2014 for filing with the SEC.Chartercharter and conducted an Audit Committee self-assessment in which it concluded that the Committee operates effectively and successfully carried out all of its Chartercharter responsibilities.
Anthony K. Anderson
Norman R. BobinsJames G. Brocksmith, Jr.
Patrick J. Kelly
Marc J. Walfish
Ronald B. Woodard and Policy for Determining Director IndependenceAssist LineHotline through aan independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, and employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Assist LineHotline is toll-free and permits callers to identify themselves or remain anonymous at their election.A majority of the members of the Board of Directors must be independent directors under the Company's Corporate Governance Guidelines and applicable NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company's "Categorical Standards and Policy for Determining Director Independence" include all of the elements of the applicable SEC and NYSE rules with respect to director independence, as well as those of the Company, and are attached as Appendix A to this proxy statement. Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2011, affirmatively determined that no director has a material relationship with the Company that would impair the director's ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P. Storch, due to his status as Chairman of the Board and Chief ExecutiveOfficer of the Company, and Timothy J. Romenesko, due to his status as President and Chief Operating Officer of the Company. Under the NYSE rules, a director employed by the Company is not an independent director by definition.The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes best serves the interests of the Company's stockholders. The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. Currently, the Company's Chief Executive Officer, David P. Storch, is also Chairman of the Board. The Board believes this structure is the most effective and appropriate leadership structure for the Board and the Company at this time for the following principal reasons:•Mr. Storch is the second Chairman and Chief Executive Officer in the Company's 60-year history. This stability at the most senior executive position within the Company has served the Company well and contributed to its ability to adapt and react to recurrent business cycles in the commercial aviation and government and defense services markets.•Mr. Storch has served the Company in senior management positions for over 20 years (beginning in 1989 as President and Chief Operating Officer of the Company, his assumption of the Chief Executive Officer title in 1996, his assumption of the Chairman of the Board title in 2005 and continuing through his current position as Chairman and Chief Executive Officer).•Mr. Storch's combination of expertise and experience provides the Company with a unique skill-set, including his knowledge of the commercial aviation and government and defense services markets; his understanding of the Company's culture, businesses, employees and customers; and his leadership role in the Company's transformation from a supplier of aircraft parts and aftermarket services for commercial airlines into a leading international provider of products and services to the commercial aviation and government and defense services markets, with both front-end manufacturing and after-market support to domestic and international customers.•As Chairman and Chief Executive Officer of the Company, Mr. Storch leads the Board and senior management in the development and implementation of the Company's business strategy and its relationships with its core constituents, including its stockholders, customers and employees.•The Board of Directors, particularly the non-management directors, provides substantial independent oversight of the conduct of the Company's business. The Company does not have a lead director in title, but the Chairman of the Nominating and Governance Committee (currently, Ronald R. Fogleman) acts in that capacity and chairs all executive sessions of the non-management directors. The non-management directors meet regularly in executive sessions, including at every regularly scheduled Board meeting, after which the Chairman of the Nominating and Governance Committee briefs Mr. Storch, as appropriate.•The Board of Directors conducts an annual evaluation of the Chairman and Chief Executive Officer that focuses on Mr. Storch's performance in carrying out the responsibilities of the two positions. In Fiscal 2011, the Board concluded at this evaluationthat Mr. Storch's performance as Chairman and Chief Executive Officer continues to justify maintaining the combined position.The Board of Directors, directly and through its committees, is responsible for overseeing management's process for assessing and managing the Company's exposure to risks. In that role, the Board regularly reviews and responds to management's business strategies and initiatives, the Company's quarterly and annual financial results and information relating to the Company's competitive position, customer base, and capital and liquidity position. The Board meets each year with senior management to review and discuss the Company's strategic plan. This meeting includes an assessment of the key challenges and risks of the Company's businesses, and the opportunities for addressing and responding to these challenges and risks.The Audit Committee, on behalf of the Board, oversees the enterprise risk management committee, which is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies and reporting to the Audit Committee. In Fiscal 2011, the enterprise risk management committee reviewed and discussed with the Audit Committee the Company's principal risks and outlined its risk mitigation approach for addressing these risks. The Audit Committee reviews and reports to the Board on risks relating to accounting, financial reporting and legal compliance, risks identified by the Company's internal and external auditors, and matters raised through the Company's Ethics Assist Line. The Compensation Committee oversees and reports to the Board on the Company's incentive compensation programs to assure that they are appropriately structured to incentivize officers and key employees while assuring appropriate risk. The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including director independence and related party transactions.The Board and its committees receive information from and have regular access to the individual members of management responsible for managing risk, including the Company's Chief Executive Officer, President, Chief Financial Officer, Group Vice Presidents, Controller, General Counsel and Internal Auditor. The directors also meet each quarter with a broader group of the Company's employees at regularly scheduled Board dinners as an informal way of learning more about the Company's businesses and its employees.Communications with the Board of DirectorsStockholders and other interested parties may communicate with the Board, the Chairman of the Board, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:AAR CORP.Attention: Independent Directors (or the name of the individual director)c/o Corporate SecretaryOne AAR Place1100 North Wood Dale RoadWood Dale, Illinois 60191The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.Corporate Governance GuidelinesThe Board of Directors adopted Corporate Governance Guidelines to codify long-standing policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of the Nominating and Governance Committee of the Board of Directors, address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed annually by the Nominating and Governance Committee and the Board of Directors.Director Nominations and Qualificationstheits Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director. The Nominating and Governance Committee obtains recommendations from management, other directors, business and community leaders and stockholders, and may retain the services of a consultant to assist in identifying candidates. The Nominating and Governance Committee considers all director candidates in the same manner, including director candidates recommended by stockholders, regardless of the source of the recommendation. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company's Corporate Governance Guidelines, including:auditing,audit, financial, legal or aviation/aerospace)aviation and government/defense), particularly in areas where the Board currently lacks specific skills; andA high level of integrityOther factors the Nominating and professional and personal ethics and values consistent with those of the Company.Governance Committee deems appropriate. In Fiscal 2011, the Board engaged an independent executive search firm to consider Board diversity and to provide information on the identification and recruitment of women and minority Board candidates. The Board expressed its view that Board diversity is a key priority for the Company, to be addressed no later than the next director vacancy.
Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the Board of Directors. Based on its review and consideration of the Committee's recommendation, the Board makes the final determination of director nominees to be elected by the Company's stockholders.
Stockholders may submit a proposed nomination to the Nominating and Governance Committee for consideration with respect to the 20122015 annual meeting of stockholders by writing to the Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be considered, proposed nominations must be received by the Secretary of the Company no later than April 18, 2012,11, 2015, must state the reasons for the proposed nomination and contain the information required under the Company's By-Laws, including the full name and address of each proposed nominee, as well as a brief biographical history setting forth past and present directorships, employment and occupations, information as to stock ownership, other arrangements regarding the Common Stock,common stock, and any other qualifications. Proposed nominations must also include a statement indicating that the proposed nominees have consented to being named in the proxy statement and to serve if elected.
A majority of the members of the Board of Directors must be independent directors under the Company's Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company's "Categorical Standards for Determining Director Independence" include all of the elements of the applicable SEC and NYSE rules with respect to director independence, as well as those of the Company, and are available on the Company's website. Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2014, affirmatively determined that no director has a material relationship with the Company that would impair the director's ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P. Storch, due to his status as Chairman of the Board and Chief Executive Officer of the Company, and Timothy J. Romenesko, due to his status as President and Chief Operating Officer of the Company. Under the NYSE rules, a director employed by the Company is not an independent director by definition.
Board Leadership and Lead Director
The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes best serves the interests of the Company's stockholders.
The Corporate Governance Guidelines provides that the Board shall have a Lead Director elected by the independent directors. The Lead Director chairs all executive sessions of the independent directors and works closely with the Chief Executive Officer on Board agendas, schedules and meetings. Ronald R. Fogleman, Chair of the Nominating and Governance Committee, currently serves as the Board's Lead Director.
The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. Currently, the Company's Chief Executive Officer, David P. Storch, is also Chairman of the Board. The Board continues to believe having Mr. Storch as Chairman and Chief Executive Officer is the most effective and appropriate leadership structure for the Board and the Company at this time for the following principal reasons:
markets; his shaping of the Company's culture; his understanding of the Company's businesses, employees and customers; and his leadership role in the Company's transformation from a supplier of aircraft parts and aftermarket services for commercial airlines into a leading international provider of products and services to the commercial aviation and government and defense services markets.
The Board of Directors, directly and through its committees, is responsible for overseeing management's process for assessing and managing the Company's exposure to risks. In that role, the Board regularly reviews and responds to management's business strategies and initiatives, the Company's quarterly and annual financial results, and information relating to the Company's competitive position, customer base, and capital and liquidity position. The Board holds an annual strategy session with senior management devoted entirely to a review and consideration of the Company's businesses, markets, customers, competitors, and strategic initiatives and direction. This meeting includes an assessment of the key challenges and risks of the Company's businesses, and the opportunities for addressing and responding to these challenges and risks.
The Audit Committee, on behalf of the Board, oversees the enterprise risk management committee, which is composed of Company employees and is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies, auditing the effectiveness of the risk mitigation strategies and reporting to the Audit Committee. The enterprise risk management committee meets regularly with the Audit Committee to review and discuss the Company's principal risks and outline its risk mitigation approach for addressing these risks. The Audit Committee reports to the Board on risks relating to accounting, financial reporting and legal compliance, risks identified by the Company's internal and external auditors, and matters raised through the Company's Ethics Hotline. The Compensation Committee oversees and reports to the Board on the Company's incentive compensation programs to provide that they are appropriately structured to incentivize officers and key employees while assuring appropriate risk. The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including director independence and related party transactions.
The Board and its committees receive information from and have regular access to the individual members of management responsible for managing risk, including the Company's Chief Executive Officer, President, Chief Financial Officer, Group Vice Presidents, Controller, General Counsel and Internal Auditor. The directors meet each quarter with a broader group of the Company's employees at regularly scheduled Board dinners as an informal way of learning
more about the Company's businesses and its employees. The Board also schedules at least one meeting per year at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect the Company's business operations.
Independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The Chairman of the Nominating and Governance CommitteeLead Director presides at the executive sessions of independent directors.
Communications with the Board of Directors
Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:
AAR CORP.
Attention: Independent Directors, Lead Director or the name of the individual director
c/o Corporate Secretary
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.
Corporate Governance Guidelines
The Board of Directors adopted Corporate Governance Guidelines to codify long-standing policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of the Nominating and Governance Committee of the Board of Directors, address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed and approved annually by the Nominating and Governance Committee and the Board of Directors, most recently in July 2014.
Code of Business Ethics and Conduct
The Company's Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the Chairman and Chief Executive Officer, the President and Chief Operating Officer, the Chief Financial Officer, and the Chief Accounting Officer and Controller. The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the Company's business practices and procedures, including the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations. Employees are encouraged to report to the Company any conduct that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. We will post any amendments to the Code of Business Ethics and Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company's website, as required under SEC rules.
The Board reviewed and revised the Code of Business Ethics and Conduct in Fiscal 2011. The revisions strengthened the rules relating to the offering and receipt of gifts and updated the Code's provisions regarding the Foreign Corrupt Practices Act and the Federal Government Contractor Code of Business Ethics and Conduct.
Related Person Transaction Policy
The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. "Related persons" means: the Company's directors; director nominees; executive officers; greater than five percent beneficial owners of the Company's voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board of Directors directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction, and the impact of the related person transaction on a director's independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
The Policy provides that the Company may undertake certain pre-approved related person transactions without further specific review, consideration, and approval, including the following:
The Board approvedCompany has a "Founder's Agreement" dated October 19, 2010 between the Company andFounder's Agreement with Ira A. Eichner, the Founder and a former director and Chairman of the Board of the Company. The Founder's Agreement recognizes Mr. Eichner's extraordinary contributions to the Company for over 5556 years and the value to the Company of an ongoing relationship with Mr. Eichner. Under the Founder's Agreement, upon request of the Company and subject to his availability, Mr. Eichner will serve as an ambassador for the Company and provide consulting services on operational and strategic issues.Agreement. Mr. Eichner receives a quarterly retainer of $25,000 and is reimbursed for business expenses incurred in service to the Company.$25,000. Mr. Eichner also participates in the Company's Non-Employee Directors' Retirement Plan until December 1, 2015 (see "—Director Compensation Table," footnote 5)Compensation"). Mr. Eichner is Mr. Storch's father-in-law.
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and an Executive Committee. The following table showsidentifies the current membershipmembers of each committee:
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Director | | Audit Committee | | Compensation Committee | | Nominating and Governance Committee | | Executive Committee | | ||||||||||
| Anthony K. Anderson | X | X | |||||||||||||||||
Norman R. Bobins | X | X | ||||||||||||||||||
| Michael R. Boyce | X | X | |||||||||||||||||
| | |||||||||||||||||||
Ronald R. Fogleman | X | Chair | X | |||||||||||||||||
| James E. Goodwin | Chair | X | X | ||||||||||||||||
| Patrick J. Kelly | X | X | |||||||||||||||||
| Peter Pace | X | X | |||||||||||||||||
| ||||||||||||||||||||
| David P. Storch | Chair | ||||||||||||||||||
| Marc J. Walfish | X | X | X | ||||||||||||||||
| Ronald B. Woodard | X | Chair |
Audit Committee
The Audit Committee is comprised entirely of independent directors qualified to serve on the Audit Committee under applicable SEC and NYSE rules and the Company's Categorical Standards and Policy for Determining Director Independence. Its members are James E. Goodwin (Chairman)(Chair), Anthony K. Anderson, Norman R. Bobins, James G. Brocksmith, Jr., Patrick J. Kelly, Marc J. Walfish and Ronald B. Woodard. The Board of Directors has determined that each Audit Committee member is an "audit committee financial expert" within the meaning of applicable SEC rules.
The Audit Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Audit Committee and the Board of Directors at their July 20112014 meetings. The full text of the Audit Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Audit Committee is primarily concerned with the integrity of the Company's financial statements, compliance with legal and regulatory requirements and the performance of the Company's internal audit function and independent registered public accounting firm. The Audit Committee performs the specific functions described in its charter, including:
The Audit Committee held seven meetings during Fiscal 2011.2014. The Audit Committee Report for Fiscal 20112014 appears on page 18.pages 13-14.
Compensation Committee
The Compensation Committee is comprised entirely of independent directors as defined under applicable SEC and NYSE rules and the Company's Categorical Standards and Policy for Determining Director Independence. Its members are Ronald B. Woodard (Chairman)(Chair), Anthony K. Anderson, Norman R. Bobins, Michael R. Boyce, James G. Brocksmith, Jr., Ronald R. Fogleman and Peter Pace.
The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Compensation Committee and the Board of Directors at their July 20112014 meetings. The full text of the Compensation Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing the AAR CORP. Stock Benefit PlanCompany's stock plans and any other compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including:
The Compensation Committee held sixfive meetings during Fiscal 2011.2014. The Compensation Committee Report on Executive Compensation for Fiscal 20112014 appears on page 51. Information about the role of the Compensation Committee consultant and management in the executive compensation process is set forth under "Executive Compensation — Compensation Discussion and Analysis" section on pages 46-47.
Nominating and Governance Committee
The Nominating and Governance Committee is comprised entirely of independent directors as defined under applicable SEC and NYSE rules and the Company's Categorical Standards and Policy for Determining Director Independence. Its members are Ronald R. Fogleman (Chairman)(Chair), Michael R. Boyce, James E. Goodwin, Patrick J. Kelly, Peter Pace and Marc J. Walfish.
The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Nominating and Governance Committee and the Board of Directors at their July 20112014 meetings. The full text of the Nominating and Governance Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Nominating and Governance Committee performs the specific functions described in its charter, including:
The Nominating and Governance Committee held fivethree meetings during Fiscal 2011.2014.
Executive Committee
The Executive Committee is comprised of David P. Storch (Chairman)(Chair), James E. Goodwin, Ronald R. Fogleman and Marc J. Walfish. Mr.Messrs. Goodwin, Fogleman and Mr. Walfish are each independent directors as defined by applicable SEC and NYSE rulesrules. As Chairman and Chief Executive Officer of the Company's Categorical StandardsCompany, Mr. Storch does not qualify as an independent director under the NYSE and Policy for Determining Director Independence.SEC rules.
The Executive Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Executive Committee and the Board of Directors at theirits July 2011 meetings.2014 meeting. The full text of the Executive Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Executive Committee is authorized to meet between meetings of the Board of Directors and exercise certain powers of the Board with respect to urgent matters or other matters referred to
it by the Board for deliberation or action, subject to limitations imposed by the Committee's charter, the Board, applicable law and the Company's By-Laws.
The Executive Committee did not meet during Fiscal 2011.2014.
During Fiscal 2011,2014, the Board held fourfive meetings and acted by unanimous written consent on two occasions. All persons who were directors during Fiscal 2011 attended at least 75% of the Board meetings and meetings of Board committees on which they served.served in Fiscal 2014.
The Company's Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All the members of the Company's Board of Directors attended the Company's 20112013 annual meeting of stockholders.
The Board believes that compensation for any director who is not an officer or employee of the Company or any subsidiary ("Non-Employee Director") should be a mix of cash and equity compensation. Director compensation and benefits are recommended to the Board of Directors from time to time by the Compensation Committee for Board approval. Directors who are officers or employees of the Company or any subsidiary receive no additional compensation for service on the Board or any of its committees.
In Fiscal 2011,The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. At its January 2013 meeting, the Compensation Committee, withBoard reviewed the assistancefindings of a report by its independent compensation consultant reviewedanalyzing director compensation information of the Company and its peer group companies. This report showed that the Company's existingcash compensation for directors was above the median of the Company's peer group, the Company's equity compensation was below the median and total compensation was slightly below the median of the peer group (see pages 35-37 for information relating to the Company's peer group). Based on this information, the Board, upon the recommendation of the Compensation Committee, made no changes to its Fiscal 2014 director compensation program. Based on the review and subsequent discussions involving the full Board, senior management and representatives of the independent compensation consultant, the Board approved a new director compensation program effective June 1, 2011, designed to provide competitive compensation that fairly rewards directors for their service to the Company.
The following table identifies the elements of director compensation in effect during Fiscal 2011 and the new director compensation program that became effective June 1, 2011:2014:
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Compensation Element | | Fiscal 2011 Non-Employee Director Compensation Program | | New Non-Employee Director Compensation Program | | ||||||
| Annual Retainer | $45,000 | $50,000 | |||||||||
| Annual Committee Chair Retainer | $5,000 | $10,000 | |||||||||
| Board and Committee Meeting Fees | $2,500 ($1,250 for telephone meetings) | Same | |||||||||
| Annual Equity Grant | 4,000 shares of Common Stock (vesting over three years) | 5,000 shares of Common Stock (vesting over one year) |
Compensation Element | Fiscal 2014 Non-Employee Director Compensation Program | |||||||
---|---|---|---|---|---|---|---|---|
Annual Retainer | $50,000 | |||||||
Lead Director Annual Retainer | $30,000 | |||||||
Committee Chair Annual Retainer | $10,000 | |||||||
Board and Committee Meeting Fees | $2,500 per meeting ($1,250 for telephone meetings) | |||||||
Annual Stock Award | 5,000 shares of common stock (vesting after one year) |
Annual retainer feesAll retainers are paid quarterly, Committee Chairman retainer fees are paid annually, and meeting fees are paid promptly following each meeting attended. The annual equity grant is typically madestock award was approved at the Board's July meeting, but in Fiscal 2011 it was made at the AprilJanuary 2014 meeting with an effective date of June 1, 2011.2014. Each Non-Employee Directornon-employee director may elect to defer receipt of the retainers and meeting fees pursuant to the Company's Non-Employee Directors' Deferred Compensation Plan (the "Director Plan"). Under the Director Plan, deferred retainer fees are converted into stock units equivalent to shares of Common Stock,common stock, and deferred meeting fees are
credited with interest quarterly based on the 10-Year United States Treasury Bond rate. Distributions of deferred retainer fees under the Director Plan are madepaid in cash or in shares of common stock of equivalent value, Common Stock, at the participant's election, and distribution of deferred meeting fees are made in cash, in each case upon termination of service on the Board or on the happening of certain other events, as specified in the Director Plan.
Each Non-Employee Director,non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 and is eligible (with spouse) to participate in a Company-paid, annual physical program. The Company also reimburses its directors for travel, lodging and related expenses they incur in attending Board and committee meetings.
General.The following table details the totalsets forth all compensation paid to the Company's Non-Employee Directorseach non-employee director for Fiscal 2011:2014:
| |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name1 | | Fees Earned or Paid in Cash ($)2 | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)5 | | All Other Compensation ($)6 | | Total ($) | | |||||||||||||||||||||||
| Norman R. Bobins | 73,750 | 71,640 | 0 | 0 | 0 | 3,220 | 148,610 | |||||||||||||||||||||||||||||||
| Michael R. Boyce | 78,750 | 71,640 | 0 | 0 | 0 | 720 | 151,110 | |||||||||||||||||||||||||||||||
| James G. Brocksmith, Jr. | 86,250 | 71,640 | 0 | 0 | 76,428 | 7,336 | 241,654 | |||||||||||||||||||||||||||||||
| Gerald F. Fitzgerald, Jr. | 25,625 | 71,640 | 0 | 0 | 0 | — | 97,265 | |||||||||||||||||||||||||||||||
| Ronald R. Fogleman | 78,750 | 71,640 | 0 | 0 | 0 | 2,142 | 152,532 | |||||||||||||||||||||||||||||||
| James E. Goodwin | 85,000 | 71,640 | 0 | 0 | 0 | 12,220 | 168,860 | |||||||||||||||||||||||||||||||
| Patrick J. Kelly | 72,500 | 71,640 | 0 | 0 | 0 | 720 | 144,860 | |||||||||||||||||||||||||||||||
| Peter Pace | 31,375 | 55,600 | 0 | 0 | 0 | 720 | 87,695 | |||||||||||||||||||||||||||||||
| Marc J. Walfish | 80,000 | 71,640 | 0 | 0 | 0 | 720 | 152,360 | |||||||||||||||||||||||||||||||
| Ronald B. Woodard | 82,500 | 71,640 | 0 | 0 | 0 | 720 | 154,860 |
| |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name1 | | Fees Earned or Paid in Cash ($)2 | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) | | All Other Compensation ($)5 | | Total ($) | | |||||||||||||||||||||||
| Anthony K. Anderson | 86,250 | 103,400 | 0 | 0 | 0 | $ | 747 | 190,397 | ||||||||||||||||||||||||||||||
| Norman R. Bobins | 86,250 | 103,400 | 0 | 0 | 0 | 747 | 190,397 | |||||||||||||||||||||||||||||||
| Michael R. Boyce | 72,500 | 103,400 | 0 | 0 | 0 | 2,238 | 178,138 | |||||||||||||||||||||||||||||||
| Ronald R. Fogleman | 120,000 | 103,400 | 0 | 0 | 0 | 2,429 | 225,829 | |||||||||||||||||||||||||||||||
| James E. Goodwin | 92,500 | 103,400 | 0 | 0 | 0 | 7,247 | 203,147 | |||||||||||||||||||||||||||||||
| Patrick J. Kelly | 82,500 | 103,400 | 0 | 0 | 0 | 747 | 186,647 | |||||||||||||||||||||||||||||||
| Peter Pace | 78,750 | 103,400 | 0 | 0 | 0 | 4,596 | 186,746 | |||||||||||||||||||||||||||||||
| Marc J. Walfish | 80,000 | 103,400 | 0 | 0 | 0 | 2,331 | 185,731 | |||||||||||||||||||||||||||||||
| Ronald B. Woodard | 96,250 | 103,400 | 0 | 0 | 0 | 747 | 200,397 |
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Annual Retainer ($) | | Committee Chair Retainer Fees ($) | | Meeting Fees ($) | | Total ($) | | ||||||||||||||
| Norman R. Bobins | 45,000 | 0 | 28,750 | 73,750 | |||||||||||||||||||
| Michael R. Boyce | 45,000 | 0 | 33,750 | 78,750 | |||||||||||||||||||
| James G. Brocksmith, Jr. | 45,000 | 5,000 | 36,250 | 86,250 | |||||||||||||||||||
| Gerald F. Fitzgerald, Jr. | 16,875 | 0 | 8,750 | 25,625 | |||||||||||||||||||
| Ronald R. Fogleman | 45,000 | 5,000 | 28,750 | 78,750 | |||||||||||||||||||
| James E. Goodwin | 45,000 | 5,000 | 35,000 | 85,000 | |||||||||||||||||||
| Patrick J. Kelly | 45,000 | 0 | 27,500 | 72,500 | |||||||||||||||||||
| Peter Pace | 16,375 | 0 | 15,000 | 31,375 | |||||||||||||||||||
| Marc J. Walfish | 45,000 | 0 | 35,000 | 80,000 | |||||||||||||||||||
| Ronald B. Woodard | 45,000 | 0 | 37,500 | 82,500 |
| | | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Annual Retainer ($) | | Committee Chair Retainer Fees ($) | | Meeting Fees ($) | | Lead Director Fee | | Total ($) | | |||||||||||||||||
| Anthony K. Anderson | 50,000 | — | 36,250 | — | 86,250 | |||||||||||||||||||||||
| Norman R. Bobins | 50,000 | — | 36,250 | — | 86,250 | |||||||||||||||||||||||
| Michael R. Boyce | 50,000 | — | 22,500 | — | 72,500 | |||||||||||||||||||||||
| Ronald R. Fogleman | 50,000 | 10,000 | 30,000 | 30,000 | 120,000 | |||||||||||||||||||||||
| James E. Goodwin | 50,000 | 10,000 | 32,500 | — | 92,500 | |||||||||||||||||||||||
| Patrick J. Kelly | 50,000 | — | 32,500 | — | 82,500 | |||||||||||||||||||||||
| Peter Pace | 50,000 | — | 28,750 | — | 78,750 | |||||||||||||||||||||||
| Marc J. Walfish | 50,000 | — | 30,000 | — | 80,000 | |||||||||||||||||||||||
| Ronald B. Woodard | 50,000 | 10,000 | 36,250 | — | 96,250 |
Fiscal 2015 Director Compensation. At its April 2014 meeting, the Board, upon the recommendation of the Compensation Committee and following a presentation by its independent compensation consultant on director compensation trends and best practices, approved the same director compensation program in Fiscal 2015 that was in effect in Fiscal 2014.
Compensation Committee Interlocks and Insider Participation
Messrs. Anderson, Bobins, Boyce, Brocksmith,and Woodard, General Fogleman Woodard and General Pace, all of whom are independent Non-Employee Directors,non-employee directors, are the current members of the Compensation Committee of the Board of Directors of the Company. During Fiscal 2011,2014, none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of Directors of the Company or on the Compensation Committee of the Board of Directors of the Company.
Compensation Discussion and Analysis
The purpose of theThis Compensation Discussion and Analysis ("CD&A") is to describedescribes our Fiscal 2014 executive compensation program. In this section, we provide the followingIt provides information about the goals and the key elements of the program and explains the reasons behind the Compensation Committee's executive compensation decisions.
Our focus in this CD&A is the Fiscal 2014 compensation of our Chief Executive Officer, Chief Financial Officer and the other three most highly compensated executive officers of the Company (ourfollowing "named executive officers"):
Name | Title | |||||||
---|---|---|---|---|---|---|---|---|
David P. Storch | Chairman of the Board and Chief Executive Officer | |||||||
Timothy J. Romenesko | President and Chief Operating Officer | |||||||
John C. Fortson | Vice President, Chief Financial Officer and Treasurer since July 25, 2013 | |||||||
Randy J. Martinez | Group Vice President — Airlift | |||||||
Robert J. Regan | Vice President, General Counsel and Secretary | |||||||
Michael J. Sharp | Acting Chief Financial Officer and Treasurer through July 25, 2013 and Vice President, Controller and Chief Accounting Officer |
I. Executive Summary
A.
The primary goals of our executive compensation program are to:
B.
The CompanyAAR CORP. (the "Company") is a leading provider of diversified products and services to the worldwide aviation and government and defense markets. We delivered exceptional business performancesolid financial results for Fiscal 2014 despite reductions in Fiscal 2011. We achieved record consolidated salesdemand from our government and defense customers owing principally to the drawdown of $1.78 billion (a 34.9% increase over Fiscal 2010) and earned net income of $69.8 million (a 56.5% increase over Fiscal 2010) and diluted earnings per share of $1.73 (a 49.1% increase over Fiscal 2010). Our businesses generated $108.6 millionthe U.S. military presence in cash flow from operations during Fiscal 2011, most of which was reinvested to strengthen and broaden our product and service capabilities for the future. We also began paying an annual dividend of $.30 per share in the fourth quarter of Fiscal 2011.Afghanistan.
The table below summarizes
Our continued focus on our key businesscore businesses — aviation services and technology products — together with ongoing efforts to manage costs and strengthen our balance sheet, contributed to the following performance resultshighlights in Fiscal 20112014:
| | | Fiscal 2011 ($) | | Fiscal 2010 ($) | | Change (%) | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 1,775,782 | 1,316,416 | 34.9 | |||||||||||||||
| Operating Income | 138,727 | 93,769 | 47.9 | |||||||||||||||
| Net Income | 69,826 | 44,628 | 56.5 | |||||||||||||||
| Diluted Earnings Per Share | 1.73 | 1.16 | 49.1 | |||||||||||||||
| Stockholders' Equity | 835,845 | 746,906 | 11.9 |
For more information about our business,financial and operating performance in Fiscal 2014, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 13, 2011.17, 2014. For more information about our stock price performance, please see "Comparison of Cumulative Five-Year Total Return" in our Form 10-K.
C.
Stockholder Outreach Program
The compensation awarded to the Company's named executive officersWe conducted a formal stockholder outreach program in Fiscal 2011 reflected2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns related to our executive compensation program and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the Compensation Committee's view, contributedoutreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedback from two proxy advisory firms, Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
Based on the information gained from our stockholder outreach program, we made significant substantive changes to the Company's exceptional business performance for the year. Fiscal 2011our executive compensation also underlined the Company's commitment to pay for performance.
Below is a summary of the Fiscal 2011 compensation paid to the named executive officers of the Company:
Principally as a result of the difference between the value of Fiscal 2011 and Fiscal 2010 performance-based restricted stock, total direct compensation (defined as base salary plus
annual cash incentive plus long-term incentive compensation)decreased for each named executive officer (other than Mr. Regan who was not a named executive officer in Fiscal 2010) in Fiscal 2011 versus Fiscal 2010, as shown in
Here are the table below:
| | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Total Direct Compensation (Base Salary + Annual Cash Incentive + Grant Date Value of Long-Term Incentive Compensation) | | |||||||||||||||
| Named Executive Officer | | Fiscal 2011($) | | Fiscal 2010 ($) | | Change | | |||||||||||
| David P. Storch | $ | 4,614,913 | $ | 5,737,452 | -19.6% | |||||||||||||
| Timothy J. Romenesko | $ | 2,311,827 | $ | 2,842,332 | -18.7% | |||||||||||||
| Richard J. Poulton | $ | 1,488,173 | $ | 1,669,742 | -10.9% | |||||||||||||
| Terry D. Stinson | $ | 1,053,933 | $ | 1,491,437 | -29.3% | |||||||||||||
| Robert J. Regan | $ | 1,488,173 | N/A | N/A |
In addition, "Total" compensation reported in the Summary Compensation Table on page 52decreased for fourhighlights of the named executive officers in Fiscal 2011, as comparedsubstantive changes made to Fiscal 2010.
In support of the Company's emphasis on pay-for-performance compensation and to align the Company'sour executive compensation program more closely to market practice, the Compensation Committee made the following decisions in Fiscal 2011 with respect to the Company's executive compensation program:2014:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Additional Supplemental Company Contribution | | |||||||||||
| Named Executive Officer | | Formula Amount | | Actual Amount | | ||||||||
| David P. Storch | $ | 495,115 | $ | 247,557 | |||||||||
| Timothy J. Romenesko | $ | 187,513 | $ | 93,756 | |||||||||
| Robert J. Regan | $ | 81,309 | $ | 40,655 |
Two other named executive officers received the minimum contribution and the sixth named executive officer does not participate in the SKERP.
Chief Executive Officer Compensation
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ||||||||||||||||||||||||
| | | Fiscal 2013 ($) | | Fiscal 2014 ($) | | ||||||||||||||||||
| Compensation Element | | Actual | | Target | | Per Formula | | Actual | | ||||||||||||||
| Base Salary | 877,838 | 906,449 | N/A | 906,449 | |||||||||||||||||||
| Annual Cash Incentive | 1,350,685 | 1,133,061 | 1,216,498 | 851,548 | |||||||||||||||||||
| Long-Term Incentive Compensation | 1,314,720 | 2,964,720 | N/A | 2,964,720 |
Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the applicableCompany's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance goal. The reason for this change was to emphasizein Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to long-term net income performance.meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
I. Principal Compensation Elements of Our Executive Compensation Program
The table below identifies the principal elements of our Fiscal 20112014 executive compensation program, withand the ensuingsubsequent narrative providingprovides a brieffuller description of each element.
| Compensation Element | | Form of Compensation | | Performance Criteria | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Base salary | Cash | ||||||||||||||||||
| Annual cash compensation incentive | Cash | • • • Specific business unit goals | |||||||||||||||||
| Long-term | • Stock options | • | |||||||||||||||||
| • | • | ||||||||||||||||||
| • Performance-based restricted stock | • Cumulative net income over three years • Return on invested capital (implemented for Fiscal 2015) | ||||||||||||||||||
| Retirement benefits | Eligibility to participate in and receive Company contributions to our 401(k) plan (available to all employees) and, for certain officers, a supplemental deferred compensation plan | Not applicable | |||||||||||||||||
| Perquisites | Various (see below) | Not applicable |
The Company provides base salaries as a guaranteed minimum amount of compensation in consideration of day-to-day performance. Base salaries are designed to reward individual performance and contributions consistent with an executive officer's position and responsibilities. The Compensation Committee annually reviews the base salaries of all executive officers, including the Chief Executive Officer and the other named executive officers, and may adjust base salaries, typically at the beginning of a fiscal year, based upon consideration of:
The Compensation Committee believes that annual incentive opportunities, payable in cash, serve as an appropriate incentive for achievement of the Company's short-term (i.e., one-year) performance goals at either the corporate level or at the business group level. A cash-based incentive provides an opportunity that is consistent with market practice and allows the named executive officers to receive the value of their performance over the measurement period.
Within the first 90 days of each fiscal year, the Company establishes specific performance goals for its executive officers, including the named executive officers, that govern the payment of annual cash incentive awards for that fiscal year. The Company pays an annual cash incentive awardbonus to each named executive officer, typically measured as a percentage of the executive officer's base salary, based on the extent to which the Company and the executive officer achieve applicable performance goals. Performance at a target level results in a target annual cash incentive award,bonus, and performance above or below target results in payment of an annual cash incentive awardbonus at a higher or lower percentage of base salary, respectively. Performance below a minimum threshold results in no annual cash incentive award.bonus. In all cases, the Compensation Committee has the discretion to not award any annual cash bonuses in a given year. For named executive officers at the corporate level, the annual cash incentivebonus in recent years has beenFiscal 2014 was based on two performance goals: net incomeearnings per share and a leverage ratio (average total recourse net debt to capital).cash flow from operations. For a named executive officerofficers in charge of a business group, the annual cash incentivebonus is typically based on the performance results of the business group, rather than the Company as a whole.
The Company uses equitystock compensation to provide long-term incentive opportunities for its named executive officers and certain other officers and key employees. The Company believes that the use of equitystock compensation rewards executives in a manner that aligns their interests with the interests of the Company's stockholders. Given the importance of this alignment, long-term equity-basedstock-based compensation typically represents the most significant component of total compensation for the Company's executive officers. Long-term stock incentive compensation grantsawards representpotential compensation at the time of grant; their value is realized by a named executive officer only if applicable performance and vesting conditions are satisfied.
Equity compensation is provided under the stockholder-approved AAR CORP. Stock Benefit Plan ("Stock Benefit Plan"). Under the Stock Benefit Plan, the Compensation Committee has the discretion to grant stock options, performance-based restricted stock or restricted stock unit awards, employment or time-based restricted stock or restricted stock unit awards, or any
combination of the foregoing. The Stock Benefit Plan also provides for the use of stock appreciation units; however, to date, the Compensation Committee has not granted any stock appreciation units.
Generally, when determining restricted stock and stock option grant opportunities, the Compensation Committee considers the executive's position and responsibilities in the Company, performance and contributions during the preceding year, capabilities and potential for future contributions to the Company, the number of restricted stock shares and options previously granted to the executive and, for senior management (including the named executive officers), their stock ownership relative to the Company's stock ownership guidelines and the Chief Executive Officer's recommendation. The particular mix of stock awards — whether performance-based restricted shares, time-based restricted shares or stock options — depends on
various factors considered by the Compensation Committee, including the number of shares available for award, the Company's performance priorities and the participants involved. In addition, the value of stock grants in any year will vary depending on the Board's assessment of the Company's business and share price performance in the prior fiscal year.
The Company's named executive officers participate in three retirement plans: the Retirement Plan, the Retirement Savings Plan and the Supplemental Key Employee Retirement Plan (the "SKERP").
supplemental contributions equalof up to 22% of salary and bonus for Mr. Storch, up to 16% of salary and bonus for Mr. Romenesko, and up to 5% or 10% of salary and bonus for the other eligible named executive officers, principally to motivate these individuals to grow as business leaders and to improve their performance and thereby improve the Company's performance. These annual supplemental contributions do not vest until the named executive officers meet the definition of "retirement" under the SKERP. In Fiscal 2014, the Compensation Committee, at
management's recommendation, reduced by 50% the annual supplemental contributions earned by formula by three named executive officers, including the Chairman and Chief Executive Officer and the President and Chief Operating Officer.
The Company provides certain executive officers, including its named executive officers, with a limited number of perquisites, as identified in the footnote to the "Other Compensation" column of the Summary Compensation Table. The Company believes these perquisites are reasonable, competitive and consistent with the Company's overall executive compensation program. The Compensation Committee reviews on an annual basis the types and costs of perquisites provided by the Company to its executive officers.
III. OurII. Fiscal 20112014 Executive Compensation Decisions
The Board undertook a fresh look at the design of its executive compensation program in Fiscal 2011. Under the direction ofEach year management and the Compensation Committee and with the assistance of Aon Hewitt (formerly Hewitt Associates LLC), its independent compensation consultant, the Company sought to confirm that its executive compensation program was meeting its primary goals: attracting and retaining talented executives; motivating and rewarding these executives with pay for performance opportunities; and providing short-term cash and long-term equity compensation to executives in a manner that serves the Company's best interests.
Following analysis ofreview the Company's existing executive compensation program and the programs of peer group companies and other companies known for compensation "best practices,practices." theThe Company reviewedseeks to confirm that each of its compensation elements, to determine theas well as its compensation structure, that best fits the Company in light of its history, culture, performance and strategy. Based on this reviewParticular attention is given to the Company's stock price performance to ensure proper alignment between executive compensation and analysis, the Company focused onstock price performance.
The Compensation Committee took the following key actions in setting and approving executive compensation in Fiscal 2011:2014, each of which is described in detail below:
Date | Compensation Committee Action | |||||||
---|---|---|---|---|---|---|---|---|
June 2013 | Approved Fiscal 2014 peer group for executive compensation | |||||||
July 2013 | • Approved Fiscal 2014 base salaries | |||||||
• Approved Fiscal 2014 short-term incentive plan | ||||||||
• Approved Fiscal 2014 long-term incentive plan | ||||||||
• Approved Fiscal 2014 target total direct compensation for named executive officers | ||||||||
July 2014 | Approved annual cash bonuses awarded under the Fiscal 2014 short-term incentive plan based upon Fiscal 2014 performance |
The Compensation Committee re-examined the peer group it established in Fiscal 2010 for executive compensation purposes. Total compensation opportunities for the Company's key executives, including each named executive officer, are intended to be competitive with those offered by other companies competing for talent in the Company's employment market. The Compensation Committee, working with its independent compensation consultant, reviews the compensation paid by the peer group of companies in determining base salaries, annual cash incentive opportunities and long-term incentive opportunities provided to its executive officers.
In July 2010,June 2013, the Compensation Committee usedreviewed its peer group for executive compensation purposes using the following criteria in reviewing the Company's existing peer group:criteria: company type (publicly traded on a major exchange); locationindustry classification (using Standard and Poor's GICS codes); annual revenues (one-half to two times the Company's annual revenues); and business model (organizations that conducted business in the Company's two operating segments — Aviation Services and Technology
(headquartered in the United States); industry type (using Standard and Poor's GICS codes); annual revenues (one-third to three times the Company's annual revenues); businesses that are similar to the Company's business groups; stock price volatility; and various financial performance measures (including revenue growth, net income growth, earnings per share growth, total return, return on average assets, and market capitalization)Products). The Company determined that allCompensation Committee's objective is to assemble a set of the peer group companies from Fiscal 2010 remained appropriateto which relevant pay and accordingly, no changes wereperformance comparisons may be made with the Company.
The Compensation Committee acted on the recommendation of Mercer (US) Inc. ("Mercer"), its independent compensation consultant, and the Company's management to revise the Fiscal 2011Company's peer group which consistedfor Fiscal 2014 to consist of the following 25 companies:18 companies, up from 17 peer companies in Fiscal 2013:
Applied Industrial Technologies Inc. | ||||||||||||
B/E Aerospace, Inc. | ||||||||||||
Moog Inc. | ||||||||||||
Crane Co. | MSC Industrial Direct Co., Inc. | |||||||||||
Cubic Corporation | Rockwell Collins, Inc. | |||||||||||
Curtiss-Wright Corporation | Spirit AeroSystems Holdings, Inc. | |||||||||||
Esterline Technologies Corporation | Teledyne Technologies, Inc. | |||||||||||
Hexcel Corporation | TransDigm Group Inc. | |||||||||||
Kaman Corporation | Triumph Group, Inc. |
The two companies added to the Fiscal 2014 peer group were Alliant Techsystems, Inc. and Kratos Defense & Security Solutions, Inc. The one company dropped from the Fiscal 2014 peer group was Interline Brands, Inc., which was acquired and is no longer a public company. The Compensation Committee withannually revisits the assistancecomposition of its independentthe peer group to ensure that the Company's performance and executive compensation consultant, compiled relevant base salary, annual cash incentiveprogram are measured against those of comparably-sized and long-term incentive information forsituated companies. The mix of the key executivesCompany's commercial and defense businesses presents a challenge in constructing a peer group, given that many defense contractors have substantially greater resources than the Company.
Following the Compensation Committee's approval of the Fiscal 2014 peer group, Mercer conducted an executive compensation assessment in July 2013, at the companies indirection of the Compensation Committee, to assist with executive compensation decisions. Mercer's executive compensation assessment included (i) a benchmarking analysis showing how the compensation paid to the Company's named executive officers compared to compensation paid to the named executive officers of the Company's peer group companies and (ii) a separatecomparison of the Company's financial performance against the financial performance of its peer group companies. The key findings of 91 general industry companies with revenuesthe Mercer' executive compensation assessment of the Company are set forth below:
The Compensation Committee considered this information and, in particular, benchmarkedthe Mercer executive compensation assessment, including the executive compensation levels of the peer group companies, in settingapproving the Fiscal 20112014 base salaries, target annual cash incentivesbonuses and target long-term incentive compensation of the Company's named executive officers, eachofficers. In addition, the Compensation Committee recognized that the Company has posted significant stock price increases in the last two fiscal years following a disappointing result in Fiscal 2012, as shown below:
| |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year | | Opening Stock Price on June 1 ($) | | Closing Stock Price on May 31 ($) | | Increase (Decrease) (%) | | |||||||||||
| 2014 | 20.06 | 24.30 | 21 | |||||||||||||||
| 2013 | 12.05 | 20.06 | 66 | |||||||||||||||
| 2012 | 25.78 | 12.05 | (53 | ) |
As a part of its approval process, the Compensation Committee took into account that the Company has a higher percentage of defense business than most of its peer group companies, and that defense businesses experienced more modest performance returns than commercial businesses in Fiscal 2014.
Based in part on its consideration of Mercer's executive compensation assessment showing that the Company's performance was below its peers in certain respects, including three-year total stockholder return (due to Fiscal 2012 stock price performance), the Compensation Committee took the actions described below.in more detail below — namely, reduced Fiscal 2014 annual cash bonuses by 30%; reduced Fiscal 2015 stock awards by 43% for the Chairman and Chief Executive Officer and President and Chief Operating Officer and at least 25% for all other named executive officers; and froze Fiscal 2015 base salaries for all named executive officers.
The Compensation Committee reviewed and approved Fiscal 2011 target "total direct compensation" for the named executive officers, consisting of three compensation elements: base salary, annual cash incentive and long-term incentive compensation, as follows:
The Compensation Committee historically benchmarks target total direct compensation for the Company's named executive officers in the 50th to 75th percentile of total direct compensation levels of comparable positions at its peer group companies. For Fiscal 2011, the Compensation
Committee set target total direct compensation for the named executive officers in the following amounts:
| Named Executive Officer | | Target Total Direct Compensation | | |||||
---|---|---|---|---|---|---|---|---|---|
| David P Storch | $ | 4,149,013 | ||||||
| Timothy J. Romenesko | $ | 2,078,538 | ||||||
| Richard J. Poulton | $ | 1,341,796 | ||||||
| Terry D. Stinson | $ | 1,011,410 | ||||||
| Robert J. Regan | $ | 1,341,796 |
The table below shows base salary, target annual cash incentive and target long-term incentive compensation, each as a dollar amount and as a percentage of target total direct compensation, set by the Compensation Committee at the beginning of Fiscal 2011 for each named executive officer.
| | | Target Total Direct Compensation | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Base Salary | | Target Annual Cash Incentive | | Target Long-Term Incentive Compensation | | ||||||||||||||||||||||||||
| | | ||||||||||||||||||||||||||||||||
| Named Executive Officer | | Dollar Amount | | % of Total Target Direct Compensation | | Dollar Amount | | % of Total Target Direct Compensation | | Dollar Amount | | % of Total Target Direct Compensation | | ||||||||||||||||||||
| David P. Storch | $ | 850,000 | 20.5% | $ | 935,000 | 22.5% | $ | 2,364,013 | 57.0% | ||||||||||||||||||||||||
| Timothy J. Romenesko | $ | 468,180 | 22.5% | $ | 468,180 | 22.5% | $ | 1,142,178 | 55.0% | ||||||||||||||||||||||||
| Richard J. Poulton | $ | 367,200 | 27.4% | $ | 293,760 | 21.9% | $ | 680,836 | 50.7% | ||||||||||||||||||||||||
| Terry D. Stinson | $ | 338,130 | 33.4% | $ | 428,130 | 42.3% | * | $ | 245,150 | 24.2% | |||||||||||||||||||||||
| Robert J. Regan | $ | 367,200 | 27.4% | $ | 293,760 | 21.9% | $ | 680,836 | 50.7% |
Variable performance-based compensation — meaning annual cash incentive, performance-based restricted stock and stock options but not including base salary and time-based restricted stock — comprises a significant percentage of target total direct compensation for each named executive officer: Mr. Storch: 62.0%; Mr. Romenesko: 60.6%; Mr. Poulton: 57.0%; Mr. Stinson: 66.6%; and Mr. Regan: 57.0%.
The Compensation Committee generally sets the base salaries of the Company's named executive officers inat or around the 50th to 75th percentile of salary levels of comparable positions at its peer group companies. The Company does not target base salaries at any specific percentage of total compensation when setting base salary; however, given the Company's emphasis on the link between pay and performance, base salaries are a less significant percentage of total direct compensation compared to the Company's variable performance-based compensation, as shown incompensation.
The Compensation Committee, at management's recommendation, approved a 2% increase over Fiscal 2013 year-end base salaries for the above table.named executive officers.
For Fiscal 2011, the Company instituted a Company-wide 2% merit pool increase in Fiscal 2011 base salaries, effective June 1, 2010 (except that the Compensation Committee increased Mr. Storch's base salary by 6% per the terms his employment agreement, and Mr. Romenesko received a 3% increase). The table below shows Fiscal 20112014 base salaries compared to Fiscal 20102013 base salaries for the named executive officers:officers (note that Fiscal 2013 base salaries were the amounts paid in Fiscal 2013, not the year-end base salaries):
| Named Executive Officer | | Fiscal 2011 ($) | | Fiscal 2010 ($) | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| David P. Storch | 850,000 | 799,208 | |||||||||||
| Timothy J. Romenesko | 468,180 | 454,500 | |||||||||||
| Richard J. Poulton | 367,200 | 360,000 | |||||||||||
| Terry D. Stinson | 338,130 | 327,897 | * | ||||||||||
| Robert J. Regan | 367,200 | 354,961 |
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Fiscal 2013 ($) | | Fiscal 2014 ($) | | ||||||||
| David P. Storch | 877,838 | 906,449 | |||||||||||
| Timothy J. Romenesko | 483,513 | 499,272 | |||||||||||
| John C. Fortson | N/A | 400,000 | |||||||||||
| Randy J. Martinez | 349,070 | 360,447 | |||||||||||
| Robert J. Regan | 379,226 | 391,586 | |||||||||||
| Michael J. Sharp | 312,576 | 360,353 |
The Compensation Committee continued its practice in Fiscal 2011 of providing that variable performance-based compensation shall constitute the majority of the target total direct compensation awarded to2014 short-term incentive plan provides certain employees, including the named executive officers. Specifically,officers, with the Compensation Committee provided for a short-term incentive as a percentage of base salary and long-term incentive compensation weighted 40% toward performance-based restricted stock, 30% toward stock options and 30% toward time-based restricted stock. The Compensation Committee sets the types and levels of performance-based awards so that superior performance is rewarded with superior compensation, while below target performance results in below target compensation. Generally, asopportunity to earn an executive's level of responsibility increases, a greater percentage of total compensation opportunity is based on performance, and the mix of total compensation shifts toward stock compensation and away from cash compensation. This approach aligns the long-term interests of the executives with those of stockholders.
The Company pays for performance primarily through its short-term incentive plan and its long-term incentive plan.
Fiscal 20112014 Performance Goals. In looking at the design of the short-term incentive plan for Fiscal 2011, theThe Compensation Committee determined,approved, after consideration of peer group
information, other market data, and the current state of the business environment in which the Company operates, that net income and a leverage ratio continued to be the appropriatetwo performance goals under the Fiscal 2014 short-term incentive plan for corporate officers, including Mr. Storch, Mr. Romenesko, Mr. Fortson, Mr. Regan and Mr. Sharp: earnings per share and cash flow from operations at the Company. Accordingly,targets set forth in July 2010, the Compensation Committee approved Fiscal 2011table below:
| |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performance Goal | | Target | | Percentage Weighting | | |||||||
| Earnings per share | $2.02 | 75 | % | |||||||||
| Cash flow from operations | $120 million | 25 | % |
Earnings per share has been used as a performance goals for annualgoal in past years, and cash incentive opportunities for Messrs. Storch, Romenesko, Poulton and Regan based onflow from operations is a new performance goal this year. Previously the Company's net income (target of $56.88 million) and a leverage ratio (target of 45% or less). The net income target represented a 27% increase over Fiscal 2010 actual net income of $44.63 million. For purposes of measuring attainment of these performance goals in Fiscal 2011,Company had used free cash flow, but the Compensation Committee determined that: (i) net income means consolidated net income, excluding special chargesthat cash flow from operations is a better measure
than free cash flow for the Company because it shows how well the Company's businesses are producing cash that will ultimately benefit stockholders, whether in the form of increased investment, stock repurchases or unusual or infrequent items during the fiscal year, and as adjusted for changes in generally accepted accounting principles, and (ii) leverage ratio means an average total recourse net debt to capital ratio.dividend payouts. The choice of theseearnings per share and cash flow from operations performance measures reflectedgoals reflects the strongCompany's continuing emphasis placed by the Company on preserving and growing stockholder wealth and maintaining a strong balance sheet.
For Fiscal 2011, theThe Compensation Committee approved performance goalsdetermined that for Mr. Stinson's annual cash incentive opportunity based on the following financial measures for his Structures and Systems business group rather than overall Company performance: (i) pre-tax income; (ii) return on invested capital; and (iii) pre-tax cash flow. The choicepurposes of measuring attainment of these performance goals in Fiscal 2014: (i) earnings per share means diluted earnings per share as disclosed by the Company in its periodic reports filed with the SEC, as adjusted for Mr. Stinson likewise reflected the Company's emphasis on cash generation and preservation, as well as the Compensation Committee's belief that achievement ofspecial charges or unusual or infrequent items incurred during the performance goal targets would require superior performanceperiod, and (ii) cash flow from operations means cash flow from operations as disclosed by the Structures and Systems business group.
The net income and leverage ratio performance goals are each weighted 50%Company in its periodic reports filed with the SEC, as adjusted for purposes of determining the annual cash incentive for Messrs. Storch, Romenesko, Poulton and Regan. For Mr. Stinson,working capital investments in certain original equipment manufacturers' programs, special charges or unusual or infrequent items incurred during the performance goals are weighted as follows: pre-tax income (79%), pre-tax cash flow (9%), and return on invested capital (12%). This weighting reflected the Company's view as to the relative importance of the performance goals and a desire to incentivize executive officers and other employees receiving such awards in line with the interests of stockholders.period.
The Fiscal 20112014 annual cash incentive awardbonus opportunities approved by the Compensation Committee at the beginning of Fiscal 2011,threshold, target and maximum levels, expressed as a percentage of base salary and in dollar amounts for the named executive officers, are set forth in the table below:
| ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Percentage of Base Salary | | ||||||||||||||
| Name | | Threshold (%) | | Target (%) | | Maximum (%) | | ||||||||
| David P. Storch1 | 77 | 110 | 165 | ||||||||||||
| Timothy J. Romenesko1 | 70 | 100 | 150 | ||||||||||||
| Richard J. Poulton1 | 56 | 80 | 120 | ||||||||||||
| Terry D. Stinson2 | — | 127 | — | ||||||||||||
| Robert J. Regan1 | 56 | 80 | 120 |
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Threshold | | Target | | Maximum | | |||||||||||||||||||||||||||
| Named Executive Officer | | Percent of Base Salary (%) | | ($) | | Percent of Base Salary (%) | | ($) | | Percent of Base Salary (%) | | ($) | | ||||||||||||||||||||
David P. Storch | 62.5 | 566,531 | 125.0 | 1,133,061 | 250.0 | 2,266,122 | ||||||||||||||||||||||||||||
Timothy J. Romenesko | 56.8 | 283,677 | 113.6 | 567,354 | 227.2 | 1,134,708 | ||||||||||||||||||||||||||||
John C. Fortson | 45.5 | 181,818 | 90.9 | 363,637 | 181.8 | 727,274 | ||||||||||||||||||||||||||||
Robert J. Regan | 45.5 | 177,994 | 90.9 | 355,988 | 181.8 | 711,976 | ||||||||||||||||||||||||||||
Michael J. Sharp | 38.4 | 138,204 | 76.7 | 276,407 | 153.4 | 552,814 |
For Messrs. Storch, Romenesko, Fortson, Regan and Sharp, an annual cash incentive award required: (i) at the threshold level, requires attainment of net incomeearnings per share of at least $47.4 million (83%$1.62 (80% of the target of $56.88$2.02) and cash flow from operations of at least $90 million (75% of the target of $120 million); (ii) at the target level, attainment of 100% of the performance goal targets (earnings per share of $2.02 and cash flow from operations of $120 million); and (iii) at the maximum level, attainment of at least 120% of the earnings per share performance goal targets (earnings per share of at least $2.42) and at least 125% of the cash flow from operations performance goal target (cash flow from operations of at least $150 million).
Mr. Martinez is Aviation Services Group Vice President — Airlift and in that capacity he participates in a separate bonus program tied to the performance of this business unit rather than to the overall performance of the Company. Mr. Martinez's Fiscal 2014 performance goals were Airlift's pre-tax income (threshold of $21 million and a target of $26 million) and an average leverage ratiofree cash flow (threshold of at
least 50% (versus the target of 45%). An annual cash incentive award at the target level requires attainment of 100% of the performance goal targets (net income of $56.88 million and a leverage ratio of 45%), and an annual cash incentive award at the maximum level requires attainment of 120% of such performance goal targets (net income of at least $68.256 million and leverage ratio of at least 40%).
| | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performance Goal | | Target | | Actual | | Actual as Percentage of Target | | |||||||||
| Earnings per share | $2.02 | $1.83 | 90.6 | % | ||||||||||||
| Cash flow from operations | $120 million | $167.8 million | 139.8 | % |
There were no adjustments made to earnings per share results of $69.8$1.83, and the cash flow from operations of $167.8 million (adjustedreflects a $28 million adjustment for the Company's working capital investment in a customer program. Excluding this adjustment, cash flow from operations was $139.8 million or 116.5% above the target of $120 million.
Based on the earnings per share and cash flow from operations results, the Fiscal 2014 cash bonuses payable to $68.2 millionMessrs. Storch, Romenesko, Fortson, Regan and Sharp under the short-term incentive plan), compared to its net income targetterms of $56.88 million. The Company'sthe Fiscal 2011 leverage ratio was 34.3%, compared to its leverage ratio target of 45%. As a result of this exceptional performance, the2014 short-term incentive plan paid out just below the maximum level for Fiscal 2011, producing above-targetwould have represented 107% of their target annual cash incentivesbonuses. However, management instead recommended — and the Compensation Committee approved — Fiscal 2014 cash bonuses equal to 75.2% of the target bonus awards. This represented a 30% reduction for the four named executive officers other thanin the cash bonuses otherwise determined by Formula under the Fiscal 2014 short-term incentive plan. These bonus reductions applied only to the five named executive officers at the corporate level; Mr. Stinson. The Structures and SystemsMartinez, Group Vice President at the Company's Airlift subsidiary, received his entire earned bonus given the performance of his business group also exceededunit in Fiscal 2014.
Despite the Company's above-target performance in Fiscal 2014, including its pre-tax, return on invested capital and pre-taxexceptional cash flow performance goal targets forresults, management and the Compensation Committee reduced Fiscal 2011, thus resulting in an above-target bonus for Mr. Stinson.
The following table shows the target2014 annual cash incentive award amountbonuses principally in response to the Company's challenging operational environment, which negatively affected Fiscal 2014 sales (down 4.8% from Fiscal 2013) and caused the actual award amountCompany to effect reductions in force at several businesses to align its staffing resources with business demand and corporate strategy.
The table below reflects the cash bonus reductions, which totaled $868,505 for the listed named executive officers, by showing, for each named executive officer, based upon the Company's net income and leverage performance (andtarget bonus, the bonus determined by the performance offormula under the StructuresFiscal 2014 short-term incentive plan and Systems business group in the case of Mr. Stinson) in Fiscal 2011:actual cash bonus approved by the Compensation Committee at management's recommendation.
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Target Award | | Actual Award | | ||||||||
| David P Storch | $ | 935,000 | $ | 1,400,900 | |||||||||
| Timothy J. Romenesko | $ | 468,180 | $ | 701,469 | |||||||||
| Richard J. Poulton | $ | 293,760 | $ | 440,137 | |||||||||
| Terry D. Stinson | $ | 428,130 | $ | 470,653 | |||||||||
| Robert J. Regan | $ | 293,760 | $ | 440,137 |
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal 2014 Annual Cash Bonus | | ||||||||||||||||||||
| Named Executive Officer | | Target Bonus ($) | | Bonus Determined Under the Short-Term Incentive Plan ($) | | Actual Bonus ($) | | Percentage Reduction in Actual Bonus Over Bonus Determined Under the Plan (%) | | ||||||||||||||
| David P. Storch | 1,133,061 | 1,216,498 | 851,548 | 30 | |||||||||||||||||||
| Timothy J. Romenesko | 567,354 | 609,133 | 426,393 | 30 | |||||||||||||||||||
| John C. Fortson | 363,637 | 390,415 | 273,290 | 30 | |||||||||||||||||||
| Robert J. Regan | 355,988 | 382,202 | 267,541 | 30 | |||||||||||||||||||
| Michael J. Sharp | 276,407 | 296,762 | 207,733 | 30 |
Mr. Martinez received an annual cash bonus of $570,029 based upon Airlift's performance in Fiscal 2014, in which Airlift exceeded its pre-tax income and free cash flow targets.
The principal design change for Fiscal 2011 was the movement from a single equity performance vehicle —Compensation Committee granted awards of performance-based restricted stock, — to three types of equity awards: performance-based restricted stock (40% of the total long-term incentive compensation), time-based restricted stock (30% of the total long-term incentive compensation), and stock options (30% of the total long-term incentive compensation). As a result, 70% of the total long-term incentive plan — i.e., performance-based restricted stock and stock options — consists of performance-based compensation. In addition, the Compensation Committee approved a single performance goal for performance-based restricted stock awards: cumulative net income over a three-year period. This structure contrasts with recent long-term incentive programs which had two performance goals (net income and a leverage ratio) with three separate performance periods over a two-year program period (the first fiscal year, the second fiscal year and the combined two fiscal-year period).
The Compensation Committee believes that the Fiscal 2011 long-term incentive plan design serves several related purposes: (i) it allows the multiple performance vehicles to incentivize different objectives (e.g., executive retention, Company performance and stock price appreciation); (ii) it avoids duplication of the performance goals and the annual performance periods used in the short-term incentive plan; (iii) it measures performance over a longer period, thereby contributing to the long-term tenure of the Company's executives; and (iv) it aligns the Company's approach more closely to market practice based upon the advice of the Compensation Committee's independent compensation consultant.
Below is a brief description of each type of equity award under the Company's Fiscal 2011 long-term incentive plan:
The Compensation Committee determines the annual allocation of stock awards among performance-based restricted stock, time-based restricted stock and stock options based on a variety of factors, including: its preference for performance-based awards; the Company's burn rate commitment under the AAR CORP. 2013 Stock Plan; the number of participants in the program; the positions of responsibility, seniority and overall compensation levels of the participants; the Company's performance in the last fiscal year and its forecasted performance in the current fiscal year; the Company's budget for compensation expense; and the Company' stock price. For Fiscal 2014, the Compensation Committee determined that setting performance-based stock awards (performance-based restricted stock and stock options) at 77% and time-based restricted stock at 23% was the proper allocation.
The Fiscal 2014 stock awards represented a 10% increase over the number of shares awarded in Fiscal 2013. The Compensation Committee approved this increase to reward executives for the stock price increase in Fiscal 2013 (up to $20.06 per share from $12.05 per share) and to incentivize Fiscal 2014 performance. The increase also took account of the 40% reduction in the prior year's stock awards due to concerns at that time about the stock price.
Performance-Based Restricted Stock. At its meeting on July 15, 2013 the Compensation Committee approved the following grants of performance-based restricted stock to Mr. Storch, Mr. Romenesko, Mr. Fortson, Mr. Regan and Mr. Sharp for Fiscal 2014, subject to a three-year cumulative net income performance condition and vesting requirements, each as described below (dollar value based on the grant date fair value):
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Performance-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value ($) | | ||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
Shares of performance-based restricted stock are earned (subjectsubject to vesting) at the end of thea performance period if the Company achievescondition and time-based vesting requirements. If cumulative net income of $184,654,000performance for the three-year performance period beginning June 1, 2010 and ending May 31, 2013. This cumulative net income target represented an 8% compounded annual growth in net income over the three-year performance period, starting with the target net income goal for Fiscal 2011 of $56,880,000.
The program includes a stock price acceleration provision (the "First Trigger") under which the shares of performance-based restricted stock will be earned (subject to vesting) on the 20th consecutive trading day on which the Company's Common Stock trades at an average price equal to or greater than $24.48 per share, which is 33% above its price of $18.39 on June 1, 2010, the beginning of the performance period. Subject to this First Trigger, the program provides that no shares of restricted stock will be earned unless the Company achieves its performance goal target at an 80% level (cumulative net income of $147,700,000), in which case 70% of the target number of shares of restricted stock will be earned (subject to vesting). Achievement of the performance goal target between 80% and 100% will result in a pro-rata number of target shares of restricted stock being earned, and achievement of the performance goal targets at 100% will result in all of the target shares being earned (in each case, subject to vesting). Achievement above 100% will result in the grant of additional shares, with achievement at 120% (cumulative net
performance period beginning June 1, 2013 and ending May 31, 2016 is less than $210.4 million (80% of target net income), the performance condition is not met and the shares are forfeited. Cumulative net income performance (i) at a threshold level of $221,585,000) or above resulting$210.4 million (80% of target net income) results in an additional granta payout of 50% of the shares, equal to(ii) at a target level of $263 million results in a payment of 100% of the initial grant. An additional grant alsoshares, (iii) at a maximum level of $315.6 million (120% of target net income) results in a payout of 200% of the shares, and (iv) at levels between threshold and target and target and maximum, the shares will be made underpaid out on a second stock price acceleration provision (the "Second Trigger") where the Company's Common Stock tradesstraight-line basis, in each case subject to time-based vesting requirements. These performance measures are designed to be "stretch" measures, and it is not uncommon for 20 consecutive trading days at an average price equal to or greater than $27.95 per share, which is 52% above its priceshares of $18.39 on June 1, 2010, the beginning of the performance period.
The Fiscal 2011 performance-based restricted stock has a three-year vesting period that runs concurrently withto be forfeited for failing to meet the three-yearapplicable performance period. Thus, ifmeasures (e.g., approximately 25% of the shares of the Fiscal 2012 performance-based restricted stock awards are earnedaward were forfeited as a result of the First Trigger,Company not meeting its cumulative net income performance target for the three-year period ending May 31, 2014). The Compensation Committee believes that the performance-based nature of these restricted stock awards provide appropriate incentives to executives in line with the interests of the Company's stockholders.
If the performance condition is met, the shares still remain subject to a three-year vesting period requiring continued employment with the Company.of performance-based restricted stock vest 331/3% on each of May 31, 2016, May 31, 2017, and May 31, 2018. The Compensation Committee believes that the use of a meaningful time vesting period encourages executives to build their careers with the Company and contributes to greater stability within the Company's executive leadership.
At its meeting on July 12, 2010, the Compensation Committee approved the following grants of performance-based Performance-based restricted stock, to the named executive officers for Fiscal 2011,once vested, is not subject to any further holding requirement beyond the performance and vesting conditions described above (dollar value based on the grant date fair value):
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Target Performance-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value | | ||||||||
David P. Storch | 56,109 | $ | 969,003 | |||||||||||
Timothy J. Romenesko | 27,109 | $ | 468,172 | |||||||||||
Richard J. Poulton | 16,159 | $ | 279,066 | |||||||||||
Terry D. Stinson | 5,000 | $ | 86,350 | |||||||||||
Robert J. Regan | 16,159 | $ | 279,066 |
On December 9, 2010, the Company met the First Trigger when its Common Stock traded at an average price greater than $24.48 per share for 20 consecutive trading days, thus causing the shares of performance-based restrictedCompany's stock to be earned (subject to vesting) in the amounts set forth in the above table. These shares of performance-based restricted stock will not vest until May 31, 2013. On July 15, 2011, the Company met the Second Trigger when its Common Stock traded at an average price greater than $27.95 per share for 20 consecutive trading days, thus resulting in additional grants equal in amount to those set forth in the above table. These additional shares vest 331/3% on May 31, 2013, 331/3% on May 31, 2014 and 331/3% on May 31, 2015.ownership guidelines.
Time-Based Restricted Stock. At its meeting on July 12, 2010,15, 2013, the Compensation Committee approved the following grants of time-based restricted stock awards to the Company's
named executive officers for Fiscal 2011,2014, subject to time-based vesting (dollar value based on the grant date fair value):
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Target Time-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value | | ||||||||
David P. Storch | 42,082 | $ | 726,756 | |||||||||||
Timothy J. Romenesko | 20,332 | $ | 351,134 | |||||||||||
Richard J. Poulton | 12,120 | $ | 209,312 | |||||||||||
Robert J. Regan | 12,120 | $ | 209,312 |
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Time-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value ($) | | ||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
For Fiscal 2014, the Compensation Committee decided to place less emphasis on time-based restricted stock (23% of total stock awards) in favor of greater emphasis on performance-based restricted stock and stock options (77% of total stock awards). The shares of time-based restricted stock vest 50% on May 31, 20142017 and 50% May 31, 2015.2018. Time-based restricted stock, once vested, is not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee believes that time-based restricted stock serves a valuable purpose in helping to retain executives and reward them for building a career with the Company.
Stock Options. At its meeting on July 12, 2010,15, 2013, the Compensation Committee approved the following grants of stock option grantsoptions to the Company's named executive officers for Fiscal 2011,2014, subject to time-based vesting (dollar value based on a modified Black-Scholes valuation):
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Target Stock Options | | |||||||||||
| Named Executive Officer | | Number | | Dollar Value | | ||||||||
David P. Storch | 84,163 | $ | 668,254 | |||||||||||
Timothy J. Romenesko | 40,664 | $ | 332,872 | |||||||||||
Richard J. Poulton | 24,239 | $ | 192,458 | |||||||||||
Terry D. Stinson | 20,000 | $ | 158,800 | |||||||||||
Robert J. Regan | 24,239 | $ | 192,458 |
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Stock Options | | |||||||||||
| Named Executive Officer | | Number | | Dollar Value ($) | | ||||||||
David P. Storch | 158,400 | 1,622,016 | ||||||||||||
Timothy J. Romenesko | 79,200 | 811,008 | ||||||||||||
John C. Fortson | 44,768 | 458,424 | ||||||||||||
Randy J. Martinez | 27,500 | 281,600 | ||||||||||||
Robert J. Regan | 47,520 | 486,605 | ||||||||||||
Michael J. Sharp | 19,008 | 194,642 |
The stock options have an exercise price of $17.27 per$25.43 share (the closing stock price of the Common Stock on the date of grant), vest 331/3% on each of May 31, 2011, May 31, 2012 and May 31, 2013,20% per year over a five-year period and expire 10 years from the date of grant or earliergrant. Shares issued upon terminationthe exercise of employment.vested stock options are not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee views stock options as performance-based incentives that align the interests of the Company's executives with the interests of the Company's stockholders given that stock options provide no value without an increase in the stock price over the option exercise price.
The Compensation Committee reviewed and approved Fiscal 20122014 target "total direct compensation" for the named executive officers, consisting of the three compensation elements discussed above: base salary, target annual cash incentive compensation and target long-term stock incentive compensation. Total direct compensation is the sum of base salary, annual cash incentive compensation and long-term stock incentive compensation.
The Compensation Committee historically benchmarks target total direct compensation for the Company's named executive officers in the range of the 50th to 75th percentile of total direct compensation levels of comparable positions at its peer group companies, with benchmarks above the 50th percentile typically requiring performance above the 50th percentile. In addition, the Compensation Committee considers the Company's prior year's financial results in setting target total direct compensation for the upcoming year. In setting target total compensation, the Compensation Committee seeks to promote its goals of motivating and rewarding executives and providing appropriate pay-for-performance incentives.
The table below divides target total direct compensation into its component parts — base salary, target annual cash bonuses and target long-term incentive compensation — and shows each as a dollar amount and as a percentage of target total direct compensation, as set by the Compensation Committee at the beginning of Fiscal 2014 for each named executive officer. As shown, target total direct compensation is heavily weighted toward variable performance-based compensation (annual cash bonuses and long-term incentive compensation), consistent with the
Compensation Committee's view that compensation for the named executive officers should be tied to performance.
| | | Fiscal 2014 Target Total Direct Compensation | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Base Salary | | Target Annual Cash Incentive | | Target Long-Term Incentive Compensation | | ||||||||||||||||||||||||||
| | | ||||||||||||||||||||||||||||||||
| Named Executive Officer | | Dollar Amount ($) | | % of Total Target Direct Compensation | | Dollar Amount ($) | | % of Total Target Direct Compensation | | Dollar Amount ($) | | % of Total Target Direct Compensation | | ||||||||||||||||||||
| David P. Storch | 906,449 | 18 | 1,133,061 | 23 | 2,964,720 | 59 | |||||||||||||||||||||||||||
| Timothy J. Romenesko | 499,272 | 20 | 567,354 | 22 | 1,482,360 | 58 | |||||||||||||||||||||||||||
| John C. Fortson | 400,000 | 27 | 363,637 | 25 | 700,010 | 48 | |||||||||||||||||||||||||||
| Randy J. Martinez | 360,447 | 36 | 360,447 | 36 | 281,600 | 28 | |||||||||||||||||||||||||||
| Robert J. Regan | 391,586 | 24 | 355,988 | 22 | 889,417 | 54 | |||||||||||||||||||||||||||
| Michael J. Sharp | 360,353 | 36 | 276,407 | 28 | 355,766 | 36 |
Actual total direct compensation differs fromtarget total direct compensation by taking into account the actual annual cash bonus rather than the target annual cash bonus. As actual annual cash bonuses were less than target annual cash bonuses in Fiscal 2014, theactual total direct compensation for each named executive officer likewise was less than histarget total direct compensation in Fiscal 2014.
The following table shows target total direct compensation versus actual total direct compensation for the named executive officers for Fiscal 2014:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2014 Total Direct Compensation | | |||||||||||
| Named Executive Officer | | Target ($) | | Actual ($) | | ||||||||
David P. Storch | 5,004,230 | 4,722,717 | ||||||||||||
Timothy J. Romenesko | 2,548,986 | 2,408,025 | ||||||||||||
John C. Fortson | 1,463,647 | 1,373,300 | ||||||||||||
Randy J. Martinez | 1,002,494 | 1,212,076 | ||||||||||||
Robert J. Regan | 1,636,991 | 1,548,544 | ||||||||||||
Michael J. Sharp | 992,526 | 923,852 |
III. Fiscal 2015 Executive Compensation Decisions.Actions At meetings held on
Our Compensation Committee met in July 11, 20112014 and August 15, 2011, the Compensation Committee approved the following Fiscal 20122015 executive compensation actions:actions based on its consideration of performance results for Fiscal 2014, the executive compensation assessment prepared by its independent compensation consultant in July 2014, stockholder concerns identified in our stockholder outreach program and other relevant items:
cash
| |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Fiscal 2014 ($) | | Fiscal 2015 ($) | | Percentage Difference (%) | | |||||||||||
| David P. Storch | 2,964,720 | 1,695,200 | 43 | |||||||||||||||
| Timothy J. Romenesko | 1,482,360 | 847,600 | 43 | |||||||||||||||
| John C. Fortson | 700,010 | 521,600 | 25 | |||||||||||||||
| Robert J. Regan | 889,417 | 521,600 | 41 | |||||||||||||||
| Michael J. Sharp | 355,766 | 260,800 | 27 | |||||||||||||||
| Randy J. Martinez | 281,600 | 208,640 | 26 |
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Percentage of Stock Awards | | |||||||||||
| Type of Long-Term Stock Award | | Fiscal 2014 | | Fiscal 2015 | | ||||||||
Performance-Based Restricted Stock | 23 | % | 75 | % | ||||||||||
Time-Based Restricted Stock | 23 | % | 25 | % | ||||||||||
Stock Options | 54 | % | 0 | % |
IV. Our Key Executive Compensation Policies and Practices
The following are key factors affecting the executive compensation decisions made by the Compensation Committee for the Company's executives, including its named executive officers:
the Company's Fiscal 2014 stockholder outreach program, including the executive compensation actions taken by the Company in Fiscal 2014.
The Compensation Committee reviews and considers historical compensation data for the Company's executives. This data includes summaries of cash and equity compensation received in past years by each executive. In addition, the Compensation Committee reviews the executives' total annual compensation, including cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of employment, whether on a change in control of the Company or otherwise. It reviews the performance of the Company and the executives during the year, taking into account established goals, leadership qualities, operational performance, business responsibilities, career experience, and long-term potential to enhance stockholder value.
In addition to peer group compensation information and general industry compensation information, the Compensation Committee reviews internal pay comparisons among the Company's executives to ensure that the Company's executive compensation program reflects the executives' positions, responsibilities, and contributions to the Company.
The Compensation Committee first retained Aon Hewitt in Fiscal 2009 to serveengaged Mercer as its independent compensation consultant to assist in determining the composition of the Company's Fiscal 2014 peer group for executive compensation purposes and Aon Hewitt has continued in that role since that date. Aon Hewitt providesthe benchmarking of executive and director compensation for Fiscal 2014. Mercer also provided advice and information to the Compensation Committee on other executive compensation matters, including executive pay philosophy and design, prevailing market practices, relevant legal and regulatory requirements, and peer-group data. Aon Hewitt assistedThe Company paid Mercer $227,672 in Fiscal 2014 for its consulting services to the Compensation Committee on executive compensation matters. In Fiscal 2014, Mercer also provided consulting services on the Company's domestic and international health and benefit plans `for which it received fees of $167,500, and other consulting fees for which it received fees of $140,300.
The Compensation Committee considered whether any conflicts of interest were created by its of Mercer to provide compensation consulting services in Fiscal 2014. Its consideration focused on the following factors: (i) services other than compensation consulting services provided to the Company by Mercer, (ii) total paid by the Company to Mercer for such other services ($307,800), including as a percentage of total revenue of
Committee's decision-makingMercer (.005%), (iii) conflicts of interest policies and procedures of the Company and of Mercer, (iv) the lack of any relationships between Mercer and members of the Company's Board of Directors, (v) Company stock owned by Mercer and its employees and (vi) the lack of any relationships between Mercer and any of the Company's executive officers. Based on this assessment, the Compensation Committee concluded that no conflicts of interest existed with respect to the composition of the Company's peer group for executive compensation comparison purposes, the benchmarking of executive and director compensation for Fiscal 2011, the re-design of the executive compensation program in Fiscal 2011, and the re-design of the director compensation program for Fiscal 2012.Mercer.
The Company's Human Resources Department assists the Chief Executive Officer by collecting and organizing relevant historical and current compensation information, including information received from the Compensation Committee's consultant, as well as peer group compensation information and industry trends. The Chief Executive Officer and theCompany's Vice President of theand Chief Human Resources Department participateOfficer participates in all regularly scheduled Compensation Committee meetings.
The Chief Executive Officer and the Compensation Committee actively discuss compensation decisions for the Company's executives. However, the Compensation Committee has the ultimate decision-making authority and responsibility for compensation decisions affecting the Company's executives, including its named executive officers. The Chief Executive Officer does not play any role in any decision affecting his own compensation.
Ownership Requirement | ||||||||
---|---|---|---|---|---|---|---|---|
Directors | 20,000 shares | |||||||
Executive Officers | ||||||||
• Chairman and CEO | 6 times salary | |||||||
• President and COO | 3 times salary | |||||||
• Other Executive Officer | 1 times salary |
These stock options) having a value at least three times his base salary; the President and other executive officers are expected to own stock having a value of at least 75% of their base salary within five years of becoming an officer; and directors are expected to own at least 10,000 shares of Company stockownership levels must be achieved within four years of becoming a director.director or executive officer and then maintained while in that position. Failure to meet these stock ownership levels may result in a reduction in future stock awards. All current directors
and executive officers comply with the stock ownership guidelines.
Stock values are measured as of each fiscal year-end, with unvested stock awards counted at 50% and stock options not counted at all.
meeting, but it meeting. The Compensation Committee — or the Chief Executive Officer pursuant to authority delegated by the Compensation Committee — also may grant equity compensation awards to newly hired or newly promoted employees at other times during the year. In all cases, the grant equity date is the date on which the Compensation Committee acts to approve the award, unless the Compensation Committee establishes the grant date at a specified future date. Board and Compensation Committee meetings are generally scheduled a year in advance and without regard to anticipated earnings andor other major announcements by the Company. The Company does not time the granting of its equity compensation awards to affect the value of its executive compensation.
The Compensation Committee determined that the design and operation of the Company's executive compensation program were consistent with the Company's risk management strategies for several reasons. First,based on the following reasons:
Under the Company's Section 162(m) Annual Cash Incentive Plan, the annual cash bonuses qualified in Fiscal 20112014 as performance-based compensation under Section 162(m). Stock options and performance-based restricted stock grants awarded under the Stock Benefit Plan also qualified as performance-based
also qualify as performance-based compensation. Base salaries and time-based restricted stock grants do not qualify as performance-based compensation.
As required under the United States tax rules, the Company must obtain stockholder approval every five years of the material terms of the performance goals for qualifying performance-based compensation.compensation, except where a plan (such as the AAR CORP. 162(m) Annual Cash Incentive Plan) contains only a single performance goal. The Company received stockholder approval of the net income performance goalsgoal under the AAR CORP. 162(m) Annual Cash Incentive Plan at theits 2010 annual meeting of stockholders and is seekingthus does not need any further stockholder approval unless and until it changes or adds to that performance goal. The Company also received stockholder approval of the performance goals under the Company's 2013 Stock Plan at the 2011its 2013 annual meeting of stockholders. Accordingly, the Company must seek stockholder approval of the performance goals relating to amend the Company's Stock Benefit Plan to add performance criteria to help assure the deductibilitystock compensation no later than its 2018 annual meeting of performance-based stock awards (see Proposal 4).stockholders.
Compensation Committee Report on Executive Compensation for Fiscal 2011
2014
The Compensation Committee of the Board of Directors of the Company furnishes the following report to the stockholders of the Company in accordance with applicable SEC rules.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis set forth above with the Company's management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted,
Compensation Committee
Ronald B. Woodard, Chairman
Anthony K. Anderson
Norman R. Bobins
Michael R. BoyceJames G. Brocksmith, Jr.
Ronald R. Fogleman
Peter Pace
The following table sets forth compensation information for the Company's Chief Executive Officer, Chief Financial Officer and the three other most highly compensatednamed executive officers ("named executive officers") for the fiscal years ended May 31, 2011 ("Fiscal 2011"), May 31, 2010 ("2014, Fiscal 2010")2013 and May 31, 2009 ("Fiscal 2009"):2012:
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| Name and Principal Position | | Year | | Salary ($)2 | | Bonus ($) | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($)5 | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)6 | | All Other Compensation ($)6,7 | | Total ($) | | |||||||||||||||||||||||||||||
DAVID P. STORCH | 2011 | 850,000 | 0 | 1,695,759 | 668,254 | 1,400,900 | 72,831 | 622,830 | 5,310,574 | ||||||||||||||||||||||||||||||||||||||||
Chairman of the Board and | 2010 | 799,208 | 0 | 2,562,750 | 1,480,000 | 895,494 | 41,691 | 698,189 | 6,477,332 | ||||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2009 | 791,295 | 0 | 727,650 | 0 | 1,154,231 | 43,437 | 640,820 | 3,357,433 | ||||||||||||||||||||||||||||||||||||||||
TIMOTHY J. ROMENESKO | 2011 | 468,180 | 0 | 819,306 | 322,872 | 701,469 | 32,962 | 242,640 | 2,587,429 | ||||||||||||||||||||||||||||||||||||||||
President and Chief | 2010 | 454,500 | 0 | 1,195,950 | 740,000 | 451,882 | 30,493 | 212,792 | 3,085,617 | ||||||||||||||||||||||||||||||||||||||||
Operating Officer | 2009 | 450,000 | 0 | 339,570 | 0 | 553,199 | 50,503 | 192,643 | 1,585,915 | ||||||||||||||||||||||||||||||||||||||||
RICHARD J. POULTON | 2011 | 367,200 | 0 | 488,378 | 192,458 | 440,137 | — | 89,931 | 1,578,104 | ||||||||||||||||||||||||||||||||||||||||
Vice President, Chief | 2010 | 360,000 | 0 | 597,975 | 444,000 | 267,767 | — | 100,852 | 1,770,594 | ||||||||||||||||||||||||||||||||||||||||
Financial Officer and Treasurer | 2009 | 330,000 | 0 | 169,785 | 82,843 | 319,086 | — | 51,221 | 952,935 | ||||||||||||||||||||||||||||||||||||||||
TERRY D. STINSON | 2011 | 338,130 | 0 | 86,350 | 158,800 | 470,653 | — | 260,146 | 1,314,079 | ||||||||||||||||||||||||||||||||||||||||
Group Vice President — | 2010 | 327,897 | 0 | 341,700 | 74,000 | 747,840 | — | 150,119 | 1,641,556 | ||||||||||||||||||||||||||||||||||||||||
Structures and Systems | 2009 | 309,000 | 0 | 290,325 | 0 | 558,321 | — | 74,095 | 1,231,741 | ||||||||||||||||||||||||||||||||||||||||
ROBERT J. REGAN8 | 2011 | 367,200 | 0 | 488,378 | 192,458 | 440,137 | — | 108,729 | 1,596,902 | ||||||||||||||||||||||||||||||||||||||||
Vice President, General Counsel | |||||||||||||||||||||||||||||||||||||||||||||||||
and Secretary |
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| Name and Principal Position | | Year | | Salary ($)2 | | Bonus ($) | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($)5 | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)6 | | All Other Compensation ($)7 | | Total ($) | | ||||||||||||||||||||||||||||
DAVID P. STORCH | 2014 | 906,449 | 0 | 1,342,704 | 1,622,016 | 851,548 | 55,793 | 525,062 | 5,303,572 | |||||||||||||||||||||||||||||||||||||||
Chairman of the Board and | 2013 | 877,838 | 0 | 619,200 | 695,520 | 1,350,685 | 60,352 | 639,589 | 4,243,184 | |||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2012 | 867,000 | 0 | 2,664,745 | 578,460 | 850,000 | 50,454 | 826,195 | 5,836,854 | |||||||||||||||||||||||||||||||||||||||
TIMOTHY J. ROMENESKO | 2014 | 499,272 | 0 | 671,352 | 811,008 | 426,393 | 39,367 | 202,405 | 2,649,797 | |||||||||||||||||||||||||||||||||||||||
President and Chief | 2013 | 483,513 | 0 | 309,600 | 347,760 | 676,324 | 40,816 | 251,357 | 2,109,370 | |||||||||||||||||||||||||||||||||||||||
Operating Officer | 2012 | 477,544 | 0 | 1,287,491 | 279,483 | 423,277 | 35,958 | 313,361 | 2,817,114 | |||||||||||||||||||||||||||||||||||||||
JOHN C. FORTSON8 | 2014 | 400,000 | 0 | 241,586 | 458,424 | 273,290 | 0 | 37,856 | 1,411,156 | |||||||||||||||||||||||||||||||||||||||
Vice President, Chief Financial Officer and Treasurer | ||||||||||||||||||||||||||||||||||||||||||||||||
RANDY J. MARTINEZ9 | 2014 | 360,447 | 0 | 0 | 281,600 | 570,029 | 0 | 34,533 | 1,246,609 | |||||||||||||||||||||||||||||||||||||||
Aviation Services, | 2013 | 349,070 | 0 | 120,750 | 638,178 | 0 | 23,178 | 1,131,176 | ||||||||||||||||||||||||||||||||||||||||
Group Vice President — Airlift | ||||||||||||||||||||||||||||||||||||||||||||||||
ROBERT J. REGAN | 2014 | 391,586 | 0 | 402,812 | 486,605 | 267,541 | 0 | 100,311 | 1,648,855 | |||||||||||||||||||||||||||||||||||||||
Vice President, General Counsel | 2013 | 379,226 | 0 | 185,760 | 208,656 | 424,362 | 0 | 114,848 | 1,312,852 | |||||||||||||||||||||||||||||||||||||||
and Secretary | 2012 | 374,544 | 0 | 767,431 | 166,592 | 265,586 | 0 | 152,916 | 1,727,069 | |||||||||||||||||||||||||||||||||||||||
MICHAEL J. SHARP10 | 2014 | 360,353 | 0 | 161,124 | 194,642 | 207,733 | 3,037 | 79,347 | 1,006,236 | |||||||||||||||||||||||||||||||||||||||
Former Acting Chief Financial | 2013 | 312,576 | 0 | 74,304 | 83,462 | 322,185 | 2,905 | 48,677 | 844,109 | |||||||||||||||||||||||||||||||||||||||
Officer and Treasurer and Current | ||||||||||||||||||||||||||||||||||||||||||||||||
Vice President, Controller and Chief | ||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Officer |
Generally, the grant date fair value represents the Company's total expense for the grants made to the named executive officers in each of Fiscal 2011,2014, Fiscal 20102013 and Fiscal 2009. See Note 32012. The above amounts reflect the aggregate accounting expense for these awards and do not correspond to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for an explanation of the assumptions madeactual value that may be recognized by the Company innamed executive officers when the valuation of these awards.awards vest. The "Compensation Discussion and Analysis" section of this proxy statement contains vesting and other information about the performance-based restricted stock awards and the time-based restricted stock awards. The above amounts reflect the aggregate accounting expense for these awards and do not correspond to the actual value that will be recognized by our named executive officers.
granted in Fiscal 2014.
Statements contained in the Company's Annual Report on Form 10-K for Fiscal 2014 for an explanation of the assumptions made by the Company in the valuation of these awards. Generally, the grant date fair value represents the Company's total expense for the grants made to the named executive officers in each of Fiscal 2011,2014, Fiscal 20102013 and Fiscal 2009. See Note 3 to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for an explanation of the assumptions made by the Company in the valuation of these awards. The "Compensation Discussion and Analysis" section of this proxy
statement contains vesting and other information about the stock option awards.2012. The above amounts reflect the aggregate accounting expense for these awards and do not correspond to the actual value that may be recognized by ourthe named executive officers. The "Compensation Discussion and Analysis" section of this proxy statement contains vesting and other information about the stock option awards granted in Fiscal 2014.
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| Name | | Company 401(k) Plan Contributions ($) | | Company SKERP Contributions ($) | | Club Dues ($) | | Financial Planning ($) | | Personal Use of Aircraft ($) | | Auto Allowance ($) | | Company-Paid Split-Dollar Life Insurance Premium ($) | | Executive Physical ($) | | Spouse Travel ($) | | Other ($) | | ||||||||||||||||||||||||||||||||
| David P. Storch | 16,823 | 489,149 | 39,228 | 18,030 | 12,736 | 12,300 | 31,669 | 2,339 | 161 | 395 | |||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 17,121 | 195,318 | 11,070 | 12,725 | — | — | 4,564 | 1,842 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Richard J. Poulton | 10,742 | 49,695 | 29,026 | — | — | — | — | — | 468 | — | |||||||||||||||||||||||||||||||||||||||||||
| Terry D. Stinson | 22,050 | 175,962 | 47,730 | — | — | — | — | 3,331 | — | 11,073 | |||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 12,580 | 83,424 | — | 12,725 | — | — | — | — | — | — |
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| Named Executive Officer | | Company 401(k) Plan Contributions ($) | | Company SKERP Contributions ($) | | Club Dues ($) | | Financial Planning ($) | | Personal Use of Aircraft ($) | | Auto Allowance ($) | | Company-Paid Split-Dollar Life Insurance Premium ($) | | Executive Physical ($) | | Spouse Travel ($) | | Total ($) | | |||||||||||||||||||||||||||||||
| David P. Storch | 17,733 | 376,736 | 49,009 | 20,275 | 0 | 12,300 | 42,535 | 6,474 | 0 | 525,062 | ||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 17,785 | 152,620 | 9,450 | 14,303 | 0 | 0 | 6,760 | 1,487 | 0 | 202,405 | ||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 1,692 | 13,477 | 8,700 | 13,987 | 0 | 0 | 0 | 0 | 0 | 37,856 | ||||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | 20,230 | 0 | 0 | 14,303 | 0 | 0 | 0 | 0 | 0 | 34,533 | ||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 15,227 | 70,781 | 0 | 14,303 | 0 | 0 | 0 | 0 | 0 | 100,311 | ||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 15,206 | 53,839 | 8,100 | 0 | 0 | 0 | 2,202 | 0 | 0 | 79,347 |
Compensation ArrangementNew Employment Agreement with Our Chairman and Chief Executive Officer
In Fiscal 2010, the Compensation Committee, on behalf ofMay 2014, the Company entered into a four-yearnew employment agreement with Mr. Storch in order to provide continuing stability to the executive leadership position and to motivate Mr. Storch to increase the Company's growth and profitability. The employment agreement hasfor a three-year term ending May 31, 2014 (unless extended),2017. The new agreement automatically renews thereafter for one-year periods unless either party gives 90 days advance notice prior to the end of the one-year period. The new agreement retains many of the principal terms of the prior agreement, but Mr. Storch voluntarily forfeited certain protections that were included in prior employment agreements dating back to 1989. Specifically:
The new agreement provides the following benefits to Mr. Storch:
Fiscal 20112014 Grants of Plan-Based Awards
The following table sets forth information for each named executive officer with respect to:
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| | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | | Estimated Possible Payouts Under Equity Incentive Plan Awards3 | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Name | Grant Date1 | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#)4 | All Other Option Awards: Number of Securities Underlying Options (#)5 | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Options and Awards ($)6 | ||||||||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 654,500 | 935,000 | 1,402,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 39,276 | 56,109 | 112,218 | 969,003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 42,082 | 726,756 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 84,163 | 17.27 | 668,254 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 327,726 | 468,180 | 702,270 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 18,976 | 27,109 | 54,218 | 468,172 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 20,332 | 351,134 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 40,664 | 17.27 | 322,872 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Richard J. Poulton | 205,632 | 293,760 | 440,640 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 11,311 | 16,159 | 32,318 | 279,066 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 12,120 | 209,312 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 24,239 | 17.27 | 192,458 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Terry D. Stinson7 | 270,504 | 428,130 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 3,500 | 5,000 | 10,000 | 86,350 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 20,000 | 17.27 | 158,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 205,632 | 293,760 | 440,640 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 11,311 | 16,159 | 32,318 | 279,066 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 12,120 | 209,312 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/12/10 | 24,239 | 17.27 | 192,458 |
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| | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | | Estimated Possible Payouts Under Equity Incentive Plan Awards3 | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Named Executive Officer | Grant Date1 | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#)4 | All Other Option Awards: Number of Securities Underlying Options (#)5 | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards ($)6 | ||||||||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 566,531 | 1,133,061 | 2,266,122 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 13,200 | 26,400 | 52,800 | 671,352 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 26,400 | 671,352 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 158,400 | 25.43 | 1,622,016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 283,677 | 567,354 | 1,134,708 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 6,600 | 13,200 | 26,400 | 335,676 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 13,200 | 335,676 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 79,200 | 25.43 | 811,008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 181,818 | 363,637 | 727,274 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 2,375 | 4,750 | 9,500 | 120,793 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 4,750 | 120,793 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 44,768 | 25.43 | 458,424 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez7 | — | 360,447 | 720,894 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 27,500 | 25.43 | 281,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 177,994 | 355,988 | 711,976 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 3,960 | 7,920 | 15,840 | 201,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 7,920 | 201,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 47,520 | 25.43 | 486,605 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 138,204 | 276,407 | 552,814 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 1,584 | 3,168 | 6,336 | 80,562 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 3,168 | 80,562 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 19,008 | 25.43 | 194,642 |
"Compensation Discussion and Analysis" section of this proxy statement for a description of the Fiscal 20112014 short-term incentive plan.
As a result of a second stock price acceleration provision under the Company's Fiscal 2011 long-term incentive plan, an additional grant equal in amount to the "Target" grant date was made on July 15, 2011, the date on which the Company's Common Stock traded at an average price greater than $27.95 per share for 20 consecutive trading days (more than 50% above the price of $18.39 on June 1, 2010, the beginning of the performance period). The numbers in the "Maximum" column represent the total of the initial grant and the additional grant of performance-based restricted stock shares. See the "Compensation Discussion and Analysis" section of this proxy statement for a description of the performance-based restricted stock program under the Fiscal 20112014 long-term incentive plan.
Outstanding Equity Awards at Fiscal 20112014 Year-End
The following table sets forth information for each named executive officer with respect to:
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| | | Option Awards1 | | Restricted Stock Awards | | |||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)2 | Market Value of Shares or Units of Stock That Have Not Vested ($)3 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 116,668 | 0 | 0 | 22.41 | 7/10/11 | 352,191 | 9,294,320 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| 29,730 | 0 | 16.18 | 7/9/12 | |||||||||||||||||||||||||||||||||||||||||||||
| 95,138 | 0 | 16.18 | 7/9/12 | |||||||||||||||||||||||||||||||||||||||||||||
| 27,607 | 0 | 17.97 | 7/21/13 | |||||||||||||||||||||||||||||||||||||||||||||
| 66,666 | 133,334 | 15.10 | 7/13/19 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 84,163 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 9,341 | 0 | 0 | 25.52 | 7/10/11 | 153,441 | 4,049,308 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| 2,109 | 0 | 17.50 | 7/21/13 | |||||||||||||||||||||||||||||||||||||||||||||
| 33,333 | 66,667 | 15.10 | 7/13/19 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 40,664 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| Richard J. Poulton | 6,000 | 4,000 | 0 | 19.28 | 6/1/18 | 83,279 | 2,197,733 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10,000 | 40,000 | 15.10 | 7/13/19 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 24,239 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| Terry D. Stinson | 3,333 | 6,667 | 0 | 15.10 | 7/13/19 | 32,522 | 858,256 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| 0 | 20,000 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 6,666 | 13,334 | 0 | 15.10 | 7/13/19 | 48,969 | 1,292,292 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| 0 | 24,239 | 17.27 | 7/11/20 |
| |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Option Awards1 | | Restricted Stock Awards | | |||||||||||||||||||||||||||||||||||||||||||
Named Executive Officer | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)2 | Market Value of Shares or Units of Stock That Have Not Vested ($)3 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)4 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)3 | ||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 200,000 | 0 | 15.10 | 7/13/19 | 174,657 | 4,244,165 | 66,929 | 1,626,375 | ||||||||||||||||||||||||||||||||||||||||
| 84,163 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 29,412 | 19,610 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 28,800 | 115,200 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 158,400 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 100,000 | 0 | 15.10 | 7/13/19 | 84,246 | 2,047,178 | 33,186 | 806,420 | ||||||||||||||||||||||||||||||||||||||||
| 40,664 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 14,211 | 9,474 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 14,400 | 57,600 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 79,200 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 0 | 44,768 | 25.43 | 7/15/23 | 4,750 | 115,425 | 4,750 | 115,425 | ||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | 5,000 | 0 | 15.10 | 7/13/19 | 15,668 | 380,732 | — | — | ||||||||||||||||||||||||||||||||||||||||
| 20,000 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 10,000 | 0 | 27.80 | 1/18/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 5,000 | 20,000 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 27,500 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 20,000 | 0 | 15.10 | 7/13/19 | 41,626 | 1,011,512 | 19,880 | 483,084 | ||||||||||||||||||||||||||||||||||||||||
| 24,239 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 8,469 | 5,649 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 8,640 | 34,560 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 47,520 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 9,165 | 0 | 17.27 | 7/11/20 | 16,047 | 389,942 | 7,848 | 190,706 | ||||||||||||||||||||||||||||||||||||||||
| 3,201 | 2,137 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 3,456 | 13,824 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 19,008 | 25.43 | 7/15/23 |
Certain options listed were "reload" options, which have an exercise price equal to the NYSE closing price on the date the original option was exercised, but retain the original option expiration date. The Company no longer grants reload options and all outstanding options have been amended to eliminate the reload provisions.
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Fortson | | Mr. Martinez | | Mr. Regan | | Mr. Sharp | | ||||||||||||||||||||
| 5/31/15 | 52,001 | 25,124 | — | 6,668 | 14,976 | 5,664 | |||||||||||||||||||||||||||
| 6/1/15 | 60,000 | 28,000 | — | 4,000 | 8,000 | 3,000 | |||||||||||||||||||||||||||
| 5/31/16 | 24,256 | 11,922 | — | 5,000 | 7,130 | 2,775 | |||||||||||||||||||||||||||
| 5/31/17 | 25,200 | 12,600 | 2,375 | — | 7,560 | 3,024 | |||||||||||||||||||||||||||
| 5/31/18 | 13,200 | 6,600 | 2,375 | — | 3,960 | 1,584 |
Vesting in restricted stock awards continues or is accelerated upon the participant's termination of employment due to Retirement, Disability (each as defined in the Stock Benefit Plan) or death as follows:
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Fortson | | Mr. Martinez | | Mr. Regan | | Mr. Sharp | | ||||||||||||||||||||
| 5/31/15 | 16,263 | 7,992 | — | — | 4,779 | 1,859 | |||||||||||||||||||||||||||
| 5/31/16 | 25,064 | 12,392 | 1,583 | — | 7,419 | 2,915 | |||||||||||||||||||||||||||
| 5/31/17 | 16,802 | 8,402 | 1,583 | — | 5,042 | 2,018 | |||||||||||||||||||||||||||
| 5/31/18 | 8,800 | 4,400 | 1,584 | — | 2,640 | 1,056 |
Fiscal 20112014 Option Exercises and Stock Vested
The following table sets forth information for each named executive officer concerning:
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Option Awards | | Stock Awards | | ||||||||||||||||||
| | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise1 ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting2 ($) | | ||||||||||||||
| David P. Storch | 0 | 0 | 52,001 | 885,057 | |||||||||||||||||||
| Timothy J. Romenesko | 0 | 0 | 12,000 | 204,240 | |||||||||||||||||||
| Richard J. Poulton | 10,000 | 128,284 | 0 | 0 | |||||||||||||||||||
| Terry D. Stinson | 0 | 0 | 7,298 | 134,210 | |||||||||||||||||||
| Robert J. Regan | 0 | 0 | 344 | 9,388 |
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Option Awards | | Stock Awards | | ||||||||||||||||||
| Named Executive Officer | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise1 ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting2 ($) | | ||||||||||||||
| David P. Storch | 27,607 | 183,863 | 160,007 | 3,413,290 | |||||||||||||||||||
| Timothy J. Romenesko | 2,109 | 15,037 | 69,195 | 1,486,399 | |||||||||||||||||||
| John C. Fortson | — | — | — | — | |||||||||||||||||||
| Randy J. Martinez | — | — | 5,666 | 113,660 | |||||||||||||||||||
| Robert J. Regan | — | — | 21,826 | 496,452 | |||||||||||||||||||
| Michael J. Sharp | 10,000 | 124,300 | 10,227 | 227,316 |
The Company provides defined benefit pension benefits under the SKERP and the Retirement Plan. The following table shows the years of service currently credited to each named executive officer under the applicable plan and the present value of the accumulated benefit payable under the applicable plan to each named executive officer at the earliest age an unreduced benefit is payable.
Fiscal 20112014 Pension Benefits
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Plan Name | | Number of Years Credited Service (#)1 | | Present Value of Accumulated Benefit ($)2 | | Payments During Fiscal 2011 ($) | | ||||||||||
| David P. Storch | Retirement Plan | 26.4 | 659,402 | — | |||||||||||||||
| SKERP | N/A | 136,222 | — | ||||||||||||||||
| Timothy J. Romenesko | Retirement Plan | 24.4 | 582,798 | — | |||||||||||||||
| SKERP | N/A | 121,021 | — | ||||||||||||||||
| Richard J. Poulton3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Terry D. Stinson3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Robert J. Regan3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A |
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Plan Name | | Number of Years Credited Service (#)1 | | Present Value of Accumulated Benefit ($)2 | | Payments During Fiscal 2014 ($) | | ||||||||||
| David P. Storch | Retirement Plan | 26.4 | 753,600 | — | |||||||||||||||
| SKERP | N/A | 245,992 | — | ||||||||||||||||
| Timothy J. Romenesko | Retirement Plan | 24.4 | 666,053 | — | |||||||||||||||
| SKERP | N/A | 192,611 | — | ||||||||||||||||
| John C. Fortson3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Randy J. Martinez3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Robert J. Regan3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Michael J. Sharp3 | Retirement Plan | 8.9 | 70,002 | — | |||||||||||||||
| SKERP | N/A | N/A | N/A |
SKERP — Defined Benefit Portion
The Company provides supplemental retirement benefits to certain executives and key employees under the SKERP. The SKERP, which is a non-qualified plan, contains a defined benefit portion and a defined contribution portion (discussed below). Only Mr. Storch and
Mr. Romenesko participate in the defined benefit portion of the SKERP, the material terms and conditions of which include the following:
Benefit Accruals: Under the defined benefit portion of the SKERP, benefits were accrued until October 1, 2001 pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to: (i) 1/12 of 60% (50% for Mr. Romenesko) of Final Average Earnings less (ii) the monthly benefit payable under the Company's Retirement Plan determined as of October 1,
2001. For purposes of this benefit formula, (i) "Final Average Earnings" is defined as1/5 of a participant's Compensation during the five consecutive years within the last 10 years preceding termination of employment during which such Compensation was the highest, and (ii) "Compensation" is defined as the participant's income reported on Form W-2, including pre-tax contributions to the Retirement Savings Plan, reduced by the income attributable to restricted stock and stock options, reimbursements or other expense allowances and fringe benefits. Benefits accrued on and after October 1, 2001 under the defined benefit portion of the SKERP will accrue pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to1/12 of 60% (50% for Mr. Romenesko) of 25% of the percentage increase in the participant's base salary from September 30, 2001 to the date of the participant's termination of employment. The benefits accrued by Messrs. Storch and Romenesko as of May 31, 2006 have been transferred to the defined contribution portion of the SKERP and are held in an account established and maintained thereunder for each participant.
Benefits accrued under the defined benefit portion of the SKERP for all other participants ceased on October 1, 2001 and were distributed to them in a lump sum as soon as practicable thereafter.
Benefit Entitlement: A participant is eligible to receive the benefit accrued under the SKERP following termination of employment when he reaches age 65. If a participant terminates employment after he reaches age 55 and his age plus years of service equal or exceed 62, benefits will be paid on the date of his termination or on a date no later than 15 years after termination of employment, as previously specified by the participant.
Form of Benefit Payment: Each participant has previously elected to have the remainder of his retirement benefit paid in a lump sum. The assumptions set forth in the Company's Retirement Plan will be used to convert the retirement benefits from an annuity payment to a lump sum. The participant may change the time or form of payment in accordance with procedures set forth in the SKERP.
Forfeiture Events: A participant will forfeit the retirement benefit if his employment is terminated due to theft, embezzlement, fraud or willful misconduct in the performance of his duties that materially injures the Company, or if during employment or the one-year period thereafter the participant violates the covenant not to compete contained in the SKERP. As a condition to receiving his retirement benefit, a participant must agree in writing to return his benefit, plus 8% interest, in the event of such forfeiture. The forfeiture provision does not apply if the participant's termination of employment causes benefits to be paid to him under Change in Control provisions of any agreement between the participant and the Company.
Retirement Plan
The Company's Retirement Plan is a tax-qualified pension plan. Benefit accruals ceased under the Retirement Plan with respect to most participants, including the named executive officers, effective June 1, 2005. Messrs. Poulton, StinsonFortson, Martinez and Regan do not participate in the Retirement Plan because their dates of hire were after June 1, 2005. The material terms and conditions of the Retirement Plan as they pertain to Messrs. Storch, Romenesko and RomeneskoSharp are as follows:
Benefit Formula: Until January 1, 2000, benefits were accrued pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to 11/2% of the participant's Final Average Earnings reduced by the participant's Social Security offset determined under the
Plan, multiplied by the participant's years of Credited Service (up to 20). Effective as of January 1, 2000, the Plan was converted to a cash balance type of plan, subject to a "grandfather" provision applicable to certain participants based on age and years of service. An account is maintained for each participant which consists of (i) an opening account balance equal to the then present value of the benefit accrued by the participant under the prior formula as of December 31, 1999, (ii) quarterly contributions made by the Company equal to a percentage of compensation based on the participant's age and years of Credited Service, and (iii) quarterly interest credits made by the Company equal to 25% of the 30-year Treasury securities interest rate for the second month preceding the beginning of each quarter. For purposes of the benefit formulae, "Final Average Earnings" and "Compensation" have the same definitions as used in the SKERP, as discussed above.
The benefits under the Retirement Plan generally ceased accruing on June 1, 2005, although the participants' cash balance accounts continue to be credited with interest until the benefits are distributed.
Vesting: Participants are eligible to receive benefits from the Retirement Plan after completing five years of Vesting Service. The named executive officers who participate in the Retirement Plan are fully vested in their benefits.
Payment of Retirement Benefits: Participants can elect to receive their benefits upon termination of employment or they can defer receipt of benefits until normal retirement age (age 65). Any vested participant can elect benefits at any time after termination of employment, with the benefit actuarially reduced to reflect payment prior to age 65. The Retirement Plan also provides for a Disability retirement benefit.
Forms of Benefit Payment: The normal form of benefit payment for a married participant is a joint and 50% survivor annuity, and the normal form of benefit payment for an unmarried participant is a single life annuity. Participants, with spousal consent, if applicable, can waive the normal form of benefit payment and elect to have benefits paid in various annuity forms, which are the actuarial equivalent of the normal form, or in a lump sum.
Retirement Savings Plan: In connection with ceasing benefits under the Retirement Plan, the Company amended its Retirement Savings Plan to provide additional benefits, as described below in the discussion following the Non-Qualified Deferred Compensation table.
Non-Qualified Deferred Compensation
The Company provides non-qualified deferred compensation benefits under the defined contribution portion of the SKERP. The following table below shows the contributions made by
each named executive officer and by the Company in Fiscal 2011,2014, the earnings accrued on the named executive officer's account balance in Fiscal 2011,2014, and the account balance as of May 31, 2011.
Table of Contents2014. Mr. Martinez does not participate in the SKERP.
Fiscal 20112014 Non-Qualified Deferred Compensation
| |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Executive Contributions in Fiscal 2011 ($)1 | | Company Contributions in Fiscal 2011 ($)2 | | Aggregate Earnings in Fiscal 2011 ($)3 | | Aggregate Withdrawal/ Distributions ($) | | Aggregate Balance at May 31, 2011 ($)4 | | |||||||||||||||||
| David P. Storch | 79,325 | 489,149 | 1,179,643 | — | 7,284,614 | |||||||||||||||||||||||
| Timothy J. Romenesko | 70,484 | 195,318 | 232,314 | — | 1,632,152 | |||||||||||||||||||||||
| Richard J. Poulton | 15,091 | 49,695 | 56,119 | — | 282,518 | |||||||||||||||||||||||
| Terry D. Stinson | 45,042 | 175,962 | 48,153 | — | 546,398 | |||||||||||||||||||||||
| Robert J. Regan | 48,127 | 83,424 | 68,256 | — | 366,830 |
| |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Executive Contributions in Fiscal 2014 ($)1 | | Company Contributions in Fiscal 2014 ($)2 | | Aggregate Earnings in Fiscal 2014 ($)3 | | Aggregate Withdrawal/ Distributions ($) | | Aggregate Balance at May 31, 2014 ($)4 | | |||||||||||||||||
| David P. Storch | 112,840 | 376,736 | 2,057,158 | — | 12,936,046 | |||||||||||||||||||||||
| Timothy J. Romenesko | 58,770 | 152,620 | 402,816 | — | 3,159,904 | |||||||||||||||||||||||
| John C. Fortson | 20,462 | 13,477 | 2,317 | — | 36,256 | |||||||||||||||||||||||
| Robert J. Regan | 43,048 | 70,781 | 152,996 | — | 1,027,588 | |||||||||||||||||||||||
| Michael J. Sharp | 15,805 | 53,839 | 74,799 | — | 512,437 |
SKERP — Defined Contribution Portion
The defined contribution portion of the SKERP covers certain executives and key employees including all of the named executive officers, and provides the portion of a participant's benefit that cannot be paid under the Retirement Savings Plan due to Internal Revenue Code limits, including the limit on the amount of compensation that can be taken into account in determining benefits ($245,000255,000 in 20102013 and 2011)$260,000 in 2014). The material terms and conditions of the defined contribution portion of the SKERP include the following:
Contributions: Each participant may make an election which satisfies Code Section 409A to contribute a portion of his base salary (up to 75%) for that calendar year that exceeds the Code's compensation limit and a portion of the bonus (up to 75%) paid to him for the Company's fiscal year beginning in such calendar year that exceeds the Code's compensation limit. The Company
makes a matching contribution under the SKERP using the formula in the Retirement Savings Plan (i.e., 20% of the first 5% of the participant's contributions, up to 1% of compensation), as well as the portion of the Company's retirement benefit and profit sharing contributions that could not be made under the Savings Plan due to the Code's compensation limit. The Company also makes annual supplemental contributions to the accounts of the Chief Executive Officer (22% of base salary and bonus), the President (16% of base salary and bonus) and other eligible
named executive officers (5% or 10% of base salary and bonus). To receive a credit of this contribution, the eligible participant must be employed as of the day before the contribution is made to the SKERP (unless termination of employment is due to death or Disability). In Fiscal 2014, the annual supplemental contribution for Messrs. Storch, Romenesko and Regan were reduced, at management's recommendation, by 50% (Mr. Fortson and Mr. Sharp received a 5% contribution and Mr. Martinez does not participate in the SKERP).
Mr. Storch and Mr. Romenesko also have amounts held in a supplemental account that were transferred from the defined benefit portion of the SKERP, which represent the lump sum value of each participant's accrued benefit as of May 31, 2006 under the defined benefit portion. These amounts are now subject to the terms and conditions of the defined contribution portion of the SKERP.
Vesting: A participant is fully vested in amounts attributable to his own deferral contributions, and vests in all Company contributions, except supplemental contributions, at a rate equal to 331/3% for each year of vesting service (subject to full vesting upon age 65, death or Disability). A participant vests in amounts attributable to Company supplemental contributions (i) made prior to October 17, 2007, upon the earlier of age 65, or age 57 with 15 years of service, and (ii) made after October 17, 2007, upon the earlier of age 65, or age 55 with the sum of age and years of service equal to at least 75.
Investments: Each participant's plan accounts are credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the SKERP consist of 24 mutual funds including 10 "Life Cycle" fund choices. Participants may change investment elections at any time.
Distributions: Distribution of a participant's accounts is generally made upon the participant's termination of employment or on a date no later than 15 years after termination of employment, as previously specified by the participant. Participants were to elect by December 31, 2005 whether their accounts are to be paid in a lump sum or installments not to exceed 15 years (a participant who failed to make an election will have his account paid in a lump sum). Notwithstanding the foregoing, (i) a participant may elect distribution of the portion of his accounts earned and vested as of December 31, 2004 (and earnings thereon) upon six month's advance written election or if such distribution is subject to a 10% forfeiture; (ii) a participant can change the time and form of payment of the portion of his accounts earned and vested after December 31, 2004 in accordance with procedures set forth in the plan; (iii) a participant can elect a distribution at any time in order to satisfy an unforeseeable hardship (as defined in the plan); and (iv) in the event of a potential Change in Control of the Company (as determined by the Board), the portion of the participant's accounts earned and vested as of December 31, 2004 (including earnings thereon) will be distributed in an immediate lump sum. Distributions to "key employees" as defined in Code Section 409A upon termination of employment will not be paid earlier than six months following such termination.
Forfeiture Events: A participant will forfeit the portion of his plan accounts attributable to Company supplemental contributions and to amounts transferred from the defined benefit portion of the SKERP, if applicable, if his employment is terminated due to theft, embezzlement or fraud or willful misconduct in the performance of his duties that materially injures the Company, or if during employment or the one-year period thereafter the participant violates the covenant not to compete contained in the SKERP. As a condition to receiving such amounts, a participant must agree in writing to return such amounts, plus 8% interest, in the event of such forfeiture. The forfeiture provision does not apply if the participant's termination of employment
causes benefits to be paid to him under change in control provisions of any agreement between the participant and the Company.
Retirement Savings Plan
The Retirement Savings Plan is a tax-qualified retirement plan that covers most United States employees, including the named executive officers. The material terms and conditions of the Retirement Savings Plan as it pertains to non-union employees are as follows:
Contributions: A participant can elect to defer 1% to 75% of compensation, up to a maximum of $16,500$17,500 for 2011,2014, or $22,500$23,000 if age 50 or older. Contributions can be made on a pre-tax or after-tax basis, as elected by the participant. Unless a participant elects otherwise: (i) participation for non-union employees hired on or after June 1, 2007 and prior to June 26, 2009 is automatic at a 3% deferral rate; and (ii) participation for non-union employees hired on or after June 26, 2009 is automatic at a 5% deferral rate, with automatic 1% annual increase. The Company provides a matching contribution, a profit sharing contribution and a retirement benefit contribution. The current matching contribution is made, as of each payroll period, in an amount equal to 20% of the first 5% of the participant's contributions, up to 1% of compensation, to the Plan for such payroll period. The profit sharing contribution is made, as of the end of each calendar year and is based on the participant's contributions and the economic performance of the participant's operating unit and is equal to a percentage of the participant's compensation, up to 4%. The retirement benefit contribution, which is also made as of the end of each calendar year, was added to the Plan, effective June 1, 2005, and is equal to a percentage of compensation, up to 4%, based on the participant's age and years of credited service. A participant must have earned one year of service to be eligible for a retirement benefit contribution, and generally must be employed on the last day of the calendar year to receive a profit sharing contribution. Compensation for purposes of determining contributions includes cash compensation shown as income on the participant's Form W-2, reduced by the participant's contributions to the plan and excluding the income attributable to restricted stock options, reimbursements or other expense allowances and fringe benefits and subject to the Code's compensation limit ($245,000255,000 for 20102013 and 2011)$260,000 for 2014).
Investments: Each participant's plan account is credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the plan consist of 24 mutual funds including 10 "Life Cycle" fund choices. Participants may change investment elections at any time.
Vesting: Participants hired prior to July 1, 1999 are fully vested in their accounts under the plan. Participants hired on or after January 1, 1999 are fully vested in their own contribution accounts,
and vest in the Company contribution accounts at a rate equal to 331/3% for each year of vesting service (subject to full vesting upon age 65, death or Disability).
Distributions: Participants can elect distributions of the plan accounts upon termination of employment, in a lump sum, an eligible rollover distribution, or, if early or normal retirement has been attained, in installments not to exceed 15 years.
Potential Payments Upon a Termination of Employment or a Change in Control of the Company
The Company provides certain benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a Change in Control of the Company. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock options and restricted stock that are otherwise vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). These benefits as they pertain to the named executive officers are as described and set forth in the tables beginning on page 71..
Employment Agreement of David P. Storch
The Company has anentered into a new employment agreement with Mr. Storch in Fiscal 2014 that provides the following severance benefits:
Termination of Employment — Prior to or More than 24 Months After a Change in Control: If prior to or more than 24 months after a Change in Control, either the Company terminates his employment without Cause or Mr. Storch terminates his employment for Good Reason, Mr. Storch is entitled to: (i) continued payment of his base salary for 36 months, and (ii) a lump sum payment equal to three times the average of the cash incentive bonus paid to him for the preceding three fiscal years of the Company. Payments cease upon any materiala breach of the confidentiality andor non-compete provisions set forth in the agreement (the non-compete provisions remain in effect for the two-year period following any such termination of employment).
Termination of Employment — Within 24 Months Following a Change in Control: If Mr. Storch's employment is terminated within 24 months following a Change in Control either by the Company other than for Cause or Disability or by Mr. Storch for Good Reason, or if his employment terminates for any reason other than Disability or death during the 30-day period following the 24th month after a Change in Control, he is entitled to:
contribution portion of the SKERP for the calendar year preceding the year in which the
termination occurs or (B) $1,575,876 (pursuant to the agreement, this amount reflects the computation described in (A) above based on Company contributions made for the 2009 calendar year), plus, in each case, a gross-up payment to cover any related income tax liability;$1,526,405;
If any excise and related tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the agreement.
would be triggered, Mr. Storch is also entitledcan elect to either (i) receive the full amount of severance benefits and be responsible for paying the excise tax or (ii) receive severance benefits up to the benefits described above under "Termination of Employment — Prior to Change in Control" if he terminates his employment for Good Reason aftermaximum amount that can be paid without triggering the 30th day following the 24th month after a Change in Control. The employment agreement's non-compete provisions do not apply in the case of a termination of employment following a Change in Control.excise tax.
General:General. Regardless of whether a Change of Control is involved:
In any event, payments under the employment agreement in connection with Mr. Storch's termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
For purposes of Mr. Storch's employment agreement:
"Change in Control" means the earliest of (i) a person's acquisition of more than 35% of the voting power of the Company's outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company's assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of a majority of the directors then in office.
"Cause" means Mr. Storch's (i) dishonesty, intentional breach of fiduciary duty, or intentional wrongdoing or malfeasance, (ii) disregard of a material, lawful and proper direction from the Board, or (iii) material breach of the employment agreement that is not cured within 30 days of receipt of notice from the Company.
"Disability" means a physical or mental condition that has prevented Mr. Storch from substantially performing his duties under the employment agreement for a period of 180 days and that is expected to continue to render Mr. Storch unable to substantially perform his duties for the remaining term of the employment agreement on a full-time basis.
"Good Reason" means (i) the removal of Mr. Storch from the position of Chairman or Chief Executive Officer of the Company or any successor, (ii) a material reduction in the nature or scope of Mr. Storch's duties or responsibilities or in his compensation (including benefits), (ii)(iii) a material breach of the employment agreement by the Company that is not cured within 30 days of receipt of notice from Mr. Storch, or (iii)(iv) a relocation of his primary place of employment by 50 or more miles.
"Retirement" means Mr. Storch's voluntary termination of employment that does not result in severance payments under the employment agreement.
Severance and Change in Control Agreements
The Company has severance and change in control agreements with Messrs. Romenesko, PoultonFortson, Regan and ReganSharp and with certain other key employees. The agreements as they pertain to these named executive officers provide for the following benefits upon the following types of employment termination:
Termination of Employment — Prior to a Change in Control: If a Change in Control of the Company has not occurred and the executive's employment is terminated by the Company other than for Cause, he is entitled to (i) continued salary for 12 months or, if earlier, until he obtains comparable employment, (ii) any earned bonus not yet paid for the preceding fiscal year, and (iii) a pro-rata portion of the bonus that would have been paid to the executive had he remained employed until the end of the fiscal year in which the termination occurs. Any bonus will be paid in a lump sum on the later of the time bonuses are paid to other officers and the end of the severance period (with interest at the prime rate plus 1% from the earlier of such dates). If the executive terminates his employment, or if the Company terminates the executive's employment for Cause, the Company may, but is not required to, pay the above-described severance benefits. Severance payments will cease if the executive breaches the confidentiality or non-compete provisions in the agreement, which are in effect for the one-year severance period.
Termination of Employment — Following a Change in Control: If the executive's employment is terminated within 18 months following a Change in Control by the Company other than for Cause or Disability or by the executive for Good Reason, or if the executive's employment terminates for any reason other than Disability or death during the 30-day period following the 18th month after a Change in Control, he is entitled to (i) an immediate lump sum payment equal to the sum of (A) any unpaid salary and bonus earned for the preceding fiscal year, (B) a pro rata portion of the bonus that would have been paid to the executive had he remained employed until the end of the fiscal year and as if all performance targets had been met (including the value of any restricted stock granted in lieu of bonus), and (C) two or three times base salary and cash bonus (depending upon the executive involved) for either the most recently completed fiscal year prior to the termination or the preceding fiscal year, whichever produces the higher amount, (ii) continued coverage for the executive and his dependents under the Company's welfare and
fringe benefit plans for two or three years following termination of employment (the executive and his dependents can elect continued medical and dental coverage pursuant to COBRA at the end of such two- or three-year period), (iii) for Mr. Romenesko and Mr. Sharp, an immediate
lump sum payment equal to the actuarial equivalent of the additional benefits that would be earned under the Company's retirement plans with three additional years of service and a gross-up payment to cover any related income tax liability, (iv) Company-paid outplacement services for the earlier of 18 months or the attainment of new employment (up to a maximum Company expense of 3.5% of the amount paid to the executive pursuant to (i)(C) above), (v) reasonable legal fees incurred by the executive in enforcing the agreement, and (vi) for Mr. Romenesko and Mr. Sharp, a gross-up payment to cover any excise and related tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the agreement. The agreements' non-compete provisions do not apply in the case of a termination of employment following a Change in Control.
Termination of Employment — Disability: If the executive's employment terminates due to Disability, the executive will receive payment pursuant to the Company's disability plans then in effect and will continue to receive coverage under the Company's medical, dental and life insurance plans for two or three years following such termination.
Acceleration of Equity Awards: The severance and change in control agreements also provide that upon any Change in Control, all outstanding stock options and restricted stock will vest immediately.
For purposes of the severance and change in control agreements:
"Change in Control" means (i) a person's acquisition of more than 20% of the voting power of the Company's outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company's assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of the lesser of three directors or a majority of the directors then in office.
"Cause" means the executive's (i) dishonesty, intentional breach of fiduciary duty, or intentional wrongdoing, (ii) disregard of a material and proper direction from the Board, or (iii) material breach of the agreement that is not cured within 10 days of receipt of notice from the Company.
"Disability" means a physical or mental condition that has prevented the executive from substantially performing his duties under the agreement for a period of 180 days and that is expected to continue to render the executive unable to substantially perform his duties for the remaining term of the agreement on a full-time basis.
"Good Reason" means (i) a material reduction in the nature or scope of the executive's duties or responsibilities, or in his compensation (including benefits), (ii) if Mr. Storch is not the Chief Executive Officer at the time of termination, the executive's determination that as a result of a material change in employment circumstances he is unable to adequately carry out his duties, or (iii) a relocation of the executive's primary place of employment by more than 100 miles.
In any event, payments under the agreements in connection with termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code
will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
Split Dollar Insurance Agreements
The Company has entered into split dollar life insurance agreements with certain key employees, including Mr. Storch, Mr. Romenesko and Mr. Romenesko.Sharp. Under the agreements, the employees own the policies, except for the cash value portion of the policies owned by the Company. The Company funds the annual insurance premiums for the policies during the term of the agreement subject to reimbursement from the cash value or death benefit proceeds of the policies. Upon a Change in Control of the Company (as defined above), the Company will prepay all premiums, plus any amounts necessary for the cash value and death benefits to be at the same level at the Change in Control date. If the executive's employment terminates after a Change in Control and benefits are paid under the severance and change in control agreements, the split dollar agreements will continue for the severance period.
Stock Benefit PlanPlans
A named executive officer's termination of employment can result in enhanced benefits under the CompanyAAR CORP. Stock Benefit Plan and the AAR CORP. 2013 Stock Plan, depending on the reason for such termination:
Stock Options: If termination is due to Retirement (as defined in the Plan)defined), options continue to vest in accordance with the vesting schedule and can be exercised until the expiration date, except that if death occurs before the award expires, then unvested stock options are forfeited. If death occurs within three months after Retirement, vested options can be exercised until the earlier of one year after death or the option expiration date, and if death occurs after three months from Retirement, vested options can be exercised until the option expiration date. If termination is due to Disability (as defined in the Stock Benefit Plan)defined), options continue to vest and are exercisable until the earlier of one year after termination of employment and the option expiration date, except that if death occurs before the award expires, then unvested options are forfeited and vested options are exercisable for the period described herein. If death occurs during employment, or within three months after termination of employment for reasons other than Cause, then unvested options are forfeited and vested options are exercisable until the earlier of one year after death or the option expiration date.
Restricted Stock Awards: If termination is due to Retirement, restricted stock awards continue to vest in accordance with their vesting schedule. If termination is due to Disability (as defined in the Stock Benefit Plan) or death on or before the third anniversary of the date of grant, then the difference between one-half of the total award shares and the number of shares already vested will vest as of such termination. If termination is due to Disability or death after the third anniversary of the date of grant, all awards shares will vest as of such termination.
The AAR CORP. Stock Benefit Plan has change in control provisions that apply to participants who do not have a severance and change in control agreement. Upon a Change in Control of the Company (as defined in the Stock Benefit Plan) that does not have prior written approval of the Board, all options and restricted stock awards will fully vest. Upon a changeChange in controlControl that has the approval of the Board, the Compensation Committee has the discretion to either provide for full vesting of options and restricted stock awards or grant replacement awards with respect to the successor company's stock.
Award agreements under the AAR CORP. 2013 Stock Plan do not provide for vesting upon a Change in Control (as defined) unless there is a termination of employment by the Company without Cause or by the participant for Good Reason within two years following the Change in Control.
Tables of Potential Payments Upon a Termination
of Employment or a Change in Control
The tables set forth below quantify the additional benefits described above that would be paid to each named executive officer under the following termination of employment or change in control events, assuming a change in control or a termination of employment occurred on May 31, 201130, 2014 (the last business day of Fiscal 2011)2014).
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Change in Control | ||||||||||||||
| ||||||||||||||
| Name | | Vesting of Restricted Stock ($)1 | | Vesting of Stock Options ($)2 | | ||||||||
| David P. Storch | 9,294,320 | 2,272,907 | |||||||||||
| Timothy J. Romenesko | 4,049,308 | 1,123,526 | |||||||||||
| Richard J. Poulton | 2,197,733 | 672,660 | |||||||||||
| Terry D. Stinson | 858,256 | 257,670 | |||||||||||
| Robert J. Regan | 1,292,292 | 371,601 |
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Equity Vesting — On or After a Change in Control | | |||||||||||
| Named Executive Officer | | Vesting of Restricted Stock ($)1 | | Vesting of Stock Options ($)2 | | ||||||||
| David P. Storch | 5,870,540 | 1,313,280 | |||||||||||
| Timothy J. Romenesko | 2,853,598 | 656,640 | |||||||||||
| John C. Fortson | 230,850 | — | |||||||||||
| Randy J. Martinez | 380,732 | 228,000 | |||||||||||
| Robert J. Regan | 1,494,596 | 393,984 | |||||||||||
| Michael J. Sharp | 580,649 | 157,594 |
zero) between the option exercise price and $26.39,$24.30, the closing price of the Common Stockcommon stock on May 31, 2011.30, 2014 (the last business day of Fiscal 2014).
| |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Termination of Employment — Prior to a Change in Control | |||||||||||||||||||||||||||||||||||||||||||||||||
| | Other than Cause | | Disability | | Death | | ||||||||||||||||||||||||||||||||||||||||||
| Name | | Salary ($)1 | | Bonus ($)2 | | Restricted Stock ($)3 | | Stock Options($)4 | | Health and Welfare ($)5 | | Health and Welfare ($)6 | | Restricted Stock ($)7 | | Stock Options($)4 | | Restricted Stock ($)7 | | |||||||||||||||||||||||||||||
| David P. Storch | 2,550,000 | 3,449,641 | 9,294,320 | 2,272,907 | 282,028 | 28,893 | 6,019,440 | 2,272,907 | 6,019,440 | |||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 468,180 | 700,976 | 4,049,308 | 1,123,526 | — | 37,334 | 2,301,749 | 1,123,526 | 2,301,749 | |||||||||||||||||||||||||||||||||||||||
| Richard J. Poulton | 367,200 | 439,828 | 2,197,733 | 672,660 | — | 24,889 | 1,230,816 | 672,660 | 1,230,816 | |||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 367,200 | 439,828 | 1,292,292 | 371,601 | — | 24,889 | 655,251 | 371,601 | 655,251 |
| |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Termination of Employment — Prior to a Change in Control | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
| | | Other than Cause | | Disability | | Death | | |||||||||||||||||||||||||||||||||||||||||
| Named Executive Officer | | Salary ($)1 | | Bonus ($)2 | | Restricted Stock ($)3 | | Stock Options ($)4 | | Health and Welfare ($)5 | | Health and Welfare ($)6 | | Restricted Stock ($)7 | | Stock Options ($)8 | | Restricted Stock ($)7 | | |||||||||||||||||||||||||||||
| David P. Storch | 2,719,346 | 3,052,233 | 5,870,540 | 1,313,280 | 305,074 | 36,506 | 3,819,510 | 328,320 | 3,819,510 | |||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 499,272 | 426,393 | 2,853,598 | 656,640 | — | 41,829 | 1,842,001 | 164,160 | 1,842,001 | |||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 400,000 | 273,290 | 230,850 | — | — | 27,886 | 115,425 | — | 115,425 | |||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | — | — | 380,732 | 228,000 | — | — | 238,966 | 57,000 | 238,966 | |||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 391,586 | 267,541 | 1,494,596 | 393,984 | — | 27,886 | 889,210 | 98,496 | 889,210 | |||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 360,353 | 207,733 | 580,649 | 157,594 | — | 41,829 | 343,687 | 39,398 | 343,687 |
on the difference between the exercise price and $24.30, the closing price of the common stock on May 30, 2014.
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Termination of Employment — Following a Change in Control | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||
| Name | | Salary1 ($) | | Bonus2 ($) | | Health and Welfare Continuation ($) | | Additional Retirement Plan Credits3 ($) | | Outplacement Services ($) | | 280G Gross-Up ($) | | ||||||||||||||||||||
| David P. Storch | 2,550,000 | 5,095,242 | 28,893 | 2,526,243 | 236,241 | 7,482,511 | |||||||||||||||||||||||||||
| Timothy J. Romenesko | 1,404,540 | 2,803,904 | 37,334 | 1,227,614 | 122,761 | 4,300,305 | |||||||||||||||||||||||||||
| Richard J. Poulton | 734,400 | 1,319,484 | 24,889 | — | 56,492 | — | |||||||||||||||||||||||||||
| Robert J. Regan | 734,400 | 1,319,484 | 24,889 | — | 56,492 | — |
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Termination of Employment — Following a Change in Control1 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||
| Named Executive Officer | | Salary2 ($) | | Bonus3 ($) | | Health and Welfare Continuation ($) | | Additional Retirement Plan Credits4 ($) | | Outplacement Services ($) | | 280G Gross-Up ($) | | ||||||||||||||||||||
| David P. Storch | 2,719,346 | 4,903,603 | 36,506 | 1,183,269 | — | — | 5 | ||||||||||||||||||||||||||
| Timothy J. Romenesko | 1,497,816 | 2,455,365 | 41,829 | 1,322,546 | 123,438 | 3,717,705 | |||||||||||||||||||||||||||
| John C. Fortson | 800,000 | 819,870 | 27,886 | — | 47,130 | — | |||||||||||||||||||||||||||
| Robert J. Regan | 783,172 | 1,116,265 | 27,886 | — | 57,116 | — | |||||||||||||||||||||||||||
| Michael J. Sharp | 1,081,059 | 1,174,288 | 41,829 | 365,645 | 71,666 | 1,453,115 |
The following tables show the shares of Common Stockcommon stock beneficially owned, the percent of shares outstanding if greater than 1% and the number of stock units held, all as of July 31, 2011,2014, by (i) each current director and director nominee for election to the Board, (ii) each executive officer named in the Summary Compensation Table, (iii) all directors and executive officers of the Company as a group, and (iv) each beneficial owner of more than five percent of the outstanding shares of Common Stock.common stock. Except as noted, the nature of beneficial ownership for shares shown in the tables is sole voting and sole investment power, and none of the shares shown in the tables is pledged by any of the persons listed.
Security Ownership of Management
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Shares Beneficially Owned1 | | Percent of Shares Outstanding if Greater than 1% | | ||||||||
| Norman R. Bobins | 20,508 | — | |||||||||||
| Michael R. Boyce2 | 47,308 | — | |||||||||||
| James G. Brocksmith, Jr. | 30,008 | — | |||||||||||
| Ronald R. Fogleman | 21,001 | — | |||||||||||
| James E. Goodwin | 32,000 | — | |||||||||||
| Patrick J. Kelly3 | 36,508 | — | |||||||||||
| Peter Pace | 7,000 | — | |||||||||||
| Richard J. Poulton | 139,521 | — | |||||||||||
| Robert J. Regan | 102,415 | — | |||||||||||
| Terry D. Stinson | 68,570 | — | |||||||||||
| Timothy J. Romenesko | 346,829 | — | |||||||||||
| David P. Storch4,5 | 1,489,499 | 3.75 | % | ||||||||||
| Marc J. Walfish | 47,028 | — | |||||||||||
| Ronald B. Woodard | 30,508 | — | |||||||||||
| All directors and executive officers as a group | 2,418,703 | 6.10 | % |
| |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Shares Beneficially Owned1 | | Percent of Shares Outstanding if Greater than 1% | | Stock Units2 | | |||||||||||
| Anthony K. Anderson | 13,333 | — | 0 | |||||||||||||||
| Norman R. Bobins | 35,572 | — | 0 | |||||||||||||||
| Michael R. Boyce3 | 69,938 | — | 0 | |||||||||||||||
| Ronald R. Fogleman | 29,072 | — | 36,723 | |||||||||||||||
| John C. Fortson | 38,453 | — | — | |||||||||||||||
| James E. Goodwin | 44,815 | — | 9,202 | |||||||||||||||
| Patrick J. Kelly4 | 51,620 | — | 0 | |||||||||||||||
| Randy J. Martinez | 79,232 | — | — | |||||||||||||||
| Peter Pace | 20,048 | — | 0 | |||||||||||||||
| Robert J. Regan | 182,126 | — | — | |||||||||||||||
| Timothy J. Romenesko | 472,896 | 1.19 | % | — | ||||||||||||||
| Michael J. Sharp | 58,211 | — | — | |||||||||||||||
| David P. Storch5 | 1,737,973 | 4.36 | % | — | ||||||||||||||
| Marc J. Walfish | 72,157 | — | 28,110 | |||||||||||||||
| Ronald B. Woodard | 25,072 | — | 0 | |||||||||||||||
| All directors and executive officers as a group | 2,930,518 | 7.35 | % | 74,035 |
Barclays Global Investors, NA1 BlackRock, Inc.2 Dimensional Fund Advisors LP3 Earnest Partners, LLC4 Fred Alger Management, Inc.5 and Invesco Ltd.6 BlackRock, Inc.1 Dimensional Fund Advisors LP2 Franklin Resources Inc.3 Vanguard Group, Inc.4 • Sole voting power: • Shared voting power: • Sole dispositive power: • Shared dispositive power: • Sole voting power: • Shared voting power: • Sole dispositive power: • Shared dispositive power: • Sole voting power: • Shared voting power: • Sole dispositive power: • Shared dispositive power: • Sole voting power: • Shared voting power: • Sole dispositive power: • Shared dispositive power: Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and beneficial owners of more than 10% of the Company's stock, if any, to file reports of ownership and changes in ownership on Forms 3, 4, and 5 with the SEC and the NYSE, and to furnish copies of these forms to the Company. To the Company's knowledge, based solely upon a review of copies of SEC Forms 3, 4 and 5 and upon related written representations furnished to the Company with respect to Fiscal The following table provides information as of May 31, 2014 with respect to the Company's compensation plans under which equity securities of the Company are authorized for issuance (shares in thousands): Equity compensation plans not approved by securities holders Total Any stockholder who, in accordance with SEC Rule 14a-8, wishes to present a proposal for consideration at the annual meeting of stockholders to be held in Under the Company's By-Laws, any stockholder who wishes to submit a matter (other than a stockholder proposal brought in accordance with SEC Rule 14a-8) for consideration at the Management knows of no other matters which are to be brought before the annual meeting. However, if any other matter properly comes before the annual meeting, the named proxy holders will vote all proxies in their discretion and best judgment on such other matter. Upon the written request of any record holder or beneficial owner of common stock of AAR CORP., the Company will provide, without charge, a copy of its annual report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended May 31,
Security Ownership of Certain Beneficial Owners Name and Address
of Beneficial Owner Number of Shares Percent of Class
400 Howard Street
San Francisco, CA 94105 2,616,811 6.77 %
40 East 52nd Street
New York, NY 10022 3,089,181 7.79 %
Palisades West, Building One
6300 Bee Cave Road
Austin, TX 78746 2,381,977 6 %
1180 Peachtree Street, NE, Suite 2300
Atlanta, GA 30309 2,787,410 7 %
Alger Associates Incorporated
111 Fifth Avenue
New York, NY 10003 2,037,459 5.14 %
1555 Peachtree Street NE
Atlanta, GA 30309 3,637,147 9.2 % Name and Address of Beneficial Owner Number of Shares Percent of Class
40 East 52nd Street
New York, NY 10022 3,914,897 9.9
Palisades West, Building One
6300 Bee Cave Road
Austin, TX 78746 3,361,841 8.49
One Franklin Parkway
San Mateo, CA 94403 3,664,284 9.3
100 Vanguard Blvd.
Malvern, PA 19355 2,352,195 5.93 2/6/09, Barclays Global Investors, NA and certain of its affiliates1/17/14, BlackRock, Inc. disclosed beneficial ownership with respect to the shares as follows: 2,024,7803,779,169 0 2,616,8113,914,897 0 3/11, BlackRock, Inc. disclosed beneficial ownership with respect to the shares as follows:• Sole voting power:3,089,181• Shared voting power:0• Sole dispositive power:3,089,181• Shared dispositive power:03Based on a Schedule 13G filing dated 2/11/11,1/14, Dimensional Fund Advisors LP disclosed beneficial ownership with respect to the shares as follows: 2,334,1993,279,255 0 2,381,9773,361,841 0 431/11, Earnest Partners, LLC disclosed beneficial ownership with respect to the shares as follows:• Sole voting power:1,222,646• Shared voting power:553,964• Sole dispositive power:2,787,410• Shared dispositive power:05Based on a Schedule 13G filing dated 2/14/11, Fred Alger Management,5/14, Franklin Resources, Inc. disclosed beneficial ownership with respect to the shares as follows: 2,037,4593,414,284 0 2,037,4593,664,284 0 647/11, Invesco Ltd.6/14, the Vanguard Group, Inc. disclosed beneficial ownership with respect to the shares as follows: 3,469,26856,899 0 3,637,1472,279,796 054,399
Section 16(a) Beneficial Ownership Reporting Compliance2011,2014, the Company believes that all of the Company's officers and directors filed on a timely basis all reports required by Section 16(a) of the Securities Exchange Act of 1934 during Fiscal 2011, except that Mr. Dany Kleiman, an executive officer of the Company, filed a late Form 4 on November 18, 2010 to report the sale of 1,706 shares used to pay his taxes in connection with the release of restricted shares.Management knows of no other matters which are to be brought before the annual meeting. However, if any other matter properly comes before the annual meeting, the named proxy holders will vote all proxies in their discretion and best judgment on such other matter.2014. Number of
securities
to be issued upon
exercise of
outstanding
options, warrants
and rights
(a) Weighted-average
exercise
price of outstanding
options, warrants
and rights
(b) Number of securities
remaining available
for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
(c) Equity compensation plans approved by securities holders 2,753 19.59 2,017 — — — 2,753 19.59 2,017 20122015 must submit such proposal to the Company, in writing, to be received by the Secretary of the Company, AAR CORP., One AAR Place, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191, no later than May 5, 2012,4, 2015, in order for the proposal to be eligible for inclusion in the Company's proxy statement and form of proxy for that meeting. The proposal must comply with applicable SEC rules and the Company's By-Laws.20122015 annual meeting of stockholders, including any stockholder proposal or director nomination, that would not be included in the Company's proxy statement must submit the matter to the Company, in writing, to be received by the Secretary of the Company no later than April 18, 2012.11, 2015. The notice of such matter must contain the information required by the By-Laws. By Order of the Board of Directors,
Robert J. Regan
Vice President, General Counsel and SecretarySeptember 2, 2011August 29, 20142011.2014. Requests should be made to Mr. Robert J. Regan, Vice President, General Counsel and Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191, (630) 227-2000.APPENDIX A — AAR CORP. CATEGORICAL STANDARDS AND POLICY FORDETERMINING DIRECTOR INDEPENDENCEIt is the policy and practice of AAR CORP. (the "Company") that the directors of the Company, when carrying out their duties, must exercise their independent judgment in good faith and in the best interests of the Company and its stockholders as a whole.In addition, it is the policy of the Company that a majority of its directors, and all directors serving on the Audit Committee, Compensation Committee and Nominating and Governance Committee, shall be "independent," as determined by the Board in accordance with the independence standards of the New York Stock Exchange ("NYSE").At least once each year, the Board shall review the "independence" of each director and any nominee for director and make a determination whether the director or nominee has any material relationship with the Company (either directly or indirectly as a partner, shareholder, or officer of an organization that has a relationship with the Company) that would impair the director's ability to exercise independent judgment as a member of the Board.To assist it in determining a director's "independence," the Board has adopted the following categorical standards for determining director "independence" status with respect to service as a director*:*The foregoing categorical standards shall be deemed to be automatically updated to reflect any changes made to the NYSE listing standards and shall be interpreted in the same manner as such standards.1.For purposes of these categorical standards, the "Company" includes each of the Company's subsidiaries and "immediate family member" means a person's spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the person's home; provided, that any such persons who no longer have any such relationship as a result of legal separation or divorce, or death or incapacitation, shall not be considered immediate family members.2.No director shall be independent if he/she does not meet the independent standards adopted from time to time by the NYSE. Specifically, a director willnot be "independent" if:•the director is or was within the last three years an employee of the Company, or an immediate family member of such director is or was within the last three years an executive officer of the Company; or•the director or an immediate family member of the director receives or received more than $120,000 in direct compensation from the Company in any twelve-month period with the last three years, other than director and committee fees, and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent on continued service); provided, however, that compensation received by an immediate family member of a director for service as an employee (other than an executive officer) of the Company need not be considered in determining independence; or•(A) The director or an immediate family member is a current partner of a firm that is the Company's internal or external auditor; (B) the director is a current employee of such firm; (C) the director has an immediate family member who is a current employee of such firm and who personally works on the Company's audit; or (D) the director or an immediate family member was, within the last three years (but is no longer), a partner or employee of such firm and personally worked on the Company's audit during that time; or•the director or an immediate family member of the director is or was within the last three years an executive officer of another company on whose compensation committee any of the Company's present executive officers serves or served; or•the director is a current employee, or an immediate family member is a current executive officer of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of the other company's consolidated gross revenues (payments to and payments from are compared against the benchmarks separately).3.In determining director independence, the Board will give consideration to all known relevant facts and circumstances.4.Notwithstanding the foregoing, if a director or his/her immediate family member has another significant relationship with the Company that is not described in Section 2, or, at any time, is the subject of a written request by any director to the Chairman of the Nominating and Governance Committee requesting a review of another director's independent status and stating the reasons therefor, then the Board of Directors will determine whether that director's relationship is a "material relationship" that would impair the director's ability to exercise independent judgment as a member of the Board.5.Members of the Audit Committee must satisfy the enhanced "independence" criteria under applicable rules of the Securities and Exchange Commission and the New York Stock Exchange from time to time. In particular, the following enhanced "independence" qualifying criteria shall apply with respect to directors selected for service on the Audit Committee:•Director may not have accepted any direct or indirect consulting, advisory or other compensatory fee from the Company other than amounts received as compensation for membership on the Board or Board committees, pension or other forms of deferred compensation for prior service.•Director may not be an "affiliated person," i.e., a person who directly or indirectly controls, is controlled by or is under common control with, the Company (typically, one who is an executive officer or who owns more than 10% of the Company's securities is considered an "affiliated person").SEVENTH AMENDMENT TO THEAAR CORP. STOCK BENEFIT PLANWHEREAS, AAR CORP. (the “Company”) maintains the AAR CORP. Stock Benefit Plan, as amended and restated effective October 1, 2001 and further amended from time to time (the “Plan”); andWHEREAS, the Company has reserved the right to amend the Plan and now deems it appropriate to do so.NOW, THEREFORE, the Company hereby amends the Plan as follows, effective as of July 11, 2011 or as otherwise specified:1.The second paragraph of Section 1 of the Plan is amended to read as follows:Key Employees and Non-Employee Directors who have been selected by the Committee to receive an Award shall participate in the Plan. The Committee shall determine, within the limits of the express provisions of the Plan, those Key Employees and Non-Employee Directors to whom, and the time or times at which, Awards shall be granted. The Committee shall also determine the number of Shares to be subject to each Award, with respect to Key Employees the type of Awards (Restricted Stock, Restricted Stock Units, Options or Stock Appreciation Rights (SARs)); with respect to Non-Employee Directors the type of Awards (Restricted Stock, Restricted Stock Units or Options); the type of Options for Key Employees (ISO or NSO); the duration of each Option; the exercise price under each Option, the time or times within which (during the Term of the Option) all or portions of each Option may be exercised, whether cash, Shares, Options or other property may be accepted in full or partial payment upon exercise of an Option; the restrictions to be imposed on Awards and any other terms and conditions of such Awards.2.The definition of “Award” in subsection 2.1 of the Plan is amended to read as follows:“Award” shall mean an Option, a Restricted Stock Award, a Restricted Stock Unit or an SAR.3.Subsections 2.21 through 2.27 are renumbered as subsections 2.23 through 2.29, and new subsections 2.21 and 2.22 are added to read as follows:2.21“Restricted Stock Unit” means the grant, at the time or times fixed by the Committee in accordance with the Plan, and subject to such other limitations and restrictions as the Plan and the Committee may impose, of the right to Shares or cash.2.22“Restricted Stock Unit Award Agreement” means a written agreement issued in connection with the grant of a Restricted Stock Unit Award, as specified in Section 12.4.Section 3 of the Plan is amended, subject to stockholder approval at the Company’s 2011 Annual Meeting of Stockholders, to add a new subsection 3.6 to read as follows:3.6The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to the attainment of performance goals, including those that qualify the Award as “performance-based compensation” within the meaning of Section 162(m) of the Code.(a)Performance goals may be based on one or more business criteria, including, but not limited to: earnings, earnings per share or earnings per share growth; earnings before interest and taxes, or earnings before interest, taxes, depreciation and/or amortization; Share price; total stockholder return, return on assets; net asset turnover; inventory turnover; return on capital or return on invested capital; return on equity; cash flow; net or pre-tax income; profit margin; market share; expense management; revenue; revenue growth; stockholder equity; leverage ratio; investment rating; and debt coverage. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee, and may be particular to one or more lines of business or Subsidiaries or may be based on the performance of the Company and its Subsidiaries as a whole. In addition, the Committee may adjust performance goals for any events that occur during a performance period, including significant acquisitions or dispositions of businesses or assets by the Company, litigation, judgments or settlements; the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; extraordinary items as described in FASB Accounting Standards Codification Section 225-20-20; significant, non-recurring charges or credits; and foreign exchange rates.(b)With respect to each performance period established by the Committee, the Committee shall establish such performance goals relating to one or more of the business criteria identified above, and shall establish targets for Grantees for achievement of performance goals. The performance goals and performance targets established by the Committee may be identical for all Grantees for a given performance period or, at the discretion of the Committee, may differ among Grantees. Following the completion of each performance period, the Committee shall determine the extent to which performance goals for that performance period have been achieved and the related performance-based restrictions shall lapse in accordance with the terms of the applicable Award Agreement.5.Subsection 4.1 of the Plan is amended by revising the fourth sentence and adding a new fifth sentence to read as follows:Any Shares subject to issuance with respect to an Award but which are not issued because of a lapse, expiration, cancellation or termination of any such Award, or which have been issued in connection with Restricted Stock Awards that are subsequently cancelled or forfeited, to the extent consistent with applicable law,rules and regulations, shall once again be available for issuance pursuant to subsequent Awards. The number of Shares delivered by the Grantee or withheld by the Company on the Grantee’s behalf as full or partial payment of an Option, including the exercise price of an Option or of any required withholding taxes with respect to the Option, shall once again be available for issuance pursuant to subsequent Awards, but the number of Shares delivered by a Grantee as full or partial payment of any withholding taxes with respect to a Restricted Stock Award shall not again be available for issuance pursuant to subsequent Awards and shall count against the aggregate number of Shares that may be issued under the Plan.6.Section 4 of the Plan is amended by adding a new subsection 4.4 to read as follows:4.4Of the Shares authorized for issuance under the Plan, the maximum number of Shares that may be used for Awards that are intended to qualify as “performance based” in accordance with Section 162(m) of the Code that may be granted to any Key Employee in any calendar year is 300,000, or, in the event the Award is settled in cash, an amount equal to the Fair Market Value of such number of Shares on the date on which the Award is settled.7.Subsection 5.3 of the Plan is amended by deleting “as provided in Section 12” from subsections (c) and (d).8.Subsection 5.4 of the Plan is amended to read as follows:Each Option shall become exercisable at the time, and for the number of Shares, fixed by the Committee in the Option Agreement, provided that the Committee, in its discretion, shall have the power at any time to accelerate the dates for exercise of any or all Options, or any part thereof, granted to a Non-Employee Director or a Key Employee under the Plan.9.Subsection 7.1 of the Plan is amended by deleting the second sentence therefrom.10.Subsection 9.2 of the Plan is amended by deleting the second sentence therefrom.11.Subsection 9.5(b) of the Plan is amended by deleting “, which date shall not be earlier than the first anniversary of such grant” therefrom.12.Subsection 9.6 of the Plan is amended to read as follows:Dividends paid on Restricted Stock Awards shall be subject to the following: (a) if the Restricted Stock Award is subject to performance-based restrictions as described in subsection 3.6, the Company shall accumulate and hold such amounts, and (b) if the Restricted Stock Award is subject to time-based restrictions, the Committee shall have the discretion to cause the Company to accumulate and hold such amounts. To the extent dividends are held by the Company, the accumulated amounts shall be paid to the Grantee only upon the lapse of the restrictions to which the Restricted Stock Award is subject and anysuch amounts attributable to the portion of the Restricted Stock Award for which the restrictions do not lapse shall be forfeited.13.Section 10 of the Plan is amended by (i) deleting the last sentence of subsection 10.4(b) and (ii) deleting “pursuant to Section 12 below” from subsection 10.5.14.Sections 11 through 28 of the Plan (and all references to such Sections) are renumbered to be Sections 12 through 29, and a new Section 11 is added to the Plan to read as follows:11.Restricted Stock Units11.1Subject to the terms of the Plan, the Committee may also grant to Key Employees and Non-Employee Directors Restricted Stock Units from time to time. Each Restricted Stock Unit shall entitle the Key Employee or Non-Employee Director to receive, on the date or upon the occurrence of an event (including the attainment of performance goals) as described in the Restricted Stock Unit Agreement, one Share or cash equal to the Fair Market Value of one Share on the date of such event, as provided in the Restricted Stock Unit Agreement.11.2At the Committee’s option, the Restricted Stock Unit Agreement may provide that the Restricted Stock Unit Award granted to a Key Employee or Non-Employee Director pursuant to the Plan shall be forfeited to the Company if, among other reasons, (a) the Key Employee or Non-Employee Director violates a non-competition, confidentiality or employment agreement, any Company policy, or any other conditions set forth in the Restricted Stock Unit Agreement or in a separate document, (b) the Key Employee’s employment with the Company, or the Non-Employee Director’s service on the Committee, terminates prior to the date or dates for expiration of the forfeiture provisions set forth in the applicable Restricted Stock Unit Agreement, (c) the Key Employee’s employment with the Company terminates for Cause, or (d) there occurs a violation of any provisions of the applicable Restricted Stock Unit Agreement. A forfeiture pursuant to this subsection 11.2 shall occur immediately following the mailing of written notice to the Key Employee or Non-Employee Director.11.3The Committee may proscribe such other restrictions and conditions and other terms applicable to the Restricted Stock Units issued to a Key Employee or Non-Employee Director under the Plan that are neither inconsistent with nor prohibited by the Plan or any Restricted Stock Unit Agreement, including, without limitation, terms providing for a lapse of the restrictions of this Section 11, provided they are set forth in the applicable Restricted Stock Unit Agreement, in installments. Further, the Committee, in its discretion, shall have the power at any time to accelerate the dates the restrictions lapse on any or all of the Restricted Stock Units granted to a Key Employee or Non-Employee Director.11.4A Grantee shall have no rights of a stockholder, including voting or dividend or other distribution rights, with respect to any Restricted Stock Unitsprior to the date they are settled in Shares. A Restricted Stock Unit Agreement may provide that, until the Restricted Stock Units are settled in Shares or cash, the Grantee shall receive, on each dividend or distribution payment date applicable to the Shares, an amount equal to the dividends or distributions that the Grantee would have received had the Restricted Stock Units held by the Grantee as of the related record date been actual Shares. Notwithstanding the preceding sentence, in the case of a Restricted Stock Unit Award that provides for the right to receive amounts related to dividends or distributions: (a) if such Restricted Stock Unit Award is subject to performance-based restrictions as described in subsection 3.6, the Company shall accumulate and hold such amounts, and (b) if such Restricted Stock Unit Award is subject to time-based restrictions, the Committee shall have the discretion to cause the Company to accumulate and hold such amounts. To the extent such amounts are held by the Company, the accumulated amounts shall be paid to the Grantee only upon the lapse of the restrictions to which the Restricted Stock Unit Award is subject and any such amounts attributable to the portion of a Restricted Stock Unit Award for which the restrictions do not lapse shall be forfeited.11.5Upon settlement of Restricted Stock Units in Shares, the Company shall issue, in the name of the Grantee, stock certificates representing a number of Shares equal to the number of Restricted Stock Units being settled.15.Section 13 of the Plan (as renumbered pursuant to Item 14) is amended by renumbering subsection 13.7 as 13.8 and adding a new subsection 13.7 to read as follows:13.7Notwithstanding the foregoing provisions of this Section 13, the Option or SAR of a Grantee shall be subject to the provisions of any written employment or severance agreement that has been or may be executed by the Grantee and the Company, and the provisions in such employment or severance agreement concerning the Option or SAR shall supercede any inconsistent or contrary provision of this Agreement.16.Section 14 of the Plan (as renumbered pursuant to Item 14) is amended by (i) revising the first sentence of subsection 14.1(a) to add “or Restricted Stock Units” after the second parenthetical; (ii) revising subsections 14.1(b) and 14.2 to add “and Restricted Stock Units” after each reference to Restricted Stock or Restricted Stock Award and to add “restricted stock units” after the reference to restricted stock.17.Section 15 of the Plan (as renumbered pursuant to Item 14) is amended by adding new subsection 15.3 to read as follows:15.3Notwithstanding the foregoing provisions of the Plan, the Company, in lieu of issuing stock certificates pursuant to an Award, may reflect the issuance of Shares to a Grantee on a non—certificated basis, with the ownership of such Shares by the Grantee evidenced solely by book entry in the records of the Company’s transfer agent; provided, however, that upon the written request of the Grantee, the Company shall issue, in the name of the Grantee, stock certificates representing such shares.18.The first paragraph of Section 20 of the Plan (as renumbered pursuant to Item 14) is amended by adding a second and third sentence to read as follows:Notwithstanding the foregoing, there shall be no amendment to the Plan or any outstanding Option Agreement that results in the repricing of Options without stockholder approval. For this purpose repricing includes a reduction in the exercise price of the Option or the cancellation of an Option in exchange for cash, Options with an exercise price of the cancelled Options, Stock Awards, Restricted Stock Units or any other consideration provided by the Company but does not include any adjustment described in subsection 4.2.19.Section 21 of the Plan (as renumbered pursuant to Item 14) is amended by revising the third sentence to read as follows:In lieu of making a cash payment to the Company, the Grantee may elect to satisfy his or her tax withholding obligation incurred in connection with the Taxable Date of an Award by (a) directing the Company to withhold a portion of the Shares otherwise distributable to the Grantee, (b) by transferring to the Company a certain number of Shares (either subject to such Award or previously owned), such Shares being valued at Fair Market Value for the Shares on such Taxable Date, (c) in cash from a broker-dealer to whom the Grantee has submitted a notice together with instructions to deliver promptly to the Company the amount of sales proceeds from the sale of Shares subject to the Award to pay the withholding taxes, or (d) by any combination thereof.20.Section 27 of the Plan (as renumbered pursuant to Item 14) is amended by deleting it in its entirety, and the following two Sections are renumbered as 27 and 28.IN WITNESS WHEREOF, this Seventh Amendment has been executed as of the 11th day of July, 2011.AAR CORP.By:/s/ Timothy O. SkellyVice President, Human Resources0000113632_1 R1.0.0.11699See the reverse side of this notice to obtain proxy materials and voting instructions. *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on October 12, 2011 AAR CORP. Meeting Information Meeting Type: Annual Meeting For holders as of: August 19, 2011 Date: October 12, 2011 Time: 9:00 AM CDT AAR CORP. 1100 N. WOOD DALE ROAD WOOD DALE, IL 60191 Location: 1100 North Wood Dale Road Wood Dale, IL 6019108, 2014. You are receiving this communication because you hold shares in the above named company. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. See the reverse side of this notice to obtain proxy materials and voting instructions.Meeting Information Meeting Type: <mtgtype> For holders as of: <recdate> Date: Time: <mtgtime> Location: 0000218643_1 R1.0.0.51160 AAR CORP. AAR CORP. ONE AAR PLACE 1100 NORTH WOOD DALE ROAD WOOD DALE, IL 60191 Annual Meeting August 19, 2014 October 08, 2014 October 08, 2014 9:00 AM CDT AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, IL 601910000113632_2 R1.0.0.11699 Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: 1. Annual Report 2. Notice & Proxy Statement How to View Online: Have the information that is printed in the box marked by the arrow following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: XXXX XXXX XXXX (located on the If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow XXXX XXXX XXXX (located on the following page) in the subject line. Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before September 28, 2011 to facilitate timely delivery. How To Vote Please Choose One of the Following Voting Methods Vote In Person: Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow XXXX XXXX XXXX available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. How To Vote . XXXX XXXX XXXX Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. . XXXX XXXX XXXX . XXXX XXXX XXXX 0000218643_2 R1.0.0.51160 1. Notice & Proxy Statement 2. Annual Report to Stockholders 3. Annual Report on Form 10-K Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before September 24, 2014 to facilitate timely delivery.0000113632_3 R1.0.0.11699 Voting items 0000218643_3 R1.0.0.51160 The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Ronald R. Fogleman 02 Patrick J. Kelly 0302 Peter Pace 03 Timothy J. Romenesko 04 Ronald B. Woodard The Board of Directors recommends you vote FOR the following proposal:proposals 2 and 3. 2. Advisory vote onto approve executive compensation. The Board of Directors recommends you vote 1 YEAR on the following proposal: 3 Advisory vote on the frequency of future executive compensation votes. The Board of Directors recommends you vote FOR proposals 4 and 5. 4 Approval of an amendment to the AAR Corp. Stock Benefit Plan to add performance criteria in accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended. 53. Ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending May 31, 2012.2015. NOTE: As to any other business as may properly come before the meeting or any adjournment or postponement thereof, this Proxy will be voted in the discretion of the proxiesproxies.0000113632_4 R1.0.0.116990000218643_4 R1.0.0.511600000113633_1 R1.0.0.11699THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 0 0 0 0 0 0 0 0 0 0 0000218644_1 R1.0.0.51160 For Withhold For All All All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Patrick J. Kelly 02 Peter Pace 03 Timothy J. Romenesko 04 Ronald B. Woodard AAR CORP. ONE AAR PLACE 1100 N.NORTH WOOD DALE ROAD WOOD DALE, IL 60191 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 10:59 P.M. Central Time the day before the meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our companyCompany in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 10:59 P.M. Central Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY The Board of Directors recommends you vote FOR the following: For Withhold For All All All Except To withhold authority to vote for any individual nominee(s), mark “For All Except”proposals 2 and write the number(s) of the nominee(s) on the line below. 1. Election of Directors Nominees 0 0 0 01 Ronald R. Fogleman 02 Patrick J. Kelly 03 Peter Pace 04 Ronald B. Woodard The Board of Directors recommends you vote FOR the following proposal:3. For Against Abstain For Against Abstain 22. Advisory vote onto approve executive compensation. The Board of Directors recommends you 0 0 0 53. Ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending May 31, 2012. 0 0 0 vote 1 YEAR on the following proposal: 1 year 2 years 3 years Abstain 3 Advisory vote on the frequency of future executive compensation votes. The Board of Directors recommends you vote FOR 0 0 0 02015. NOTE: As to any other business as may properly come before the meeting or any adjournment or postponement thereof, this Proxy will be voted in the discretion of the proxies proposals 4 and 5. For Against Abstain 4 Approval of an amendment to the AAR Corp. Stock Benefit Plan to add performance criteria in accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended. 0 0 0 For address change/comments, mark here. (see reverse for instructions)proxies. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateFor address change/comments, mark here. (see reverse for instructions)0000113633_2 R1.0.0.116990000218644_2 R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement, Annual Report to Stockholders, Annual Report on Form 10-K is/are available at www.proxyvote.com . AAR CORP. This proxy is solicited by the Board of Directors Annual Meeting of Stockholders The undersigned hereby appoints DAVID P. STORCH and ROBERT J. REGAN, or either of them, with full power of substitution, as Proxies, and hereby authorizes them to represent the undersigned at the 20112014 Annual Meeting of Stockholders of AAR CORP. to be held at 9:00 AM Central Time on October 12, 2011,8, 2014, at One AAR Place, 1100 North Wood Dale Road, Wood Dale, IL 60191, or any adjournment or postponement thereof, and to vote, as designated on the reverse side of this Proxy, all shares of AAR CORP. Common Stock that the undersigned is entitled to vote. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations on the reverse side. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Address change/comments: Continued and to be signed on reverse side