DEF 14A 1 a13-1786_1def14a.htm DEFINITIVE PROXY STATEMENT

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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 Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

ARKANSAS BEST CORPORATION

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

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.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 



Table of Contents

 

 

 

 

 

 

 

GRAPHIC

 

ARKANSAS BEST

CORPORATION

 

 

 

 


 

 

 

Notice of

Annual Meeting

&

Proxy Statement

 

 

 


 

 

 

 

 

2013

 



Table of Contents

 

Contents

 

 

Page

 

 

Notice of Annual Meeting of Stockholders

1

 

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting

2

 

 

Proxy Statement

 

 

 

Record Date

3

Proxies

3

Voting Shares

4

Proposal I. Election of Directors

5

Directors of the Company

5

Governance of the Company

9

2012 Director Compensation Table

15

Principal Stockholders and Management Ownership

18

Executive Officers of the Company

20

Compensation Discussion & Analysis

23

Compensation Committee Report

36

Compensation Committee Interlocks and Insider Participation

36

Summary Compensation Table

37

2012 Grants of Plan-Based Awards

39

Outstanding Equity Awards at 2012 Fiscal Year-End

42

2012 Option Exercises and Stock Vested

43

2012 Equity Compensation Plan Information

44

2012 Pension Benefits

45

2012 Non-Qualified Deferred Compensation

47

Potential Payments upon Termination or Change in Control

49

Certain Transactions and Relationships

55

Section 16(a) Beneficial Ownership Reporting Compliance

55

Report of the Audit Committee

56

Principal Accountant Fees and Services

57

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

58

Proposal II. Advisory Vote on Executive Compensation

58

Other Matters

59

Cost of Solicitation

59

Stockholder Communication with the Board

59

Procedure for Submitting Stockholder Proposals for 2014 Annual Meeting

60

General Matters

60

 



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GRAPHIC

 

ARKANSAS BEST

CORPORATION

 

 


Notice of
Annual Meeting of Stockholders
Arkansas Best Corporation


To Be Held on May 21, 2013

 

To the Stockholders of Arkansas Best Corporation:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Arkansas Best Corporation (the “Company”) on Tuesday, May 21, 2013 at 8:00 a.m. (CDT) at the principal offices of the Company located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. In addition to this notice, enclosed are a proxy card and a proxy statement containing information about the following matters to be acted upon at the meeting:

 

I.             To elect nine directors for a one-year term to expire at the 2014 Annual Meeting of Stockholders;

 

II.              To conduct an advisory vote on executive compensation; and

 

III.              To act upon such other matters as may properly be brought before the meeting affecting the business and affairs of the Company.

 

Only stockholders of record at the close of business on March 22, 2013 are entitled to notice of and to vote at the meeting or any adjournment(s) or postponement(s) thereof. Whether or not you plan to attend the meeting, please complete, sign, date and return the enclosed proxy card or follow the instructions on the proxy card and vote by Internet or by telephone as promptly as possible. It is important that your shares be represented at the meeting.

 

 

The Board of Directors urges you to sign and date your enclosed proxy card and promptly return it in the enclosed pre-addressed, postage-paid envelope or follow the instructions on the proxy card and vote by Internet or by telephone, even if you are planning to attend the meeting. Many of the Company’s stockholders hold their shares in “street-name” in the name of a brokerage firm or bank. If you hold your shares in “street-name,” please note that only your brokerage firm or bank can sign a proxy on your behalf. Accordingly, you must provide voting instructions to your brokerage firm or bank in order for your shares to be voted. The Board of Directors urges you to contact the person responsible for your account today and instruct them to execute a proxy considering the recommendations of the Board, which are described in this Proxy Statement.

 

Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you will not be permitted to vote in person at the meeting unless you first obtain a legal proxy issued in your name from the record holder.

 

 

 

By Order of the Board of Directors, April 9, 2013.

 

GRAPHIC

 

GRAPHIC

Robert A. Young III

 

Judy R. McReynolds

Chairman of the Board

 

President–Chief Executive Officer

 

3801 OLD GREENWOOD ROAD / P.O. BOX 10048 / FORT SMITH, ARKANSAS 72917-0048 / 479-785-6000

 



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GRAPHIC

 

ARKANSAS BEST

CORPORATION

 


Important Notice Regarding the Availability of Proxy
Materials for the Stockholder Meeting


 

To Be Held on May 21, 2013

 

The Proxy Statement, proxy card and 2012 Annual Report on Form 10-K
to stockholders are available at www.arkbest.com.

 

 

The 2013 Annual Meeting of Stockholders of Arkansas Best Corporation (the “Company”) will be held on Tuesday, May 21, 2013 at 8:00 a.m. (CDT) at the principal offices of the Company located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. To obtain directions to attend the Annual Meeting and to vote in person, contact the Company’s Investor Relations Department at toll-free telephone number 800-961-9744, email address invrel@arkbest.com or through the Company website www.arkbest.com.

 

The matters intended to be acted upon at the Annual Meeting are:

 

I.

 

Election of nine directors for a one-year term to expire at the 2014 Annual Meeting of Stockholders;

 

 

 

John W. Alden

Fred A. Allardyce

William M. Legg

Judy R. McReynolds

John H. Morris

Craig E. Philip

Steven L. Spinner

Janice E. Stipp

Robert A. Young III

 

II.

 

Advisory vote on executive compensation; and

 

 

 

III.

 

Consideration of such other matters as may properly be brought before the meeting affecting the business and affairs of the Company.

 

The Board of Directors recommends a vote “FOR” each of the
nominees for election to the Board and “FOR” the approval of
the compensation of the Company’s Named Executive Officers.

 

The following proxy materials are being made available at the website location specified above:

 

·                  The Proxy Statement for the 2013 Annual Meeting of Stockholders

·                  The 2012 Annual Report on Form 10-K

·                  The form of proxy card being distributed to stockholders in connection with the 2013 Annual Meeting of Stockholders

 

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GRAPHIC

 

ARKANSAS BEST

CORPORATION

 


 

Proxy Statement

 


 

 

This Proxy Statement is furnished to the stockholders of Arkansas Best Corporation (“ABC” or the “Company”) in connection with the solicitation of proxies on behalf of the ABC Board of Directors (the “Board”) to be voted at the Company’s Annual Meeting of Stockholders (the “2013 Annual Meeting”) to be held on May 21, 2013 at 8:00 a.m. (CDT) at the principal offices of the Company for the purposes set forth in this Proxy Statement. This Proxy Statement, the Notice of Annual Meeting, the related proxy card, and the 2012 Annual Report on Form 10-K to Stockholders are being mailed to stockholders beginning on or about April 12, 2013. ABC’s principal place of business is at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903, and its telephone number is 479-785-6000.

 

 

Record Date

 

The Board has fixed the close of business on March 22, 2013 as the record date for the 2013 Annual Meeting. Only stockholders of record on that date are entitled to vote at the meeting in person or by proxy.

 

 

Proxies

 

Registered stockholders may vote their shares of the Company’s common stock by proxy or in person at the meeting. To vote by proxy, registered stockholders must either: (i) visit the website designated on the proxy card to submit their proxy on the Internet; (ii) call the toll-free number set forth on the proxy card to submit their proxy telephonically; or (iii) mail their signed and dated proxy card in the envelope provided. Beneficial stockholders should follow the instructions that they receive from their bank, broker or other nominee to have their shares voted.

 

The proxies named on the enclosed proxy card were appointed by the Board to vote the shares represented by the proxy card. Upon receipt by the Company of either a submitted Internet or telephone vote or a properly signed and dated proxy card, the shares represented thereby will be voted in accordance with the stockholder’s instructions. If a stockholder does not vote either by Internet, telephone or returning a signed proxy card, his or her shares cannot be voted by proxy. Stockholders voting by returning a paper proxy card are urged to mark the ovals on the proxy card to show how their shares are to be voted. If a stockholder returns a signed proxy card without marking the ovals, the shares represented by the proxy card will be voted as recommended by the Board herein and in the proxy card. The proxy also confers discretionary authority to the proxy holders to vote on any other matter not presently known to the Company that may properly come before the meeting.

 

Registered stockholders may revoke their proxy at any time before the shares are voted at the 2013 Annual Meeting by: (i) timely submitting a proxy with new voting instructions, using the Internet or telephone voting system; (ii) voting in person at the 2013 Annual Meeting by completing a ballot; however, attending the meeting without completing a ballot will not revoke any previously submitted proxy; (iii) timely delivery of a valid, duly executed proxy card bearing a later date; or (iv) delivery of written notice of revocation to the Corporate Secretary of the Company at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903, by 5:00 p.m. (CDT), on or before May 20, 2013. Beneficial stockholders may change their votes by submitting new voting instructions to their bank, broker or other nominee in accordance with that entity’s procedures.

 

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Voting Shares

 

On the record date, there were 25,629,573 shares of the Company’s common stock outstanding and entitled to vote (“Common Stock”). Each share of Common Stock is entitled to one vote. The holders in person or by proxy of a majority of the total number of shares of Common Stock shall constitute a quorum for purposes of the 2013 Annual Meeting. If stockholders holding the number of shares of Common Stock necessary for a quorum shall fail to be present in person or by proxy at the time and place fixed for any meeting, the holders of a majority of the shares entitled to vote who are represented in person or by proxy may adjourn the meeting from time to time, until a quorum is present, and at any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. Votes are tabulated by the inspector of elections, Wells Fargo Bank, N.A.

 

If you hold your shares in “street name,” you will receive instructions from your broker or other nominee describing how to vote your shares.

 

For Proposal I (Election of Directors) and Proposal II (Advisory Vote on Executive Compensation) to be voted on at the 2013 Annual Meeting, you must provide timely instructions on how the broker or other nominee should vote your shares. If you do not give timely instructions to the broker or other nominee on how that broker or nominee should vote your shares, a “broker non-vote” results. Although any broker non-vote would be counted as present at the meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to Proposal I and Proposal II.

 

Abstentions occur when stockholders are present at the annual meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting.

 

Election of Directors. Directors are elected by a plurality of the votes of the shares of Common Stock present in person or by proxy and entitled to vote on the election of directors. Under Delaware law, votes that are withheld from a director’s election will be counted toward a quorum but will not affect the outcome of the vote on the election of a director. Broker non-votes will not be taken into account in determining the outcome of the election.

 

Other MattersThe required vote to approve any matter other than the election of directors is the affirmative vote by the holders of a majority of the total number of shares of Common Stock present in person or by proxy and entitled to vote on the matter.

 

Proposal II.  With respect to Proposal II, an abstention is treated as entitled to vote and, therefore, has the same effect as voting “against” such proposal. For purposes of Proposal II, broker non-votes are not treated as entitled to vote and, therefore, are not counted for purposes of determining whether a majority has been achieved. Proposal II is a non-binding advisory vote. However, the Board and the Compensation Committee will consider the outcome of the vote on Proposal II when considering future executive compensation decisions.

 

Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxy card will be voted for the election of each of the director nominees and for the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers (as defined below).

 

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Proposal I. Election of Directors

 

The Board of Directors recommends a vote “FOR” Proposal I.

 

The Board has designated John W. Alden, Fred A. Allardyce, William M. Legg, Judy R. McReynolds, John H. Morris, Craig E. Philip, Steven L. Spinner, Janice E. Stipp and Robert A. Young III as nominees for election as Directors of the Company at the Annual Meeting (each a “Nominee”). Each Nominee is currently a Director of the Company. If elected, each Nominee will serve until the expiration of his/her term at the Annual Meeting in 2014 or until his/her earlier death, resignation or removal from office.

 

Each Nominee has indicated his/her willingness to serve as a member of the Board, if elected. If, for any reason not presently known, any of Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner or Young or Ms. McReynolds or Stipp are unable or unwilling to serve if elected, your proxy card may be voted for the election in his/her stead of a substitute nominee designated by the Board or a committee thereof, unless the proxy withholds authority to vote for the Nominee.

 

Assuming the presence of a quorum, to be elected, a Nominee must receive the affirmative vote of the holders of a plurality of the shares of Common Stock voted on Proposal I, in person or by proxy, at the 2013 Annual Meeting. Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxy card will be voted for the election of each of the Nominees.

 

 

Directors of the Company

 

The following information relates to the Nominees named above. The information includes the publicly traded company directorships and certain other directorships held by each Director for the past five years and the specific experience, qualifications, attributes and skills that each Director possesses that led to the conclusion that the person should serve as a Director of the Company. There are no family relationships among Directors and executive officers of the Company or its subsidiaries.

 

Nominees for Election at the 2013 Annual Meeting, Term Will Expire at the 2014 Annual Meeting

 

 

 

JOHN W. ALDEN, age 71, has been a Director of the Company since May 2005. Mr. Alden retired as Vice Chairman of United Parcel Service of America, Inc. (“UPS”) in 2000. From 1988 until his retirement from UPS, he served as a Director of UPS. Mr. Alden worked for UPS for 35 years in various capacities. Currently, Mr. Alden is also a Director of Barnes Group, Inc., Dun & Bradstreet Corporation and Silgan Holdings, Inc.

 

Key Attributes, Experience and Skills

As Vice Chairman and Senior Vice President–Business Development of UPS, Mr. Alden led a global public transportation company and public company board. Through his 35 years at UPS, he gained expertise in the areas of sales and marketing, operations, customer service, management, senior management, business development and public company board strategic planning and oversight. Mr. Alden, Chairman of the Board’s Nominating/Corporate Governance Committee and member of the Board’s Compensation Committee, has served on seven boards over the past 20 years.

 

 

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FRED A. ALLARDYCE, age 71, has been a Director of the Company and the Board’s Audit Committee Financial Expert since February 2004. Mr. Allardyce has been Chairman and Chief Executive Officer of Advanced Breath Diagnostics since March 2000 and Chairman of Monitor Instruments since September 2000. Advanced Breath Diagnostics is a development-stage medical diagnostic company and Monitor Instruments is a development-stage scientific instrument company. From 1977 through 1999, he was employed by American Standard Inc., a publicly traded company, where he served in the following positions: Senior Vice President—Medical Products from January 1998 until November 1999; Chief Financial Officer from 1992 to 1997; Controller from 1983 to 1991; and Assistant Controller from 1977 to 1982. He also served in various financial-related capacities for Joseph E. Seagram & Sons from 1972 to 1977 and at Continental Oil Company from 1965 to 1972. Mr. Allardyce earned a B.A. in Economics from Yale University and an M.B.A. from the University of Chicago Graduate School of Business, where he was the recipient of the Institute of Professional Accountants Fellowship. Mr. Allardyce was Chairman in fiscal 1999–2000 of Financial Executives International, a 15,000-member organization of financial leaders.

 

Key Attributes, Experience and Skills

Mr. Allardyce has extensive accounting and auditing experience in public and private organizations and has a strong background in financial controls and reporting, financial management, financial analysis, acquisitions, entrepreneurship and investment banking, including finance and private equity. A former chief financial officer and controller of a public company, his skills also include preparing financial reports, maintaining internal controls and overseeing financial reporting. Mr. Allardyce is Chairman of the Board’s Audit Committee and is the Audit Committee’s Financial Expert.

 

 

 

WILLIAM M. LEGG, age 68, has been a Director of the Company since April 2002. He retired from Deutsche Banc Alex.Brown, an investment banking firm (“Alex.Brown”), as Managing Director, in 2002. During his 31 years at Alex.Brown, he served as Head of Alex.Brown’s Transportation Group and Co-Head of Alex.Brown & Sons, Inc.’s Corporate Finance Department. Mr. Legg and his group executed initial public offerings for many logistics companies including: Viking Freight, MS Carriers, Werner Enterprises, J.B. Hunt, Swift, Old Dominion, CH Robinson, and Hub Group. Mr. Legg worked on transportation-related transactions for Deutsche Post, PepsiCo, ARA Services, Transport Development Group and the Company. Mr. Legg earned a B.A. from Trinity College and an M.B.A from Loyola College. Prior to joining Alex.Brown in 1971, he served as an officer in the United States Navy.

 

Key Attributes, Experience and Skills

Mr. Legg brings to the Board significant investment banking experience, including finance, private equity, mergers and acquisitions, capital structures and strategic planning. His contributions to the Board include in-depth knowledge of other transportation companies and industry subsets. His years in transportation-related finance bring valuable analytical transportation knowledge to the Board. Mr. Legg has experience in executive compensation, governance, and director nomination matters. He is the Board’s Compensation Committee Chairman and is a member of the Board’s Nominating/Corporate Governance Committee.

 

 

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JUDY R. MCREYNOLDS, age 50, has been a Director of the Company and President and Chief Executive Officer since January 1, 2010. She served as Senior Vice President–Chief Financial Officer and Treasurer from February 2006 through December 2009. She was Vice President–Controller of ABC from January 2000 until January 31, 2006. She previously served as the Controller of the Company from July 1998 until December 1999. Ms. McReynolds joined the Company as Director of Corporate Accounting in June 1997. Ms. McReynolds has been a member of the Board of Directors of OGE Energy Corp. since July 2011 and serves on its Compensation Committee and Nominating and Governance Committee. She has served on the Transportation Industry Council of the Federal Reserve Bank of St. Louis since June 2012.

 

Key Attributes, Experience and Skills

As the only member of the Company’s senior management who serves on the Board, Ms. McReynolds provides significant industry-specific experience and unique expertise on both Arkansas Best Corporation and ABF Freight System, Inc. services, resulting from a 15-year tenure with the Company and 23 years of financial experience in the less-than-truckload (“LTL”) and truckload trucking industry. Her experience as Chief Financial Officer, Certified Public Accountant, Controller, and currently as Chief Executive Officer, have contributed to the Board’s insights in LTL and truckload transportation knowledge, labor and pension matters, investment and corporate banking, financial analysis, strategic planning, appropriate capital structures and shareholder value.

 

 

 

JOHN H. MORRIS, age 69, has been a Director of the Company since July 1988 and was a Director of Treadco, Inc. from June 1991 to June 1999. Mr. Morris was affiliated with StoneCreek Capital, a private equity firm, from 1992 to 2008. Mr. Morris served as a Managing Director of Kelso & Company, Inc., a private equity firm, from March 1989 to March 1992, was a General Partner from 1987 to March 1989 and prior to 1987, was a Vice President. Prior to 1985, Mr. Morris was President of LBO Capital Corp. Previous work experience includes Booz, Allen and Hamilton, three years with the First National Bank of Atlanta and nine years with Touche Ross & Co., a predecessor of Deloitte and Touche, as a management consultant. After leaving Touche Ross, he joined Kelso & Company (“Kelso”), a boutique private equity firm in 1982. While with Kelso, he was responsible for several large buyouts, including Spectramed, IHOP, Arkansas Best Corporation, and Landstar Systems, and served on the committee that approved all Kelso acquisitions. Mr. Morris’s public board experience includes, in addition to Arkansas Best Corporation and Treadco, Inc., Spectramed, Inc. and Landstar Systems. Mr. Morris received a Bachelor of Industrial Engineering degree from Georgia Tech and an M.B.A. in Finance from Georgia State University. He received a CPA Certificate from the State of Georgia in 1974.

 

Key Attributes, Experience and Skills

Mr. Morris has extensive experience in mergers and acquisitions, including the analysis of acquisitions, private equity investing and business and financial structures. He has other public transportation company-related board service as described above. Knowledgeable in investment banking and LTL transportation, Mr. Morris has provided consulting services to companies for over 10 years and has been involved in more than 40 acquisitions through his roles at Kelso & Co. and StoneCreek Capital. Currently, a member of the ABC Board Nominating/Corporate Governance Committee and the Compensation Committee, Mr. Morris’s Board expertise also includes the area of executive and director compensation, corporate governance, director nominations and audit.

 

 

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DR. CRAIG E. PHILIP, age 59, has been a Director of the Company since August 2011. Dr. Philip is Chief Executive Officer of Ingram Barge Company. He was President of Ingram Barge from 1994 until 1999 when he was named Chief Executive Officer. Dr. Philip began his transportation career with Conrail in 1980, working for Ingram Barge from 1982 until 1987 and serving as Vice President of the Intermodal Division of Southern Pacific Railroad before returning to Ingram Barge in 1991. He has held adjunct faculty positions at Princeton University and at Vanderbilt University. Dr. Philip holds Master’s and Doctorate degrees in Engineering from the Massachusetts Institute of Technology and an undergraduate degree in Civil Engineering from Princeton University.

 

Key Attributes, Experience and Skills

Dr. Philip’s career in the marine, rail and intermodal industries spans more than 30 years. He provides the Board with a unique blend of leadership experience in various modes of freight transportation, in combination with experience in industrial marketing and strategic planning. Dr. Philip currently serves on the Board’s Compensation Committee and Nominating/Corporate Governance Committee.

 

 

 

STEVEN L. SPINNER, age 53, has been a Director of the Company since July 2011. Mr. Spinner has been President and Chief Executive Officer and a member of the Board of Directors of United Natural Foods, Inc. (“UNFI”) since September 2008. Prior to joining UNFI in 2008, he was a Director and Chief Executive Officer of Performance Food Group Company (“PFG”) from October 2006 to May 2008 and PFG’s President and Chief Executive Officer from May 2005 to May 2008. He was the Senior Vice President and Chief Executive Officer of PFG’s Broadline Division (“Broadline”) from February 2002 to May 2005 and Division President of Broadline from August 2001 to February 2002.

 

Key Attributes, Experience and Skills

Mr. Spinner provides the insight and knowledge that comes from years of senior-level executive management, logistical experience and knowledge of network businesses. His background has given him extensive experience in the wholesale food distribution business, which includes overseeing the organic and acquisition growth of a food distribution company and directing the successful integration of the operational, organizational and technological aspects of two companies. Mr. Spinner brings valuable knowledge to the Board as an active CEO of a public company. Mr. Spinner currently serves on the Board’s Audit Committee.

 

 

 

JANICE E. STIPP, age 53, has been a Director of the Company since October 2012. Ms. Stipp is Executive Vice President, Chief Financial Officer and Treasurer of Tecumseh Products, a global manufacturer of compressors and condensing units for the commercial refrigeration market. She was named to this position in October 2011. Prior to that, she was Chief Financial Officer at Revestone Industries; Acument Global Technologies, a Platinum Equity portfolio company; and GDX Automotive, a Cerberus Equity portfolio company. She began her career in 1981 with Lear Siegler, working in corporate audit. From 1984 to 1999, she worked for General Motors in a variety of financial roles. She graduated from Michigan State University in 1981 with a BA in Accounting and received her CPA certification in 1983 and MBA from Wayne State University in 1987.

 

Key Attributes, Experience and Skills

Ms. Stipp has 31 years of financial and accounting experience with a variety of industrial companies. For the past seven years, she has served as CFO of both public and private firms. She has a strong background in financial controls, auditing, financial management and accounting, acquisitions, and treasury. She is experienced in corporate restructuring, having lead turnaround efforts at several of the private equity-sponsored firms where she worked. In addition to her CFO experience, she has also held the Corporate Controller position and has held several treasury-related positions. Given her years of senior-level executive management, she has extensive experience working with boards of directors at several firms. Ms. Stipp’s financial experience brings valuable knowledge to the Audit Committee.

 

 

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ROBERT A. YOUNG III, age 72, has been a Director of the Company since 1970 and Chairman of the Board since July 2004. He was Chief Executive Officer of the Company from August 1988 until his retirement in January 2006. He was President of the Company from 1973 to 2004 and was Chief Operating Officer of the Company from 1973 to 1988. Mr. Young served as President of ABF Freight System, Inc., the Company’s largest subsidiary (“ABF”), from 1979 to 1994. Between 1964 and 1973, he worked as Supervisor of Terminal Operations for ABF; Vice President—General Manager of Data-Tronics Corp., a Company subsidiary; Senior Vice President—National Bank of Commerce of Dallas; and as Vice President, Finance and Executive Vice President of the Company. Mr. Young was a Director of Treadco, Inc. from June 1991 to June 1999. Treadco, Inc. was a publicly held company from 1991 to 1999. The Company owned more than 40% of the outstanding stock of Treadco, Inc. from 1991 to 1999, when the Company purchased all remaining outstanding stock via a tender offer. Substantially all operations of Treadco were disposed of in 2000.

 

Key Attributes, Experience and Skills

Serving the Company and ABF in executive and Board positions over the past four decades, Mr. Young has become an acknowledged leader in transportation and finance. He was a member of the Board of the Federal Reserve Bank (“Reserve Board”) of St. Louis, Little Rock Branch, from July 2004 until his retirement from the Reserve Board on December 31, 2011. After 49 years in the trucking industry and 42 years on the Company’s Board, he provides strong leadership through his background in LTL transportation, mergers and acquisitions, investment banking, private equity, labor and personnel selection and evaluation.

 

 

 

Governance of the Company

 

Board Leadership Structure

 

The Company has separated the positions of Chairman of the Board and Chief Executive Officer. The Company believes this separation allows the individuals serving in these positions to effectively utilize their skills and time on behalf of the Company. Robert A. Young III, who brings more than 42 years of LTL transportation, finance and board experience to the Board, serves as nonemployee Chairman of the Board and leads the Board in its governance role. Judy R. McReynolds brings significant LTL and truckload experience to her day-to-day leadership role as Chief Executive Officer. For complete business biographical information on Mr. Young and Ms. McReynolds, see “Directors of the Company.” Because Mr. Young, as Chairman, qualifies as an independent director under NASDAQ requirements, the Company does not have a Lead Independent Director.

 

The business of the Company is managed under the direction of the Board. There are nine members of the Board. The three standing Board committees – the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee – are an integral part of the Board leadership structure. These committees, of which all members are independent Directors, are discussed below in more detail under “Committees of the Board”. The Company’s leadership structure includes an experienced management team, upon whose advice, reports and opinions the Board relies. The Board also relies on the advice of counsel, accountants, executive compensation consultants, auditors, strategic planning consultants and other expert advisors.

 

The size of the Board and the different types of corporate and transportation backgrounds of the members of the Board allow for timely, effective action in the rapidly evolving trucking industry. See “Key Attributes, Experience and Skills” for each Director under “Directors of the Company.”

 

A robust committee framework sustains the lines of communication among Directors and with management. Regularly scheduled management reports and presentations, based on operational, financial, legal and risk management aspects of the Company’s operations, provide vital information to the Board. Directors have complete access to the Chief Executive Officer and other members of senior management.

 

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The Board meets on a regularly scheduled basis five times a year to review significant developments affecting the Company and to act on matters requiring Board approval. It also holds special meetings when Board action is required between scheduled meetings. The Board met six times during 2012. During 2012, each member of the Board participated in at least 75% of all Board and applicable committee meetings held during the period for which he/she was a Director. The Nominating/Corporate Governance Committee has determined that a majority of the members of the Board are independent pursuant to applicable NASDAQ independence standards. Independent Directors are Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner, and Young and Ms. Stipp. Independent Directors met in executive session four times in 2012.

 

It is the Company’s policy that all members of its Board attend each annual meeting of its stockholders, except when illness or other personal matters prevent such attendance. All eight members of the Board at the time of the 2012 Annual Meeting attended the 2012 Annual Meeting.

 

Board’s Role in Risk Oversight

 

The Board believes that the current management structure facilitates risk oversight by combining experienced leadership with independent review by the Board and its committees. Potential risk factors that are monitored through this structure include financial, operational, technological, disaster, environmental, cyberspace, legal and regulatory, fraud/corruption, employment practices, executive compensation, reputational and legislative areas. Risk factors may present themselves on any of the multiple levels of the Company. The Board is regularly informed through committee reports of each committee’s activities in overseeing risk management within their respective areas of oversight responsibility.

 

The Audit Committee directly oversees risk management relating to financial reporting and public disclosure and the steps management has taken to monitor and control those exposures. In addition, the Audit Committee is responsible for the oversight of general financial risk matters. The Audit Committee meets regularly with financial management, including the Chief Financial Officer and the Vice President–Controller, as well as our external auditors and our Chief Audit Executive. In addition, the Company’s Risk Management Committee, which consists of several members of senior management, provides periodic reports to the Audit Committee of its activities in various risk management areas, and the Chairman of the Company’s Risk Management Committee makes presentations to the Audit Committee from time to time regarding various risk or potential risk matters. The Audit Committee also requests and receives from time to time presentations regarding other potential risk areas, including those related to information technology.

 

The Compensation Committee is responsible for oversight of risk related to executive compensation. Additionally, the Compensation Committee is responsible for oversight of risk for the Company’s compensation policies and practices for all employees. Management has evaluated the Company’s compensation policies and practices for all employees, including the Named Executive Officers (listed below under “Compensation, Discussion & Analysis”) and non-executive officers. The evaluation included consideration of whether any of the Company’s compensation policies and practices, including incentive plans, create risks that are reasonably likely to have a material adverse effect on the Company. The primary responsibility for the Company’s evaluation was assigned to the Company’s Risk Management Committee, which includes as its members the Vice President responsible for the Risk Management Department, the Vice President—General Counsel, the Vice President—Chief Financial Officer, the Senior Vice President—Tax and Chief Audit Executive, ABF Senior Vice President—Sales and Marketing, and the Vice President—Controller, as well as other executives. Based on management’s evaluation, including the specific process completed by the Company’s Risk Management Committee, management concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. Management’s evaluation, including the conclusions reached by the Company’s Risk Management Committee, was discussed with the Compensation Committee.

 

The information used by management and the Company’s Risk Management Committee and provided to the Compensation Committee included a framework of potential risk factors for certain compensation plans and identified how the Company’s existing processes and compensation programs mitigate those risks. Mitigating factors for potential risks identified included:

 

·                  a combination of short- and long-term compensation;

·                  a combination of equity- and cash-based compensation;

 

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·                  multiple performance metrics;

·                  relative performance metric;

·                  robust financial control policies and audit practices;

·                  benefit caps for annual and long-term incentive plans;

·                  clawback policy;

·                  vesting periods for equity awards;

·                  stock ownership requirements for senior officers;

·                  approval of performance criteria, as well as performance results by the Compensation Committee that consists of only independent Directors; and

·                  review of peer groups by an independent compensation consultant and the Compensation Committee.

 

The most recent management evaluation was provided to the Compensation Committee in January 2013. Based on the information provided and the Compensation Committee’s knowledge of the compensation policies and practices of the Company, the Compensation Committee concluded that the risks arising from the Company’s compensation plans and practices are not reasonably likely to have a material adverse effect on the Company.

 

The Nominating/Corporate Governance Committee is responsible for overseeing risks associated with corporate governance and reviews corporate governance matters at least once a year. In connection with this responsibility, the Nominating/Corporate Governance Committee annually reviews the Company’s Corporate Governance Guidelines and their implementation.

 

Committees of the Board

 

The Board has established Audit, Compensation, Nominating/Corporate Governance, and Qualified Legal Compliance committees to devote attention to specific subjects and to assist it in the discharge of its responsibilities. The functions of those committees, their current members, and the number of meetings held during 2012 are described below.

 

Audit Committee. Among the responsibilities of the Audit Committee contained in its charter are: (i) assisting the Board in overseeing matters involving the accounting, auditing, financial reporting, and internal control functions of the Company; (ii) being directly responsible for the appointment, termination, and oversight of the independent registered public accounting firm for the Company; (iii) responsibility for establishing procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and (iv) implementing the Company’s policy regarding the review and approval of any “related person transaction” as required pursuant to Securities and Exchange Commission (“SEC”) Regulation S-K, Item 404. Pursuant to the Audit Committee Charter, the Audit Committee reviews, approves or ratifies all related person transaction issues brought to its attention. Annually, as part of the Company’s proxy preparation, all Directors and executive officers who are subject to related person transaction disclosure are instructed to report in writing any such transactions to the Company; and further, they are reminded of their obligation to report to the Company any such transactions that may be planned or subsequently occur.

 

Messrs. Allardyce (Chair) and Spinner and Ms. Stipp are currently members of the Audit Committee. The Nominating/Corporate Governance Committee has determined that each member of the Audit Committee meets all applicable SEC and NASDAQ independence standards. Mr. Allardyce is the Board-designated “Audit Committee Financial Expert.” The Audit Committee met five times during 2012. The Audit Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.

 

Compensation Committee. The Compensation Committee is responsible for reviewing and approving executive management compensation. The Compensation Committee’s current members are Messrs. Legg (Chair), Alden, Morris and Philip. The Nominating/Corporate Governance Committee has determined that each member of the Compensation Committee meets applicable NASDAQ independence standards and Internal Revenue Code (“IRC”) Section 162(m) nonemployee director requirements. The Compensation Committee met six times in 2012. The Compensation Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.

 

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The Board has designated the Compensation Committee to also serve as the Stock Option Committee for the Company’s stock option plans. The Stock Option Committee administers the Company’s 2000 Non-Qualified Stock Option Plan and 2002 Stock Option Plan. The Compensation Committee also has authority to make and administer awards under the 2005 Ownership Incentive Plan.

 

The Compensation Committee has determined and reviewed the value and forms of compensation for Named Executive Officers and other officers based on the Compensation Committee members’ knowledge and experience; competitive proxy and market compensation information; periodic review and analysis from an independent compensation consultant retained by, and which reports directly to, the Compensation Committee; and management recommendations.

 

The Compensation Committee directly engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent executive compensation consulting firm in 2012. Meridian reviewed executive compensation practices, including executive compensation design issues, market trends, and technical considerations and provided ongoing consulting assistance to the Compensation Committee throughout the year. Other than executive compensation consulting to the Board, Compensation Committee or Nominating/Corporate Governance Committee, Meridian does not provide any other services to the Company. The Compensation Committee has assessed the independence of Meridian under the SEC rules and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.

 

The Compensation Committee did not direct Meridian to perform the above services in any particular manner or under any particular method. The Compensation Committee has the final authority to hire and terminate the consultant and evaluates the consultant periodically. The Compensation Committee also approves the fees paid to its independent compensation consultant.

 

The Compensation Committee may not and does not delegate its authority to review and determine the forms and values of the various elements of compensation for Named Executive Officers. The Compensation Committee does delegate to Company management the implementation and record-keeping functions related to the various elements of compensation it has approved.

 

Nominating/Corporate Governance Committee. The current members of the Nominating/Corporate Governance Committee are Messrs. Alden (Chair), Legg, Morris and Philip. The Nominating/Corporate Governance Committee has determined that each member of the committee is independent, as defined in applicable NASDAQ independence standards. The Nominating/Corporate Governance Committee’s responsibilities include: (i) identifying individuals believed to be qualified to become Directors and to select and recommend to the Board for its approval the nominees to stand for election as Directors by the stockholders or, if applicable, to be appointed to fill vacancies on the Board; (ii) determining appropriate compensation for Directors; (iii) recommending any changes regarding size, structure, composition, processes and practices of the Board; (iv) reviewing the independence of Directors and assessing whether members are meeting the applicable independence standards required to serve on the various Board committees; (v) reviewing the Company’s corporate governance standards; and (vi) making recommendations regarding succession planning for the Chief Executive Officer of the Company. Meridian consults with the Nominating/Corporate Governance Committee regarding the value and forms of compensation for Directors. The Nominating/Corporate Governance Committee held four meetings in 2012. The Nominating/Corporate Governance Charter is posted on the Corporate Governance section of the Company website, www.arkbest.com.

 

In recommending nominees for the Board, the Nominating/Corporate Governance Committee considers any specific criteria the Board may request from time to time and such other factors as it deems appropriate. These factors may include any special training or skill, experience with businesses and other organizations of comparable size and type, experience or knowledge with businesses or organizations that are particularly relevant to the Company’s current or future business plans, financial expertise, the interplay of the candidate’s experience with the experience of the other Directors, sufficient time to devote to the responsibilities of a director, freedom from conflicts of interest or legal issues and the extent to which, in the Nominating/Corporate Governance Committee’s opinion, the candidate would be a desirable addition to the Board.

 

Diversity is taken into account when determining how the candidates’ qualities and attributes would complement the other Directors’ backgrounds. Type of advanced studies and certification, type of industry or aspect of transportation experience, area of corporate experience and gender, among other factors, are taken into consideration. The Nominating/Corporate Governance Committee believes that the different business and educational backgrounds of

 

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the Directors of the Board contribute to the overall insight necessary to evaluate matters coming before the Board. The Nominating/Corporate Governance Committee implements its policy of considering a range of candidates by including diversity aspects in its analysis of candidates’ qualifications. A listing of current Directors’ and potential candidates’ qualifications and attributes is periodically discussed in Nominating/Corporate Governance Committee meetings. In these discussions, the effectiveness of this methodology is addressed.

 

There is currently no set of specific minimum qualifications that must be met by a nominee recommended by the Nominating/Corporate Governance Committee, as different factors may assume greater or lesser significance at particular times and the needs of the Board may vary in light of its composition and the Nominating/Corporate Governance Committee’s perceptions about future issues and needs.

 

The Nominating/Corporate Governance Committee may draw upon individuals known by members of the Board, and at the Nominating/Corporate Governance Committee’s discretion, candidates recommended by management or third parties engaged by the Nominating/Corporate Governance Committee to assist it in identifying appropriate candidates.

 

The Nominating/Corporate Governance Committee shall consider any candidate for director recommended by a stockholder if submitted in accordance with the Stockholder Director Nomination Procedure set forth below. The Nominating/Corporate Governance Committee shall consider the same factors when considering a stockholder-recommended candidate as it does when considering other candidates.

 

The Nominating/Corporate Governance Committee considers director candidates submitted by stockholders that follow the procedure set forth in the following Stockholder Director Nomination Procedure, in accordance with the Company’s bylaws:

 

Any stockholder entitled to vote at an annual meeting of stockholders and intending to recommend candidate(s) for nomination for director at that meeting must submit a written stockholder notice to Arkansas Best Corporation. The information required to be included in a stockholder notice nominating a candidate for the Board of Directors is set forth in detail in the Company’s bylaws and includes the following information: (1) as to the stockholder giving the notice and any beneficial owner, if any, on whose behalf the nomination is made (a) the name and address, including business address and telephone number, of such persons, (b) the class and number of shares of the Company which are owned beneficially and of record by such persons, (c) any option, warrant or other derivative security owned by such persons, (d) any agreement pursuant to which such persons have the right to vote any shares of the Company, and (e) any other information relating to such persons required to be disclosed in a proxy statement in connection with the solicitation of proxies relating to the election of directors in a contested election; and (2) as to each person whom the stockholder proposes to nominate for election or re-election as a director (a) all information relating to such person required to be disclosed in a proxy statement relating to the election of directors in a contested election, (b) such person’s written consent to being named in the proxy statement and to serving as a director if elected, and (c) a description of all direct and indirect compensation and other material monetary agreements during the past three years between the stockholder and beneficial owner, if any, and their affiliates and the proposed nominee and his or her other affiliates. Additionally, for a candidate to be eligible to be a nominee for election as director, the candidate must deliver to the Corporate Secretary a written response to a questionnaire with respect to candidate’s background and qualifications and a written representation and agreement. Such stockholder notice and candidate questionnaire and representation and agreement must be received by the Corporate Secretary at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903 not earlier than 120 days and not later than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders: provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be received no earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 100th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made. For information regarding the required information in the stockholder notice and the candidate’s questionnaire and representation and agreement, contact the Corporate Secretary’s office at info@arkbest.com or at 479-785-6000.

 

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Qualified Legal Compliance Committee. The Qualified Legal Compliance Committee is responsible for confidentially receiving, retaining and considering any report pursuant to SEC Rule 205 by an attorney representing the Company. The Audit Committee serves as the Qualified Legal Compliance Committee. The Qualified Legal Compliance Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.

 

Corporate Governance Guidelines and Code of Conduct

 

The Board has adopted Corporate Governance Guidelines and a Code of Conduct. The full text of both documents is posted in the Corporate Governance section of the Company website, www.arkbest.com.

 

The Company’s Code of Conduct applies to all of its Directors, officers (including the Chief Executive Officer, Chief Financial Officer, principal accounting officer, Controller, and any person performing similar functions) and employees. The Company intends to post on its website any amendment to, or waiver from, a provision of the Code of Conduct that applies to its Chief Executive Officer, Chief Financial Officer, principal accounting officer, Controller or persons performing similar functions and that relates to any of the following elements of the Code of Conduct: honest and ethical conduct; disclosure in reports or documents filed with the SEC and other public communications; compliance with applicable laws, rules and regulations; prompt internal reporting of code violations; and accountability for adherence to the Code of Conduct.

 

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2012 Director Compensation Table

 

The table below summarizes the compensation paid by the Company to Non-Employee Directors for the fiscal year ended December 31, 2012. The Nominating/Corporate Governance Committee is responsible for reviewing and awarding compensation to the Directors. The Nominating/Corporate Governance Committee sets the levels and forms of Director compensation based on its experience, review of the compensation paid to directors of comparable publicly traded companies and the advice of its independent compensation consultant. The Nominating/Corporate Governance Committee uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board.

 

Name
(1)

 

 

Fees Earned or
Paid in Cash

 

Stock
Awards
(2, 3,4)

 

 

All Other
Compensation

 

Total

 

John W. Alden(6)

 

$     61,500

 

$     73,350

 

$          –

 

$    134,850

 

Fred A. Allardyce(6)

 

62,500

 

73,350

 

 

135,850

 

Frank Edelstein

 

6,333

 

 

 

6,333

 

William M. Legg(6)

 

61,500

 

73,350

 

 

134,850

 

John H. Morris

 

53,500

 

73,350

 

 

126,850

 

Craig E. Philip

 

56,500

 

73,350

 

 

129,850

 

Steven L. Spinner

 

55,000

 

73,350

 

 

128,350

 

Janice E. Stipp

 

13,000

 

36,700

 

 

49,700

 

Robert A. Young III(7)

 

109,000

 

73,350

 

72,425(5)

 

254,775

 

 

(1)          Judy R. McReynolds, the President and Chief Executive Officer of the Company, is not included in this table since she is an employee of the Company and thus received no compensation for her service as a Director. The compensation received by Ms. McReynolds as an officer of the Company is shown in the Summary Compensation Table on page 39. Mr. Edelstein retired from the Board on January 25, 2012 and did not receive compensation during fiscal year 2012 for his service as a Director, other than cash fees for meetings attended in January and a pro-rata portion of his annual retainer fee. Ms. Stipp joined the Board on October 23, 2012.

 

(2)          Reflects the aggregate grant date fair value made during 2012 computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (formerly Statement of Financial Accounting Standards No. 123R) (“FASB ASC Topic 718”), determined without regard to estimated forfeitures. Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner and Young received an award of 5,000 restricted stock units (“RSUs”) under the 2005 Ownership Incentive Plan on May 4, 2012 (computed using the closing price of $14.67 per share on such date). As a new member of the Board, Ms. Stipp received an award of 5,000 RSUs under the 2005 Ownership Incentive Plan on November 8, 2012 (computed using the closing price of $7.34 per share on such date). See Note L to our consolidated financial statements on Form 10-K for the year ended December 31, 2012 for additional detail regarding assumptions underlying the value of these equity awards. Dividends are paid on RSUs at the same rate and at the same time as the dividends paid to stockholders.

 

(3)          As of December 31, 2012, each Non-Employee Director had the following aggregate number of RSUs outstanding, although only the value of the 2012 RSU award is provided in the Stock Awards column.

 

 

 

Alden

 

Allardyce*

 

Edelstein

 

Legg

 

Morris*

 

Philip

 

Spinner

 

Stipp

 

Young

 

Vested but subject to transfer restrictions

 

13,800

 

18,200

 

 

13,800

 

21,900

 

 

 

 

13,800

 

Unvested

 

 

 

 

 

 

10,000

 

9,800

 

5,000

 

 

Total RSUs Outstanding

 

13,800

 

18,200

 

 

13,800

 

21,900

 

10,000

 

9,800

 

5,000

 

13,800

 

 

*Messrs. Allardyce and Morris elected to defer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Morris elected to defer his 2007 RSU award of 3,700 until the earlier of termination from Board service or April 23, 2013. All deferral elections must be made in the year prior to the year the award is granted.

 

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(4)          No stock options were granted during fiscal 2012 to any Director. As of December 31, 2012, each Non-Employee Director has the following aggregate number of stock options outstanding, although only the value of the 2012 RSU award is provided in the Stock Awards column. The options are all fully vested.

 

 

 

Alden

 

Allardyce

 

Edelstein

 

Legg

 

Morris

 

Philip

 

Spinner

 

Stipp

 

Young

 

Vested stock options

 

 

7,500

 

12,000

 

7,500

 

13,500

 

 

 

 

 

Unvested stock options

 

 

 

 

 

 

 

 

 

 

Total stock options outstanding

 

 

7,500

 

12,000

 

7,500

 

13,500

 

 

 

 

 

 

(5)          For purposes of the column titled “All Other Compensation,” for 2012 Mr. Young’s amount consists of the following:

 

 

 

Young

 

Perquisites(i)

 

  $

57,409    

 

Gross-ups(i)

 

5,020    

 

Executive medical premiums(ii)

 

9,996    

 

Total

 

  $

72,425    

 

 

(i)             Mr. Young’s perquisites include: (a) spousal travel to Company or industry events and any related Company lost tax deduction resulting from the spouse accompanying him on the Company’s corporate aircraft, (b) personal use of an administrative assistant, (c) infrequent personal use of a lodging facility and related hunting property owned by the Company for business entertainment purposes, and (d) a Christmas gift from the Company (the Company also provides a Christmas gift to each of the other Board members). It is estimated that 40% of Mr. Young’s administrative assistant’s time is spent on his personal business, and the incremental cost associated with that personal use is estimated to be $36,615. This value is calculated by adding together 40% of the administrative assistant’s salary, pension accrual and health and welfare cost for 2012. Mr. Young retains an office at the Company’s corporate office.

 

(ii)          Because Mr. Young is a former officer of the Company, he and his spouse participate in the Company’s fully insured third-party executive medical plan that is provided for life upon retirement. The Company pays the majority of the premium amount for this coverage. The amount shown is total premiums paid by the Company for coverage during 2012.

 

(6)          Committee Chairpersons: Mr. Allardyce, Audit Committee and Qualified Legal Compliance Committee; Mr. Legg, Compensation Committee; and Mr. Alden, Nominating/Corporate Governance Committee.

 

(7)          The Company owns and pays premiums on two $1 million life insurance policies on Mr. Young. As owner of the policies, the Company is entitled to either the cash surrender value of each or the total of premiums paid, whichever amount is greater. The death value in excess of this amount is payable to Mr. Young’s beneficiary. For 2012, the aggregate premiums on these policies were $32,438. In 2012, Mr. Young paid the Company a premium amount of $16,077 for term life insurance based on the face value in excess of the December 31, 2012 cash surrender value; therefore, no compensation value is included for 2012.

 

Cash Compensation

 

For the fiscal year ended December 31, 2012, the standard cash compensation arrangement for Non-Employee Directors was as follows:

 

Annual Retainers

 

 

 

Board Chair

 

$

100,000

 

Members

 

$

40,000

 

Audit Committee Chair

 

$

7,500

 

Other Committee Chair

 

$

5,000

 

 

Retainers are cumulative, i.e., each Director who is (i) a Non-Employee and (ii) not the Board Chair, receives a “Member Retainer” plus the appropriate retainer fee for any other positions he holds.

 

Daily Meeting Fees

 

 

 

Board Meeting

 

$1,500 per day

 

Committee Meeting

 

$1,500 per day

 

 

Only one daily meeting fee is paid in the event of multiple meetings held on the same day.

 

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Equity-Based Awards

 

The policy for granting equity awards states that the Nominating/Corporate Governance Committee is responsible for granting all equity compensation to Non-Employee Directors. Under the terms of this policy, the effective date of an equity award will be the date which is five business days following the Company’s applicable quarterly earnings release. The number of shares/units awarded is based on stated dollar amounts for each Director, which is divided by the closing stock price on the date of grant. In prior years, Non-Employee Directors received annual equity awards equal to approximately $100,000 on the date of grant of the awards. However, in 2012 the award value was reduced to $73,350 due to decreases in the Company’s stock price and the desire to preserve shares for issuance under the Company’s 2005 Ownership Incentive Plan.

 

The RSU awards to Non-Employee Directors provide for three-year cliff vesting. All of the RSU awards are subject to accelerated vesting due to death, disability or change in control of the Company. Accelerated vesting for RSUs also occurs upon attainment of normal retirement age (age 65 with five years of service with the Company). Messrs. Alden, Allardyce, Legg, Morris, and Young are currently eligible for normal retirement. Upon early retirement (three years of service as a Director), a Director is eligible for accelerated vesting of a pro rata number of shares based on the number of whole months since the award date. Vested RSU awards are paid in shares on the earlier to occur of (i) the normal vesting date applicable to the award or (ii) the Director’s termination of service with the Company. On the normal vesting date of the 2007 and 2009 RSU awards in 2012, the resulting shares were issued to the Directors.

 

Prior to 2005, the Compensation Committee awarded stock options. A portion of these options are still outstanding and all outstanding options are fully vested.  All stock options previously granted (i) have an exercise price not less than the closing price of the Common Stock on the grant date, (ii) were exercisable at 20% per year, generally starting on the first anniversary of the grant date and (iii) have a term of 10 years.

 

Stock Ownership Policy. The Nominating/Corporate Governance Committee believes that the Directors of the Company should maintain a level of equity holdings in the Company that will further align the interests of Directors with the Company’s stockholders. The Board adopted a Stock Ownership Policy for Directors, which was effective January 1, 2008. Under this policy, Directors must own shares equal to six times their annual retainer by January 1, 2013, or five years from the date he or she became a member of the Board. No Director covered by the policy is permitted to sell any shares of Company stock granted to such Director under any Company award agreement (except to pay the exercise price of stock options or taxes generated as a result of equity grants) until such time as the Director satisfies the stock ownership requirement. Restricted stock, RSUs and stock owned outright count toward the Company’s Stock Ownership Policy requirements. However, RSUs are not reflected as shares beneficially owned in the “Principal Stockholders and Management Ownership” table.

 

Should a Director covered by the policy fail to have the required amount accumulated after five years, the issuance of further equity awards to such Director may be discontinued until such time as the Director has complied with the policy. The Nominating/Corporate Governance Committee monitors ownership levels annually. As of the review completed in 2012, all of the Directors have met their ownership requirements except for Messrs. Philip and Spinner and Ms. Stipp who became members of the Board in 2011, 2011 and 2012, respectively, and thus have five years to meet their ownership requirements.

 

Clawback Policy. The Committee has implemented a policy for the “clawback” of any equity awards granted to a Director whose misconduct contributed to the Company being required to restate its financial statements. Under the terms of the policy, the Board will, to the full extent permitted by governing law, in appropriate cases, effect the cancellation of unvested restricted or deferred stock awards previously granted to the Director if (a) the amount of the equity award was calculated based upon the achievement of certain financial results that were subsequently the subject of the restatement, (b) the Director engaged in intentional misconduct that caused or partially caused the need for the restatement and (c) the amount of the equity award that would have been awarded to the Director had the results been properly reported would have been lower than the amount actually awarded.

 

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Medical Benefits Available to Directors

 

Non-Employee Directors and their spouses do not participate in the Company’s health plan (medical/dental coverage). Because Mr. Young is a former employee of the Company, he participates in the Company’s fully insured third-party executive medical plan that is provided to Company officers for life upon their retirement. The Company pays the majority of the premium for this coverage.

 

 

Principal Stockholders and Management Ownership

 

The following table sets forth certain information concerning beneficial ownership of the Common Stock as of March 22, 2013 by (i) each person who is known by the Company to own beneficially more than five percent (5%) of the outstanding shares of Common Stock; (ii) each Director and Named Executive Officer of the Company or ABF  the Company’s largest subsidiary, who is listed in the Summary Compensation Table (collectively “Named Executive Officers”), and Director nominees; and (iii) all Directors and executive officers as a group.

 

Unless otherwise indicated, to the Company’s knowledge, the persons included in the tables below have sole voting and investment power with respect to all the shares of Common Stock beneficially owned by them, subject to applicable community property laws. The number of shares beneficially owned by a person includes shares of Common Stock that are subject to stock options or warrants that are either currently exercisable or exercisable within 60 days after March 22, 2013. These shares are also deemed outstanding for the purpose of computing the percentage of outstanding shares owned by the person. These shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. On March 22, 2013, there were 25,629,573 shares of Common Stock outstanding.

 

 

 

Shares

 

Percentage

 

 

 

Beneficially

 

of Shares

 

 

 

Owned

 

Outstanding

 

 

(i) Name / Address

 

 

 

 

 

 

 

 

 

 

 

BlackRock, Inc.(1)

 

1,947,626

 

7.60%

 

40 East 52nd Street, New York, NY 10022

 

 

 

 

 

 

 

 

 

 

 

Dimensional Fund Advisors LP(2)

 

1,678,367

 

6.55%

 

Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746

 

 

 

 

 

 

 

 

 

 

 

The Vanguard Group, Inc.(3)

 

1,476,067

 

5.76%

 

100 Vanguard Blvd., Malvern, PA 19355

 

 

 

 

 

 

 

 

 

 

 

Royce & Associates, LLC(4)

 

1,422,120

 

5.55%

 

745 Fifth Avenue, New York, NY 10151

 

 

 

 

 

 

 

 

 

 

 

Franklin Resources, Inc.(5)

 

1,309,170

 

5.11%

 

One Franklin Parkway, San Mateo, CA 94403

 

 

 

 

 

 

(ii) Name

 

Position

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert A. Young III(6, 7, 9)

 

Chairman of the Board (also a Director Nominee)

 

1,190,403

 

4.64

%

 

John W. Alden(6, 7, 10)

 

Director (also a Director Nominee)

 

15,500

 

*

 

 

Fred A. Allardyce(6, 7, 8)

 

Director (also a Director Nominee)

 

25,500

 

*

 

 

William M. Legg(6, 7)

 

Director (also a Director Nominee)

 

22,500

 

*

 

 

Judy R. McReynolds(6, 7, 11)

 

Director and President–CEO (also a Director Nominee)

 

26,691

 

*

 

 

John H. Morris(6, 7, 8)

 

Director (also a Director Nominee)

 

15,600

 

*

 

 

Craig E. Phillip(6, 7)

 

Director (also a Director Nominee)

 

 

*

 

 

Steven L. Spinner(6, 7)

 

Director (also a Director Nominee)

 

 

*

 

 

Janice E. Stipp(6, 7)

 

Director (also a Director Nominee)

 

 

*

 

 

Jim A. Ingram(6, 7)

 

Sr. VP–Strategic Development

 

8,821

 

*

 

 

J. Lavon Morton(6, 7, 12)

 

Sr. VP–Tax and Chief Audit Executive

 

19,585

 

*

 

 

Michael E. Newcity(6, 7)

 

Vice President–CFO

 

1,900

 

*

 

 

Roy M. Slagle(6, 7, 13)

 

ABF President–CEO

 

21,168

 

*

 

 

 

 

 

 

 

 

 

(iii) All Current Directors and Executive Officers as a Group (19 total)(14)

 

1,433,859

 

5.57

%

 

 

*Less than 1%

 

 

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Table of Contents

 

(1)                   Based on information contained in Amendment No. 3 to Schedule 13G filed with the SEC by BlackRock, Inc. on February 8, 2013, BlackRock, Inc. has sole voting and sole dispositive power with respect to 1,947,626 shares of Common Stock.

 

(2)                    Based on information contained in Amendment No. 4 to Schedule 13G filed with the SEC by Dimensional Fund Advisors LP on February 11, 2013, Dimensional Fund Advisors LP beneficially owns 1,678,367 shares of Common Stock and has sole voting power with respect to 1,649,254 shares and sole dispositive power with respect to 1,678,367 shares.

 

(3)                    Based on information contained in Amendment No. 1 to Schedule 13G filed with the SEC by The Vanguard Group, Inc. (“Vanguard”) on February 11, 2013, Vanguard has sole voting power with respect to 39,210 shares of Common Stock, shared voting power with respect to 0 shares of Common Stock, sole dispositive power with respect to 1,437,857 shares of Common Stock and shared dispositive power with respect to 38,210 shares of Common Stock.

 

(4)                     Based on information contained in Amendment No. 11 to Schedule 13G filed with the SEC by Royce & Associates, LLC on January 4, 2013, Royce & Associates, LLC has sole voting and sole dispositive power with respect to 1,422,120 shares of Common Stock.

 

(5)                     Based on information contained in Amendment No. 2 to Schedule 13G filed with the SEC on February 1, 2013, by Franklin Resources, Inc. (“FRI”), Charles B. Johnson, and Rupert H. Johnson, Jr., principal stockholders of FRI are Charles B. Johnson and Rupert H. Johnson, Jr. and each owns in excess of 10% of outstanding common stock of FRI. Neither FRI nor the Principal Stockholders have sole or shared voting or dispositive power of any shares of Common Stock. Franklin Templeton Investments Corp., an investment manager and subsidiary of FRI, has sole voting and dispositive power over 1,049,170 shares of Common Stock. Franklin Advisors, Inc., an investment manager and subsidiary of FRI, has sole voting and dispositive power over 260,000 shares of Common Stock.

 

(6)                     Includes options to purchase shares of Common Stock, which are vested (or will vest within 60 days of the record date) as follows:

 

 

 

As of March 22, 2013

 

Young

 

 

Alden

 

 

Allardyce

 

7,500

 

Legg

 

4,500

 

McReynolds

 

7,500

 

Morris

 

7,500

 

Philip

 

 

Spinner

 

 

Stipp

 

 

Ingram

 

400

 

Morton

 

7,500

 

Newcity

 

 

Slagle

 

7,500

 

 

(7)                     Includes RSUs, which are vested (or will vest within 60 days of the record date) as follows:

 

 

 

As of March 22, 2013

 

Young

 

 

Alden

 

 

Allardyce

 

 

Legg

 

 

McReynolds

 

4,600

 

Morris

 

 

Philip

 

 

Spinner

 

 

Stipp

 

 

Ingram

 

4,100

 

Morton

 

4,100

 

Newcity

 

650

 

Slagle

 

4,600

 

 

(8)                     Includes RSUs which are vested and deferred. Messrs. Allardyce and Morris elected to defer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Morris also elected to defer his 2007 RSU award of 3,700 until the earlier of termination from Board service or April 23, 2013. All deferral elections must be made in the year prior to the year the award is granted.

 

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Table of Contents

 

(9)                     Includes 937,385 shares of Common Stock held by the Robert A. Young III 2008 Trust and 14,556 shares of Common Stock held by Cross Creek Management Co. of which Mr. Young is director and President. Mr. Young has sole voting and investment power over these shares.

 

(10)               Includes 15,500 shares of Common Stock held by the John W. Alden Trust, of which Mr. Alden is trustee.

 

(11)               Includes 14,591 shares of Common Stock held by the McReynolds 2005 Joint Trust, of which Ms. McReynolds is co-trustee.

 

(12)               Includes 22 shares held by Mr. Morton in the Arkansas Best 401(k) and DC Retirement Plan.

 

(13)               Includes 9,068 shares of Common Stock held by the Roy M. Slagle Living Trust, of which Mr. Slagle is trustee.

 

(14)               Includes 52,900 shares of Common Stock that may be acquired upon the exercise of options that are currently vested or will vest within 60 days of the record date. Also includes 38,550 RSUs that will vest within 60 days of the record date and 12,500 RSUs that are vested and deferred; RSUs were granted under the Company’s 2005 Ownership Incentive Plan.

 

 

Executive Officers of the Company

 

The following information sets forth the name, age, principal occupation and business experience during the last five years of each of the current executive officers of the Company and ABF, the Company’s largest subsidiary. The executive officers, including the Named Executive Officers, serve at the pleasure of the Board. For information regarding ownership of the Common Stock by the executive officers of the Company, see “Principal Stockholders and Management Ownership” on page 20. There are no family relationships among Directors and executive officers of the Company or its subsidiaries.

 

 

 

 

 

 

JUDY R. MCREYNOLDS, age 50, is President and Chief Executive Officer and a Director of the Board. See previous description under “Directors of the Company.”

 

 

 

 

 

 

 

 

 

 

ROY M. SLAGLE, age 59, has been ABF’s President–Chief Executive Officer since January 1, 2012. Mr. Slagle was Senior Vice President–Sales and Marketing of ABF from February 2006 through December 2011, Vice President–Administration and Treasurer for ABF from January 2000 through January 2006 and Vice President and Treasurer for ABF from 1995 to 2000. He was a Regional Vice President of Sales for ABF from 1989 to 1995. Between 1976 and 1989, Mr. Slagle served ABF as Operations Supervisor at the Dayton, Ohio terminal; Operations Manager at the Dayton terminal; Branch Manager at the Cincinnati, Ohio terminal; Branch Manager at the Carlisle, Pennsylvania terminal; and Regional Training Specialist at the Dayton terminal.

 

 

 

 

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Table of Contents

 

 

 

 

 

MICHAEL E. NEWCITY, age 43, has been Vice President–Chief Financial Officer for the Company since June 1, 2010. He previously served as Director–Economic Analysis for the Company from November 2007 through May 2010, and prior to that he had served as Director–E-Systems and Emerging Technologies for ABF from November 2005 through October 2007.  In these capacities, Mr. Newcity led the group that provides critical analysis on topics including costing and profitability methods, incentive plans, metrics and forecasting as well as the development and implementation of internal management systems. From January 2000 through October 2005, Mr. Newcity held several managerial positions with ABF that spanned marketing, information technology, and business development. He began his career with the Company in 1993 at its subsidiary, Data-Tronics Corp., leading the Company’s e-commerce development initiatives through December 1999. Mr. Newcity holds an MBA from the Walton College at the University of Arkansas.

 

 

 

 

 

 

 

J. LAVON MORTON, age 62, has been Senior Vice President–Tax and Chief Audit Executive since January 1, 2010. He served as the Company’s Vice PresidentTax and Chief Internal Auditor from January 2000 through December 2009. From May 1997 to December 1999, Mr. Morton was the Company’s Vice PresidentFinancial Reporting. Mr. Morton joined the Company as Assistant Treasurer in December 1996. From 1972 through November 1996, Mr. Morton was employed by Ernst & Young LLP. Mr. Morton was a Partner in Ernst & Young LLP from October 1984 through November 1996. From January 2003 to October 2005, Mr. Morton was a Director and a designated Audit Committee Financial Expert of BEI Technologies, Inc. BEI was purchased by Schneider Electric in October 2005. Mr. Morton is currently Vice Chairman of the Tax Policy Committee of the American Trucking Associations (ATA). He has served as Chairman of ATA’s Tax Policy Committee and was a member of the ATA Board of Directors from October 2004 to October 2007. Mr. Morton is a Certified Public Accountant. Mr. Morton holds a Master of Tax degree from the University of Tulsa.

 

 

 

 

 

 

 

JIM A. INGRAM, age 45, has been Senior Vice President–Strategic Development for the Company since November 2011. He had previously served as Vice President–Strategic Development for ABC from April 2010 through October 2011, Vice President–Market Development for ABC from January 2008 to April 2010 and Vice President–Market Development for ABF from February 2006 through December 2007. From January 2000 through January 2006, Mr. Ingram was ABF’s Director–Quotation Services. Between January 1990 and December 1999, Mr. Ingram served in ABF’s Pricing Department as an Analyst, Senior Analyst and Pricing Manager.

 

 

 

 

 

 

 

 

 

 

JAMES W. KEENAN, age 54, has been Senior Vice President–Sales and Marketing for ABF since January 1, 2012. He served as ABF’s Vice President–Sales from 2007 until January 2012. Mr. Keenan had previously served as Vice President–Sales and Marketing for Clipper, a former Company subsidiary, from May 1995 to December 1998 and as Vice President–Administration and Treasurer for ABF from February 2006 to February 2007. Mr. Keenan joined ABF in 1981, working as an ABF Pricing Department analyst and later as Pricing Department Manager. From 1988 to 1995 and again from 1999 to 2006, Mr. Keenan served as Regional Vice President of Sales.

 

 

 

 

 

 

 

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Table of Contents

 

 

 

 

 

CHRISTOPHER L. BURTON, age 55, has been Vice President–Economic Analysis for the Company since January 1, 2008. Previously for ABF, he served as Vice President–Economic Analysis from February 1, 2006 through December 31, 2007, Director–Economic Analysis from September 1995 through January 2006, and Manager–Pricing from February 1995 through August 1995. From January 1979 through January 1995, Mr. Burton served the Company’s subsidiary, Data-Tronics Corp., as Manager of Services & Human Resources and Systems Analyst/Programmer and also worked for the Company as an Economic Analyst.

 

 

 

 

 

 

 

DAVID R. COBB, age 47, has been Vice President and Controller of the Company since May 1, 2006. Mr. Cobb was employed by Smith International, Inc., a publicly traded international oilfield service company acquired by Schlumberger Limited, as Vice President and Controller from 2002 to April 2006. He was employed by Kent Electronics Corporation, a publicly traded specialty electronics distributor and network integrator, from 1995 to 2001 and Price Waterhouse, a predecessor of PricewaterhouseCoopers LLP from 1988 to 1994. Mr. Cobb is a Certified Public Accountant. Mr. Cobb has served publicly traded companies since 1988.

 

 

 

 

 

 

 

WALTER J. ECHOLS, age 59, has been Vice President–Real Estate for the Company since January 1, 2012. Mr. Echols previously served as Vice President–Real Estate for ABF from January 1994 until January 2012 and Director–Real Estate for ABF from November 1987 until 1994. Mr. Echols joined Data-Tronics Corp., a subsidiary of the Company, in June 1975 serving as Manager–Sales & Marketing until becoming Manager of the Data-Tronics Corp. Information Center in 1983.

 

 

 

 

 

 

 

ERIN K. GATTIS, age 39, has been Vice President–Human Resources for the Company since October 1, 2011. She previously served as the Company’s Chief of Staff from January 2010 through September 2011. Prior to that departmental director position, Ms. Gattis served as Manager of Retirement Services and Executive Compensation from August 2006 to September 2009. She joined the Company in 1999 and between 1999 and 2006 worked for both the Company and ABF as a Retirement Specialist, Benefits Analyst, Supervisor of Executive Compensation and Manager of Executive Compensation. Ms. Gattis holds a Senior Professional in Human Resources certification.

 

 

 

 

 

 

 

MICHAEL R. JOHNS, age 54, has been the Company’s Vice PresidentGeneral Counsel and Corporate Secretary since April 2, 2007. From 1991 to 2007, he was a partner in the law firm of Dover Dixon Horne PLCC in Little Rock, Arkansas. Mr. Johns was a practicing attorney in two other Little Rock law firms for seven years, including Rose Law Firm, prior to 1991. He is a Certified Public Accountant. Mr. Johns is a member of the American Bar Association, Sebastian County Bar Association and Arkansas Society of Certified Public Accountants.

 

 

 

 

 

 

 

22


 


Table of Contents

 

Compensation Discussion & Analysis

 

The purpose of this Compensation Discussion & Analysis (“CD&A”) is to provide you with an overview and analysis of (i) our executive compensation programs; (ii) material compensation changes made during the year for Named Executive Officers; and (iii) the process for review and decision-making for the executive compensation programs. The Compensation Committee (the “Committee”) of the Board of Directors determines the compensation and reviews, approves and oversees the administration of plans and programs for our Named Executive Officers.

 

The Named Executive Officers for 2012 are listed below:

 

Named
Executive Officer

 

Title

 

 

 

 

Judy R. McReynolds

 

ABC President–Chief Executive Officer (“ABC CEO”)

Roy M. Slagle

 

ABF President–Chief Executive Officer (“ABF CEO”)

J. Lavon Morton

 

ABC Senior Vice President–Tax & Chief Audit Executive

Jim A. Ingram

 

ABC Senior Vice President–Strategic Development

Michael E. Newcity

 

ABC Vice President–Chief Financial Officer (“CFO”)

 

Executive Summary

 

Company Performance

 

In 2012, the Company experienced revenue growth and exceeded $2 billion in revenue but returned to operating losses because of ABF’s unionized cost structure and weaker economic conditions particularly in the second half of the year. The revenue growth resulted from the non-asset-based segments of the Company while ABF’s revenues were flat. The non-asset-based segments improved operating income despite weaker economic conditions. We have continued to expand our portfolio of expedited and premium logistics services in 2012. As a result of the acquisition of Panther Expedited Services in June and other initiatives, we now have access to the broader logistics market beyond less than truckload and are better able to serve customers seeking end-to-end solutions to all of their shipping and supply chain needs. A few financial statistics include:

 

·                  revenue of $2.1 billion compared to $1.9 billion in 2011.

·                  net loss of $7.7 million, or $0.31 per share compared to net income of $6.2 million, or $0.23 per share, in 2011.

 

Executive Compensation Relative to Company Performance

 

Overall compensation levels in 2012 for the Named Executive Officers were down compared to 2011 as a result of the weak performance in certain segments of the Company.

 

Annual Incentive Compensation:  For 2012, the annual cash incentive continued to be based in part on Return on Capital Employed (“ROCE”), as further described on page 31. However, the Committee wanted to shift the focus to improving operating results. As a result, in 2012 the cash flow improvement metric was replaced with operating income improvement. The 2012 metrics were weighted 50% each. No incentive was paid under the 2012 Annual Cash Incentive Compensation Plan because neither performance goal was attained.

 

Long-Term Incentive Compensation:  There were no payouts under the 2010-2012 cash long-term incentive compensation plan due to the continued negative effects of our unfavorable union cost structure and weak economic conditions on the profitability of the Company. Consistent with equity awards in 2010 and 2011, an RSU award was granted to Named Executive Officers in 2012 to further link Named Executive Officer compensation with stock price performance and stockholder interests. A cash long-term incentive award for 2012-2014 was granted including metrics for ROCE and Total Shareholder Return (“TSR”) consistent with the grant in 2011-2013.

 

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Table of Contents

 

As of the Proxy Statement record date, the stock options awarded to the Named Executive Officers in 2004 and prior years were “underwater,” meaning the Company’s stock price was less than the exercise price of the options. It is the Company’s policy to not re-price options.

 

Compensation Philosophy and Objectives

 

The primary objectives of the Company’s executive compensation program are to:

 

·

 

attract and retain highly qualified executives;

·

 

motivate the Company’s leaders to work together as a team to deliver superior business performance;

·

 

balance rewards between short-term results and the long-term strategic decisions needed to ensure sustained business performance over time; and

·

 

ensure that the interests and risk tolerance of the Company’s leaders are closely aligned with those of the Company’s stockholders.

 

As discussed in the sections that follow, the Company uses a variety of compensation vehicles to meet its compensation philosophy and objectives. The Company does not establish a targeted mix of weightings between the various components. Both internal and external influences on our compensation program fluctuate periodically, and the Company believes that it is in the best interest of the Company, the Company’s stockholders, as well as the Named Executive Officers, to provide the Committee with the flexibility to design a compensation program appropriate to the current market environment and the Company’s goals.

 

Position and level of responsibility are important factors in the compensation of the Company’s executives. There are internal salary levels, as well as annual and long-term target incentive opportunities for each executive level in the organization. The Company believes this strategy emphasizes the executive team concept.

 

Each Named Executive Officer is a long-term employee of the Company with tenure ranging from 15 to 36 years, resulting in a group that is very knowledgeable about our Company and the overall transportation industry. This knowledge is very valuable to both the Company and our stockholders and makes members of our management desired targets for other transportation companies. Our compensation program is designed to prevent loss of our existing managerial talent as well as attract future leaders for the Company.

 

In 2012, the Company held its second stockholder advisory vote on the compensation paid to our Named Executive Officers, resulting in over 99% of votes cast approving such compensation. The Committee considered these results and the overwhelming support expressed by stockholders as well as many other factors in evaluating the Company’s executive compensation programs as discussed in this CD&A. These factors include the Committee’s assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by external consultants, and review of data of a selected group of peers. Each of these factors is evaluated in the context of the Committee’s duty to act as the Directors determine to be in the stockholders’ best interests. Based on this evaluation, the Committee did not make any changes to our executive compensation program, policies or pay levels as a result of the 2012 “say on pay” advisory vote.

 

Roles and Responsibilities in Determining Executive Compensation

 

The Compensation Committee is responsible for overseeing and approving compensation levels and incentive plans for the Named Executive Officers. The Committee approves salary levels, incentive plan performance metrics, performance goals, targets and maximum payouts, equity awards and the peer group used for benchmarking. The Committee also evaluates the need for, and provisions of, severance arrangements for the Named Executive Officers. As a part of its responsibilities, the Committee also reviews risks associated with compensation plans.

 

The Committee retains an independent consultant, Meridian, to assist with the evaluation of compensation programs and award levels and to provide updates to the Committee on trends and issues related to executive compensation as well as to review executive compensation related proxy disclosures. Meridian participates in Committee meetings, reviews Committee materials and provides advice to the Committee upon request. Meridian does not provide any services to the Company other than the services provided as independent executive compensation consultant for the Board and Compensation and Nominating/Corporate Governance Committees. The Compensation Committee has assessed the independence of Meridian under the SEC rules and concluded that Meridian’s work for the Compensation Committees does not raise any conflict of interest.

 

24



Table of Contents

 

The Company has retained Mercer to provide additional consulting services at the direction of management and to assist with management’s recommendations for our peer group and executive compensation. Mercer assists with market analysis, plan design, proxy disclosure review, review of corporate governance practices and periodically participates in Committee meetings and reviews Committee materials.

 

From time to time, the Company’s Chairman of the Board, President–Chief Executive Officer, Senior Vice President–Tax & Chief Audit Executive, Vice President–General Counsel and Corporate Secretary, Vice President–Chief Financial Officer, Vice President–Human Resources and ABF President–Chief Executive Officer provide analysis and recommendations to the Committee on compensation issues.

 

At certain meetings, the President–Chief Executive Officer presents pay recommendations to the Committee for her direct reports. The President–Chief Executive Officer does not make recommendations on her own compensation. Some or all of the above-listed individuals routinely attend the meetings of the Committee to provide information relating to matters the Committee is considering. None of the above-listed individuals participate in discussions concerning their own pay or attend Committee executive sessions, except to the extent requested by the Committee.

 

Management formulates its recommendations with assistance from Mercer. The Committee considers management recommendations and reviews recommendations from Meridian before making decisions on compensation to be provided to the executives. The Committee feels these recommendations provide valuable insight in making compensation decisions; however, the Committee alone approves all pay decisions for the Named Executive Officers.

 

Determining Appropriate Pay Levels and Linkage to Objectives

 

The Committee compares its compensation program with the compensation levels of executives at similar peer entities in our industry to determine whether the Company is providing a competitive compensation program within the market in which we compete for qualified executives. For base salary, the Company has historically targeted between the 25th and 50th percentiles of the market (i.e., the peer group described below) for Named Executive Officers. Annual cash incentives are designed to deliver total cash compensation (salary and annual incentives) to meet or exceed the 50th percentile of the market when the Company performs above target performance. Total direct compensation, including base salary, annual cash incentives, long-term cash incentives and equity awards, is also targeted to meet or exceed the 50th percentile of the market when the Company exceeds target performance levels.

 

To assess the competitive range of pay for a particular position, the Committee periodically examines pay data for executives in positions of comparable size and complexity at other companies. The Company’s market compensation peer group is designated by the Committee.

 

During the fall of 2011, a market analysis was conducted for the Company’s executive compensation program in conjunction with the Company’s retention assessment and incentive plan review. The analysis examined peer group incentive plan designs and practices and reviewed severance and change in control agreements provided by peers. This analysis indicated that total direct compensation for the Named Executive Officers is within the desired range when the Company performs well. The 2011 industry peer companies included the seven trucking companies listed below, which the Company considers to be its direct competitors for business and executive talent.

 

·                  Con-Way, Inc.

·                  J.B. Hunt Transportation Services, Inc.

·                  Landstar System, Inc.

·                  Old Dominion Freight Line, Inc.

·                  SAIA, Inc.

·                  Werner Enterprises

·                  YRC Worldwide, Inc.

 

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Table of Contents

 

In conjunction with input from Meridian and Mercer, in January 2012 the Committee reviewed and revised the market compensation peer group to more accurately represent the Company’s current direct competitors (which are the same companies used in the TSR comparison of the 2012-2014 cash long-term incentive plan). The previous market compensation peer group had been in place since 2008. The peer group, as listed below, consists of the Stephen’s Transportation Index with the addition of YRC Worldwide, Inc. Although this peer group change was made in 2012, no market compensation analysis was conducted in 2012. This peer group has also been approved by the Committee for any 2013 market compensation analysis.

 

·                  Celadon Group Inc.

·                  Con-Way, Inc.

·                  Covenant Transport, Inc.

·                  Heartland Express, Inc.

·                  Knight Transportation, Inc.

·                  Marten Transport, Ltd.

·                  Old Dominion Freight Line, Inc.

·                  SAIA, Inc.

·                  Swift Transportation Corporation

·                  USA Truck Inc.

·                  Vitran Corporation

·                  Werner Enterprises

·                  YRC Worldwide, Inc.

 

Due to the strong performance orientation of the annual cash incentive, as discussed on page 31, and the long-term cash incentives, as described on page 32, the Committee is satisfied that above-median total cash and total direct compensation will only be awarded when the Company performs well against the historical ROCE (as further described below) of the S&P 500 companies. The S&P 500 is an appropriate performance benchmark because it is a broad-based group of companies in leading industries in the United States. The S&P 500 reflects the risk and return characteristics of the broader market on an on-going basis. While the S&P 500 includes companies that are larger than the Company, the performance of these companies reflects stable, well-managed organizations. Performance at or above the level of the S&P 500 companies is considered acceptable performance by management and worthy of performance-based incentive payments. For long-term incentives, the Company also uses TSR relative to the above listed peer group to more directly align the cash long-term incentive plan with shareholder value creation.

 

The Committee evaluates Named Executive Officers’ compensation by analyzing two general categories: (i) short-term cash compensation and (ii) long-term incentive compensation.

 

Short-Term Cash Compensation

 

Long-Term Incentive Compensation

Base
Salary

+

Annual Cash
Incentive
(1-Yr.
Financial
Goals)

=

Total Cash
Compensation

   +

Long-
Term
Cash
Incentive
(3-Yr.
Financial
Goals)

   +

Equity
Awards
(Annual
Grant with
5-Yr.
vesting)

=

Total Direct
Compensation

 

Although the Committee does review retirement, perquisites and other benefits such as the 401(k) plan, pension plan and health and welfare benefits, these benefits are not referenced against market data or used in determining direct compensation levels. These benefits are more fully described in the “Retirement and Other Benefits” and the “Perquisites” sections of this CD&A.

 

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Table of Contents

 

Pay for Performance

 

In addition to being designed to attract and retain effective management, our compensation program also has a strong relationship between pay and performance and our compensation programs evolve and are adjusted over time to support the Company’s goals and short- and long-term objectives. The following chart illustrates how incentive payments (both short- and long-term) track with the Company’s net income performance.

 

 

Performance-based annual and long-term incentive compensation represents a significant portion of the Named Executive Officers’ compensation package.

 

Historically, the annual incentive plan was tied to the Company’s ROCE. There was no annual incentive benefit paid for performance in 2008 and 2009 due to the severe recessionary environment and its effect on the Company’s financial results. For 2010, the primary annual incentive plan was again tied to the Company’s ROCE but cash flow improvement over the 2010 forecast was added as a second measure. While no payout was earned on ROCE in 2010, there was a benefit earned under the cash flow improvement component of the plan. For 2011, the annual incentive plan benefit was based on 2011 cash flow improvement over 2010 and ROCE. The target cash flow improvement for 2011 was exceeded resulting in a payout under the cash flow component; however, the threshold payout under the ROCE component was not attained. The resulting payment for 2011 was below target incentive levels. In 2012, the cash flow improvement metric was replaced with operating income improvement. Operating income was added in 2012 to encourage focus on profitable growth of the Company. In 2012, the Company again faced difficult economic conditions and an unfavorable union cost structure resulting in no incentive payment under either the operating income or ROCE component for the year.

 

The 2012-2014 cash long-term incentive compensation plan is based equally on ROCE and TSR relative to a peer group. Beginning in 2011, TSR replaced EPS and was added to incorporate a relative metric into the long-term plan that reflects the cyclicality of the Company’s industry. The Committee believes that this more directly aligns the plan with shareholder value creation. Prior long-term incentive compensation plans were based on EPS growth and ROCE. Due to the continuing effects of the recession and an unfavorable union cost structure and its effect on the Company’s financial results, there have been no payouts under the cash long-term plans since the 2006-2008 plan.

 

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Table of Contents

 

2012 Variable vs. Fixed Compensation

 

The charts below show the significant portion of the Named Executive Officers’ 2012 target compensation that was variable based on reaching certain performance goals or the value of the Common Stock.

 

 

Components of Compensation

 

Base Salary.  Base salaries for Named Executive Officers are reviewed by the Committee on an annual basis. In establishing base salaries, the Committee reviews the following:

 

·                  the Company’s compensation philosophy and objectives as described above;

·                  market analysis, the latest of which was conducted in 2011 by Mercer;

·                  input from the Compensation Committee’s independent consultant, Meridian;

·                  economic and inflationary factors;

·                  the Company’s recent and historical financial performance;

·                  the Company’s strategic plans;

·                  the resources of the Company; and

·                  the President–Chief Executive Officer’s recommendations (on positions other than her own).

 

The Committee does not assign a specific weighting to any of these factors.

 

For 2012, the Committee approved modest base salary increases for the officer group generally consistent with increases made for salaried employees. Named Executive Officer base salaries increased by approximately 3% in 2012 other than with respect to Ms. McReynolds, Mr. Slagle and Mr. Ingram. Based on Ms. McReynolds’ performance in her second year as the Company’s President–CEO and the Company’s continued improvement in operating results in 2010 and 2011, the Committee increased Ms. McReynolds salary from $525,000 to $575,000. This increase was a part of the Compensation Committee’s plan to increase Ms. McReynolds’ pay level as she has additional time in her new CEO role. With this increase, based on the most recent market analysis in 2011, her salary is between the 25th and 50th percentile as compared to our 2011 market compensation peer group and is below the salary for the Company’s two prior President-CEOs. Mr. Slagle’s salary was increased from $285,000 to $375,000 upon his promotion to ABF President-CEO effective January 1, 2012. Mr. Ingram’s salary was increased from $232,000 to $294,000 upon his promotion to Senior Vice President-Strategic Development effective November 1, 2011. The following chart shows the base salary rates for each Named Executive Officer for 2011 and 2012:

 

 

2011 Salary

 

2012 Salary

 

Judy R. McReynolds

$525,000

$575,000

Roy M. Slagle

$285,000

$375,000

J. Lavon Morton

$285,000

$294,000

Jim A. Ingram

$240,833

$294,000

Michael E. Newcity

$258,000

$266,000

 

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Annual Cash Incentive Compensation.  The annual cash incentive compensation plan benefit for 2012 was based on the Company’s ROCE and operating income improvement. In 2010 and 2011, in addition to ROCE, the incentive was based on cash flow improvement; however, the Committee wanted to shift the focus to improving operating results. This resulted in a change from the cash flow improvement metric to operating income improvement in 2012. Operating income was added to encourage focus on profitable growth of the Company. In 2012, the performance metrics were equally weighted. Under the plan, participants would receive a payout if certain operating income improvement levels over 2011 were met and/or if certain ROCE levels were achieved. Operating income is generally determined as operating income as shown by the consolidated financial statements and consistent with the historical determination of operating income in Arkansas Best’s financial statements. ROCE is generally calculated by dividing net income (adjusted for nonrecurring or unusual items) by average debt plus average equity for the applicable period. The Committee and management believe that ROCE keeps participants focused on the profitable use of Company resources and promotes profitable growth, both of which increase the value of the Company to its stockholders. Additionally, ROCE is a valuable motivational tool since it can be calculated throughout the year by participants.

 

The ROCE incentive award scale is based on studies conducted since the inception of the ROCE plan in 1998 regarding the historical average ROCE for the S&P 500 publicly traded companies over longer periods of time.

 

For 2012, Named Executive Officers had a target incentive opportunity expressed as a percentage of their base salary called the target salary factor that is multiplied by a performance factor determined by the operating income improvement or ROCE achieved by the Company. The target incentive opportunity for Mr. Newcity, the Company’s Chief Financial Officer since June 2010, was raised from 40% to 45% of base salary based on his performance during that time period and to bring his total compensation closer to the 50th percentile of our 2011 market compensation peer group, based on results of the 2011 market analysis.

 

The following table shows the 2012 target salary factors for the annual incentive plan:

 

Job Title

Target Salary Factor

ABC President & CEO

100%

 

ABF President & CEO

70%

 

ABC Senior Vice President

50%

 

ABC Vice President–CFO

45%

 

 

The following tables show how the Company determined the performance factor applied in each half of the incentive paid under the 2012 annual cash incentive compensation plan:

 

Operating

Income

Improvement

Performance
Factor Earned

<+$20 million

 

0%

 

+$20 million

 

40%

 

+$50 million

 

100%

 

+$90  million

 

200%

 

 

The operating income component was capped at a 200% performance factor.

 

ROCE %
Achieved

Performance
Factor Earned

<5%

 

0%

 

5%

 

50%

 

10%

 

100%

 

15%

 

300%

 

 

The ROCE component was capped at a 300% performance factor.

 

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Performance requirements for an incentive under the ROCE or operating income improvement component of the 2012 annual plan were not met; therefore, no incentive was paid under the plan, as reflected in the table below.

 

Job Title

2012 Target Annual
Incentive Opportunity

Actual 2012 Annual
Incentive Plan Payout

  ABC President & CEO

$575,000

$0

  ABF President & CEO

$262,500

$0

  ABC Senior Vice Presidents 

$147,000

$0

  ABC Vice President–CFO

$119,700

$0

 

Long-Term Cash Incentive Compensation.  The Committee has adopted three-year cash incentive programs annually since 2006 (each new three-year measurement period is considered a separate and distinct cash long-term incentive plan for purposes of performance measures and payouts), each of which includes certain Named Executive Officers as participants. The cash long-term incentive plan provides long-term incentive compensation as described below. Management and the Committee believe that the combination of performance measures in the cash long-term incentive plan places an emphasis on motivating profitable growth and on the level of profitability from the efficient use of Company assets. The performance period for the 2010-2012 cash long-term incentive compensation plan ended on December 31, 2012. Performance requirements for the ROCE and earnings per share growth components were not met; therefore, no incentive was paid under the plan, as reflected in the table below.

 

Job Title

2010-2012 Target Cash
Long-Term Incentive
Opportunity

Actual 2010-2012
Long-Term Incentive
Plan Payout

  ABC President & CEO

$439,167

$0

  ABF President & CEO

$223,361

$0

  ABC Senior Vice President, Morton

$199,267

$0

  ABC Senior Vice President, Ingram1

$154,077

$0

  ABC Vice President–CFO

$122,803

$0

 

  (1)    The ABC Senior Vice President Incentive Opportunities differ because Mr. Ingram was not a Senior Vice President for the full three years of the performance period.

 

In January 2012, the Committee adopted a three-year cash long-term incentive plan program for January 1, 2012 through December 31, 2014. The 2012-2014 cash long-term incentive plan is comprised of two parts:

 

Cash Long-Term Incentive
Plan Components

Weighting

Relative TSR Component

50%

ROCE Component

50%

 

In addition to ROCE that has been a component of the three-year cash long-term incentive plan since its inception, since 2011 the second metric has been TSR compared to our performance peer group. This peer group consists of certain publicly held transportation companies, all of which are engaged in motor freight transportation or related businesses as a significant part of their business. The purpose of the plan is to encourage focus on efficient use of corporate assets to create profitable growth during the measurement period and to reward participants when they outperform their peer group, particularly in light of the cyclical nature of the Company’s industry. The relative TSR component is intended to more directly align the plan with shareholder value creation.

 

The performance peer group for the TSR component of the 2012-2014 cash long-term incentive plan (which beginning in 2012 includes the same companies used in market compensation comparisons) is as follows:

 

·                  Celadon Group Inc.

·                  Con-Way, Inc.

·                  Covenant Transport, Inc.

·                  Heartland Express, Inc.

·                  Knight Transportation, Inc.

·                  Marten Transport, Ltd.

 

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·                  Old Dominion Freight Line, Inc.

·                  SAIA, Inc.

·                  Swift Transportation Corporation

·                  USA Truck Inc.

·                  Vitran Corporation

·                  Werner Enterprises

·                  YRC Worldwide, Inc.

 

For the “ROCE Component,” the Committee used the Company’s three-year average ROCE as its performance measure. The ROCE goal is based on studies conducted by the Company on historical averages of ROCE for S&P 500 publicly traded companies over longer periods of time. The minimum ROCE required to receive an incentive under the cash long-term incentive plan is 3%. The actual incentive earned for the ROCE Portion is dependent on the three-year average of ROCE achieved and the participant’s average annualized base salary during the measurement period. Participants receive 100% of their target incentive opportunity, subject to the applicable weighting for the ROCE Portion, if an ROCE level of 10% is achieved during the measurement period.

 

As described more fully below, in prior years, the Named Executive Officers were given an election to remain in the Deferred Salary Agreements (collectively “DSA”)  or transition to the cash long-term incentive plan program. All of the Named Executive Officers participate in the cash long-term incentive plan.

 

For 2012, Named Executive Officers had a target incentive opportunity expressed as a percentage of their base salary called the target salary factor that is multiplied by a performance factor for each performance component. The target incentive opportunity for Mr. Newcity, the Company’s Chief Financial Officer since June 2010, was raised from 55% to 60% of base salary based on his performance during that time period and to bring him closer to the 50th percentile in total compensation as compared to our compensation peer group, based on results of the 2011 market analysis. The following table shows the 2012 target salary factor for the Named Executive Officers.

 

Job Title

Cash Long-Term Incentive Plan
Incentive Award Salary Factor
(“Salary Factor”)

  ABC President & CEO

85%

  ABF President & CEO

75%

  Senior Vice Presidents

70%

  Vice President–CFO

60%

 

The following tables show how payments are determined for each half of the cash long-term incentive plan:

 

Relative TSR

Performance Factor
Earned for Relative
TSR

< 25th percentile

0%

25th percentile

25%

50th percentile

100%

75th percentile

200%

 

The Relative TSR component was capped at a 200% performance factor.

 

ROCE %
Achieved

Performance

Factor Earned on ROCE

<3%

0%

3%

30%

10%

100%

15%

300%

 

The ROCE component was capped at a 300% performance factor.

 

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Any payments for the 2012-2014 cash long-term incentive plan will be made in early 2015.

 

For 2012-2014 cash long-term incentive plan awards, the 2012 Change in Control Plan provides for immediate payment of an earned award upon a qualified termination following a change in control. For awards that have not reached the end of the measurement period, the benefit amount will be prorated based on the number of whole months completed during the measurement period as of the date of the qualified termination; provided, however that the amount payable shall be computed and paid in the normal course of business and under the terms of the cash long-term incentive plan after the end of the measurement period. See the “Potential Payments upon Termination or Change in Control” section for more information.

 

Equity Awards. The Company’s policies and practices for aligning the Named Executive Officers’ interests with stockholders’ interests and encouraging stock ownership by Named Executive Officers are described below:

 

To help align executive interests with those of shareholders, the Company awards RSUs. In 2012, target award values were reduced due to a decrease in the Company’s stock price and the desire to preserve shares for issuance under the Company’s 2005 Ownership Incentive Plan. Named Executive Officers were granted RSUs in 2012 under the Company’s 2005 Ownership Incentive Plan as follows:

 

Named Executive Officer

Target Award
Value

Reduced Target
Award Value for
2012

RSUs
Granted in 2012

Judy R. McReynolds

$330,000

$242,055

16,500

Roy M. Slagle

$240,000

$176,040

12,000

J. Lavon Morton

$180,000

$132,030

9,000

Jim A. Ingram

$180,000

$132,030

9,000

Michael E. Newcity

$170,000

$124,695

8,500

 

The number of RSUs awarded to each Named Executive Officer was based on the Named Executive Officer’s position within the Company. Other considerations included the total number of shares available to be granted, the number of previously granted RSUs currently outstanding, burn rate and potential shareholder dilution.

 

See the “Outstanding Equity Awards at 2012 Fiscal Year-End” section for additional information.

 

Prior to 2005, the Named Executive Officers were awarded stock options. A portion of these options are still outstanding. All outstanding options are fully vested but have an exercise price substantially in excess of the Company’s current and recent stock price.

 

The Committee has granted RSUs since 2007. The Committee believes the awarding of RSUs with five-year cliff vesting facilitates the Named Executive Officers’ accumulation of an equity interest in the Company. This vesting schedule also assists the Named Executive Officers in complying with the Stock Ownership Policy. Stock will be issued in settlement of the RSUs on the regular five-year vesting date or, if earlier, at the time the Named Executive Officer’s employment terminates due to retirement, death or disability.

 

Ownership and Retention Policy – The Committee believes that the Named Executive Officers should maintain meaningful equity holdings in the Company. The Board adopted a Stock Ownership Policy (the “Policy”) for Named Executive Officers that became effective January 1, 2008. Under this Policy, Named Executive Officers must own stock with a value equal to or greater than the following multiple of their base salary within five years from the date of their appointment to a position subject to the Policy. If a Named Executive Officer is already subject to the Policy and is subsequently promoted, that officer will have three years from the promotion date to satisfy the new higher ownership requirement.

 

Position Title

Stock Ownership Multiple

ABC President & CEO

3 x base salary

Other Named Executive Officers

2 x base salary

 

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Participants may not sell any shares granted under a Company award agreement (except to pay the exercise price of stock options or taxes generated as a result of equity grants) until they satisfy the stock ownership requirement. Stock owned in a Company-sponsored retirement plan, restricted stock, RSUs and stock owned outright count toward the ownership requirement. Should a person covered by the Policy fail to have the required amount accumulated after his or her required compliance date, then further equity grants may be discontinued until the person has complied with the Policy. The Committee monitors ownership levels annually. As of the previous review in April, 2012, all Named Executive Officers have met their requirement. The Committee reserves the right to amend or terminate the Policy at any time or waive the restrictions for any individual at its sole discretion.

 

Equity Award Practices – The Committee’s policy for granting equity awards states:

 

·          the Committee shall be responsible for the granting of all equity-based compensation for employees;

·          the award dates for each grant shall be five business days following the Company’s applicable quarter’s earnings release;

·          the exercise price or value of the grant shall be determined by reference to the closing price of the Common Stock on the specified award date;

·          the number of shares/units awarded will be based on stated dollar amounts for each participant unless otherwise approved by the Board; and

·            any award which does not conform to these policy requirements must be approved by the Board

 

Retirement and Other Benefits. The Named Executive Officers are eligible to participate in retirement and benefit programs as described below. The Committee reviews the overall cost to the Company of the various programs generally on an annual basis or when changes are proposed. The Committee believes the benefits provided by these programs continue to be important factors in attracting and retaining the overall officer group, including the Named Executive Officers. However, in recent years, these benefits have become more limited.

 

In the past, the Company provided officers with the predominant portion of their long-term cash compensation through post-employment payments under the Supplemental Benefit Plan (the “SBP”) and DSA retirement programs described below. All benefits under these plans have been frozen, and officers now receive a significant portion of their long-term cash through the performance plan described earlier. As officers promoted after the SBP and DSA freeze, Messrs. Newcity and Ingram are not participants in the SBP or DSA.

 

Following are the various benefit programs in which the Named Executive Officers have either active or frozen participation.

 

Supplemental Benefit Plan – Prior to 2010, the Company maintained a noncontributory, unfunded supplemental pension benefit plan that supplements benefits under the Arkansas Best Corporation Pension Plan (the “Pension Plan”). Under the SBP, the Company will pay sums in addition to amounts payable under the Pension Plan to eligible officers, including the Named Executive Officers. The SBP has been frozen since December 31, 2009. See the “2012 Pension Benefits” section for more information.

 

Deferred Salary Agreements – The Company and ABF also have unfunded, noncontributory DSAs with certain of their officers. No Named Executive Officers are active participants in the DSA. See the “2012 Pension Benefits” section for more information.

 

Pension Plan – As part of their postemployment compensation, the Named Executive Officers participate in the Company’s Pension Plan on the same basis as all other eligible noncontractual employees hired prior to January 1, 2006. See the “2012 Pension Benefits” section for more information on the benefit and terms and conditions of the Pension Plan.

 

401(k) Savings Plan – The Company maintains the Arkansas Best 401(k) and DC Retirement Plan for eligible noncontractual employees. The Named Executive Officers are eligible to participate in this plan on the same basis as all other eligible employees. Prior to 2010, the Company matched 50% of the employee’s contributions up to a maximum of 6% of the employee’s eligible earnings subject to the Internal Revenue Service (“IRS”) annual compensation limit. Due to the adverse economic environment and our unfavorable union cost structure and its effect on the Company’s operating results and the need to conserve cash, the 401(k) match was suspended in 2010 and 2011. The 401(k) match was reinstated at the prior rate effective January 1, 2012.

 

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Voluntary Savings Plan (“VSP”) – The Arkansas Best VSP is a nonqualified plan created to offset the IRC limitations on contributions to the Company’s 401(k) plan for certain eligible officers, including the Named Executive Officers. Prior to 2010, the Company matched 15% of the participant’s contributions up to a maximum annual match amount of $15,000. The match was suspended for the VSP effective January 1, 2010. See the “2012 Non-Qualified Deferred Compensation” section for a more detailed description of the VSP. Mr. Morton is the only Named Executive Officer who has a balance in the VSP.

 

Health and Welfare Plans – The Company provides medical, dental, vision, life insurance and disability benefits to all eligible noncontractual employees. The Named Executive Officers are eligible to participate in these benefit plans on the same basis as all other eligible noncontractual employees. The Named Executive Officers also have individual long-term disability policies subsidized by the Company that supplement the group disability policy.

 

Officer Life Insurance – The Company’s and ABF’s officers, including the Named Executive Officers, are provided with life insurance coverage of $1 million in the event they suffer accidental death while traveling on Company business.

 

Post-Employment Medical Policy (“Executive Medical Policy”) – The Company provides the Named Executive Officers and their eligible dependents with lifetime health coverage under the Company’s Executive Medical Policy following their termination of employment after age 55 with 10 years of service. The health coverage is provided through a fully insured third-party provided health plan. Eligible officers from age 55 to 60 pay a premium to the Company, historically equivalent to the then current COBRA rate. From age 60 to 65, the terminated officer is required to reimburse the Company an amount equivalent to the premium paid for health coverage by active officers of the Company. For retired officers age 65 and over, nominal premiums are charged by the Company for continued retiree coverage.

 

The Executive Medical Policy provides that coverage will be forfeited if the officer becomes an employee, consultant or director of, or has an ownership interest in, any competitor of the Company.

 

Perquisites. Perquisites are generally limited to situations where there is some related business benefit to the Company, such as personal travel cost associated with spousal attendance at Company or industry events. See the “Summary Compensation Table” for a listing of the reportable perquisites for the Named Executive Officers.

 

Employment Agreements and Change in Control Provisions

 

None of our Named Executive Officers is party to an employment agreement with the Company.  However, in September 2011, the Committee conducted an assessment of retention programs within our peer group and the broader market. It was determined that the Company did not have adequate protection in place for its Named Executive Officers in the event of a change in control. In January 2012, the Committee approved a Change in Control Plan for certain senior officers of the Company including the Named Executive Officers. The Committee believes the new plan serves the best interests of the stockholders since it helps retain executives during uncertain times leading up to and immediately following a change in control. By providing fair compensation in the event of termination following a change in control, the plan allows the executives to reasonably evaluate potential actions without concern over how it may impact them financially.

 

The plan provides the following benefits if an eligible executive is involuntarily terminated following a change in control:

 

(i)                   a cash payment (for Ms. McReynolds the payment is two times her base salary plus two times her average annual cash incentive and for the remaining Named Executive Officers the payment is one times the executive’s base salary plus one times his average annual cash incentive);

(ii)                a prorated annual incentive payment for the year of termination;

(iii)             prorated cash long-term incentive payments;

(iv)            full vesting of all equity awards; and

(v)               a lump sum payment adequate to cover medical and dental premiums for 24 months.

 

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In addition, each of the officer compensation programs listed below contains provisions which accelerate that program’s benefit if certain Company change in control or termination following a change in control events occur:

 

·                  equity awards

·                  cash long-term incentive plan

·                  DSA

·                  VSP

 

The benefits are intended to provide the officer participants with a reasonable severance package that is based on the value the officers have created and is realized by the Company’s stockholders in the event of a change in control. None of the change in control provisions requires the Company to gross-up a Named Executive Officer for taxes they may owe on change in control benefits including any excise taxes under IRC Section 4999. Under the terms of the Change in Control Plan, a best-of-net calculation will be performed to determine whether change in control benefits due to the Named Executive Officers should be reduced (so no excise tax will be imposed under IRC Section 280G) or should be paid in full (with any excise taxes resulting to be paid in full by the Named Executive Officer). See the “Potential Payments upon Termination or Change in Control” section for additional information regarding these change in control provisions.

 

Clawbacks

 

The Committee has implemented a policy for the “clawback” of any bonus or incentive compensation awarded to any executive officer, including a Named Executive Officer, whose misconduct contributed to the Company being required to restate its financial statements. Under the terms of the policy, the Board may require reimbursement of any bonus or incentive compensation awarded or effect the cancellation of unvested RSUs or deferred stock awards previously granted to the executive officer under the scenarios described below:

 

·                  the amount of the bonus or incentive compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of the restatement;

·                  the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement; and

·                  the amount of the bonus or incentive compensation that would have been awarded to the executive officer had the results been properly reported would have been lower than the amount actually awarded.

 

Prohibited Transactions in Company Stock

 

The Insider Trading Agreement prohibits certain transactions in the Company’s securities, including the purchase or sale of puts, calls, options or other derivative securities based on the Company’s securities. The policy also prohibits monetization transactions, such as forward sale contracts, in which the stockholder continues to own the underlying security without all the risks or rewards of ownership, short-selling Company securities or “selling against the box” (failing to deliver sold securities) as well as any other hedging transaction involving the Company’s securities.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation. Section 162(m) of the IRC generally precludes a public company from taking a federal income tax deduction for annual compensation in excess of $1 million per individual paid to its Chief Executive Officer or the other three most highly compensated officers of the Company (other than the Chief Executive Officer or Chief Financial Officer). Under Section 162(m), certain compensation, including “performance-based compensation,” is excluded from this deduction limitation. It is the Committee’s intent to structure compensation paid to the officers to be fully deductible. However, from time to time, the Committee may award compensation that may not be fully deductible if it determines that such awards are consistent with its compensation philosophy and in the best interests of the Company and its stockholders. The Committee has been advised that all of the 2012 compensation paid to the Named Executive Officers is deductible. IRC Section 280G prohibits the deduction of any “excess parachute payment.” Benefits payable under the Change in Control Plan as well as accelerated vesting of equity awards and annual and long-term cash incentives could result in “excess parachute payments” that are not deductible by us. For more information regarding amounts payable and benefits available upon the occurrence of certain changes in control, see “Executive Compensation – Potential Payments upon Termination or Change in Control.”

 

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Non-Qualified Deferred Compensation. The Company designs and operates its nonqualified deferred compensation arrangements in a manner that is intended to be in compliance with Section 409A of the IRC and the final regulations issued thereunder.

 

Key Compensation Actions, Including Changes for 2013

 

Base Salary:  At this time, no salary increases have been approved for Named Executive Officers in 2013.

 

Annual Incentive Goals and Metrics:  For the 2013 Annual Cash Incentive Compensation Plan, the incentive continues to be based on ROCE and operating income improvement. The 2013 metrics are weighted 50% each.

 

Long-Term Incentive Plan:  The 2013-2015 cash long-term incentive plan continues to be based on ROCE and relative TSR. Under the cash long-term incentive plan, the Company’s relative three-year TSR is compared to our performance peer group.

 

Risk Assessment: The most recent compensation plan risk assessment by the Committee was conducted in January 2013. For more information on the risk assessment process and results, see the section of this proxy titled “Governance of the Company - Board’s Role in Risk Oversight” in the Corporate Governance section of this proxy.

 

 

Compensation Committee Report

 

The Compensation Committee generally meets in conjunction with the Company’s regular Board meetings, but also holds special meetings when deemed appropriate. In 2012, the Compensation Committee met six times. The Nominating/Corporate Governance Committee has determined that each member of the Compensation Committee meets applicable NASDAQ independence standards and IRC Section 162(m) non-employee director requirements. The Compensation Committee Charter is published in the Corporate Governance section of the Company website at www.arkbest.com.

 

The Compensation Committee has reviewed and discussed the above Compensation Discussion & Analysis with management and based on the review and discussions, the Compensation Committee recommended to the Board that it be included in the Company’s Annual Report filed on Form 10-K and, as applicable, the Company’s 2013 Proxy Statement.

 

Committee Members

 

William M. Legg, Chairman

John W. Alden

John H. Morris

Craig E. Philip

 

 

Compensation Committee

Interlocks and Insider Participation

 

None of the Compensation Committee members are officers or employees or former officers or employees of the Company. No executive officer of the Company serves as a member of the Board of any other entity or the Compensation Committee of any other entity that has one or more executive officers serving as a member of the Board or Compensation Committee. Messrs. Legg, Alden, Morris and Philip served on the Compensation Committee in 2012.

 

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Summary Compensation Table

 

The following table sets forth compensation paid for the fiscal years indicated for our 2012 Named Executive Officers.

 

 

 

 

 

 

 

 

 

 

 

Change in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Value and

 

 

 

 

 

Name and
Principal Position

 

Year

 

Salary

 

Stock
Awards

 

Non-Equity
Incentive Plan
Compensation

 

Non-Qualified
Deferred
Compensation
Earnings

 

All Other
Compensation

 

Total

 

 

 

 

 

($)

 

($)(1)

 

($)(2)

 

($)(3)

 

($)(4)

 

($)

 

Judy R. McReynolds

 

2012

 

$

575,000

 

  $

242,055

 

     $

 

     $

 97,574

 

 

       $

30,757

 

      $

945,386

 

ABC President–CEO

 

2011

 

525,000

 

329,960

 

383,093

 

92,858

 

 

16,496

 

1,347,407

 

 

 

2010

 

450,000

 

329,376

 

142,799

 

72,776

 

 

2,818

 

997,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Roy M. Slagle

 

2012

 

375,000

 

176,040

 

 

220,608

 

 

44,046

 

815,694

 

ABF President–CEO

 

2011

 

285,000

 

180,800

 

103,982

 

263,546

 

 

28,107

 

861,435

 

 

 

2010

 

275,000

 

180,480

 

74,711

 

271,657

 

 

21,855

 

823,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J. Lavon Morton

 

2012

 

294,000

 

132,030

 

 

41,739

 

 

8,983

 

476,752

 

ABC Senior Vice President–

 

2011

 

285,000

 

180,800

 

103,982

 

41,891

 

 

1,483

 

613,156

 

Tax and Chief Audit Executive

 

2010

 

275,000

 

180,480

 

74,338

 

113,460

 

 

1,483

 

644,761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jim A. Ingram(5)

 

2012

 

294,000

 

132,030

 

 

63,566

 

 

8,534

 

498,130

 

ABC Senior Vice President–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael E. Newcity

 

2012

 

266,000

 

124,695

 

 

55,248

 

 

8,485

 

454,428

 

ABC Vice President–

 

2011

 

258,000

 

169,500

 

75,305

 

46,015

 

 

513

 

549,333

 

Chief Financial Officer

 

2010

 

190,083

 

169,200

 

36,572

 

33,956

 

 

291

 

430,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts reflect the aggregate grant date fair value of RSU awards to the Named Executive Officers during 2012 under the 2005 Ownership Incentive Plan, computed in accordance with FASB ASC Topic 718, determined without regard to estimated forfeitures. The fair value of RSU awards is equal to the fair market value of the Common Stock on the date of grant multiplied by the number of RSUs awarded. The Named Executive Officers each received an award of RSUs under the 2005 Ownership Incentive Plan on May 4, 2012. The actual amount realized by the officer will vary based on a number of factors, including the Company’s performance, stock price fluctuations, and applicable vesting. Dividends are paid on RSUs at the same rate and at the same time as the dividends paid to Company stockholders. See Note L to the consolidated financial statements included in our 2012 Annual Report on Form 10-K for the year ended December 31, 2012 for additional detail regarding assumptions underlying the value of these equity awards.

 

 

(2)

There were no amounts paid with respect to, or accrued under, the cash long-term incentive plans during 2012 for the 2010-2012, 2011-2013 or the 2012-2014 cash long-term incentive plans. There was no annual cash incentive compensation earned during 2012 for any Named Executive Officer under the Annual Cash Incentive Compensation Plan. See the “2012 Grants of Plan-Based Awards” table for additional information on these plan awards.

 

 

(3)

Reflects the increase in actuarial present value for 2012 of each Named Executive Officer’s accumulated benefit under the Company’s Pension Plan, legacy SBP and DSAs. The values reported are determined using the same assumptions as used by the Company for financial reporting purposes for the Company’s Pension Plan, SBP and DSAs. See the “2012 Pension Benefits” section for additional information on these plans.

 

 

 

The 2012 change in value by plan is as follows:

 

 

 

McReynolds

 

Slagle

 

Morton

 

Ingram

 

Newcity

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plan

 

  $

46,131

 

  $

81,598

 

  $

29,568

 

  $

63,566

 

  $

55,248

 

Supplemental Benefit Plan

 

46,481

 

117,385

 

1,146

 

 

 

Deferred Salary Agreement

 

4,962

 

21,625

 

11,025

 

 

 

Total Increase

 

  $

97,574

 

  $

220,608

 

  $

41,739

 

  $

63,566

 

  $

55,248

 

 

 

Earnings under the Company’s VSP are not above market and are not included in this table. Of the Named Executive Officers, only Mr. Morton participates in the VSP. Earnings with respect to outstanding vested RSUs are also not above market and are not included in this column. See the “2012 Non-Qualified Deferred Compensation” section for additional information on the VSP and RSU arrangements.

 

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(4)

All Other Compensation for 2012 consists of the following:

 

 

 

McReynolds

 

Slagle

 

Morton

 

Ingram

 

Newcity

 

 

 

 

 

 

 

 

 

 

 

 

 

401(k) Company Match

 

  $

7,500

 

  $

7,500

 

  $

7,500

 

  $

7,500

 

  $

7,500

 

Long-Term Disability Premiums

 

1,931

 

1,930

 

1,303

 

854

 

805

 

24-Hour Accidental Death Premiums

 

180

 

180

 

180

 

180

 

180

 

Vacation Pay

 

 

 

 

 

 

Perquisites(i) 

 

15,453

 

25,334

 

 

 

 

Gross-Ups(ii) 

 

5,693

 

9,102

 

 

 

 

Total Other Compensation

 

  $

30,757

 

  $

44,046

 

  $

8,983

 

  $

8,534

 

  $

8,485

 

 

 

(i)

Perquisite values for Ms. McReynolds and Mr. Slagle include expenses for spousal travel to Company or industry events and any related Company lost tax deduction resulting from the spouse accompanying the Named Executive Officer on a Company airplane. Mr. Slagle’s perquisite value includes travel club fees. Ms. McReynolds perquisite value includes a Christmas gift from the Company (the Company also provides a Christmas gift to each of the other Board members).  In general, the Company’s executive officers are not allowed to use corporate aircraft for personal trips. When appropriate for business purposes, executive officers’ spouses are permitted to accompany them on trips. Executive officers are also permitted to invite their spouse or other personal guests to occasionally accompany them on business trips when space is available. When the spouse’s or guest’s travel does not meet the IRS standard for “business use,” the cost of that travel, determined under the IRS Standard Industrial Fare Level, is imputed as income to the executive officer, and if the spouse’s travel was related to a business purpose, the Company will reimburse the executive officer for the associated income tax resulting from the imputed income.

 

 

 

 

 

The Company determines the cost of personal use of Company aircraft using all aircraft operating costs and total flight hours as prescribed by IRS Notice 2005-45 and related regulations. Under IRS rules, spousal travel on a business trip is generally considered nonbusiness travel. The incremental cost to the Company included in the perquisite values above is based on the Company’s normal effective income tax rate.

 

 

 

 

(ii)

Tax gross-ups for Ms. McReynolds and Mr. Slagle are for spousal travel to a Company or industry event.

 

 

 

(5)

Mr. Ingram was not a Named Executive Officer for 2010 and 2011. Accordingly, the table includes Mr. Ingram’s compensation for only 2012.

 

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2012 Grants of Plan-Based Awards

 

The following table provides information related to non-equity and equity-based awards made to the Named Executive Officers for the 2012 fiscal year:

 

 

 

 

 

 

 

 

 

Estimated Future Payouts

Under Non-Equity Incentive
Plan Awards
(3, 4)

 

All Other
Stock Awards

 

Name
(a)

 

Award
Type
(1)

 

Grant
Date
(b)

 

Approval
Date
(c)
(2)

 

Threshold

 

Target
($) (d)

 

Maximum

 

Number of
Shares of
Stock or
Units
(#) (d)

 

Grant
Date Fair
Value of
Stock
Awards
(e)
(5)

 

 

 

AIP

 

01/24/2012

 

N/A

 

$     –

 

$  575,000

 

$  1,437,500

 

 

 

 

 

Judy R. McReynolds

 

RSU

 

05/04/2012

 

04/23/2012

 

 

 

 

 

 

 

16,500

 

$   242,055

 

 

 

C-LTIP

 

01/24/2012

 

N/A

 

 

505,056

 

1,262,640

 

 

 

 

 

 

 

AIP

 

01/24/2012

 

N/A

 

 

262,500

 

656,250

 

 

 

 

 

Roy M. Slagle

 

RSU

 

05/04/2012

 

04/23/2012

 

 

 

 

 

 

 

12,000

 

176,040

 

 

 

C-LTIP

 

01/24/2012

 

N/A

 

 

290,633

 

726,583

 

 

 

 

 

 

 

AIP

 

01/24/2012

 

N/A

 

 

147,000

 

367,500

 

 

 

 

 

J. Lavon Morton

 

RSU

 

05/04/2012

 

04/23/2012

 

 

 

 

 

 

 

9,000

 

132,030

 

 

 

C-LTIP

 

01/24/2012

 

N/A

 

 

212,666

 

531,665

 

 

 

 

 

 

 

AIP

 

01/24/2012

 

N/A

 

 

147,000

 

367,500

 

 

 

 

 

Jim A. Ingram

 

RSU

 

05/04/2012

 

04/23/2012

 

 

 

 

 

 

 

9,000

 

132,030

 

 

 

C-LTIP

 

01/24/2012

 

N/A

 

 

212,666

 

531,665

 

 

 

 

 

 

 

AIP

 

01/24/2012

 

N/A

 

 

119,700

 

299,250

 

 

 

 

 

Michael E. Newcity

 

RSU

 

05/04/2012

 

04/23/2012

 

 

 

 

 

 

 

8,500

 

124,695

 

 

 

C-LTIP

 

01/24/2012

 

N/A

 

 

164,925

 

412,312

 

 

 

 

 

 

(1)

Award Types:

 

AIP = annual incentive compensation plan

 

RSU = restricted stock units granted under the 2005 Ownership Incentive Plan

 

C-LTIP = three-year cash long-term incentive compensation plan (2012-2014 plan period)

 

 

(2)

The RSU award was approved by the Committee on April 23, 2012; however, the award was not effective until May 4, 2012. The terms of the Company’s equity award policy state the effective date of an equity award is the date which is five business days following the Company’s most recent quarter’s earnings release.

 

 

(3)

The performance criteria for the 2012 annual incentive plan award were approved by the Committee on January 24, 2012. Amounts shown in the “Estimated Future Payouts under Non-Equity Incentive Plan Awards” column with respect to the 2012 annual incentive plan award represent the threshold, target and maximum payment levels of the 2012 annual incentive plan. Awards under the annual incentive plan are described in greater detail in the narrative following this table and in the section above entitled “Compensation Discussion & Analysis – Components of Compensation – Annual Cash Incentive Compensation.” The actual amount of the 2012 annual incentive plan award paid for 2012 performance with respect to each Named Executive Officer is set forth in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”

 

 

(4)

The performance criteria for the 2012-2014 cash long-term incentive compensation plan award were approved by the Committee on January 24, 2012. Amounts shown in the “Estimated Future Payouts under Non-Equity Incentive Plan Awards” column represent the threshold, target and maximum payment levels with respect to cash long-term incentive compensation plan awards granted in 2012. Awards under the cash long-term incentive compensation plan are described in greater detail in the narrative following this table and in the section entitled “Compensation Discussion & Analysis – Components of Compensation – Long-Term Cash Incentive Compensation.”

 

 

(5)

Reflects the full grant date fair value ($14.67 per share), computed in accordance with FASB ASC Topic 718, determined without regard to forfeitures, of RSU awards made under the 2005 Ownership Incentive Plan on May 4, 2012.

 

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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

Non-Equity Incentive Compensation

 

Annual Incentive Compensation Plan: The 2012 awards granted under the Company’s annual incentive compensation plan were made on January 24, 2012. Awards under the annual incentive compensation plan become payable based on the Company’s actual performance for the year in relation to pre-established performance goals. Annual incentive compensation plan awards earned are generally paid as soon as administratively practicable following the date the awards are calculated, but no later than March 15 of the year following the year to which the performance goals relate. Participants generally must be employed on the payment date in order to receive payment of their earned annual incentive compensation plan awards. However, if participants terminate during the plan year due to early retirement (age 55 with 10 years of service), normal retirement (age 65), death or disability, such participants remain eligible to receive a prorated annual incentive compensation plan award, provided, in the case of early or normal retirement, the individual has been a participant for at least 90 days during the plan year. Payment of the prorated incentive, if any, is made at the end of the measurement period and based upon actual performance results. Upon any other termination, a participant’s award will be forfeited, unless the Committee, in its discretion, decides that a prorated award should be paid. The 2012 Change in Control Plan provides for immediate payment of an earned award upon a qualified termination following a change in control, except where payment must be delayed six months for key employees as required by Section 409A of the IRC. For awards that have not reached the end of the measurement period, the benefit amount will be prorated based on the number of whole months completed during the measurement period as of the date of the qualified termination. Target salary factors are set forth in the “Compensation Discussion & Analysis” in the section entitled “Components of Compensation – Annual Cash Incentive Compensation.” Additional information regarding the treatment of these awards upon termination or a change in control is provided in the section below entitled “Potential Payments upon Termination or Change in Control.”

 

For 2012, the performance goals under the annual incentive compensation plan were based on the level of operating income improvement and the ROCE for the Company, and these performance goals were equally weighted. Operating income improvement for 2012 over 2011 operating income of at least $20 million for 2012 was necessary to trigger any payments under the 2012 operating income component of the annual incentive compensation plan award, and a minimum 5% ROCE was required for 2012 to earn an award under the ROCE portion of the annual incentive compensation plan. A higher increase in improvement of operating income or higher level ROCE would have resulted in higher incentive payments. The maximum payment to any individual allowed under the plan during 2012 was (i) 200% of the operating income component and (ii) 300% of the ROCE component. Because the Company’s ROCE and operating income did not reach a level that resulted in a payout for 2012, no payments were made with respect to the ROCE or operating income components of the annual incentive compensation plan awards granted in 2012. See “Components of Compensation – Annual Cash Incentive Compensation” in the section entitled “Compensation Discussion & Analysis” for further detail regarding awards under the Company’s annual incentive compensation plan.

 

Cash Long-Term Incentive Compensation Plan: The 2012 awards granted under the cash long-term incentive compensation plan were granted on January 24, 2012. Awards under the cash long-term incentive compensation plan become payable based on the Company’s actual performance over a three-year measurement period in relation to pre-established performance goals. Generally, participants in the cash long-term incentive compensation plan must remain employed through the end of the measurement period in order to receive payment of any earned award. However, if participants have at least 12 months of employment during a measurement period, such participants are eligible for a prorated benefit upon retirement (age 55 with 10 years of service), death or disability based on their base salary received and the period of time employed during the measurement period and payment, if any, is made at the end of the measurement period based upon actual performance results.

 

For the 2012-2014 cash long-term incentive compensation plan, the 2012 Change in Control Plan provides for immediate payment of an earned award upon a qualified termination following a change in control, except where payment must be delayed six months for key employees as required by Section 409A of the IRC. For awards that have not reached the end of the measurement period, the benefit amount will be prorated based on the number of whole months completed during the measurement period as of the date of the qualified termination. Target salary factors are set forth in the “Compensation Discussion & Analysis” in the section

 

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entitled “Components of Compensation – Long-Term Cash Incentive Compensation.” Additional information regarding the treatment of these awards upon termination or a change in control is provided in the section below entitled “Potential Payments upon Termination or Change in Control.”

 

For the 2012-2014 cash long-term incentive compensation plan, the performance goals were established based on ROCE and TSR relative to our peer group. These performance goals were equally weighted. No payment will be made under the ROCE portion of the cash long-term incentive compensation plan if the ROCE is less than 3%, with higher ROCE resulting in higher incentive payments. No payment will be made under the TSR portion of the cash long-term incentive compensation plan if the percentile rank of the Company’s TSR relative to the peer companies over the measurement period is below the 25th percentile, with higher TSR relative positioning resulting in higher incentive payments. The maximum payment to any individual allowed under the 2012-2014 cash long-term incentive compensation plan is based on a maximum performance factor earned of 300% for the ROCE component and 200% with respect to the TSR component. The incentive earned under the cash long-term incentive compensation plan will depend on the actual three-year average of ROCE achieved, the TSR relative positioning and the participant’s average annualized base salary during the measurement period. Any payment for the cash long-term incentive compensation plan award associated with 2012-2014 measurement period will be calculated and paid in early 2015.

 

Stock Awards under the 2005 Ownership Incentive Plan

 

RSUs were granted under the Company’s 2005 Ownership Incentive Plan on May 4, 2012. Vesting and settlement of RSUs generally occurs on the earlier of the fifth anniversary of the award date or the date the participant experiences a qualifying termination from employment with the Company. Upon a participant’s normal retirement (age 65) or termination due to death or disability, the RSUs will fully vest. If termination of the participant occurs within 24 months of a change in control of the Company for good reason or without cause (as defined in the RSU agreement for awards prior to January 1, 2012 and as defined in the 2012 Change in Control Plan for awards January 1, 2012 and later), the participant’s RSUs awarded become fully vested and will be distributed as soon as administratively possible, except where payment must be delayed for six months for key employees as required by Section 409A of the IRC. Upon early retirement eligibility (age 55 with 10 years of service), if a minimum of 12 months have elapsed since the award date, the participant becomes vested in a pro rata number of RSUs based on the number of whole months since the award date. The remaining shares subject to the RSUs will continue to vest with respect to 1/60 of the total number of shares subject to the award each month through the participant’s normal retirement date or, if sooner, the end of the vesting period. A participant does not have to terminate employment in order to vest upon normal or early retirement eligibility, but no RSUs will be distributed until actual termination or the fifth anniversary of the award date, if earlier. Dividend equivalents are paid on RSUs at the same rate and at the same time as the dividends paid to Company stockholders.

 

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Outstanding Equity Awards at 2012 Fiscal Year-End

 

The following table provides information related to any equity-based awards outstanding as of December 31, 2012 for the Named Executive Officers:

 

Option Awards(1)

 

Stock Awards

 

Name
(a)

 

Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
(b)

 

Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
(c)

 

Option
Exercise
Price
($) (d)

 

Option
Expiration
Date
(e)

 

Number of
Shares or Units
of Stock that
Have Not Vested
(#)
(2) (f)

 

Market Value of
Shares or Units
of Stock that
Have Not Vested
($)
(3) (g)

 

Judy R. McReynolds

 

 

 

 

 

 

 

 

 

 

4,600(4)

 

$

43,930

 

 

 

 

 

 

 

 

 

 

 

 

8,000(5)

 

76,400

 

 

 

 

 

 

 

 

 

 

 

 

14,600(6)

 

139,430

 

 

 

6,000

 

 

 

$

24.5900

 

1/22/2013

 

14,600(7)

 

139,430

 

 

 

7,500

 

 

 

29.1000

 

1/28/2014

 

16,500(8)

 

157,575

 

Roy M. Slagle

 

 

 

 

 

 

 

 

 

 

307(4)

 

2,932

 

 

 

 

 

 

 

 

 

 

 

 

2,133(5)

 

20,370

 

 

 

 

 

 

 

 

 

 

 

 

4,133(6)

 

39,470

 

 

 

7,500

 

 

 

24.5900

 

1/22/2013

 

5,333(7)

 

50,930

 

 

 

7,500

 

 

 

29.1000

 

1/28/2014

 

12,000(8)

 

114,600

 

J. Lavon Morton

 

 

 

 

 

 

 

 

 

 

273(4)

 

2,607

 

 

 

 

 

 

 

 

 

 

 

 

1,893(5)

 

18,078

 

 

 

 

 

 

 

 

 

 

 

4,133(6)

 

39,470

 

 

 

3,000

 

 

 

24.5900

 

1/22/2013

 

5,333(7)

 

50,930

 

 

 

7,500

 

 

 

29.1000

 

1/28/2014

 

9,000(8)

 

85,950

 

Jim A. Ingram

 

 

 

 

 

 

 

 

 

 

4,100(4)

 

39,155

 

 

 

 

 

 

 

 

 

 

 

7,100(5)

 

67,805

 

 

 

 

 

 

 

 

 

 

 

7,100(6)

 

67,805

 

 

 

200

 

 

 

24.5900

 

1/22/2013

 

7,100(7)

 

67,805

 

 

 

400

 

 

 

29.1000

 

1/28/2014

 

9,000(8)

 

85,950

 

Michael E. Newcity

 

 

 

 

 

 

 

 

 

 

650(4)

 

6,208

 

 

 

 

 

 

 

 

 

 

 

 

1,100(5)

 

10,505

 

 

 

 

 

 

 

 

 

 

 

 

7,500(6)

 

71,625

 

 

 

 

 

 

 

 

 

 

 

 

7,500(7)

 

71,625

 

 

 

 

 

 

 

 

 

 

 

 

8,500(8)

 

81,175

 

 

(1)

All stock options previously granted are fully vested and (i) have an exercise price not less than the closing price of the Common Stock on the grant date, (ii) became exercisable with respect to 20% of total option shares each year, generally starting on the first anniversary of the grant date, and (iii) are granted for a term of 10 years. Following a participant’s termination as a result of death, disability, normal retirement (age 65) or early retirement (age 55 with 10 years of service), a participant will have until the earlier of two years from the date of termination or the ten-year anniversary of the grant date to exercise stock options.

 

 

(2)

Vesting of RSUs generally occurs on the fifth anniversary of the award date, and settlement of RSUs generally occurs at that time or, if earlier, upon the award holder’s qualifying termination of employment. Upon a participant’s eligibility for normal retirement (age 65) or termination due to death or disability, RSUs generally will become vested in full. If termination of the participant occurs within 24 months of a change in control of the Company for good reason or without cause (as defined in the RSU agreements for awards prior to January 1, 2012 and as defined in the 2012 Change in Control Plan for awards January 1, 2012 and later), the participant’s RSUs awarded become fully vested and will be distributed as soon as administratively possible, except for RSUs where payment must be delayed for six months for key employees as required by Section 409A of the IRC. Upon early retirement (age 55 with 10 years of service), the participant is entitled to the vesting of a pro rata number of RSUs based on the number of whole months elapsed since the award date, if there has elapsed a minimum of twelve months since the award date. Employees, including Named Executive Officers, who have attained the early retirement age and service requirements but have not terminated employment, continue to vest in 1/60th of their RSU awards each month. Messrs. Morton and Slagle have attained early retirement age in accordance with the terms of the RSU awards.

 

 

(3)

Reflects the value of unvested RSUs as of December 31, 2012 awarded under the 2005 Ownership Incentive Plan. The value is based on the closing market price of the Common Stock of $9.55 on December 31, 2012.

 

 

(4)

These RSU awards fully vest on April 30, 2013, the fifth anniversary of their grant date. Dividend equivalents are paid at the same rate and at the same time as dividends paid to the Company’s stockholders.

 

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(5)

These RSU awards fully vest on April 29, 2014, the fifth anniversary of their grant date. Dividend equivalents are paid at the same rate and at the same time as dividends paid to the Company’s stockholders.

 

 

(6)

These RSU awards fully vest on July 28, 2015, the fifth anniversary of their grant date. Dividend equivalents are paid at the same rate and at the same time as dividends paid to the Company’s stockholders.

 

 

(7)

These RSU awards fully vest on May 2, 2016, the fifth anniversary of their grant date. Dividend equivalents are paid at the same rate and at the same time as dividends paid to the Company’s stockholders.

 

 

(8)

These RSU awards fully vest on May 4, 2017, the fifth anniversary of their grant date. Dividend equivalents are paid at the same rate and at the same time as dividends paid to the Company’s stockholders.

 

 

2012 Option Exercises and Stock Vested

 

The following table provides information related to RSUs that became vested during the 2012 fiscal year for the Named Executive Officers. No Named Executive Officer exercised any stock options to purchase