3102 Shawnee Drive

Winchester, Virginia 22601

 

Notice of Annual Meeting of Shareholders

 

TO THE SHAREHOLDERS OF

AMERICAN WOODMARK CORPORATION:

 

The Annual Meeting of Shareholders (“Annual Meeting”) of American Woodmark Corporation (the “Company”) will be held at the Holiday Inn, 333 Front Royal Pike, Winchester, Virginia, on Thursday, August 21, 2014, at 9:00 a.m., Eastern Daylight Time, for the following purposes:

 

 

Only shareholders of record of shares of the Company’s common stock at the close of business on June 16,  2014 will be entitled to vote at the Annual Meeting or any adjournments thereof.

 

Whether or not you plan to attend the Annual Meeting, please mark, sign and date the enclosed proxy and promptly return it in the enclosed envelope.  If for any reason you desire to revoke your proxy, you may do so at any time before it is voted.    

 

All shareholders are cordially invited to attend the Annual Meeting.

 

 

 

June 30, 2014

 

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AMERICAN WOODMARK CORPORATION

3102 Shawnee Drive

Winchester, Virginia 22601

 

Proxy Statement

Voting Rights, Procedures and Solicitation

 

Proxy Solicitation

 

This Proxy Statement, mailed to shareholders of American Woodmark Corporation (the “Company”) on or about June 30, 2014, is furnished in connection with the solicitation of proxies by the Company’s Board of Directors in the accompanying form for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the Holiday Inn, 333 Front Royal Pike, Winchester, Virginia, on Thursday, August 21, 2014, at 9:00 a.m., Eastern Daylight Time, and at any adjournments thereof.  A copy of the annual report of the Company for the fiscal year ended April 30, 2014, is being mailed to you with this Proxy Statement.

 

In addition to the solicitation of proxies by mail, the Company’s officers and other employees, without additional compensation, may solicit proxies by telephone, facsimile, and personal interview.  The Company will bear the cost of all solicitation efforts.  The Company also will request brokerage houses and other custodians, nominees, and fiduciaries to forward soliciting material to the beneficial owners of the Company’s common stock held as of the record date by those parties and will reimburse those parties for their expenses in forwarding soliciting material.

 

Record Date and Voting Rights

 

On June 16, 2014, the record date for determining the shareholders entitled to receive notice of and to vote at the Annual Meeting, there were 15,514,527 shares of common stock of the Company outstanding and entitled to vote.  Each such share of common stock entitles the owner to one vote.

 

Revocability and Voting of Proxy

 

A form of proxy for use at the Annual Meeting and a return envelope for the proxy are enclosed.  Any shareholder who provides a proxy may revoke such proxy at any time before it is voted.  Proxies may be revoked by:

 

 

Votes will be tabulated by one or more inspectors of election.  A proxy, if properly executed and not revoked, will be voted as specified by the shareholder.  If the shareholder does not specify his or her choice, the shares will be voted as follows:

 

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A majority of the total outstanding shares of the Company entitled to vote on matters to be considered at the Annual Meeting, represented in person or by proxy, constitutes a quorum.  Once a share is represented for any purpose at the Annual Meeting, it is deemed to be present for quorum purposes for the remainder of the meeting.  Abstentions and shares held of record by a broker or its nominee (“Broker Shares”) that are voted on any matter are included in determining the number of votes present or represented at the Annual Meeting.  However, Broker Shares that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present at the meeting.

 

The Company’s bylaws require that, in uncontested elections, each director receive a majority of the votes cast with respect to that director (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee).  Actions on all other matters to come before the meeting will be approved if the votes cast “for” that action exceed the votes cast “against” it.  Abstentions and Broker Shares that are not voted on a particular matter are not considered votes cast and, therefore, will have no effect on the outcome of the election of directors or any other matter.

 

Participants in the American Woodmark Corporation Investment Savings Stock Ownership Plan will receive a proxy packet from the Company’s transfer agent and registrar, Registrar and Transfer Company, enabling them to provide instructions for voting the shares of the Company’s common stock held in their plan accounts.  The Newport Group, the plan’s administrator, will determine the number of shares beneficially owned by each participant and communicate that information to the transfer agent.  Each participant’s voting instructions must be properly executed and returned in the envelope provided in order for the participant’s shares to be voted.  If a participant does not return voting instructions, then the shares held in the participant’s account will not be voted.

 

ITEM 1 – ELECTION OF DIRECTORS

 

The Board is currently comprised of nine members, each of whom has been nominated for election by the Company.  In May 2014, the Board amended the Company’s bylaws to increase the number of directors from nine to ten effective August 21, 2014 (the date of the Annual Meeting).    Unless otherwise specified, the enclosed proxy will be voted for the ten persons named below to serve until the next Annual Meeting and until their successors are elected and duly qualified.  Each of the nominees listed below, with the exception of Mr. S. Cary Dunston, is presently a director of the Company and was elected by shareholders at the last Annual Meeting for a term expiring at the upcoming Annual Meeting.

 

The Board believes the Company’s directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of its shareholders.  When searching for new directors, the Governance Committee considers a candidate’s managerial experience, as well as business judgment, background, integrity, ethics and conflicts of interest.  The Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Governance Committee believe it is essential that the Company’s Board members represent diverse viewpoints.  The Governance Committee considers issues such as diversity of professional experience, skills, viewpoints, education, gender, race and national origin.  In considering candidates for the Board, the Governance Committee considers the entirety of each candidate’s credentials in the context of these criteria.  With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.

 

Each nominee listed below has consented to serve as a director, and the Company anticipates all of the nominees named below will be able to serve, if elected. If at the time of the Annual Meeting any nominees are unable or unwilling to serve, then shares represented by properly executed proxies will be voted at the discretion of the persons named therein for such other person or persons as the Board of Directors may designate.

 

If shareholders do not elect a nominee who is serving as a director, Virginia law provides that the director would continue to serve on the Board as a “holdover director.” Under the Company’s bylaws, each incumbent director submits an advance, contingent, irrevocable offer of resignation that the Board may accept if shareholders do not elect the director at the Annual Meeting. In that situation, the Board’s Governance Committee would make a recommendation to the Board about whether to accept or reject the offer of resignation. The Board would act on the Governance Committee’s recommendation within 90 days after the date that the election results were certified and, promptly, would publicly disclose its decision and, if applicable, the rationale for rejecting the offer of resignation.

 

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Information Regarding Nominees

 

The names and ages of the Company’s nominees, their principal occupations or employment, and other information regarding each nominee are set forth below.

 

 

CORPORATE GOVERNANCE

 

Codes of Business Conduct and Ethics

 

Code of Business Conduct and Ethics 

 

The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees of the Company. This code sets forth important Company policies and procedures in conducting the Company’s business in a legal, ethical, and responsible manner. The Code of Business Conduct and Ethics encompasses policies addressing employee conduct, conflicts of interest, insider trading and the protection of confidential information, and requires all employees to respect and obey all applicable laws and regulations when conducting the Company’s business.

 

Code of Ethics for the Chief Executive Officer and Senior Financial Officers 

 

The Board has also adopted an additional Code of Ethics for the Chief Executive Officer and all Senior Financial Officers, including the Chief Financial Officer, Treasurer, and Controller of the Company. This code sets forth Company policies and procedures for ensuring that disclosures in the Company’s financial reports and documents that the Company files or furnishes to the Securities and Exchange Commission (“SEC”) and in other

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public communications are full, fair, accurate, timely, and understandable. Additionally, the Chief Executive Officer and Senior Financial Officers are required to report to the Audit Committee any material information that affects financial disclosures, significant deficiencies concerning internal controls, fraud, violations of the Company’s Code of Business Conduct and Ethics and Code of Ethics for the Chief Executive Officer and Senior Financial Officers, and violations of securities or other laws or rules and regulations applicable to the operation of the business.

 

Both of these codes can be found on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm. Any amendments to, or waivers from, any code provisions that apply to the Company’s directors or executive officers, including the Company’s Chief Executive Officer and Chief Financial Officer, as well as the Company’s Controller and Treasurer, will be promptly posted on the Corporate Governance page of the Company’s web site. No amendments or waivers were requested or granted during the fiscal year ended April 30, 2014.  

 

Board Structure

 

The Company’s Board currently consists of nine directors, all of whom are subject to annual shareholder elections to one-year terms of service. The Company’s independent directors sit on at least one of the three Board committees, which include the Audit Committee, the Compensation Committee and the Governance Committee. 

 

Mr. Guichard serves as both the Company’s Chairman and its Chief Executive Officer and the Board has not designated a lead independent director.  The Board believes that currently there are a number of important advantages for the Company having the positions of Chairman and Chief Executive Officer held by the same person. The Chief Executive Officer is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the Company and its industry, while the Chief Executive Officer brings Company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

 

The Company’s independent directors meet in regularly scheduled executive sessions at each of the Company’s Board meetings, without management present. During fiscal year 2014, the independent directors met four times to discuss certain Board policies, processes and practices, the performance and compensation of the Company’s Chief Executive Officer, management succession and other matters relating to the Company and the functioning of the Board.

 

Risk Management Oversight

 

The Board, both directly and through its committees, has an active role in overseeing management of the Company’s risks. The entire Board regularly reviews information concerning the Company’s operations, liquidity and competitive position and personnel, as well as the risks associated with each. The Company’s Compensation Committee is responsible for overseeing the Company’s management of its risks relating to the Company’s executive and long-term compensation plans and risks related to employee compensation in general. The Audit Committee oversees the Company’s management of its risks pertaining to internal controls, adherence to generally accepted accounting principles and financial reporting. The Governance Committee oversees the Company’s management of its risks pertaining to potential conflicts of interest and independence of board members. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks.

 

Director Independence

 

The Board of Directors of the Company is composed of a majority of directors who are independent directors as defined under the NASDAQ Marketplace Rules. The Board’s Audit and Compensation Committee members also meet additional independence requirements pursuant to the NASDAQ Marketplace Rules and SEC rules.

 

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To be independent under the NASDAQ Marketplace Rules, the Board must determine that a director has no relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ Marketplace Rules specify certain persons who cannot be considered independent. The Board reviews the independence of all directors at least annually.

 

Based upon this review, the Board affirmatively determined that seven of its nine directors are independent as defined by the NASDAQ Marketplace Rules. The independent directors are: Mr. Cogan, Ms. Dally, Mr. Davis, Mr. Hendrix, Mr. Hussey, Ms. Moerdyk, and Mr. Tang, each of whom is standing for re-election at the Annual Meeting. In addition, all of the members presiding on the Audit Committee, the Compensation Committee, and the Governance Committee are independent. The members of the Audit and Compensation Committees also meet the additional independence requirements applicable to them under the NASDAQ Marketplace Rules and SEC rules.

 

Communicating Concerns to the Board of Directors

 

The Audit Committee and the independent non-management directors have established procedures to enable any shareholder or employee who has a concern about the Company’s conduct or policies, or any employee who has a concern about the Company’s accounting, internal accounting controls or auditing matters, to communicate that concern directly to the Board, to the independent directors, or to the Audit Committee. Such communications may be confidential or anonymous. Such communications may be submitted in writing by sending a letter to:    

 

Audit Committee

c/o Manager, Internal Audit

American Woodmark Corporation

P.O. Box 2252

Winchester, Virginia 22604

 

The Company’s Manager, Internal Audit reviews all such written correspondence and forwards to the Audit Committee a summary of all correspondence received. The Audit Committee will review this information and determine a course of action as appropriate based on the information received.

 

The Audit Committee reviews and regularly provides the Board of Directors with a summary of all communications received from shareholders and employees and the actions taken or recommended to be taken if an action requires approval of the full Board as a result of such communications. Directors may, at any time, review a log of all correspondence received by the Company which is addressed to the Board, members of the Board or the Audit Committee and may request copies of any such correspondence.

 

Board of Directors and Committees

 

The Company’s Board of Directors presently consists of nine directors. The Board held four meetings during the fiscal year ended April 30, 2014. All of the directors attended at least 75% of the total number of Board meetings and meetings of all committees of the Board held during periods when they were members of the Board or such committees.    The Board of Directors believes that attendance at the Company’s Annual Meeting demonstrates a commitment to the Company, responsibility and accountability to the shareholders, and support of management and employees. Therefore, it is a policy of the Board that all members attend the Annual Meeting of Shareholders. All members of the Board attended last year’s Annual Meeting, with the exception of Mr. Hendrix, who was absent for medical reasons.  

 

The Company’s bylaws specifically allow for the Board to create one or more committees and to appoint members of the Board to serve on them.  Under such authority, the Board created the Audit Committee, the Compensation Committee, and the Governance Committee and appointed individuals from among its independent members to serve on these three committees. Each committee operates under a written charter adopted by the Board, as amended from time to time. On an annual basis, each committee reviews and reassesses the adequacy of its committee charter.  The Audit Committee is scheduled to meet quarterly and the Compensation and Governance Committees meet as required, typically two to three times per year. The committees may hold special meetings as necessary. These committees report regularly to the Board of Directors with respect to their fulfillment of the

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responsibilities and duties outlined in their respective charters. These charters can be found on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm.  

 

Audit Committee

 

The Audit Committee consists of Ms. Moerdyk, who chairs the Committee, Mr. Davis, Mr. Hussey and Mr. Cogan. All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules and SEC rules. The Board of Directors has determined that all of the current members of the Audit Committee are “audit committee financial experts” as defined under SEC rules.

 

Purpose and Duties.  The Audit Committee provides oversight for the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independence and qualifications of the Company’s independent registered public accounting firm, the performance of the internal audit function and independent registered public accounting firm, and the adequacy and competency of the Company’s finance and accounting staff.

   

The Audit Committee’s duties include but are not limited to: (1) selecting and overseeing the performance of the Company’s independent registered public accounting firm, (2) reviewing the scope of the audits to be conducted by them, as well as the results of their audits, (3) overseeing the Company’s financial reporting activities, including the Company’s financial statements included in the Company’s Annual Report on Form 10-K, and the accounting standards and principles that are followed, (4) approving audit and non-audit services provided to the Company by the Company’s independent registered public accounting firm, (5) reviewing the organization and scope of the Company’s internal audit function and internal controls, (6) reviewing and approving or ratifying transactions with related persons required to be disclosed under SEC rules, and (7) conducting other reviews relating to compliance by employees with Company policies and applicable laws.

 

The Audit Committee met six times during fiscal year 2014. The Audit Committee is governed by a written charter approved by the Board of Directors, which can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance/cfm. The Report of the Audit Committee is found beginning on page 33.  

 

Compensation Committee

 

The Compensation Committee is composed of Mr. Hendrix, who chairs the Committee, Ms. Dally and Mr. Tang. All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules and SEC rules.  

 

Purpose and Duties.  The Compensation Committee is primarily concerned with designing and managing competitive compensation programs to facilitate the attraction and retention of talented senior executives and directors. The activities of the Compensation Committee include reviewing, evaluating, and approving senior executive compensation plans and evaluating and recommending director compensation plans for approval by the Board. The Compensation Committee also provides oversight for all of the Company’s employee benefit plans. The Compensation Committee delegates certain aspects of implementation and day-to-day management of compensation administration to officers of the Company.

 

The Compensation Committee’s duties include but are not limited to: (1) reviewing, evaluating, and approving corporate goals and objectives relevant to the Chief Executive Officer’s and other senior executive officers’ compensation, (2) evaluating the Chief Executive Officer’s and other senior executive officers’ performance in light of those goals and objectives, (3) determining and approving the Chief Executive Officer’s and other senior executive officers’ compensation levels based on this evaluation, and (4) overseeing the compensation and benefit plans, policies, and programs of the Company.

 

The Compensation Committee determines the Chief Executive Officer’s compensation after reviewing his performance with the independent directors of the Board and without members of management being present, and shares this information with the full Board. The Compensation Committee determines the compensation of the other senior executives after considering the recommendation from the Chief Executive Officer. The Compensation Committee does not delegate its authority with regard to executive compensation decisions.

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The Compensation Committee administers and approves awards under the Second Amended and Restated 2004 Stock Incentive Plan for Employees, as amended, and the Company’s 2011 Non-Employee Director Equity Ownership Plan. 

 

The Compensation Committee met two times during fiscal year 2014. The Compensation Committee’s charter can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm. Additional information on the Company’s philosophy and policies pertaining to executive compensation are addressed in the Compensation Discussion and Analysis beginning on page 9.  The Report of the Compensation Committee is contained on page 28.  

 

Governance Committee

 

The Governance Committee is composed of Mr. Davis, who chairs the Committee, Mr. Hussey,  Ms. Moerdyk and Ms. Dally.  All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules.

 

Purpose and Duties. The Governance Committee is responsible for identifying and recommending to the Board new director nominees for the Board, recommending directors for appointment to committees and chairs, and ensuring that the size, composition, and practices of the Board best serve the Company and its shareholders. From time to time, the Committee may engage an independent firm to assist in identifying potential candidates.

 

In evaluating candidates for election to the Board, the Governance Committee will assess the candidate’s character and professional ethics, judgment, business experience, independence, understanding of the Company’s or other related industries, and other factors deemed pertinent in light of the current needs of the Board. Specific qualities and skills established by the Committee for directors, which are included in the Governance Committee charter, include:

 

 

The Governance Committee’s responsibilities also include, but are not limited to: (1) regularly assessing the effectiveness of the Board; (2) annually reviewing the performance of each director; (3) determining whether any director conflicts of interest exist; (4) reviewing any director related party transactions; and (5) periodically reviewing the Company’s corporate governance policies. The Governance Committee met four times during fiscal year 2014. The Governance Committee’s charter can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm.  

 

 

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Procedures for Shareholder Nominations of Directors 

 

The Governance Committee will consider a director nominated by a shareholder of record for the fiscal year 2015 Annual Meeting if the nomination is submitted in writing to the Secretary of the Company in accordance with the Company’s bylaws and is received in the Company’s principal executive offices on or before April 23,  2015. The nomination must include the name and address of the director nominee and a description of the director nominee’s qualifications for serving as a director and the following information:

 

 

The Governance Committee may subsequently request additional information regarding the director nominee or the shareholder making the nomination.  Nominations by shareholders made in accordance with these procedures will receive due consideration by the Governance Committee. However, the Chair of the Governance Committee may refuse to acknowledge the nomination of any person not made in compliance with these procedures.  The Governance Committee also considers director nominees recommended by current members of the Board of Directors and members of management. From time to time, the Governance Committee may engage an independent firm to assist in identifying potential director nominees.  The Governance Committee evaluates all director nominees in the same manner regardless of the source of the recommendation.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The Company’s Compensation Program Goal

 

The goal of the Company’s compensation program, as administered by the Compensation Committee, is to facilitate the creation of long-term value for its shareholders by attracting, motivating, and retaining qualified senior management. To this end, the Company has designed and administered the Company’s compensation program to appropriately reward its executives for sustained financial and operating performance, to align their interests with those of the Company’s shareholders, and to encourage them to remain with the Company for long and productive careers. To achieve alignment with shareholder interests, the Company’s compensation program provides significant, but appropriate, rewards for outstanding performance, as well as clear financial consequences for underperformance. The majority of the Company’s senior executives’ compensation is “at risk” in the form of annual and long-term incentive awards that are paid, if at all, based upon Company performance. While a significant portion of compensation may fluctuate with annual results, the total program is structured to emphasize long-term performance and sustained growth in shareholder value.

 

 

 

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Key Considerations in Setting Pay

 

The following is a summary of the key considerations affecting the determination of compensation by the Compensation Committee for the Company’s named executive officers. The Company’s named executive officers for fiscal year 2014 were:

 

 

Performance-based Compensation.  Every employee in the Company has an opportunity to earn an annual bonus, most of which is based upon the Company’s attainment of goals related to its operating profitability and other operational performance goals. The majority of the targeted total compensation for the Company’s named executive officers is performance-based to achieve alignment with shareholder interests.  Bonuses are only payable to named executive officers if the Company earns an operating profit in excess of specified threshold levels during its fiscal year. The Company strives to establish challenging Company-wide targets that are appropriate given the expected level of performance given current and anticipated market conditions.

 

Balance of Future Pay Opportunity versus Current Pay Opportunity.  The Compensation Committee strives to provide an optimal balance between current and long-term compensation and cash versus equity compensation for the Company’s executive officers. Current compensation is paid in cash in the form of a base salary and an annual bonus, primarily as a reward for recent performance, while long-term compensation is primarily equity-based, to encourage the Company’s executive officers to deliver excellent results over a longer period of time and to serve as a retention tool. The Compensation Committee has targeted the mix of performance-based compensation for the Company’s senior executive officers to be an equal amount of current year bonus and long-term compensation.

 

Providing shareholders with an appropriate level of return on their investment is an important objective of the Company, the Board, and the Compensation Committee. As a result, performance that rewards the Company’s shareholders factors prominently in the Compensation Committee’s decisions about the type and amount of long-term compensation paid to the Company’s executive officers.

 

Discretionary Nature of Compensation Programs.  The Compensation Committee does not use fixed formulas in determining the amount and mix of compensation to be paid to the Company’s executives. The Compensation Committee believes that using only quantitative performance measures would not create the appropriate balance of incentives to build long-term shareholder value. The Compensation Committee uses a broad range of quantitative and qualitative factors to determine compensation. Quantitative factors are determined annually based upon the Company’s overall goals and objectives. In general, qualitative factors include the executives’ ability to build the organization and to lead the Company’s attainment of its CITE principles of customer satisfaction, integrity, teamwork and excellence. Additional qualitative factors considered by the Compensation Committee include the executives’ contribution to achieving the Company’s overall vision, the evaluation of the executives’ performance against their stated objectives, their experience, skill sets and the breadth, and scope of their responsibilities.

 

Significance of Company Results.  The Compensation Committee believes that the named executive officers’ contributions to the Company’s overall performance are more important than their individual performance. Accordingly, all of the annual bonus opportunity for Messrs. Guichard,  Dunston,  and Boyer, and Campbell is dependent upon the Company’s performance in relation to its operating profitability goals.    Messrs. Culbreth (due to his hire occurring late in the year) and Wolk (due to his resignation of employment before the end of the year) were not eligible for annual bonuses during fiscal year 2014.

 

Consideration of Compensation Risk. The Company’s compensation programs are discretionary, balanced and focused on the long-term. Under this structure, the highest amount of compensation can be achieved through

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consistent superior performance over sustained periods of time. This provides strong incentives to manage the Company for the long term, while avoiding excessive risk in the short term. The elements of the Company’s variable compensation program are balanced among current cash payments and longer-term equity awards.  The Company uses a balanced mix of quantitative and qualitative performance measures to assess achievement for its performance-based restricted stock unit awards to avoid placing excessive weight on a single performance measure.  The Company has also adopted stock ownership guidelines under which its named executive officers are expected to hold a significant amount of Company stock on an ongoing basis, which the Compensation Committee believes helps mitigate compensation-related risk by focusing the officers’ attention and efforts on the long-term stock performance of the Company.

 

Use of Compensation Consultants and Peer Group Data. The Company, at the direction of the Compensation Committee, retains an independent compensation consultant every three to four years to assist the Compensation Committee by collecting compensation data regarding peer group companies, which is used by the Compensation Committee in reviewing and establishing executive compensation guidelines. The Compensation Committee considers this data, among other factors, when it determines the components and amounts of total compensation that are appropriate for the Company’s named executive officers. In its most recent compensation review in 2013, the Company retained Pearl Meyer & Partners (Pearl Meyer) to evaluate the competitiveness of the Company’s executive compensation program, the alignment of executive compensation and Company performance and update the Company’s Competitive Peer Group for use in the evaluation of the Company’s compensation practices.   Pearl Meyer performs no other services for the Company other than those described in this section.  The Compensation Committee has examined Pearl Meyer’s relationship with the Compensation Committee members, the Company and the Company’s management and has determined that Pearl Meyer’s work has not raised any conflict of interest. 

 

The Company’s Competitive Peer Group was updated at the recommendation of Pearl Meyer and consists primarily of similar-sized companies in the furniture and building products industries that may compete with the Company for executive talent and which investors may consider as investment alternatives to the Company. For purposes of Pearl Meyer’s 2013 analysis, the Company’s Competitive Peer Group included: Bassett Furniture Industries, Inc., Builders FirstSource, Inc., Dixie Group Inc., Ethan Allen Interiors Inc., Flexsteel Industries, Inc., Furniture Brands International Inc., Gibraltar Industries, Inc., Hooker Furniture Corporation, Kimball International, Inc., La-Z-Boy Inc., Omnova Solutions Inc., Patrick Industries, Inc., School Specialty, Inc., Sealy Corp, Select Comfort Corporation, Simpson Manufacturing Co., Inc., and Trex Company, Inc. 

 

In its 2013 update,  Pearl Meyer evaluated the competitiveness of compensation programs using proxy information from the companies included as part of the Company’s Competitive Peer Group, and also considered data compiled from published surveys of executive compensation for other comparably-sized companies within the durable goods manufacturing sector. Pearl Meyer’s findings were that both the Company’s targeted annual cash compensation and long-term compensation levels fell within a range between the 25th percentile to the 50th percentile of median market compensation for the companies included as part of the Company’s Competitive Peer Group and for comparably-sized companies in comparable industries. These findings were consistent with the Compensation Committee’s compensation objective.

 

Results of 2013 Say on Pay Vote.  At the Company’s Annual Meeting of Shareholders held on August 22, 2013, 97.3% of votes cast by its shareholders (excluding abstentions and broker non-votes) approved on an advisory basis the Company’s executive compensation program as disclosed in its 2013 proxy statement.  The Compensation Committee considered the results of the 2013 say-on-pay vote in formulating the Company’s executive compensation program for fiscal year 2014 and, in light of the overwhelming support that the 2013 say-on-pay proposal received, did not make any specific changes to the fiscal year 2014 executive compensation program in response to the vote.

 

Stock Ownership Guidelines.    The Company has adopted guidelines for share ownership by its named executive officers. The Company expects that its named executive officers will retain Company shares after either exercising stock options or receiving shares from RSU award grants, so that a minimum ownership of Company stock is achieved. For Mr. Guichard, the stock ownership guideline is equivalent to three times his base salary, and for Messrs. Dunston, Culbreth, Boyer and Campbell, the stock ownership guideline is equivalent to their respective base salaries.

 

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Elements of Compensation

 

The compensation program for executive officers for fiscal year 2014 consisted of the following elements:

 

Elements available to substantially all salaried employees:

 

 

Elements available to the Company’s key managers and selected employees:

 

 

Elements available only to named executive officers:

 

 

These compensation elements are described below:

 

Base Salary.  Base salary is intended to compensate the Company’s executives for:

 

 

Base salaries for all executives have been competitively established based on salaries paid for like positions in comparably-sized companies. The companies used for comparison of base salaries may include additional companies from those used in the Company’s Competitive Peer Group where other competitive factors or local market conditions warrant. These salaries are obtained by management periodically and reviewed by the Compensation Committee to assure continued competitiveness and are adjusted when necessary. Based upon national surveys available to the Compensation Committee and information provided by Pearl Meyer in 2013, the Compensation Committee believes executive management, both individually and as a group, have base salaries of approximately the average market rate for comparably-sized companies.

 

While the other named executive officers received a salary increase ranging from approximately 3-5% during fiscal year 2014, Mr. Dunston’s base salary for fiscal year 2014 was increased by approximately 10%, from $370,000 to $410,000, in recognition of his promotion to Executive Vice President and Chief Operating Officer and his expanded responsibilities in that new role.

 

Annual Cash Bonus.  Annual cash bonus incentive awards are provided as an incentive to executives to achieve the Company’s annual financial goals, and reflect the Compensation Committee’s belief that a significant portion of the annual compensation of senior executives and other key employees should be contingent upon the financial performance of the Company. Annual bonus levels are established as a percentage of base salary. Jobs with greater spans of control and impact upon the Company’s results have higher bonus percentages. For fiscal year 2014, Mr. Guichard was eligible for a maximum potential bonus opportunity equal to 150% of his base salary; Mr. Dunston was eligible for a maximum potential bonus opportunity equal to 120% of his base salary; and Messrs.  Boyer and Campbell were eligible for  a maximum potential bonus opportunity equal to 100% of their respective base salaries.   Messrs. Culbreth and Wolk were not eligible for a bonus during fiscal year 2014.

 

Named executive officers have one component to their annual bonus that is tied to the Company’s performance for the fiscal year. Other employees have two components to their annual bonus: one component that is tied to the Company’s performance for the fiscal year, and one component that is tied to individual performance.  For fiscal year 2014,  operating income was utilized to measure Company performance for nearly every employee in

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the Company, due to its ease of understanding as a  simple, consistent and important indicator of the Company’s annual performance. Individual performance is assessed by each employee’s manager based on agreed-upon goals established at the onset of the fiscal year.  No portion of an employee’s individual goal bonus is paid unless the Company achieves operating profitability.

 

All of the annual cash bonus opportunity for Messrs. Guichard, Dunston, Boyer and Campbell during fiscal year 2014 was dependent upon the Company’s performance with respect to its operating income performance measure.    

 

Company Goals. On an annual basis, the Compensation Committee establishes bonus goals for Company performance based upon a variety of factors including progress achieved towards critical elements of the Company’s long-term strategy, prior year performance, and the external economic environment. As a result, Company-wide performance targets vary from fiscal year to fiscal year. The annual performance goals for each of the fiscal years listed below represented the expected range across the following three levels of performance:

 

 

Company performance falling between each performance level results in an interpolated percentage payout based upon a predetermined scale. No annual bonuses are paid if the Company’s performance is below the predetermined operating profitability threshold.

 

Company performance targets are set sufficiently high to require excellent performance. In the last ten years, the Company has achieved superior performance one time, and achieved target performance five times. Annual performance goals for Company performance at the threshold, target and superior performance levels for fiscal year 2014, as well as the actual operating income achieved, are presented in the table below.  The actual annual operating income for the purpose of determining the annual bonus excludes $0.2 million in operating income from restructuring activities. 

 

 

 

The Company’s actual performance for fiscal year 2014 slightly exceeded its targeted operating income goal.  Accordingly, this performance resulted in a Company performance percentage based upon the predetermined bonus scale of 64.3%. Accordingly, Mr. Guichard earned an annual bonus during fiscal year 2014 of 96.5% (64.3% of 150%) of his year-end base salary.   Mr. Dunston earned an annual bonus during fiscal year 2014 of 77.2% (64.3% of 120%) of his year-end base salary.  Messrs. Boyer and Campbell each earned an annual bonus during fiscal year 2014 of 64.3% (64.3% of 100%) of his year-end base salary.  

 

Long-Term Incentive Awards.  The Compensation Committee has established long-term incentive awards for the Company’s executives and key managers with the objective of advancing the longer-term interests of the Company and its shareholders by directly aligning executive compensation with increases in the Company’s stock price. These awards compliment cash incentives tied to annual performance by providing incentives for executives to increase shareholder value over time. The Company’s long-term incentive compensation program utilizes two types of awards: restricted stock units (“RSUs”) and stock options.  Both stock options and RSUs are intended to focus the attention of executives on the achievement of the Company’s long-term performance objectives, to align executive management’s interests with those of shareholders, and to facilitate executives’ accumulation of sustained ownership of Company stock.

 

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Consistent with previous years, the Company awarded its long-term incentive awards to its executives following its annual earnings release in June, and all stock options issued included a strike price equal to the closing price of the Company’s stock on the third business day following this earnings release. All long-term incentive awards were approved by the Compensation Committee.

 

In line with recommendations from Pearl Meyer, the Company’s named executive officers are targeted to receive long-term incentive awards valued at approximately 150% of base salary for Mr. Guichard, 120% for Mr. Dunston and 100% for Messrs. Wolk, Boyer, and Campbell.  Mr. Culbreth did not receive a long-term award during fiscal year 2014.  The value of RSU awards was approximately two-thirds of the total value of the long-term grants made to the named executive officers.

 

Stock Options.    Non-statutory stock options were granted to certain senior executives of the Company (including Messrs. Guichard, Dunston, Wolk, Boyer, and Campbell) on the third business day after the Company’s announcement of its annual results in June 2013. All stock options have exercise prices equal to the closing price of the Company’s stock upon the date of grant, have ten-year lives and vest ratably over the initial three years of the grant. Stock options only result in value realized by the Company’s employees to the extent that the price of Company stock on the date of exercise exceeds the strike price, and thus are an effective compensation element only if the stock price grows over the term of the award. The Compensation Committee believes that stock options are a motivational tool for the Company’s senior executives, and also serve as a retention incentive. The Company has never backdated or re-priced its stock option grants.

 

Restricted Stock Units.  The RSUs granted during fiscal year 2014 to Messrs. Guichard, Dunston, Wolk, Boyer and Campbell include RSUs that vest upon the satisfaction of both service and performance criteria. The performance-based RSUs comprised 75% of the total RSUs awarded, while RSUs vesting upon meeting a three-year service criterion comprised 25% of the RSUs awarded. Subject to satisfying the associated vesting conditions, each RSU represents the right to receive one share of the Company’s common stock. The Compensation Committee believes that the RSU grants provide a form of long-term compensation that aids retention, encourages long-term value creation and aligns financial interests with the Company’s shareholders, while entailing a lower number of Company shares to be issued to employees than stock options and therefore entailing less dilution.

 

In order to receive the shares of Company stock corresponding to the RSU award, the award recipients must remain in the Company’s continuous employ through the three-year anniversary date of the RSU grant. Employees who leave the Company’s employ for any reason other than death, disability or retirement completely forfeit their awards unless the Committee, in its discretion within it authority under the 2011 Plan, determines that vesting of a pro-rata portion of the award is in the best interest of the Company. If the employee terminates employment due to his or her death, disability or retirement, a pro-rata portion of the earned RSUs will vest based upon the executive’s service from the grant date to the termination date. If the employee terminates employment for any reason, including death, disability or retirement, prior to the end of the applicable performance period with respect to performance-based RSUs, the performance-based RSUs are forfeited in their entirety. The vesting of the RSU awards is accelerated and the earned RSUs are paid in full if a change in control occurs and,  either the named executive officer is involuntarily terminated without cause or the named executive officer terminates employment with the Company for good reason prior to the end of the three-year service period. If the change in control occurs prior to the end of the applicable performance period with respect to performance-based RSUs, all of the performance-based RSUs are treated as earned.

 

The Company-wide performance criteria upon which the performance-based RSU awards are based are established annually by the Compensation Committee. For the performance-based RSU grants awarded in June 2013, the Compensation Committee determined the Company-wide performance period as the fiscal year in which the grant was awarded. The Compensation Committee determined three groups of Company-wide performance goals for fiscal year 2014, including income statement achievement (40% weighting), balance sheet and cash flow achievement (40% weighting) and organizational development (20% weighting).  Specific criteria and the Company’s performance against these criteria were as follows:

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The Compensation Committee assessed the Company’s overall achievement of its Income Statement goals to be approximately 59% and of its Balance Sheet and Cash Flow goals to be 83%.  In addition to the Income Statement and Balance Sheet and Cash Flow goals, Company-wide performance was also assessed based upon a total of five organizational development goals (weighted 20% in total), including (i) employee turnover, (ii) employee retention, (iii) compliance with training goals, (iv) succession planning, and (v) cultural development.  The Compensation Committee assessed the Company’s achievements of these organizational goals at attainment of 94%.

 

The Compensation Committee assessed the Company’s achievement against overall performance goals in May 2014 to be 76%.  Based upon the Compensation Committee’s performance assessment, if the Company’s named executive officers remain continuously employed by the Company through June 2016, they will vest in and receive 82% of their total RSU award, as calculated below:

 

 

 

During fiscal year 2014, Mr. Guichard was awarded 20,000 RSUs, Mr. Dunston was awarded 7,600 RSUs, Mr. Wolk was awarded 6,200 RSUs, Mr. Boyer was awarded 5,400 RSUs and Mr. Campbell was awarded 4,500 RSUs.  Mr. Culbreth did not receive an award in fiscal year 2014.  In connection with his resignation of employment in August 2013, Mr. Wolk received pro-rata vesting of 89 shares of the RSUs awarded in fiscal year 2014 and forfeited his remaining fiscal 2014 RSU award.  If each of the remaining named executive officers remains in the Company’s continuous employ through the three-year anniversary of the RSU grant in June 2016, the number of shares of the Company’s stock that each can expect to receive is as follows: Mr. Guichard, 16,400 shares (20,000 multiplied by 82%); Mr. Dunston, 6,232 shares (7,600 multiplied by 82%); Mr. Boyer 4,428 shares (5,400 multiplied by 82%); and Mr. Campbell 3,690 shares (4,500 shares multiplied by 82%).    

 

 

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Pension and Savings Plans

 

The Company maintains a non-contributory, funded and tax-qualified defined benefit pension plan (the “Salaried Pension Plan”), which was frozen effective April 30, 2012. The Salaried Pension Plan covers many of the Company’s employees hired prior to April 30, 2012, including the named executive officers, who are compensated on the basis of a salary and/or a commission, and who meet certain age and service requirements. Funding is determined on an actuarial basis. Benefits are based on 1.25% of a participant’s average cash compensation, including bonuses, for the five calendar years in the ten calendar years prior to the earlier of the participant’s retirement or the freeze date, that produce the highest average compensation, multiplied by the participant’s years of credited service through the earlier of retirement or the freeze date. The annual earnings taken into account in this formula may not exceed an IRS-prescribed limit applicable to tax-qualified plans. The Salaried Pension Plan is a continuation of a pension plan that was in effect for employees of the Company who were employed by the Company when it was owned by Boise Cascade Corporation prior to 1980.

 

Substantially all employees, including the named executive officers, also participate in the Company’s profit-sharing plan, whereby (for fiscal year 2014)  4% of the Company’s net income is contributed and divided equally among employee 401(k) accounts. In addition, effective January 1, 2013, all employees may contribute up to 100% of their pay to 401(k) accounts on a pre-tax basis. For fiscal year 2014, the Company’s Investment Savings Stock Ownership Plan provided matching contributions in Company stock of 100% up to the first 4% of pay. This is a tax-qualified plan and is subject to IRS compensation and other limitations. Company contributions to these plans to the named executive officers for fiscal year 2014 are included in the All Other Compensation column in the Summary Compensation Table.

 

Because the Internal Revenue Code of 1986, as amended (the “Code”), limits the maximum annual benefit that may be accrued under and paid from a tax-qualified plan such as the Company’s Salaried Pension Plan, the Company established a non-tax qualified, non-contributory defined contribution plan (the “Pension Restoration Plan”, or “PRP”) to allow the Company to provide benefits that would restore the level of Company benefits provided to approximately the levels they would have attained had the Code limit not been established. For fiscal year 2014, the PRP participants consist of Messrs. Guichard, Dunston, Wolk, and Boyer. Each participant has an account under the PRP to which the Compensation Committee may, in its discretion, approve Company contributions. The obligation of the Company to make payments under the PRP is an unsecured promise and any property of the Company set aside for the payment of benefits remains subject to the claims of creditors in the unlikely event of the Company’s insolvency until such benefits are distributed to the Plan participants under the provisions of the PRP. There were no Company contributions to the PRP during fiscal year 2014 for Messrs. Guichard, Dunston, Wolk, and Boyer.  The Company will not make future contributions to the PRP while its pension plans are frozen.

   

Other Benefits 

 

All of the NEO’s are eligible to purchase the Company’s products at a discounted price.

 

The Company places a priority on enabling its employees to take advantage of preventive health care. To this end, the Company provides subsidized medical benefits to substantially all of its employees, as well as the ability to take advantage of annual physical exams at low or no cost. Messrs. Guichard, Dunston, Culbreth, Wolk, Boyer and Campbell are eligible to receive more extensive annual medical exams from a nationally recognized medical clinic at no cost to them.

 

Severance and Change in Control Agreements

 

Each of the named executive officers (other than Messrs. Culbreth and Campbell) has entered into an employment agreement with the Company that provides for severance benefits under certain termination scenarios, including termination in connection with a change in control.   The Company believes these agreements are necessary in order to ensure the continuity of management and to allow executive officers to focus on serving the Company in a change in control situation without the distraction of concern for their employment. These agreements generally provide for severance benefits in the event of involuntary termination of employment without cause at any time during the term of the agreement, and certain enhanced benefits for termination without cause or termination by the executive for good reason within a certain period following a change of control. No payments are made if

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employment is terminated due to death, disability or cause. Each of these agreements provides that any unvested stock awards shall become fully vested in connection with a change in control of the Company only upon the occurrence of  both a change in control and either involuntary termination of employment without cause or termination by the executive for good reason in connection with a change of control.

 

In developing the parameters for these agreements, the Compensation Committee utilized an independent compensation consultant and an analysis of peer companies. The Compensation Committee established these agreements with a goal of providing terms that are representative of the competitive market for like positions. Mr. Guichard’s employment agreement includes a longer severance period and a greater bonus payment percentage due to the greater span of control, accountability and ability to impact the Company’s performance inherent in Mr. Guichard’s role as Chief Executive Officer.

 

The Company does not provide tax gross-ups to its named executive officers for any Section 280G taxes resulting from a change in control.  In lieu of receiving a tax gross-up, any golden parachute payments to these named executive officers will be reduced until the excise tax no longer applies (unless the named executive officer would be in a better net after-tax position after paying the excise tax, in which case the payments would not be reduced, but the named executive officer still would not receive any gross-up).

 

Mr. Wolk entered into a Separation Agreement and Release on August 9, 2013, which superseded his Employment Agreement.  The Committee approved cash severance benefits payable under the Separation Agreement.  They also decided to accelerate the vesting of a pro-rata number of Mr. Wolk’s RSU awards that were outstanding at the time of his resignation of employment,  based on Mr. Wolk’s service during the three-year vesting term applicable to each award.  In exchange for this accelerated vesting, Mr. Wolk agreed to sign a general release of claims against the Company.  None of the performance-based RSUs granted in June 2013 became vested as a result of Mr. Wolk’s resignation.

 

Further information regarding the terms and conditions of these agreements is found beginning on page 24, under the heading “Employment Agreements and Post-Employment Compensation Agreements”.

 

Deductible Compensation of Executive Officers

 

The Company is subject to Section 162(m) of the Code, which imposes a $1.0 million limit on the amount of compensation that may be deducted by the Company for a taxable year with respect to the Chief Executive Officer and the next three most highly compensated officers of the Company (excluding the CFO). Performance-based compensation that meets certain requirements is not subject to the deduction limit.  The Company’s intent generally is to design and administer executive compensation programs in a manner that will preserve its flexibility and recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible under Section 162(m). 

 

Summary Compensation Table

 

The following table sets forth for fiscal years 2014,  2013,  and 2012 the compensation for the Company’s Chief Executive Officer, current and former Chief Financial Officers and the Company’s three other executive officers (each a “named executive officer” and collectively, the “named executive officers”). The Company did not have any other named executive officers during fiscal year 2014.

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All Other Compensation

 

The following table describes each component of the amounts listed for fiscal year 2014 in the All Other Compensation column in the Summary Compensation Table.

 

 

 

 

 

Grants of Plan-Based Awards in Fiscal Year 2014

 

The following table provides information about all equity and non-equity awards granted to the named executive officers in fiscal year 2014: (1) the grant date, (2) the potential payout under the Annual Cash Bonus Incentive Plan, (3) the potential number of shares of the Company’s common stock that could be issued under performance-based RSUs granted in fiscal year 2014, (4) the number of service-based RSUs granted in fiscal year 2014, (5) the number

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of shares underlying stock options awarded, (6) the exercise price of the stock option awards, which reflects the closing price of the Company’s stock on the date of grant, and (7) the grant date fair value of each equity award computed according to FASB ASC Topic 718.  Mr. Culbreth is not included in the table below because he did not receive an annual bonus or any equity awards for fiscal 2014.

 

 

 

 

Outstanding Equity Awards at 2014 Fiscal Year-End

 

The following table provides information on the holdings, as of April 30, 2014, of stock options and RSUs awarded to the named executive officers. This table includes all unexercised option awards (whether vested or unvested) and all unvested RSUs. Each equity grant is shown separately for each named executive officer. All unvested RSU awards shown in the table below are scheduled to vest on the third anniversary of the applicable grant date for each award and all unvested stock option awards are scheduled to vest in equal portions on the first, second and third anniversaries of the applicable grant date for each award. For additional information about the stock option and RSU awards, see the description of long-term incentive awards in the Compensation Discussion and Analysis beginning on page 13.  Neither Mr. Culbreth nor Mr. Wolk had any outstanding equity awards as of April 30, 2014.    

 

 

 

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Option Exercises and RSUs Vested in Fiscal Year 2014

 

 

 

 

Pension Plan Benefits

 

The following table reports the present value of the accumulated plan benefit at April 30, 2014, for the named executive officers under the Salaried Pension Plan based upon the assumptions described below in Note 1. No pension benefit payments were made to any of the named executive officers during fiscal year 2014.   Mr. Culbreth does not participate in the Salaried Pension Plan.  See “Pension and Savings Plans” on page 16 for a discussion of pension and savings plan benefits.

 

 

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