Cedar Fair, L.P. 10-K 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K / A
For the fiscal year ended: December 31, 2011
For the transition period from to .
Commission file number 1-9444
CEDAR FAIR, L.P.
(Exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of Depositary Units held by non-affiliates of the Registrant based on the closing price of such units on June 26, 2011 of $18.71 per unit was approximately $994,234,844.
Number of Depositary Units representing limited partner interests outstanding as of April 20, 2012: 55,423,770
DOCUMENTS INCORPORATED BY REFERENCE
CEDAR FAIR, L.P.
This Amendment on Form 10-K/A (the "Amendment" or the "Form 10-K/A") amends the Annual Report on Form 10-K of Cedar Fair, L.P. ("Cedar Fair" or the "Partnership") for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on February 29, 2012 (the "Original Form 10-K"). This Amendment is being filed solely for the purpose of disclosing information required in Part III that the Partnership will not be incorporating by reference to a definitive proxy statement. No other Parts or disclosures from the Original Form 10-K are included in this Amendment other than Parts III and IV below, and except as required to reflect the matters set forth in such included disclosure, this Amendment does not reflect events or developments that have occurred after the date of the Original Form 10-K and does not modify or update disclosures presented in the Original Form 10-K in any way.
Among other things, forward-looking statements made in the Original Form 10-K have not been revised to reflect events, results, or developments that have occurred or facts that have become known to us after the date of the Original Form 10-K (other than as discussed above), and such forward-looking statements should be read in their historical context. Accordingly, this Amendment should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the Original Form 10-K.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Cedar Fair Management, Inc., an Ohio corporation owned by an Ohio trust, is the General Partner of the Partnership and has full responsibility for the management of the Partnership. For additional information, attention is directed to Note 1 in “Notes to Consolidated Financial Statements” of the Original Form 10-K.
A. Identification of Directors:
The Board of Directors of Cedar Fair Management, Inc. (“CFMI”) is comprised of nine directors (the “Board”). The Directors are divided into three classes, Class I, Class II, and Class III, each of which currently consists of three Directors. The term of each Director in each respective Class expires in the year noted below when the Director's successor is duly elected and qualified.
Set forth below is biographical and other information about the Directors, including information concerning the particular experience, qualifications, attributes and skills that led the Nominating and Corporate Governance Committee and the Board to determine that each should serve as a Director.
Class II Directors serving until 2012:
Michael D. Kwiatkowski, age 64, is a real estate agent and has also been a consultant in the food industry since 1996. Prior to that he served as chairman of PCS, which owned and operated a chain of 11 restaurants, from 1986 to 1996. He has more than 30 years of experience in amusement parks and branded restaurant operations. Mr. Kwiatkowski is a member of the Nominating and Corporate Governance Committee and chair of the Compensation Committee of CFMI and has been a Director since 2000. Mr. Kwiatkowski is qualified to serve on the Board of Directors primarily as a result of his experience as a consultant and chairman in the food industry, as well as his past experience within the amusement park industry.
Steven H. Tishman, age 55, is the Global Head of M&A at Houlihan Lokey. Mr. Tishman had been a managing director at Rothschild, Inc., in New York, New York, from November 2002 through 2011. He was a managing director of Robertson Stephens from November 1999 to November 2002, prior to which he was a senior managing director of Bear, Stearns & Co., Inc. Mr. Tishman previously was a director of Odimo, Inc., Nautica Enterprises Inc. and Claire's Stores, Inc., publicly traded companies. Mr. Tishman has been a Director since 2003. Mr. Tishman's career as an executive of major financial service firms gives him valuable experience in complex strategic transactions, including financings and mergers and acquisitions. This experience is an important contribution to the knowledge base of the Board and qualifies Mr. Tishman to serve as a Director.
C. Thomas Harvie, age 68, is a retired senior vice president, general counsel and secretary of The Goodyear Tire & Rubber Company, where he had served from 1995 until his retirement in 2009. Prior to that, Mr. Harvie was vice president and associate general counsel at TRW Inc., where he had served since 1976. Mr. Harvie, who has served as a Director since 2008, is Chairman of the Board, a member of the Nominating and Corporate Governance Committee, a member of the Audit Committee and a member of the Compensation Committee. Mr. Harvie is qualified to serve on the Board of Directors because he brings extensive legal knowledge and expertise to the Board due to his experience counseling publicly traded global corporations. He also provides guidance on regulatory, corporate governance and compliance matters as well as experience in executive compensation matters.
Class I Directors serving until 2013:
Richard L. Kinzel, age 71, was president and chief executive officer of the Partnership's general partner from 1986 through January 2012 and has been a member of the Board of Directors since 1986, serving as chairman of the Board from 2003 until January 2011. Mr. Kinzel had been employed by the Partnership or its predecessor since 1972. Mr. Kinzel served on the Advisory Board of KeyCorp, a publicly traded company listed on the New York Stock Exchange, from 1989 to 2008. Mr. Kinzel has 39 years of experience with the Partnership, including many leadership roles in various aspects of the business. This experience and Mr. Kinzel's leadership and management skills provide valuable guidance and operational knowledge to the Board and qualify him to serve on the Board.
Eric L. Affeldt, age 54, has been president and chief executive officer of ClubCorp Inc. since 2006. Prior to joining ClubCorp, he was a principal of KSL Capital Partners, the private equity firm that purchased ClubCorp in 2006. Mr. Affeldt also previously served as president and CEO of KSL's former golf division, KSL Fairways, vice president and general manager of Doral Golf Resort and Spa in Miami and the combined PGA West and La Quinta Resort and Club in California and was a founding partner of KSL Recreation. In addition, he was president of General Aviation Holdings, Inc. Mr. Affeldt is the Chairman of the Corporate Governance and Nominating Committee and is a member of the Audit Committee and has served as a Director since 2010. Mr. Affeldt was appointed as a Director pursuant to the agreement entered into by Cedar Fair with Q Funding III, L.P. and Q4 Funding, L.P. and filed on a Form 8-K with the Securities and Exchange Commission on May 5, 2010. Mr. Affeldt is qualified to serve on the Board of Directors primarily as a result of his experience as president and CEO of a nationally recognized company that conducts business in the entertainment and leisure industry.
John M. Scott, III, age 46, was president and chief executive officer of Rosewood Hotels & Resorts 2003 through August 2011. Prior to joining Rosewood Hotels & Resorts, he was the managing director of acquisitions and asset management for Maritz, Wolff & Co., a private equity real estate fund. Mr. Scott began his career with the Interpacific Group where he held senior hotel management positions and in 1994 joined the Walt Disney Company as manager of business development and strategic planning for both Disney Development Company and Walt Disney
Attractions groups. Mr. Scott serves on the board of Kimpton Hotels and Restaurants, a private company. Mr. Scott is a member of the Audit Committee and the Compensation Committee and has served as a Director since 2010. Mr. Scott was appointed as a Director pursuant to the agreement entered into by Cedar Fair with Q Funding III, L.P. and Q4 Funding, L.P. and filed on a Form 8-K with the Securities and Exchange Commission on May 5, 2010. Mr. Scott is qualified to serve on the Board of Directors primarily as a result of his experience as president and CEO of a nationally recognized company that conducts business in the hotel industry.
Class III Directors serving until 2014:
Gina D. France, age 53, is president and CEO of France Strategic Partners LLC, a private strategic planning and transaction advisory firm. Before founding France Strategic Partners, Ms. France was a Managing Director with Ernst & Young LLP and led the firm's Center for Strategic Transactions® (CST) in Cleveland, Ohio. Ms. France previously served as a managing director of Ernst & Young Corporate Finance LLC and an investment banker with Lehman Brothers. Ms. France also serves on the Corporate Board of FirstMerit Corporation, a $14.1 billion bank holding company where she is chair of the Governance and Nominating Committee and serves as an SEC-designated financial expert on the Audit Committee; and has served as a Director of Dawn Food Products, Inc., one of the world's largest manufacturers and distributors of bakery products. Ms. France was recommended to the Corporate Governance and Nominating Committee by third party advisors to the Partnership. Ms. France, who has served as a Director since 2011, is the Chairperson of the Audit Committee and is a member of the Corporate Governance and Nominating Committee. Ms. France is qualified to serve on the Board of Directors because of her leadership experiences in the investment banking, accounting and financial services field and her experiences as a board member of several nationally recognized companies.
Matthew A. Ouimet, age 54, has been president of the Partnership's General Partner since June 2011 and chief executive officer since January of 2012, and a member of the Board of Directors since August 2011. Mr. Ouimet was President and Chief Operating Officer for Corinthian Colleges from July 2009 to October 2010 and as Executive Vice President – Operations for Corinthian Colleges from January 2009 to June 2009. Prior to joining Corinthian Colleges, he served as President, Hotel Group for Starwood Hotels and Resorts Worldwide from August 2006 to September 2008. Before joining Starwood, Matt spent 17 years at The Walt Disney Company, where he last served as President of the Disneyland Resort. He also served in a variety of other business development and financial positions during his employment with Disney, including President of Disney Cruise Line and Executive General Manager of Disney Vacation Club. This experience and Mr. Ouimet's leadership and management skills qualify Mr. Ouimet to serve on the Board of Directors.
Tom Klein, age 49, has been president of Sabre Holdings since January 2010. Prior to joining Sabre in 1994, he held a variety of sales, marketing and operations positions at American Airlines and Consolidated Freightways, Inc. In 2006 and 2007, he was recognized by Business Travel News as one of the "25 Most Influential Executives." In 2010, he was appointed to the Board of Directors for Brand USA by U.S. Secretary of Commerce Gary Locke. He also serves on the executive committee of the World Travel and Tourism Council. Mr. Klein has served as a director since January 2012 and is a member of the Audit Committee and the Compensation Committee. Mr. Klein is qualified to serve on the Board of Directors primarily as a result of his experience as a president of a company in the technology and travel industry.
B. Identification of Executive Officers:
Information regarding executive officers of the Partnership is included in the Original Form 10-K under the caption “Supplemental Item. Executive Officers of Cedar Fair” in Item I of Part I and is incorporated herein by reference.
C. Section 16(a) Beneficial Ownership Reporting Compliance:
Section 16(a) of the Securities Exchange Act of 1934 requires officers and Directors, and persons who own more than ten percent (10%) of a registered class of Partnership units, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, Directors and greater than ten percent unitholders are required by SEC regulation to furnish the Partnership with copies of all Section 16(a) forms they file.
Based solely on a review of Forms 3, 4 and 5 (including amendments to such forms) furnished to the Partnership during and with respect to 2011, except as set forth below, no Director, officer, or beneficial owner of more than ten percent of the Partnership's outstanding units failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during 2011. One late Form 4 was filed for each of the following individuals, with the number of transactions indicated in the parentheses: Ms. France (1), Mr. Scott III (2), Ms. Alexakos (2), Mr. Bender (1), Mr. Decker (1), Mr. Freeman (1), Mr. Hoffman (1), Mr. Kinzel (1), Mr. Milkie (1), Mr. Witherow (1), and Mr. Zimmerman (1).
D. Code of Ethics:
In accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K, the Partnership has adopted a Code of Conduct and Ethics, which applies to all directors, officers and employees of the Partnership, including the Chief Executive Officer and the Senior Financial Officers. The Board revised the Code of Conduct and Ethics in March of 2012. A copy of the Code of Conduct and Ethics is available on the Internet at the Investor Relations section of our web site (www.cedarfair.com).
The Partnership submitted an unqualified Section 303A.12(a) Chief Executive Officer certification to the New York Stock Exchange on July 8, 2011, stating that the Partnership was in compliance with the NYSE's Corporate Governance Listing Standards. The Chief Executive Officer and Chief Financial Officer certifications under Section 302 of the Sarbanes-Oxley Act are included as exhibits to this Form 10-K.
E. Audit Committee:
The Board of Directors has a standing Audit Committee, which is comprised of Ms. France and Messrs. Harvie, Affeldt, Klein and Scott. The Audit Committee is responsible for appointing and meeting with the Partnership's independent registered public accounting firm and for assisting the Board in its oversight of the financial statement reporting, internal audit and risk management functions. The Board has determined that each Committee member is financially literate, and Gina D. France, the chair of the Committee, is the designated financial expert. The Board has determined that Ms. France is independent, as defined for Audit Committee members in the listing standards of the New York Stock Exchange.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes our compensation philosophy and objectives, our methods for determining executive compensation, the elements of executive compensation and the reasons that we have elected to pay these particular elements of compensation. The summary highlights our 2011 business results and the impact of those results on our compensation decisions as well as actions we have taken recently to modify and update our compensation programs. The full impact of some of the changes we made will not be reflected until 2012 executive compensation is reported in our 2013 proxy statement because they were made after the 2011 executive compensation program had been developed and implemented. A detailed discussion of our compensation philosophy and practices follows the summary.
Throughout this Form 10-K/A the individuals listed in the Summary Compensation Table on page 14 are referred to as the “named executive officers.” We have included discussion and disclosure for our former chief executive officer, Richard Kinzel, and former chief financial officer, Peter Crage, because this information is required by applicable rules and regulations.
We believe in strongly linking our compensation with performance. Consistent with that philosophy, and based on the record breaking results achieved in 2011 summarized immediately below, the overall compensation to our named executive officers for 2011 increased over 2010 compensation. Our annual cash incentive program paid out at above-target numbers because our financial performance exceeded the target amount set by our Compensation Committee. In addition, the named executive officers each received salary increases in recognition of their individual achievements and unit-based awards as a mechanism to retain these executives and to encourage them to drive long-term performance. Payouts to executives who had received our performance-based long-term incentive awards were paid at 65% of the maximum level based on the level of achievement of cumulative Adjusted EBITDA for the 2008-2011 time periods.
In 2011 we achieved the following results for our unitholders:
In response to our first annual “say on pay” vote, for which we received the support of the majority of the votes cast, we undertook in 2011 a comprehensive review of our executive compensation program in order to identify ways to improve our program, to implement best practices and to maintain the integrity of our compensation process. Our Compensation Committee retained and worked closely with a nationally recognized independent compensation consultant to suggest modifications that would directly align our compensation with business results. Our management team and our Board also engaged directly with unitholders throughout 2011, which included meetings with investment firms and institutional stockholders, including individual and group meetings. These meetings focused on our business, our initiatives and our industry and offered the opportunity for general dialogue about topics of interest to the participants. At several of these meetings, investors or potential investors shared thoughts relating to the pay-for-performance aspects of our compensation program and the level of management's equity ownership. After discussion and study, the Board of Directors has instituted the following modifications, updates and changes to our compensation program, the majority of which are effective in 2012.
One of the primary objectives of our compensation philosophy is to attract and retain highly-qualified executives. During this past year we have recruited new talent and promoted existing talent in crucial executive positions, and these successes in recruitment and retention reflect favorably on our compensation structure and program. Many of our compensation decisions for 2011 reflect new roles assumed by our executives during the year, the importance of ensuring a successful leadership transition and the importance of attracting, retaining and grooming our deep and talented management team to lead our company in its pursuit of long-term growth and value creation. These efforts have resulted in a new and energized management team led by Mr. Ouimet, a 20 year veteran of the leisure and hospitality industry, who became our president in June 2011, and chief executive officer in January 2012.
Compensation Philosophy and Objectives
Our compensation program is designed to incentivize our key employees to drive superior results, to give key employees a proprietary and vested interest in our growth and performance, and to enhance our ability to attract and retain exceptional managerial talent upon whom, in large measure, our sustained growth, progress and profitability depend. Our executive compensation structure rewards both successful individual performance and the consolidated operating results of the Partnership. Our executive compensation program is in large part designed around Adjusted EBITDA as the key performance objective. Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in our current credit agreement. We use Adjusted EBITDA as the key measure of performance because it tracks core operating performance closely, it crosses geographic and park operating units, it is easy to track and report to our unitholders on a regular basis, and because it is a primary factor in assessing free cash flow available for distributions which we believe is the key investment focus of our unitholders. While unit price appreciation, which is driven by earnings growth, is an important factor, we view our units as a total return investment that is anchored by the attractive yield of our distributions to unitholders.
Overall, our unitholder-approved incentive plan allows us to provide a mix of compensation that drives our management team to achieve strong annual results as well as deliver long-term value for all unitholders. Our compensation structure provides us with the flexibility to evolve our compensation philosophy and program from year to year, as the market, our business or the industry requires.
Determining Executive Compensation
We combine the compensation elements discussed below in a manner that we believe will optimize the executive's contribution to the Partnership. We recognize and consider many factors in assessing an individual's value. In general, we work within ranges of base salary commensurate with the executive's scope of responsibilities and use our cash incentive and unit-based award programs to challenge the executive to achieve superior annual and long-term results for the benefit of the Partnership and its unitholders. Because a portion of this compensation is dependent on performance results, an executive's actual total compensation could vary considerably if we have a year that exceeds or fails to meet expectations. We believe that this is a fair result and appropriately motivates our executives to achieve peak corporate performance over the long term. The range of targeted compensation is position dependent and may reflect how difficult we believe it would be to replace that particular person.
We engage independent consultants from time to time to assist us in reviewing and analyzing our compensation program and market practices. In 2011, we engaged Korn Ferry to assist us with the search for a chief executive officer and later to provide input related to determining the compensation package to recruit Mr. Ouimet. Korn Ferry's input included providing the Committee with information regarding compensation packages of chief executive officers at similarly situated companies as well as recommendations for an appropriate salary and benefits package to be offered to Mr. Ouimet. In addition, as part of the search process the Committee reviewed the compensation study conducted for us by Pearl Meyer & Partners in 2010, along with an earlier study by Mercer, and discussed possible compensation terms in detail with Korn Ferry. Additional detail regarding Mr. Ouimet's compensation for 2011 is described below under “Elements of 2011 Executive Compensation,” and a summary of the terms of his employment agreement is provided under the headings “Narrative to Summary Compensation and Grants of Plan Based Awards Table - Employment Agreements” and “Potential Payments Upon Termination or Change in Control.”
The Pearl Meyer & Partners study mentioned above included information on trends in compensation practices for nine executive-level positions. Pearl Meyer compared our pay data (including base salary, target cash incentive and long-term incentive compensation, individually and in the aggregate) against market data from published and private survey sources as well as 15 peer companies' proxy statements. In addition to considering the information in connection with hiring our new chief executive officer, the general understanding of market practices that the Committee gained from the Pearl Meyer study provided context for other named executive officer compensation decisions for 2011.
This past year also provided an opportunity to reassess our compensation practices, processes and levels in connection with multiple promotions and movement in our executive officer ranks. We took the opportunity to revisit historical compensation practices and assess their effectiveness, and the Compensation Committee engaged Hay Group in October 2011 to assist with this process. Hay Group conducted a comprehensive review of our executive compensation program and made recommendations on possible changes to the structure of our program to our Compensation Committee. The Hay Group analysis included a review of our cash incentive program, long-term incentive program, and change in control arrangements. Hay Group also conducted a study of compensation levels for certain of our executive positions as compared to compensation levels for similar positions at comparable companies, including levels of base salaries, target total cash compensation (i.e., base salary and target bonus) and total direct compensation (i.e., base salary, target bonus and long-term incentive). Hay Group also assisted the Committee in assessing market practices with respect to executive and director equity ownership guidelines.
Hay Group compared our current programs, practices and compensation levels to market data from published and private survey sources as well as proxy statement information on the current programs, practices and compensation levels of 19 peer companies. Hay Group assisted the Committee in reviewing the peer group used in connection with the Pearl Meyer study and recommended certain refinements to that group. The selection of peer group members focused on U.S. publicly traded companies with a significant focus on recreation and entertainment, with similar business models to ours, with annual revenues between ½ to 2 ½ times our revenues and with a market capitalization comparable to ours. The goal was for peer group companies to meet the majority of these criteria. We added seven new companies (Bob Evans Farms; Buckle, Inc.; Cinemark Holdings, Inc.; DSW, Inc.; Finish Line, Inc.; Marriot Vacations Worldwide; and Texas Roadhouse, Inc.) and removed three companies that previously had been part of our peer group (Boyd Gaming Corporation; Isle of Capri Casinos, Inc.; and Life Time Fitness, Inc.) as a result of this review. The revised peer group has a reduced focus on the gaming sector, a broader family entertainment scope and lower median and average stock price volatility, and includes the following 19 companies:
The Committee and Hay Group interacted extensively, discussing the appropriate mix of compensation to retain executives and drive performance, certain unique features of our company, our goal to increase alignment with our unitholders through required executive unit ownership guidelines and the mechanics and costs of various compensation features. The Hay Group recommended certain modifications to our cash incentive and long-term incentive programs, including the utilization of a different mix of unit-based award opportunities than we have used in recent years and we have adopted multiple updates and modifications following this collaborative process, all of which are in place for 2012.
Although our Board makes the final compensation decisions for the named executive officers, the process of determining compensation is a collaborative one between the Board, Compensation Committee and the chief executive officer. Our chief executive officer dedicates time annually to review all of his direct reports, including the other named executive officers, as well as all of the park general managers. He reviews each individual against budget targets (for the named executive officers), operational targets (for park managers) and achievement of individual performance objectives established before the operating season begins (where applicable) and makes recommendations to the Compensation Committee or Board regarding the compensation of each individual. The Committee or Board then makes compensation determinations and adjustments when determined to be appropriate to the chief executive officer's recommendations in accordance with the applicable compensation plans. Decisions regarding the chief executive officer's compensation are made by the Compensation Committee, together with the Board of Directors, based upon its review of his performance and the Partnership's performance.
The Board reviews compensation matters after the seasonal parks have closed and financial results for the season are available. The chief executive officer finalizes his evaluations of the other named executive officers, among others, performance against the established targets and achievement of their individual performance objectives and based upon that determination prepares calculations with respect to cash incentive payouts and equity compensation awards for the current year, as well as recommendations for compensation adjustments for the coming year. The chief executive officer generally presents this report to the Compensation Committee and to the Board in October. Based on Partnership performance, park performance and individual performance, the Compensation Committee makes final calculations with regard to cash incentive payouts, equity compensation awards and recommends any compensation adjustments, subject to Board approval and final audited results.
Elements of 2011 Executive Compensation
In light of the objectives and philosophy set forth above, we determined that a mix of the following components of compensation for our named executive officers in 2011 was appropriate:
We seek to balance the compensation for each executive among the above elements in a manner designed to achieve our overall compensation objectives. In setting cash incentive and equity incentive components of compensation for each executive, we look to the relationship of those components to the executive's salary and consider the total direct compensation that is represented by salary, cash incentive awards and unit-based awards. The mix of compensation and relative levels of each element is position dependent and may vary year-to-year.
Compensation Mix - 2012 Update
The compensation mix for 2012 will continue to include the above elements but, as discussed above, we have refined the long-term equity incentive compensation component in order to place more emphasis on performance and alignment with the interests of our unitholders. Accordingly, the long-term incentive compensation component for each named executive officer for 2012 includes a mix of performance units, options and time-vested restricted units, and those awards represent 25%, 25% and 50%, respectively, of the executive's target long-term incentive compensation. We expect in future years that the mix of the long-term incentive compensation will continue to be reflective of an increased emphasis on performance and alignment with the interests of our unitholders.
We use base salaries to provide a fixed amount of compensation commensurate with the executive's scope of responsibilities, performance, current compensation levels, career with the Partnership and other experience. We do not consider the earnings of prior long-term incentive grants or retirement plans when determining base salary compensation, as awards earned in prior years were earned for prior performance, and we do not believe they should be a factor in current compensation. Base salaries may be reviewed and adjusted from time to time, subject to the terms of applicable employment agreements. Based on the factors identified above, the Board, or the Compensation Committee, as the case may be, adjusts the base salary for each of the named executive officers on an annual basis and in connection with promotions. See “Narrative to Summary Compensation and Grants of Plan Based Awards Tables - Employment Agreements” for additional information on the terms of the employment agreements.
The base salary for each named executive officer falls within a range, when considered together with the other elements of compensation, that the chief executive officer and Compensation Committee believe is appropriate on an individual basis. Our named executive officers who were employed during 2010 received merit increases in base salary for 2011. Base salaries for 2011 and 2012 are indicated below, together with a discussion of the reason for the indicated increase in base salaries.
Cash Incentive Program
Our cash incentive awards provide a component of compensation that is contingent on the achievement of annual performance objectives and is designed to reward achievement of short-term financial and operational goals. The performance objectives and percentage of base salary that may be earned as cash incentive are determined for each named executive officer by March of each year. The performance objectives may be individualized for each position and individual, may be expressed in multiple measures of performance, including individual, business unit, management unit and Partnership performance, and may be weighted differently between positions and individuals.
For 2011, the achievement of a target consolidated Adjusted EBITDA was established as the performance objective for all named executive officers. The target Adjusted EBITDA is generally set at a level which is challenging and that we believe is appropriate in light of prior year results. We use Adjusted EBITDA as the key measure of performance because it tracks core operating performance closely, it crosses geographic and park operating units, and because it is a primary factor in assessing free cash flow available for distributions which we believe is the key investment focus of our unitholders. The target Adjusted EBITDA for 2011 was set at $362.9 million.
The 2011 target award opportunities for the named executive officers who were employed when targets were set in March 2011, reflected as a percentage of base salary in effect at that time, were as follows: Zimmerman 60%; Witherow 35%; Decker 60%; Bender 65%; Hoffman 25%; Kinzel 100% and Crage 65%. The named executive officers' 2011 award payouts were to be at the percentage of target Adjusted EBITDA achieved, excluding the impact of our incentive plans, subject to the Compensation Committee's discretion to decrease or increase the award. No such discretion was exercised in connection with the 2011 payouts. For 2011 we achieved Adjusted EBITDA of approximately $374.6 million and based on this high achievement, the cash incentive payouts to each of the named executive officers (other than Mr. Crage, who was not employed with us at year end) were at 104% of their respective targets.
The 2011 cash incentive payouts for the named executive officers other than Mr. Ouimet are set forth below:
Cash Incentive Program - 2012 Update
We reviewed our cash incentive program as part of Hay Group's overall review of our compensation program. Based on their recommendation and discussion with the Compensation Committee, our short-term cash incentive award program will place more weight on individual performance goals and will not be paid out if the performance metric falls below the threshold goal. In 2012, 85% of the target cash incentive awards for our named executive officers will be based on an approved target for consolidated Adjusted EBITDA for the fiscal year, and 15% of the target awards will be based on the achievement of individual performance goals.
Payouts of the company performance-based portion of the award will be based on specified threshold, target and maximum levels of performance as compared to the targeted level of Adjusted EBITDA and will be interpolated for performance between those levels. For example, payouts of the company performance-based portion of the 2012 cash awards will be at the following scale (with amounts interpolated between the various levels): Adjusted EBITDA of less than 85% of the target, 0% payout; Adjusted EBITDA of 85% of the target, 50% payout; Adjusted EBITDA of 100% of the target, 100% payout; and Adjusted EBITDA of 105% or more, 150% payout. Payout of the individual performance-based portion of the award will depend on the achievement of a specified threshold, target or maximum number of individual performance goals, with payout at 50%, 100% and 150% for 2012 awards. Maximum payout of the cash incentive awards will be 150% of the target award, and no cash incentive awards will be paid to the executives in the event that Adjusted EBITDA falls below the threshold level of performance or the company is not able to pay a distribution during the applicable year due to loan covenants. Participants who leave employment prior to the date of payment will forfeit any unpaid cash incentive award unless otherwise provided in an employment agreement. Thus, these awards are designed not only to motivate performance but also to encourage retention of key employees.
For 2012, the cash incentive opportunities for our chief executive officer and his direct reports includes a clawback provision. This clawback provision has a 24-month lookback and is triggered upon a financial restatement that results in lower bonus payouts than originally delivered.
Mr. Ouimet received a cash bonus of $416,712 for 2011. This amount represents 104% of his base salary for 2011, pro-rated for the amount of time he was employed during 2011. Mr. Ouimet received a minimum cash bonus of 100% of his pro-rated salary for 2011 under his employment agreement as part of recruiting him to join our company. In approving Mr. Ouimet's final bonus amount, we determined that Mr. Ouimet's bonus should represent the same percentage of his target for 2011 as the cash incentive award payouts represent for our other named executive officers because of his strong start with our company in 2011 and because he played a critical role in the achievement of the record results in our operating season. For 2012 and future years, under his employment agreement, Mr. Ouimet will be eligible for a cash incentive award with a target amount of 100% of his base salary, subject to the satisfaction of performance and other criteria set by the Board in consultation with him (including discretionary components). We awarded Messrs. Witherow and Hoffman special one time cash bonuses of $15,000 for 2011, and we also covered taxes on the special bonuses for both so that they would receive the full amount of the award. These special bonuses were in recognition of both of these executives being instrumental in running our corporate finance division and providing continuity following the departure of Mr. Crage in June.
Long-Term Incentive Compensation
We provide long-term incentive compensation awards to senior management under our 2008 Omnibus Incentive Plan which allows us to grant options, units, unit appreciation rights, performance awards and other types of unit-based awards. For the past five years we have relied primarily on our phantom unit grants to provide long-term incentives to our executive officers, with certain members of management having received performance unit awards. We utilized these types of awards because we believe they give key employees a proprietary and vested interest in our growth and performance and align key employees' interests with those of our unitholders, while providing us a cost effective means of compensation. We also believe that the vesting schedule for these awards aids us in retaining executives and motivates superior performance over the long term because the payment of the awards is forfeited if the executive is no longer employed by us as of the vesting date, unless otherwise provided in an employment agreement or grant agreement.
Long-Term Incentive Compensation - 2012 Update
We have modified our long-term incentive program for 2012, as a result of our overall review of our compensation program in consultation with Hay Group. Beginning in 2012, each named executive officer will receive a unit-based award that includes a mix of time-based restricted units, performance unit awards and options. In 2012, the target award will be allocated 50%, 25% and 25%, respectively, among these types of awards. The target long-term incentive award value will be determined as a percentage of base salary and then converted to a number of units for each named executive officer. We currently intend to make long-term incentive awards each year, with rolling three-year performance periods. Options will vest in annual increments over a three-year period. The performance unit awards and restricted unit awards will have continuous employment requirements, subject to certain exceptions, and will accrue distribution equivalents. Restricted units will be non-transferable during the restricted period.
Award recipients will be eligible to receive up to a specified percentage of the target number of potential performance units for a particular performance period. The number of units payable will depend on the level of attainment of the performance objectives specified for the performance period, as determined by the Committee, and no awards will be paid if the threshold level of performance is not achieved. Awards for 2012 have
a performance period of January 1, 2012 - December 31, 2014, and are based on the level of achievement of cumulative Adjusted EBITDA
versus the target during that period. Payouts of the 2012 awards will be at the following scale (with amounts interpolated between the various levels): cumulative Adjusted EBITDA of less than 85% of the target, 0% payout; cumulative Adjusted EBITDA of 85% of the target, 50% payout; cumulative Adjusted EBITDA of 100% of the target, 100% payout; and cumulative Adjusted EBITDA of 105% or more, up to a maximum payout of 150% of the target.
Time-Based Phantom Unit Awards
Time-based phantom unit awards are intended to assist in retaining our executive team in order to accomplish our strategic and long-term objectives. Mr. Ouimet received an initial award of 54,201 time-based phantom units in connection with entry into his employment agreement in June, with a grant date value of approximately $1,000,000. These phantom units will vest in two equal installments in June 2014 and June 2015 if Mr. Ouimet remains employed as of each payment date, subject to the terms of his award agreement. The phantom units subject to this award accrue additional phantom units from distributions that we make, subject to the same vesting terms and conditions.
In October 2011, we made time-based phantom unit awards to each named executive officer other than Mr. Witherow, who had received a performance unit award earlier in the year, and Mr. Crage, who resigned in June. These awards will vest and be paid in two equal installments in March 2014 and March 2015, but only if the executive is employed by us as of the payment date, unless otherwise provided in an employment agreement or grant agreement. These awards accrue additional phantom units from cash distributions and are paid out in cash, units or a combination of both, as determined by the Committee. Mr. Kinzel's award will be payable in July 2012 as a result of his January 2012 retirement, pursuant to his employment agreement. The October 2011 time-based phantom unit grants were as follows: Ouimet 24,950; Zimmerman 2,495; Decker 5,988; Bender 4,242; Hoffman 2,495 and Kinzel 79,840. These phantom unit grants were made in light of our record 2011 operating season results and were compensation for the important roles that the named executive officers played in our 2011 successes, as further described above. The award to Mr. Ouimet reflected the Board's belief that he played a critical role in the achievement of the additional growth, successful executive management team transition, and record year in 2011.
Performance Unit Awards
In March 2011, we made performance unit awards under our 2008 Omnibus Incentive Plan to certain vice presidents and key employees, including Mr. Witherow. The 2011 performance unit awards were based on the attainment of specified levels of Adjusted EBITDA during 2011, as further discussed below. The awards are payable in cash, units or a combination of both, as determined by the Compensation Committee, 50% in March 2012 and 50% in March 2013.
We made similar performance unit awards to certain of our named executive officers and key employees in 2008, 2009 and 2010, which also were based on the attainment of specified levels of cumulative Adjusted EBITDA for the applicable performance period. Mr. Witherow received these awards in each of those years. Messrs. Zimmerman, Bender and Hoffman received performance unit awards in 2008 and 2009, but each received time-based phantom unit awards in lieu of performance unit awards in 2010 and 2011.
As the performance periods for each of the 2008, 2009, 2010 and 2011 grants all ended on December 31, 2011, 50% of the performance units for each year vested and were paid out in March 2012. The remaining 50% will vest and be paid in March 2013, subject to the continuous employment requirements of the award agreements. Each year's awards were to be paid based on a sliding scale of performance objectives for the applicable performance period, tied to the achievement of specified levels of cumulative Adjusted EBITDA. The goals for the June 2, 2008 through December 31, 2011 performance period were as follows: cumulative Adjusted EBITDA in excess of $1,531 million, 100% payout; cumulative Adjusted EBITDA in excess of $1,456 million, 75% payout; cumulative Adjusted EBITDA in excess of $1,411 million, 50% payout; cumulative Adjusted EBITDA of less than $1,381 million, 0% payout. The goals for the 2009, 2010 and 2011 awards were set at levels consistent with the 2008 - 2011 targets. All of the 2008, 2009, 2010 and 2011 awards were paid out at 65% of the maximum level, based on achievement of cumulative Adjusted EBITDA of $1,438 million from June 2, 2008 through December 31, 2011, and based on the equivalent level of achievement of Adjusted EBITDA for the performance period applicable to the relevant award.
Employment Agreements and Change in Control Arrangements
We currently have employment agreements with each of our named executive officers except Mr. Witherow. We had employment agreements with Messrs. Kinzel and Crage during their employment. We amended the employment agreements with Messrs. Zimmerman, Bender, and Decker in 2011, and amended the employment agreement with Mr. Hoffman in 2012, to remove provisions entitling those officers to tax gross-up payments for any excise taxes incurred under Sections 280G or 4999 of the Internal Revenue Code and to provide for a cap on aggregate change in control payments, distributions, and benefits that constitute parachute payments. Similarly, our new employment agreement with Mr. Ouimet does not provide for any tax gross-up payments. The 2011 amendments to the employment agreements of Messrs. Bender, Decker, and Zimmerman also provide for those officers to receive certain benefits in the event of termination other than for cause before June 30, 2013, which we determined to be an appropriate modification in light of the transitions in our management team and the importance of retaining those executives. We intend to enter into an employment agreement with Brian Witherow which will incorporate the changes to the compensation program adopted by the Board in 2012.
Each employment agreement provides for certain benefits in termination and change-in-control situations, and we have a change-of-control plan in place for certain executives and key employees. If an executive who would otherwise be covered by the change-of-control plan has change-in-control provisions in his employment agreement, then the executive does not participate in the change-of-control plan while the employment agreement is in effect. In addition, certain of our incentive plans contain change-in-control provisions. Our compensation consultant reviewed our change-in-control arrangements in connection with its review of our compensation programs and determined that our arrangements were appropriate and consistent with market terms. The agreements that would apply to our named executive officers in a change-of-control situation are discussed in more detail under “Potential Payments Upon Termination or Change in Control” below.
Our named executive officers participate in our tax-qualified Cedar Fair Retirement Savings Plan. This plan, or a similar plan, is available to all of our employees and contains a 401(k) matching program as well as a profit sharing component. The annual amount of the profit sharing contribution is determined at our sole discretion. Our contributions to this plan for our named executive officers are included in the “All Other Compensation” column of the Summary Compensation Table on page 14. In addition, Mr. Kinzel participated in our Amended and Restated Supplemental Retirement Program described on page 22 while employed with us and is entitled to receive certain cash payments under the program as a result of his retirement. Additional contributions to this plan were discontinued on May 2004, and we do not intend to have any other executive officers participate in this plan. In February 2008, we adopted the 2008 Supplemental Retirement Plan to provide supplemental retirement benefits to a broader group of executives, which is described on page 22. Mr. Decker participates in this plan, and his account was credited with $50,000 for the 2008 and 2009 plan years. Additional contributions to this plan were discontinued in 2011, and we do not intend to have any other executive officers participate in this plan. Mr. Crage participated in our tax-qualified Retirement Savings Plan and in our 2008 SERP during his employment but forfeited his accounts under both plans in connection with his departure.
Perquisites and Supplemental Compensation
We provide perquisites or supplemental compensation to our named executive officers that we believe are reasonable, competitive and consistent with our overall compensation philosophy. We believe that these benefits generally allow our executives to work more efficiently and represent a small percentage of overall compensation. Mr. Ouimet's employment agreement provides for supplemental compensation at an annual rate of $50,000, which is intended to provide for a fixed annual amount in lieu of individual perquisites other than one-time relocation expenses, an annual physical exam and de minimis perquisites such as discounts on our products.
In 2011 we provided Messrs. Zimmerman, Bender, Decker and Crage (during his employment) with automobile allowances. We also offered our named executive officers (other than Messrs. Witherow and Hoffman) discounts on Partnership products. Mr. Kinzel also received a gas allowance, an annual physical exam, the premium payment on a life insurance policy, laundry services and dues for one club membership. See footnote 5 to the Summary Compensation Table on page 14 for a discussion of when the value of perquisites is reported in that table.
Risk Assessment Process
The Compensation Committee has reviewed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us. This risk assessment process included a review of the design and operation of our compensation programs, identifying and evaluating situations or compensation elements that may raise material risks, and an evaluation of the controls and processes we have in place to manage those risks. Because we mix different types of compensation, consider various factors in assessing performance and retain, at the Compensation Committee level, discretion in certain compensation matters, we believe that our compensation program provides an effective and appropriate mix of incentives to help ensure the Partnership's performance is focused on long-term value creation and does not encourage our executives to take unreasonable risks with respect to our business.
SUMMARY COMPENSATION TABLE FOR 2011
The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal year ended December 31, 2011. The table also summarizes, for each of our named executive officers for 2011 who was also one of our named executive officers for 2010 and/or 2009, the total compensation paid to or earned by the officer for the fiscal years ended December 31, 2010 and 2009.
GRANTS OF PLAN BASED AWARDS TABLE FOR 2011
NARRATIVE TO SUMMARY COMPENSATION AND GRANTS OF PLAN BASED AWARDS TABLES
The description that follows summarizes the terms and conditions of our employment agreements with Messrs. Kinzel, Ouimet, Zimmerman, Decker, Bender, Hoffman and Crage. It also summarizes terms of and the programs under which the compensation reflected in the tables was awarded. Additional information is provided in the “Compensation Discussion and Analysis” and “Potential Payments upon Termination or Change in Control” sections.
Mr. Kinzel retired as our president and chief executive officer upon the expiration of his employment term on January 2, 2012. While he was employed with us, Mr. Kinzel received an annual base salary of not less than $1.2 million per year in accordance with his amended and restated employment agreement. In addition, he was entitled to participate in our welfare benefit programs and various incentive compensation plans on terms no less favorable than provided to our other senior managers and/or officers. We purchased a $2 million term life insurance policy for Mr. Kinzel that will remain in effect through July 23, 2018. Under the agreement, Mr. Kinzel will continue as a director of the Board until at least December 30, 2014, provided he is elected to the Board. The agreement contains non-solicitation, non-competition, confidentiality and assignment of inventions provisions.
The employment agreement with Matthew A. Ouimet, our president and chief executive officer, took effect on June 20, 2011 and will terminate December 31, 2014. Under the agreement, Mr. Ouimet receives a base salary at an annual rate of $750,000, which will be reviewed from time to time but will not be subject to decrease except in the event of salary reductions applicable to substantially all of our senior executives. He received a pro-rated portion of that salary for 2011 based on the portion of the year he was employed, and his annual salary has been increased for 2012 as discussed in the Compensation Discussion and Analysis. Mr. Ouimet is eligible for an annual cash incentive award, with a target amount equal to 100% of his base salary, subject to the satisfaction of performance and other criteria set by the Board in consultation with him. His agreement provided for a minimum cash bonus for 2011 of 100% of his pro-rated base salary. Pursuant to the agreement, we granted Mr. Ouimet an initial equity award of time-based restricted phantom units valued at $1 million on the grant date, which is further discussed below in the “Phantom Unit Awards” section. Beginning in 2012, Mr. Ouimet is eligible for annual unit grants under our 2008 Omnibus Incentive Plan, with a target award date value of 100% of base salary and a maximum award value of up to 150% of base salary, subject to satisfaction of performance criteria and other criteria set by the Board in consultation with him. Any Omnibus Plan awards will immediately vest upon a change in control. Mr. Ouimet is eligible to participate in any benefit and compensation plans, including medical, disability and life insurance plans, that we offer from time to time on the same basis as our other senior executives. His agreement also provides for supplemental compensation at an annual rate of $50,000, payable in monthly installments, for us to cover the cost of an annual physical exam and for certain relocation expenses. The employment agreement does not limit the manner in which Mr. Ouimet may spend his supplemental compensation. The agreement contains non-competition, confidentiality, non-disparagement and assignment of inventions provisions.
The amended and restated employment agreement with Richard A. Zimmerman, our chief operating officer, took effect on October 14, 2011 and will terminate December 31, 2014. Pursuant to the agreement, Mr. Zimmerman receives a base salary at an annual rate of $425,000, which will be reviewed from time to time but will not be subject to decrease except in the event of salary reductions applicable to substantially all of our senior executives. Mr. Zimmerman is eligible for an annual cash incentive award, with a target amount equal to 75% of his base salary, subject to the satisfaction of performance and other criteria set by the Board in consultation with him. Beginning in 2012, Mr. Zimmerman is eligible for annual unit grants under the 2008 Omnibus Incentive Plan, with a target award date value of 100% of base salary and a maximum award value of up to 150% of base salary, subject to satisfaction of performance criteria and other criteria set by the Board in consultation with him. Any Omnibus Plan awards will immediately vest upon a change in control. Mr. Zimmerman is eligible to participate in any benefit and compensation plans, including medical, disability and life insurance plans, that we offer from time to time on the same basis as our other senior executives. His agreement also provides for an auto allowance at an annual rate of $8,400, payable in monthly installments. The agreement contains non-competition, confidentiality, non-disparagement and assignment of inventions provisions.
The amended and restated employment agreement with Robert A. Decker, our corporate vice president of planning and design, took effect on June 27, 2011. The agreement will renew automatically for a period of eighteen months commencing on December 1, 2012 and on every eighteen-month anniversary thereafter unless either party provides written notice of its intent to terminate the agreement at least 60 days prior to the automatic renewal date. Pursuant to the agreement, Mr. Decker receives an annual base salary of not less than $250,000 per year. He also is entitled to participate in one or more of our incentive compensation plans and equity incentive plans at a level determined by the Board and in our welfare benefit plans and other benefit programs. The agreement contains non-solicitation, non-competition, confidentiality and assignment of inventions provisions.
The amended and restated employment agreement with H. Philip Bender, an executive vice president, automatically renewed on December 1, 2011 according to the terms of the agreement. The agreement will renew automatically for a period of two years commencing on December 1, 2013 and on every two-year anniversary thereafter unless either party provides written notice of its intent to terminate the agreement at least 60 days prior to the automatic renewal date. Pursuant to the agreement, Mr. Bender receives an annual base salary of not less than $277,000 per year. He also is entitled to participate in one or more of our incentive compensation plans and equity incentive plans at a level determined by the Board and in our welfare benefit plans and other benefit programs. The agreement contains non-solicitation, non-competition, confidentiality and assignment of inventions provisions.
The employment agreement with David Hoffman, senior vice president and chief accounting officer, automatically renewed on December 1, 2011 according to the terms of the agreement and was amended April 24, 2012. The agreement will renew automatically for a period of two years commencing on December 1, 2013 and on every two-year anniversary thereafter unless either party provides written notice of its intent to terminate the agreement at least 60 days prior to the automatic renewal date. Pursuant to the agreement, prior to the amendment, Mr. Hoffman received an annual base salary of not less than $190,000 per year. He will receive an annual base salary of not less than $250,000 under his amended agreement. He also is entitled to participate in one or more of our incentive compensation plans and equity incentive plans at a level determined by the Board and in our welfare benefit plans and other benefit programs. The agreement contains non-solicitation, non-competition, confidentiality and assignment of inventions provisions.
Peter J. Crage resigned as our executive vice president and chief financial officer in June 2011. While he was employed, pursuant to his employment agreement, Mr. Crage received an annual base salary of not less than $400,000 per year. He was entitled to participate in one or more of our incentive compensation plans and equity incentive plans at a level determined by the Board and in our welfare benefit plans and other benefit programs. The agreement contains non-solicitation, non-competition, confidentiality and assignment of inventions provisions. All benefits and compensation to Mr. Crage ceased on the last day of his employment.
For a discussion of the benefits that would be provided by the above described agreements in the event of the executive's death, retirement, disability or other terminations or upon a change in control, see “Potential Payments Upon Termination or Change in Control” in this Form 10-K/A.
Cash Incentive Program Awards and Bonuses
Cash incentive awards reported in column (g) of the Summary Compensation Table for 2011, 2010, and 2009 were made pursuant to our 2008 Omnibus Incentive Plan and were tied to the achievement of performance measures and target award opportunities established by March of the applicable year. The 2011 awards have been reported in column (d) of the Grants of Plan-Based Awards Table for 2011. The Compensation Committee has discretion to increase or decrease all of these cash incentive awards from the amounts that would be received based solely on the achievement of the performance objectives, but no discretionary increase may result in an award in excess of 150% of the target. For additional detail regarding this program and regarding the 2011 cash incentive awards (including the percentage of 2011 starting salary represented by each executive's 2011 cash incentive award, the percentage of the target award opportunity received by each executive for 2011 and the performance measure for 2011), see “Compensation Discussion and Analysis - Elements of 2011 Executive Compensation - Annual Cash Incentive Program.”
A portion of the amount reported for Mr. Ouimet in column (d) of the Summary Compensation Table represents his minimum cash bonus for 2011 under his employment agreement, and the amounts in that column for Messrs. Witherow and Hoffman represent special one time cash bonuses in 2011 due to a change in job responsibilities. See footnotes (1) and (5) to the Summary Compensation Table for additional information.
Although a target award was established for Mr. Crage in March 2011, he forfeited his entire potential award in connection with his resignation and did not receive a cash incentive award payout for 2011.
Phantom Unit Awards
In October 2011, October 2010, and October 2009, we granted time-based phantom unit awards to certain executive officers under the “other unit award” provisions of our 2008 Omnibus Incentive Plan. The October 2011 phantom unit awards are reflected in the Grants of Plan-Based Awards Table, and the grant date fair values of these awards are included in column (e) of the Summary Compensation Table, as and where applicable. Payouts with respect to the time-based phantom units are subject to the continued employment of the recipient and the passage of time. These time-based phantom units vest and will be payable in cash equivalent, units or a combination of both, as will be determined by the Compensation Committee: for the 2011 awards, 50% in March 2014 and 50% in March 2015; for the 2010 awards, 50% in March 2013 and 50% in March 2014; and for the 2009 awards, 50% in March 2012 and 50% in March 2013. The phantom units accrue additional phantom units on the date of each quarterly distribution paid by us, if any, calculated at the NYSE closing price on such date.
Mr. Ouimet received an initial award of 54,201 time-based phantom units in connection with entry into his employment agreement in June, with a grant date value of approximately $1,000,000. These phantom units are reflected in the Grants of Plan-Based Awards Table, and their grant date fair value is included in Mr. Ouimet's 2011 amount in column (e) of the Summary Compensation Table. These phantom units will vest in two equal installments in June 2014 and June 2015 if Mr. Ouimet remains employed as of each payment date. The phantom units subject to this award accrue additional phantom units from distributions that we make, subject to the same vesting terms and conditions.
If a participant is terminated or resigns prior to any payment under the time-based phantom unit awards, the unpaid amount is forfeited. In the event of death or disability during employment or retirement after age 62, the awards will be paid in a lump sum cash payment within ninety days of the event, subject to compliance with Section 409A of the Code. In the event of a change in control, all restrictions applicable to the time-based phantom unit awards will lapse, and the awards will become fully vested and transferable and will be payable in full.
In March 2009 we granted performance-based phantom unit awards to certain named executive officers under our 2008 Omnibus Incentive Plan. The grant date fair value of the 2009 phantom unit awards is included in column (e) of the Summary Compensation Table, where applicable. The awards were determined by the Compensation Committee and were based on the achievement of annual performance targets and various factors considered by the Compensation Committee. These awards are payable in cash equivalent, units or a combination of both, as determined
by the Compensation Committee. 50% of the awards were paid in March 2012 and 50% will be paid in March 2013. The phantom unit awards accrue additional phantom units on the date of each quarterly distribution paid by us, if any, calculated at the NYSE closing price on such date. If a participant is terminated or resigns prior to any payment of these awards, that unpaid amount is forfeited. In the event of death or disability during employment, actual awards for that year, as well as any unpaid awards for prior years, will be paid in a lump sum cash payment within ninety days of the event, subject to compliance with Section 409A of the Code. In the event of retirement after age 62, actual awards for that year will be prorated and paid, together with any unpaid awards for prior years, in a lump sum cash payment within ninety days of the end of the performance period or retirement date, respectively, subject to compliance with Section 409A of the Code. In the event of a change in control, the percentage of the award for that calendar year will be calculated as if 100% of the target level had been achieved and will be paid in a lump sum cash payment within thirty days following the change of control, subject to compliance with Section 409A of the Code.
All of Mr. Kinzel's outstanding phantom unit awards vested immediately upon his retirement in January. Those awards will be paid in July 2012 pursuant to Mr. Kinzel's employment agreement.
Performance Unit Awards
In 2011, 2010, 2009 and 2008, we made performance unit awards to certain vice presidents and mid-level employees under the terms of the 2008 Omnibus Incentive Plan. Messrs. Bender, Hoffman, Witherow, and Zimmerman are the only named executive officers who received such awards. The awards were based on the attainment of specified levels of Adjusted EBITDA for 2011, September 2010 through 2011, 2009 through 2011 and June 2008 through 2011, respectively. The maximum numbers of performance units that each executive was eligible to receive for the 2011, 2010, 2009 and 2008 awards were as follows: Mr. Bender (14,556 units for 2009; 5,654 units for 2008); Mr. Hoffman (10,056 units for 2009; 3,906 units for 2008); Mr. Witherow (4,448 units for 2011; 6,023 units for 2010; 9,489 units for 2009; 3,686 units for 2008); and Mr. Zimmerman (16,667 units for 2009; 6,474 units for 2008). The grant date fair values of the performance awards are reflected in Messrs. Bender's, Hoffman's, Witherow's and Zimmerman's 2011, 2010, and 2009 amounts reported in Column (e) of the Summary Compensation Table, as appropriate, assuming the highest level of performance is achieved.
The performance periods for all of these grants ended December 31, 2011, after which the Compensation Committee determined that each year's awards had been achieved at 65% of the maximum based upon the level of achievement of Adjusted EBITDA during the applicable performance periods. See the “Performance Unit Awards” section of the Compensation Discussion and Analysis for further information. 50% of these awards vested and were paid out in a combination of cash and units in March 2012. The remaining 50% will vest and be paid out in the first 90 days of 2013, so long as the executive remains in our employment. Awards are payable in cash equivalent, units or a combination of both, as determined by the Compensation Committee. If any of Messrs. Bender, Hoffman, Witherow, or Zimmerman leaves our employment prior to the final payment date of the award, any subsequent award payment would be forfeited except in the case of death, disability, or retirement at age 62 or over. In the event of a change of control, the performance unit awards will be deemed earned and payable in full.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2011
OPTION EXERCISES AND UNITS VESTED IN 2011
PENSION BENEFITS FOR 2011
The amounts indicated in the table below represent the December 31, 2011 present value of accumulated benefits payable to each of the named executive officers under the Amended and Restated Supplemental Retirement Program and the 2008 Supplemental Retirement Plan (the “2008 SERP”), as applicable. Mr. Kinzel became entitled to receive the amount indicated below upon his retirement. Because Mr. Decker is not yet vested under the 2008 SERP, we have indicated the present value of his accumulated benefits determined using interest rate assumptions consistent with those used in our financial statements.
Amended and Restated Supplemental Retirement Program
Our Amended and Restated Supplemental Retirement Program provides retirement benefits to Mr. Kinzel. Amounts accrued to Mr. Kinzel under the program, as set forth in the table below, vested and became payable a result of his retirement in January 2012. Amounts were allocated in prior years from the general partner fees as approved by the Compensation Committee. No allocations have been made since May 2004. Mr. Kinzel's account accrues interest at the prime rate as established from time to time by our bank. The accrued balance may be distributed in a lump sum or in a number of future payments over a period not to exceed 10 years. We do not intend to have any other executive officers participate in this plan.
2008 Supplemental Retirement Plan
The 2008 SERP provides non-qualified retirement benefits to its participants, who are selected by the Compensation Committee or other committee designated to administer the plan. Mr. Decker was designated a participant and his account was credited with $50,000 for the 2008 and 2009 plan years. Mr. Crage was designated as a participant and his account was credited with $100,000 for the 2008, 2009, 2010 and 2011 plan years, but he forfeited his entire account when he resigned in June 2011. Additional contributions to this plan were discontinued in 2011, and we do not intend to have any other executive officers participate in this plan.
Credits under the 2008 SERP were made on the basis of base salary, with no participant account being credited more than $100,000 in any plan year, and no more than $250,000 being credited in the aggregate to all participant accounts in any plan year. Accounts earn interest at the prime rate of our bank, as adjusted each December. Participants who incur a separation from service at age 62 or over before having 20 years of service or who otherwise incur a separation from service, other than as a result of death or disability, forfeit their entire account. Accounts vest and become payable in the event of death, disability or separation of service at age 62 or over with at least 20 years of service, and vest upon a change in control and fund a trust for the benefit of the participant once the participant retires at age 62 or over, dies or becomes disabled. Distribution of the accrued balance generally will be made as a lump sum amount at the time specified in the plan. Participants may elect to receive the lump sum at a different time or to receive the accrued balance in a number of future payments over a specified period if certain conditions are satisfied. In general, the delay elected by a participant may not exceed 10 years or 5 years depending on when the distribution election is made.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following summaries describe and quantify the payments that each named executive officer would receive if his employment with us were terminated or if we had a change in control. These payments and benefits derive from a combination of employment agreements or our change of control plan (as applicable), our long-term incentive plans, and our supplemental retirement plans. In all cases, the timing and amount of
payments will comply with the requirements of Section 409A of the Code. The summaries assume that the termination or change in control occurred on December 30, 2011 and the relevant unit price is the closing market price of our units on the NYSE on December 30, 2011, which was $21.50 per unit.
Mr. Kinzel retired as our chief executive officer on January 2, 2012, and we discuss his retirement-related payments and benefits below. We also have included disclosure for him of termination and change in control payment amounts for various scenarios as of December 30, 2011 as required by Securities and Exchange Commission rules and regulations, although Mr. Kinzel is no longer eligible to receive any such payments from us.
Mr. Crage resigned his position as executive vice president and chief financial officer effective June 22, 2011. All compensation and benefits to Mr. Crage ceased on the last day of his employment. He received his accrued and unpaid salary through the date of resignation, along with compensation for earned but unused vacation time, as reflected in the Summary Compensation Table for 2011. Mr. Crage forfeited his potential cash incentive award for 2011, his outstanding phantom unit awards, his account under our tax-qualified retirement savings plan and his account under our 2008 SERP in connection with his resignation.
Payments Pursuant to Employment Agreements (other than in connection with a Change in Control)
The following information summarizes payments that our named executive officers will receive in the event of termination with or without cause, death, disability and retirement. For information regarding payments in the event of a change in control, see “Payments Upon a Change in Control under Employment Agreements or Change of Control Plan” and “Incentive Plan and Supplemental Retirement Plan Payments upon a Change of Control” below. For additional information regarding payments in the event of death, disability or retirement, see “Payments Upon Death, Disability or Retirement under our Incentive and Supplemental Retirement Plans” below.
Richard L. Kinzel
Upon his retirement, Mr. Kinzel and his spouse became eligible to receive lifetime health coverage benefits that, when combined with Medicare, will be substantially similar to the coverage provided to our employees. We also will reimburse any expense for Medicare coverage. We estimate that these health benefits will have an approximate value of $190,863 but the actual value could differ from that amount (including as a result of actual inflation and longevity). We also paid Mr. Kinzel his earned but unpaid salary (approximately $53,462) and his earned but unpaid vacation (approximately $213,844). The unpaid portion of Mr. Kinzel's cash incentive award for 2011 ($413,525) became payable upon his retirement in accordance with the Omnibus Plan, subject to 409A.
In addition, all of Mr. Kinzel's outstanding equity awards, which had an approximate market value of $9,254,236, and his account under our Amended and Restated Supplemental Retirement Program, which was valued at $1,947,037, became vested and payable upon his retirement in accordance with those programs and 409A. All of Mr. Kinzel's outstanding unit options were fully vested prior to his retirement, and he exercised them in full prior to their expiration date of March 7, 2012.
If we had terminated Mr. Kinzel's employment for cause as of December 30, 2011, we would not have been obligated to make any payment to him other than salary and incentive compensation earned but not yet paid as of the termination date in accordance with the terms of each incentive plan. As defined in his employment agreement, “cause” meant (a) conviction of a felony or crime of moral turpitude, (b) failure to perform duties that results in material injury or damage to us, (c) failure to comply with the confidentiality and non-competition provisions of the agreement, (d) theft, embezzlement or fraud, (e) gross negligence or misconduct relating to our affairs or (f) violation of our policies and procedures related to discrimination or harassment.
If we had terminated Mr. Kinzel's employment other than for cause as of December 30, 2011, Mr. Kinzel would have received a lump-sum payment within twenty business days of termination (or such period of time as may be required by Section 409A of the Code) consisting of (a) his annual base salary earned but unpaid through the date of termination and (b) an amount equal to the present value, using a reasonable interest rate, of his annual base salary on the date of termination and incentive compensation that he would have received had he remained employed for the term of the agreement. The incentive compensation amount would have been determined by computing the average incentive compensation that Mr. Kinzel received under the incentive plans during the three years preceding the termination multiplied by the number of years remaining on the employment agreement. In addition, all of Mr. Kinzel's outstanding equity awards, including options and restricted unit awards, would have vested and become payable in accordance with the terms of the respective plan and Section 409A, and he would have been entitled to exercise his options until March 1, 2012. Mr. Kinzel and his spouse would have received lifetime health coverage benefits that, when combined with Medicare, would have been substantially similar to the coverage provided to our employees, and any expense for Medicare coverage would have been reimbursed by us. We also would have maintained the $2 million life insurance policy on Mr. Kinzel's life for the benefit of his designee through July 23, 2018, and Mr. Kinzel would have been eligible to participate in our fringe benefit plans and programs on terms no less favorable than provided to our other senior managers and officers through January 2, 2012.
If Mr. Kinzel had been terminated as a result of a disability, he would have received the same benefits as if he had been terminated other than for cause, except that his salary or incentive compensation benefits would have been reduced by any payments received by him from any short- or long-term disability plan maintained by us. A disability is defined as a physical or mental illness that renders Mr. Kinzel unable to perform his duties on a full-time basis for a period of six consecutive months as confirmed by a physician selected by us.
If Mr. Kinzel had died on December 30, 2011, Mr. Kinzel's estate would have received all of his compensation earned but not yet paid within ninety days of his death. In addition, all of Mr. Kinzel's outstanding equity awards, including options and restricted unit awards, would have vested, and his options would have been exercisable until March 1, 2012. Mr. Kinzel's spouse would have received receive lifetime health care coverage, including a supplement to Medicare and reimbursement of any expense for Medicare coverage, so that her complete health care coverage would have been substantially similar to coverage provided to our active employees.
During the longer of the period during which Mr. Kinzel is receiving benefits and 24 months following the date of termination, he will be subject to a non-competition and a non-solicitation provision. In addition, if Mr. Kinzel had been terminated other than for cause, then in order to receive those payments and benefits, Mr. Kinzel would have been required to provide a mutually acceptable separation agreement and release.
Matthew A. Ouimet and Richard A. Zimmerman
If Mr. Ouimet's or Mr. Zimmerman's employment is terminated for any reason other than by us without cause, by the executive for good reason, or by death or disability, which we refer to in this discussion and the tables below as the “general termination scenario,” the executive will be entitled to receive a lump sum payment within 30 days following termination consisting of accrued and unpaid base salary and supplemental compensation (in the case of Mr. Ouimet) or auto allowance (in the case of Mr. Zimmerman), reimbursement of business expenses and payment for accrued and unused vacation days, each as accrued through the date of termination. The executive also will be entitled to any unpaid cash bonus earned with respect to a fiscal year ending on or prior to the date of termination, payable at the same time payment would have been made had he continued to be employed, and all other accrued amounts or benefits he is due under our benefit plans, programs or policies (other than severance).
If Mr. Ouimet or Mr. Zimmerman resigns for good reason, if we terminate Mr. Ouimet other than for cause or if we terminate Mr. Zimmerman other than for cause after June 30, 2013 (in each case, other than in connection with a change in control), the executive will be entitled to:
If we terminate Mr. Zimmerman's employment other than for cause or in connection with a change in control on or before June 30, 2013 (including by written notice of non-renewal or as a result of disability), he will receive his base salary for the longer of eighteen (18) months or the remaining term of his employment agreement, to be paid in accordance with our payroll practices at the time. In addition, as of the termination date, he will be 100% vested in any outstanding time-based and performance-based phantom unit awards, payment of which will be made pursuant to the terms of the original award agreements without regard to the continued employment requirements. Any benefit credited to his account under the 2008 Supplemental Retirement Plan will be 100% vested as of the termination of employment and paid in accordance with such plan. He will be entitled to full payment of all