BEAM INC 10-K 2014
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
For the fiscal year ended December 31, 2013
Commission file number 1-9076
(Exact name of registrant as specified in its charter)
510 Lake Cook Road, Deerfield, IL 60015
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (847) 948-8888
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
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 ¨ 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 ¨
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants 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. x
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 small reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the registrants common stock held by non-affiliates of the registrant at June 28, 2013 (the last day of our most recent second quarter) was $10,207,695,016 based on the closing price as reported on the New York Stock Exchange. The number of shares outstanding of the registrants common stock, par value $3.125 per share, at April 28, 2014, was 165,785,694.
This Amendment No. 1 on Form 10-K/A (the Amendment) amends the Annual Report on Form 10-K of Beam Inc., a Delaware corporation (Beam, we, our, us or the Company), for the fiscal year ended December 31, 2013, originally filed with the SEC on February 18, 2014 (the Original Filing). This Amendment is being filed to amend Part III of the Original Filing to include the information required by and not included in Part III of the Original Filing because the Company no longer intends to file a definitive proxy statement for an annual meeting of shareholders within 120 days of the end of its fiscal year ended December 31, 2013. Part IV of the Original Filing is being amended solely to add as exhibits Exhibit 2.4 and certain new certifications in accordance with Rule 13a-14(a) promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the Exchange Act). Because no financial statements have been included in this Amendment and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 4 and 5 of the certifications have been omitted.
Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Filing and the Companys other filings made with the SEC on or subsequent to February 18, 2014.
Form 10-K Table of Contents
Our Board consists of eight members. The names of the directors, along with their present positions, their principal occupations and directorships held with other public corporations during the past five years, their ages and the year first elected as a director of the Company, are set forth below.
Summary of Qualification of Directors
The Board believes that it is necessary for each of the Companys directors to possess many qualities and skills. When searching for new candidates, the Nominating and Corporate Governance Committee (the Nominating Committee) considers the evolving needs of the Board and searches for candidates who fill any current or anticipated future needs. The Board also believes that all directors must possess extensive business management experience (such as experience as a chief executive officer, chief financial officer or other senior executive officer) and educational experience. The Nominating Committee first considers a candidates management experience and then considers issues of judgment, background, stature, potential conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value when considering director candidates. The Nominating Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity, but the Board and the Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidates credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individuals contributions to the Board are also considered.
The Board believes that there are certain general requirements that are critical for service on the Board, while there are other skills and experiences that should be represented on the Board as a whole but not necessarily by each individual director.
General requirements for all directors:
Experiences, qualifications, and backgrounds to be represented on the Board as a whole:
Certain individual qualifications and experiences of the directors that contribute to the Boards effectiveness as a whole are described in the following paragraphs.
The name, present position and offices with the Company, principal occupations during the past five years and age of each of the Companys executive officers are set forth below. References to Beam Global Spirits & Wine, Inc. are to the spirits operating segment of Fortune Brands, Inc. prior to the Spin-Off.
In the case of each of the above-listed executive officers, the occupations given were the principal occupation and employment during the periods indicated. No executive officers are related to any other executive officer. No executive officer was selected pursuant to any arrangement or understanding between the executive officer, director, or director nominee and any other person. All executive officers are elected annually by the Board of Directors
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and certain officers, as well as persons who have beneficial ownership of more than 10 percent of our common stock, to file initial reports of beneficial ownership on Form 3, and reports of subsequent changes in beneficial ownership on Forms 4 or 5, with the SEC. Based solely on our review of these forms, and certifications from our officers and directors that no other reports were required for such persons, we believe that all directors and officers subject to Section 16 complied with the filing requirements applicable to them for the fiscal year ended December 31, 2013.
Code of Ethics
The Companys Board of Directors has adopted a Code of Ethics for the CEO and Senior Financial Officers that applies to the Companys principal executive officer, principal financial officer, and principal accounting officer and controller. The Code of Ethics for the CEO and Senior Financial Officers is available, free of charge, on the Companys website, www.beamglobal.com. A copy of the Code of Ethics for the CEO and Senior Financial Officers is also available and will be sent to shareholders free of charge upon written request to the Companys Secretary. Any amendment to, or waiver from, the provisions of the Code of Ethics for the CEO and Senior Financial Officers that applies to any of those officers will be posted to the same location on the Companys website.
Corporate Governance Principles
The Board has adopted Corporate Governance Principles, which are available at http://investor.beamglobal.com under the tab Corporate Governance Company Policies. The Principles describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, compensation of directors and executive succession planning.
The Board has established an Executive Committee, an Audit Committee, a Compensation and Benefits Committee, a Nominating and Corporate Governance Committee and a Corporate Responsibility Committee. The Audit, Compensation and Benefits, and Nominating and Corporate Governance Committees are composed entirely of independent directors, as defined under the New York Stock Exchange Listed Company Manual and the Companys Corporate Governance Principles. The charters of these committees (other than the Executive Committee, which does not have a charter) and a list of current committee memberships are available on the Companys website at http://investor.beamglobal.com under the tab Corporate Governance Committees of the Board.
The Committee memberships as of the date of this Amendment are set forth below:
An X indicates membership on the committee.
A C indicates that the director serves as the Chair of the committee.
The Companys separately designated Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the Exchange Act). The Audit Committee comprises the following four members: Richard Goldstein, David Mackay, Gretchen Price and Robert Steele. Each member of the Audit Committee, as of the date of this Amendment, is financially literate, has accounting or financial management expertise and has been determined by our Board to be an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Securities Exchange Act of 1934 (the Exchange Act). Each Audit Committee member has also been determined by our Board to be independent as such term is defined in Rule 10A-3 under the Exchange Act and the New York Stock Exchange Listed Company Manual.
COMPENSATION DISCUSSION AND ANALYSIS
IMPACT OF MERGER AGREEMENT
On January 12, 2014, the Company entered into an Agreement and Plan of Merger (as amended as of March 11, 2019, the Merger Agreement), with Suntory Holdings Limited, a Japanese corporation (Suntory Holdings), and SUS Merger Sub Limited, a Delaware corporation and a wholly-owned subsidiary of Suntory Holdings (Merger Sub). Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged into Beam (the Merger), with Beam surviving the Merger as a wholly-owned subsidiary of Suntory Holdings. The Merger Agreement provides for the treatment of outstanding equity awards, including those grants made in 2013. Specifically, upon the closing of the transaction contemplated by the Merger Agreement, (1) each outstanding stock option will vest in full; (2) each Restricted Stock Unit (RSU) Award will vest in full; and (3) each performance award will vest on a pro-rated basis and the applicable performance goal(s) will be deemed to have been satisfied at 100% of the target level of performance. For more information, please refer to Treatment of Equity Awards on page 4 of our definitive proxy statement on Schedule 14A filed with the SEC on February 19, 2014.
This Compensation Discussion and Analysis (CD&A) describes our executive pay philosophy, the process we use to establish executive pay and the pay program applicable to our named executive officers (NEOs) during 2013. The Compensation and Benefits Committee of the Board (the Compensation Committee) administers our executive pay program. This CD&A provides information regarding the compensation and benefits provided to the following NEOs:
2013 Business Highlights
Beam Inc. in 2013 extended its track record of delivering profitable growth and further strengthened its position as a leader in the global spirits industry.
The Company has long believed in a pay-for-performance approach to compensation. The Companys financial results, performance against targets, and achievement of strategic goals were important considerations for the Compensation Committee as it made compensation decisions in 2013. Beam Inc. evaluates overall Company performance and geographic performance for the following segments: North America; Europe, Middle East and Africa (EMEA); and Asia Pacific and South America (APSA).
Pay-for-Performance in 2013
The Compensation Committee and the Company strive to create a pay-for-performance culture. The compensation actions for 2013 reflected the Companys commitment to this performance-based culture, as described below:
Summary of Executive Compensation Practices
To assure that our executive pay practices emphasize and drive our business model, align executive interests with those of stockholders and appropriately balance governance, oversight and risk management, our Compensation Committee, composed entirely of independent directors, has adopted the following corporate governance practices that are supportive of our executive compensation objectives and philosophies.
The Compensation Committee has established the following objectives that apply to the Companys executive pay program:
The Compensation Committee has further developed the following principles that it believes support the objectives outlined above:
PROCESS FOR ESTABLISHING EXECUTIVE PAY
Roles in the Executive Pay Process
Beam maintains a rigorous executive pay process. The following identifies the various parties that participated in the Companys 2013 executive pay review and approval process and describes the role of each party in the process.
Board of Directors
The Board annually reviews the CEOs performance with respect to specified performance goals established by the Board and consults with the Compensation Committee with respect to appropriate CEO compensation.
The Compensation Committee establishes total target compensation and short-term and long-term incentive plan goals for the CEO in consultation with independent members of the Board and reports CEO compensation to the Board in executive session.
The Compensation Committee works with the CEO and reviews his evaluation of the performance of his direct reports as well as the performance evaluation for other executive officers. The committee approves compensation actions for such officers (with the input of the CEO) and administers employee compensation and benefit programs delegated to the Compensation Committee as reflected in its charter, including approval of performance goals under annual incentive plans equity program design, and grant levels.
When establishing executive pay, the Compensation Committee reviews tally sheets that include data on individual items of compensation and each executives current and historical total compensation package. The review considers compensation currently payable, benefits and perquisites, as well as contingent compensation, including incentive compensation and compensation payable only if certain circumstances occur, such as involuntary termination of employment without cause or certain terminations of employment following a change in control.
The CEO evaluates each of his direct reports performance and reports to the Compensation Committee on the performance of each direct report and each executive officer. He also recommends prospective compensation actions to the Compensation Committee with respect to the direct reports and other executive officers.
While the Compensation Committee and/or the Board may request that the CEO participate in meetings and provide information that it deems helpful in reviewing and establishing executive compensation, under no circumstances does the CEO participate in the Compensation Committees review and establishment of CEO compensation.
Independent Compensation Consultant
The Compensation Committee retains Meridian Compensation Partners, LLC (Meridian) as its independent compensation consultant. Meridian provides advice and recommendations to the Compensation Committee regarding the amount and form of executive pay. Meridian regularly communicated with the Compensation Committee during 2013 and participated in seven Compensation Committee meetings during 2013 and related executive sessions. Meridian provides advice and guidance to the Compensation Committee, including market-competitive data that assists the committee in evaluating and establishing executive pay.
To assure Meridians ongoing independence, Meridian is prohibited from providing other services to the Company or its management. The Compensation Committee assessed Meridians independence against the six independence factors adopted by the SEC, including whether Meridian had any actual or potential conflicts of interest. In addition, the Compensation Committee reviewed Meridians terms of engagement and its compensation and performance during 2013 and determined that Meridian had no relationship with any of the Companys executive officers. Based on this review and assessment, the Compensation Committee concluded that Meridian was and continues to remain independent.
Peer Group Companies
The Compensation Committee, with Meridians advice and assistance, reviews current compensation against compensation of similarly situated public companies and direct competitors (the Peer Group). The Compensation Committee works with Meridian to review the Companys Peer Group selection criteria and ultimately the Peer Group selected. The Compensation Committee, considering the advice of Meridian, regularly reviews the Peer Group to assure that the Peer Group reflects what the Compensation Committee believes to be an accurate representation of market comparators. The Compensation Committee considers revenue, market capitalization, relative financial and stock performance, industry, market segment, international footprint, competitors for executive talent and whether the company is a direct competitor of the Company, among other factors, when reviewing and establishing the Peer Group. After careful review and consideration, the Compensation Committee provides final approval of the Peer Group.
The following is the Peer Group used by the Company to establish compensation for executives for the fiscal year ended December 31, 2013:
The Compensation Committee annually benchmarks individual executive pay and the overall executive pay program design against the Peer Group.
The Compensation Committee targets total compensation within the competitive range of the 50th percentile of Peer Group compensation, based on size-adjusted market data. While the Compensation Committee generally aims to provide compensation within the targeted range, factors unique to a particular executive, including his or her employment situation or special skills, employment location, experience and performance may affect the executives base salary and total compensation either positively or negatively compared to the targeted range. The Compensation Committee considers the following factors when establishing an executives compensation in addition to market data:
The total target compensation (i.e., the sum of base salary, target annual incentive opportunity and target long-term incentive opportunity) for the NEOs other than Messrs. Baldock and Baladi was within the competitive range of the 50th percentile of market comparability data.
Mr. Baladis total target compensation was above the 50th percentile of peer group compensation. The Compensation Committee reviewed Mr. Baladis total target compensation, recognizing that it fell outside the Companys target range, and determined the compensation to be appropriate based on his strong record of success and unique skill set as well as differences in regional market data.
Mr. Baldocks total target compensation was at the third quartile of peer group compensation. The Compensation Committee reviewed Mr. Baldocks total target compensation, recognizing that it fell outside the Companys target range, and determined the compensation to be appropriate. Mr. Baldock retired from the Company effective December 31, 2013.
The Compensation Committee also seeks to assure that the Companys executive pay program is aligned with the interests of its stockholders. In that respect, as part of its ongoing review of the Companys executive pay program, the Compensation Committee considered the approval by more than 94% of the votes cast for the Say on Pay vote at the Companys 2013 annual meeting of stockholders and determined that the Companys executive pay philosophy, compensation objectives, and compensation elements continued to be appropriate and did not suggest any changes to the Companys executive pay program in response to such vote.
ELEMENTS OF NEO PAY
The principal components of NEO compensation are base salary, annual and long-term incentive compensation and retirement and severance benefits. The chart below depicts the relative weighting of 2013 base salary and target annual and long-term incentives for our NEOs.
The Company provides a market-competitive base salary to its NEOs to attract and retain quality talent. Each NEOs base salary recognizes level of responsibility, experience, regional market differences in order to be competitive, individual performance and tenure. The Compensation Committee may adjust base salaries from the targeted pay objective to reflect a particular NEOs unique skill set, experience, performance, and expertise. In 2013, base salaries for NEOs other than Mr. Baldock were increased consistent with a typical market merit increase as reflected in the chart below. The base salaries for the NEOs as of December 31, 2013 and 2012 were as follows:
Annual Incentive Compensation
Each NEO participated in the Beam Executive Incentive Plan (the EIP) in 2013. The Company provides awards to NEOs under the EIP to align each NEOs performance with the short-term goals of the Company, as measured by sales, operating income and Company free cash flow performance. The Compensation Committee established targets and executive awards under the EIP based on a combination of performance metrics. For Messrs. Shattock and Probst, the Compensation Committee established goals under a Company net sales/operating income matrix and based on Company free cash flow. For Messrs. Newlands, Baldock and Baladi, the Compensation Committee established targets under the same metrics applicable to Messrs. Shattock and Probst, plus a regional matrix aligned with their own respective areas of responsibility. The metrics applicable to each executive were evaluated and approved by the Compensation Committee to align the compensation of each executive with Company-wide and/or business segment performance, depending on the executives role within the Company. The operating income metrics in the respective matrices are on a before charges/gains basis.
Executive awards under the EIP are subject to discretionary adjustment by the Compensation Committee based on its evaluation of performance and overall contributions to the performance of the Company. In making any such discretionary adjustments, the Compensation Committee takes into consideration performance against specific goals, outstanding performance in a particular region, entrepreneurial and outstanding achievement, innovation, outstanding and forward thinking leadership, establishment of new relationships and product lines, success despite regional or broader market challenges, and other individual efforts that exceed expectations or the executives scope of duties and drive the Companys success. The Committee may also adjust awards to account for unusual or unexpected events, the impact of acquisitions and divestitures, and non-recurring items.
Weighting of EIP performance metrics for 2013 are set forth in the following table:
A particular performance matrix is built around targets for sales and operating income performance for the Company or particular business segment, which produces an operating income margin focus. The Company or business segment must achieve at least the minimum operating income growth threshold in order to receive a payout. For 2013, the threshold and maximum award opportunities were 20% and 200% of target, respectively.
The 2013 matrix for Company performance was as follows:
The Compensation Committee determined target performance goals to be appropriate because at the time of grant, the goals were believed to be challenging but achievable through sound management and execution against overall Company and business segment strategy. Award levels at the higher levels of performance under each matrix were established as stretch goals for the Company or business segment and the leadership team.
Individual award targets were established as a percentage of each NEOs base salary under the EIP. Targets were developed based on each NEOs role within the organization and the assessment of the NEOs total compensation relative to market. The EIP targets for the NEOs were as follows as of December 31, 2013:
For 2013, the Compensation Committee set Company net sales and operating income before charges/gains targets of $2,606.2 million and $676.4 million, respectively, and a free cash flow target of $341.4 million. The Compensation Committee set segment net sales and operating income before charges/gains targets as follows: North America $1,612.3 million and $428.1 million, respectively, EMEA $526.3 million and $127.9 million, respectively, and APSA $519.6 million and $119.2 million, respectively.
The Company reported net sales of $2,547.3 million and operating income before charges/gains of $667.6 million.* As permitted under the terms of the EIP, the Committee adjusted the performance results to account for the impact of foreign exchange rates and other costs that the Committee deemed were not indicative of the Companys underlying performance for 2013.
For 2013, adjusted performance for Beam Inc. and EMEA exceeded targeted goals as measured by the applicable performance matrix but did not exceed the Company free cash flow target. In 2013, adjusted performance on the Company net sales/operating income matrix was 106% of target and on each of the segment sales/operating income matrices was: North America 90% of target, APSA 0% of target and EMEA 125% of target. Company free cash flow was at 86% of target.
Based on its evaluation of the applicable performance matrices, the Compensation Committee subsequently approved awards to each NEO as follows:
Long-Term Performance Incentives
In 2011, Company stockholders approved the Beam Inc. 2011 Long-Term Incentive Plan (LTIP). The Company designed the LTIP to allow for flexibility in rewarding the attainment of Company goals, while also assuring the alignment of NEO interests with those of stockholders, and particularly the long-term profitability of the Company and the performance of Company stock. The LTIP also plays an important role in promoting an ownership culture among the employees of the Company while supporting the overall goal of a pay-for-performance culture. Under the LTIP, the Compensation Committee has the authority to grant performance shares, stock options, restricted stock, restricted stock units, and cash-based incentive awards.
Each NEO is granted awards under the LTIP with an aggregate target value established with reference to market 50th percentile. In 2012, the Company changed the mix of LTIP awards for its executives, including the NEOs, to eliminate cash-settled performance awards as a form of award and to shift an increasing percentage of each executives awards to stock based compensation. The Committee felt that this change would further align the interests of each executive with those of stockholders. Mr. Shattocks 2013 awards were allocated as follows: 50% performance shares, 25% stock options and 25% restricted stock units. The remaining NEOs were allocated 2013 awards as follows: 40% performance shares, 30% stock options and 30% restricted stock units.
The treatment of outstanding LTIP awards, including the 2013 grants, is addressed in the Merger Agreement. See Impact of Merger Agreement on page 8 of this report for more details.
Performance Share Awards
Performance shares are awarded based on achievement of cumulative earnings per share (EPS) and return on invested capital (ROIC) targets over a three-year performance period. EPS is weighted at 80% and ROIC is weighted at 20%. These two measures were selected because the Compensation Committee believes that they drive long-term stockholder value creation by capturing growth through the EPS measure and returns through the ROIC measure. The Company grants performance share awards with payout determined following the end of a three-year performance period. At the completion of the three-year performance period, overall performance is evaluated and appropriate awards are determined based on performance against stated targets.
At its February 2013 meeting, the Compensation Committee approved target performance share awards for the 2013-2015 performance period for each of Messrs. Shattock, Probst, Newlands, Baldock and Baladi. The target number of performance shares awarded to each NEO was determined based on the closing price of Company common stock on the date of grant and is listed in the table on page 22 of this report.
In February 2013, the Compensation Committee granted stock options to each of the NEOs. The exercise price of the options was established as the closing price of Company common stock on the date of grant. The number of stock options granted to each NEO in 2013 is listed in the table on page 22 of this report. Stock options only have value to the extent that the price of Beam stock on the date of exercise exceeds the stock price on the date of grant. Options are therefore provided to executives to align their long-term interests with those of stockholders. Stock options also create a retention mechanism by virtue of their multi-year vesting schedule.
Time-Vested Restricted Stock Units
Restricted Stock Units (RSUs) are time-vested grants that award shares of common stock to executives who satisfy the applicable vesting period. Each RSU is settled in one share of Company common stock. It is a market-competitive practice in the Companys Peer Group to issue RSUs, and the Compensation Committee believes that RSUs enforce stability in the Companys executive workforce by providing an incentive to the executive to remain employed with the Company. The Compensation Committee believes that RSUs also encourage long-term value creation and align NEO financial interests with those of stockholders.
The Compensation Committee approved the award of RSUs to Messrs. Shattock, Probst, Newlands, Baldock and Baladi at its February 2013 meeting. The number of RSUs awarded to each NEO was determined based on the closing price of Company common stock on the date of grant. The RSUs cliff vest on the third anniversary of the date of grant and are also subject to a performance metric specifically designed to qualify the awards for the performance-based exemption under Section 162(m) of the Internal Revenue Code. The number of RSUs granted to each NEO in 2013 is listed in the table on page 22 of this report.
Cash-Settled Performance Awards
Cash-settled performance awards were historically provided at the business segment level, and were introduced to reward intermediate and long-term performance goals specific to the operating company. The Company evaluated its practice of providing cash-settled performance awards in 2011, and determined to discontinue this practice for grants occurring in 2012 and thereafter. When it made this change, the Company determined that long-term awards were more appropriately linked to the Companys equity as opposed to cash payment, particularly since awards under the EIP are also paid in cash.
For the 2011-2013 performance period, the NEOs other than Mr. Baldock received cash-settled performance awards valued based on performance units with a notional target value of $400 per unit. Performance is evaluated based 50% on operating income results and 50% on return on net tangible assets (RONTA) results. Goals for the 2011-2013 performance period were based on operating income and RONTA for the full three-year performance period, as established at the start of the performance period. In Mr. Baldocks case, target cash-settled performance awards are valued as a percentage of base salary rather than as performance units. His cash-settled performance awards were targeted at 60% of base salary, and measured in the same equally weighted operating income and RONTA measures applicable to other NEOs.
The 2011 2013 performance period resulted in a 93% achievement against target with payouts to the NEOs as follows: Mr. Shattock $651,000; Mr. Probst $148,800; Mr. Newlands $148,800, and Mr. Baldock $337,352 and Mr. Baladi $148,800.
OTHER ELEMENTS OF NEO COMPENSATION AND BENEFITS
Retirement and Deferred Compensation Benefits
The Company believes that retirement benefits are an important element of its executive pay program. The Company feels that the retirement and deferred compensation benefits offered provide a market-competitive level of income upon retirement. The Company provides retirement benefits to NEOs in the United States through a combination of a tax-qualified defined contribution plan and a nonqualified excess benefit plan, with a defined contribution component. The nonqualified plan allows participating executives to accrue benefits that are otherwise limited by the Internal Revenue Code under the Companys qualified defined contribution retirement plan. Effective as of January 1, 2013, the Company also established a voluntary deferral nonqualified deferred compensation plan for its eligible U.S. employees including members of senior management. The new plan allows participants to voluntarily defer receipt of a portion of their cash compensation. The Company provides retirement benefits to NEOs in Spain and Australia through locally maintained defined contribution plans.
The Company provides its NEOs with modest perquisites and other personal benefits which are consistent with market practice and the Compensation Committees philosophy of attracting and retaining exemplary executive talent. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to NEOs to assure that such benefits are consistent with the Companys executive pay philosophy.
Change in Control and Severance Agreements
The Company maintains a severance and change in control agreement with each NEO. The Company maintains these agreements to assure the continuity of key management through the date of a potential change in control, and to allow management to maintain focus on the business in the event of a change in control. These market-competitive agreements generally provide for severance pay in the event of involuntary termination of employment by the Company without cause or voluntary termination of employment by a NEO in the event of good reason. No severance is available if a NEOs employment is terminated due to death or disability or by the Company for cause. The agreements also limit the ability of executives to work for direct competitors after their employment with the Company has ended in connection with a non-change in control severance.
Enhanced benefits are available to NEOs if their termination event occurs within a specified period following a change in control. The change in control severance pay is a double trigger severance benefit, meaning that both a change in control must occur, and the executive must either voluntarily terminate employment for good reason following the change in control, or be terminated by the Company or its successor without cause following the change in control. The Company entered into these agreements with the NEOs in 2011 based on a review of market practices and the advice of Meridian. In designing the agreements, the Company specifically prohibited excise tax gross-ups. These agreements are described in more detail on pages 27 to 30 of this report.
POLICIES, GUIDELINES AND DEDUCTIBILITY OF COMPENSATION
The Companys clawback policy empowers the Board to seek recoupment of incentive compensation paid to NEOs and other key employees in the event of a material restatement of the Companys financial statements (other than changes required to comply with changes to applicable accounting principles). The Compensation Committee regularly reviews the clawback policy to assure compliance with applicable laws, and the Compensation Committee will revise the policy as appropriate to assure compliance with applicable law. The clawback policy applies to the Companys annual incentive plan and long-term incentive plan.
Stock Ownership Guidelines
The following summarizes the ownership multiples in the current Stock Ownership Guidelines as approved by the Compensation Committee and in effect for NEOs:
The guidelines are intended to provide a minimum level of ownership for executives of the Company. In addition, Company policy prohibits directors, officers and certain subsidiary employees from hedging the risk of owning Company stock or from trading in derivatives of the Companys stock. Each of the NEOs is on pace to satisfy or exceed the requirements of the guidelines within the five-year period outlined in the guidelines.
Deductibility of Certain Compensation
Section 162(m) of the Internal Revenue Code limits the income tax deduction that is available to public companies for compensation paid to each of the chief executive officer and the other three most highly compensated executive officers, other than the chief financial officer, unless the compensation qualifies as performance-based compensation under Section 162(m). The Company intends to avail itself of the exemption from Section 162(m) for performance-based compensation when practicable, but reserves the right to award compensation that may not be fully deductible if payment of such compensation is determined to be in the interests of the Company and its stockholders.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person who served as a member of the Compensation Committee during the last fiscal year has (i) served as one of our officers or employees; or (ii) any relationship requiring disclosure under Item 404 of the SECs Regulation S-K. None of our executive officers serve as a member of the board of directors or as a member of a compensation committee of any other company that has an executive officer serving as a member of our Companys Board or our Companys Compensation Committee.
We believe that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. In addition, the Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks. The Compensation Committee, with assistance from its independent compensation consultant, reviewed the elements of executive compensation extensively to determine whether any portion of the Companys executive compensation policies and practices encouraged excessive risk taking and concluded:
Furthermore, as described in the Compensation Discussion and Analysis, compensation decisions include independent committee oversight, which prevents excessive risk taking aimed at exploiting formulae or objective evaluation metrics.
2013 EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth accounting values for both fixed and variable elements of compensation for the NEOs, including unvested and/or unpaid stock awards and unexercised stock options. For example, stock options granted to each of the NEOs during 2013 are presented in the Option Awards column of the table below based on the awards grant date fair value as determined under applicable accounting rules. However, the amount each NEO realizes from these equity awards may differ materially from the amounts shown in the table below and the related footnotes (in certain circumstances, the NEOs may realize no value under these awards). Similarly, restricted stock unit and performance share awards that have been granted to each of the NEOs during 2013 are presented in the Stock Awards column of the table below based on the awards grant date fair value as determined under applicable accounting rules, even though the executive may later forfeit the award. Investors should note that equity compensation awards granted or paid to the NEOs are reported in several different tables in this report as required by the SECs executive compensation disclosure rules.
Long-Term Disability and Life Insurance: The amounts in Column G include the amount of all life insurance premiums paid by the Company. For 2013, these amounts were: $2,377 for Mr. Shattock, $1,378 for Mr. Probst and $3,116 for Mr. Newlands. Also included is the amount of long-term disability insurance coverage premiums paid by the Company. For 2013, these amounts were: $691 for each of Messrs. Shattock, Probst, and Newlands and $8,882 for Mr. Baladi.
Medical and Dental Insurance: The amounts in column G include the cost of all medical and dental insurance provided by the Company. For 2013, these amounts were: $9,739 for Mr. Shattock, $9,739 for Mr. Probst, $9,739 for Mr. Newlands and $4,873 for Mr. Baladi.
Defined Contribution Benefits, Nonqualified Plan Earnings and Medicare Tax Payments: The amounts in Column G also include:
2013 GRANTS OF PLAN-BASED AWARDS
The following table summarizes grants of plan-based awards made during the year ended December 31, 2013.
Non-Equity Incentive Plan
The Executive Incentive Plan is a cash-based, pay-for-performance incentive plan. Under the Executive Incentive Plan, participants are eligible to receive a cash bonus if the performance goals established for the year are met or exceeded. See pages 27 to 30 of this report for a description of the treatment of non-equity incentive awards upon termination of employment.
Long-Term Equity Incentive Plan
The LTIP allows the Company to award executives a variety of forms of equity compensation using the Companys common stock. In 2013, the Company awarded annual grants of performance shares, stock options and restricted stock units. See pages 27 to 30 of this report for a description of the treatment of equity awards upon termination of employment and see page 8 of this report for a description of the treatment of equity awards in the Merger Agreement.
OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END
Listed in the table below are the number of Beam Inc. outstanding performance shares, stock options and restricted stock units for each named executive officer on December 31, 2013.
OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END
2013 OPTION EXERCISES AND STOCK VESTED
2013 NONQUALIFIED DEFERRED COMPENSATION
The Companys nonqualified deferred compensation plan is a supplemental plan that pays the difference between the profit sharing contribution provided under the tax-qualified defined contribution plan and the contribution that would have been made if the Internal Revenue Code did not limit the compensation that may be taken into account under tax-qualified retirement plans. The profit sharing contribution amount in 2013 was equal to 7.1% of adjusted compensation for Messrs. Shattock, Probst and Newlands, which generally includes salary and annual bonus. Compensation is adjusted by multiplying amounts in excess of the Social Security taxable wage base ($113,700 in 2013) by 1.25. The pertinent profit sharing formula applies uniformly to all eligible employees in the applicable plan and is not enhanced for executives. Nonqualified profit-sharing benefits are paid in a lump sum upon termination of an executives employment.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL (1)
A number of Company employee benefit and incentive plans provide for payment or vesting of benefits upon termination of employment of any participant, including the NEOs. If terminated on December 31, 2013, the NEOs would receive benefits and payments under these plans in addition to the amounts described in the table above.
Annual Incentive Plan Awards. The following table shows the treatment of annual awards under the applicable annual incentive plan following a termination of employment, depending upon the reason for such termination. The annual incentive plan does not distinguish between a termination of employment prior to or following a change in control. However, as described in greater detail on page 30, under the terms of each NEOs termination agreement, in the event that (1) the Company terminates the NEOs employment for a reason other than disability or cause, or (2) the NEO terminates his employment for good reason, the NEO would be entitled to receive any earned but unpaid annual incentive compensation for the immediately preceding year and annual incentive compensation for the year in which the terminated occurs, pro-rated and based upon actual Company performance.
LTIP Awards. The following table shows the treatment of LTIP awards following a termination of employment, depending upon the reason for such termination.
The following chart explains the treatment of LTIP awards in the event of a change in control. The chart describes the terms of the LTIP and the relevant award agreements. It does not describe the impact of the Merger Agreement. For more information regarding the treatment of these equity awards pursuant to the Merger Agreement, please see Impact of the Merger Agreement on page 8:
Retirement Benefits. Upon termination of employment, participants in the Companys defined contribution plans (both tax-qualified and nonqualified) may receive a distribution of their account balances. The Nonqualified Deferred Compensation table on page 26 of this report lists each executive officers balance under the nonqualified defined contribution plan as of the last fiscal year end.
Health and Related Benefits. In addition to the dollar values in the table above for health and related benefit continuation pursuant to severance and change in control agreements, the NEOs will receive health and related benefits pursuant to the Companys benefit plans applicable to employees generally.
Termination Agreements. In 2011, the Company entered into termination agreements with Messrs. Shattock, Probst, Newlands, Baldock and Baladi specifying certain compensation and benefits payable to the executives in the event of their termination of employment. Each agreement states that if (1) the Company terminates the executives employment for a reason other than disability or cause, or (2) the executive terminates his employment for good reason, the executive will receive the following, in addition to compensation and benefits payable through the executives termination date pursuant to applicable plans and programs:
If the executives employment is terminated involuntarily by the Company for reasons other than disability or without cause or by the executive for good reason within 24 months following a change in control, the multiplier in sub-paragraph (i) above is changed from 1.5 to 2 (from 2 to 3 for Mr. Shattock) and the period of benefits continuation coverage in sub-paragraph (ii) is changed from 18 months to 24 months (from 24 months to 36 months for Mr. Shattock). Payments under these agreements are generally in the form of regular installments commencing within 90 days following termination; provided, however, that if a termination occurs following a change in control, payments are in the form of a lump sum within 30 days following termination of employment. If payments to the executive due to a change in control do not exceed the threshold dollar amount that triggers the excise tax under Section 280G of the Internal Revenue Code by more than a specified amount, payments to the executive are reduced in order to avoid application of the excise tax.
The executive shall also receive any earned but unpaid annual incentive compensation for the immediately preceding year and annual incentive compensation for the year in which termination occurs based on actual Company performance and prorated for the portion of the year completed as of the executives termination of employment.
Severance payments under the agreements provide compensation to the executives in exchange for the non-compete and non-solicitation protections received by the Company. All the agreements contain restrictions on soliciting Company employees, competing with the Company and revealing confidential information for a twelve-month period following termination of employment.
The amount of severance payments provided in the termination agreements reflects competitive benefits in the market for executive talent, based upon advice from the compensation consultant, other advisors and the experiences of Compensation Committee members.
The following table sets forth information regarding 2013 compensation for each of our non-employee directors.
See Stock Ownership on page 32 of this Amendment for the number of shares of stock held by each current director as of the latest practicable date.
The annual cash fee for services as a non-employee director of the Company was $80,000 during 2013. Members of the Audit Committee and the Compensation Committee received an additional $7,500 for their service on these committees. The Companys non-executive Chairman receives an additional annual cash fee of $200,000. The Chair of each of the Audit, Compensation and Benefits, Corporate Responsibility and Nominating Committees received an additional cash fee of $15,000 for such service. All director fees were pro-rated during 2013 for the portion of the year in which each director served on the Board, its respective committees or as a Chair.
Each non-employee director receives an annual stock grant under the 2010 Non-Employee Director Stock Plan that is based on a set dollar value. The number of shares granted is determined by dividing the set dollar value by the closing price of the Companys common stock on the grant date. In April 2013, the Nominating Committee set the dollar value at $115,000, with each non-employee director other than Ann Hackett receiving 1,779 shares of our common stock. Ann Hackett deferred receipt of these shares until the January following the calendar year in which she no longer serves as a director of the Company.
Stock Ownership of Board Members
In order to more directly align the Boards interests with those of stockholders, the Company expects directors to establish and maintain a significant level of stock ownership. Stock ownership guidelines have been established for directors. The guideline for directors is three times their annual cash fee. The guidelines allow directors five years from the date of the directors election to the Board to meet the guidelines. All of the directors who have been on the Board at least five years satisfy the guidelines. For information on the beneficial ownership of securities of the Company by directors and executive officers see Stock Ownership on page 32.
We have listed below, as of April 28, 2014 (except as otherwise indicated), the beneficial ownership of Beam common stock by (a) each of our directors, (b) each of our named executive officers, (c) all of our directors and executive officers as a group and (d) each person known by us to be the beneficial owner of more than five percent of the number of outstanding shares of Beam common stock. The table is based on information we received from the directors and executive officers and filings made with the SEC. We are not aware of any other beneficial owner of more than five percent of the number of outstanding shares of Beam common stock as of April 28, 2014. Unless otherwise indicated, each of our directors and named executive officers has (a) the same business address as Beam and (b) sole investment and voting power over all of the shares that he or she beneficially owns. All share numbers have been rounded to the nearest whole number.
Equity Compensation Plan Information
The following table sets forth information regarding securities available for future issuance under our equity compensation plans as of December 31, 2013:
Changes in Control
As discussed under Impact of the Merger Agreement on page 8, on January 12, 2014, the Company entered into the Merger Agreement, with Suntory Holdings and Merger Sub. Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged into Beam, with Beam surviving the Merger as a wholly-owned subsidiary of Suntory Holdings. Accordingly, if the transactions contemplated by the Merger Agreement are completed, there will be a change in control of the Company.
Policies with Respect to Transactions with Related Persons
The Nominating Committee has adopted a written Code of Conduct and Ethics that sets forth various policies and procedures intended to promote the ethical behavior of the Companys employees, officers and directors. The Code of Conduct and Ethics describes the Companys policy on conflicts of interest. The Company has established a Global Risk and Compliance Committee, the members of which are executive officers of the Company, which is responsible for monitoring compliance with the Code of Conduct. The Global Risk and Compliance Committee periodically reports on the Companys compliance efforts to the Audit Committee and to the Board.
The Company has also established a Conflicts of Interest Committee, the members of which are executive officers of the Company, which distributes a Conflicts of Interest Policy to the Companys employees, officers and directors. The Conflicts of Interest Policy describes the types of relationships that may constitute a conflict of interest with the Company. Employees, officers and directors are required to periodically complete a questionnaire about potential conflicts of interest and certify compliance with the Companys policy. The Conflicts of Interest Committee reviews potential conflicts of interest and reports its findings to the Audit Committee.
The Companys directors and executive officers are also required to complete a questionnaire on an annual basis, which requires them to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a transaction is reported by a director or executive officer, the questionnaire is submitted to the Chair of the Audit Committee for review. If necessary, the Audit Committee will determine whether the relationship is material and will present a conflict of interest. After making such determination, the Audit Committee will report its recommendation on whether the transaction should be approved or ratified by the entire Board.
Certain Relationships and Related Transactions
During 2013, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Companys common stock had a direct or indirect material interest.
The Companys Corporate Governance Principles provide that a majority of the members of the Board, and each member of the Audit, Compensation and Benefits and Nominating and Corporate Governance Committees, shall be independent directors. The Board applies the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent.
Applying that definition, Richard Goldstein, Stephen Golsby, Ann Hackett, David Mackay, Gretchen Price, Robert Steele and Peter Wilson were affirmatively determined by the Board to be independent. Due to Matthew Shattocks employment with the Company, he is not considered independent. When considering each directors independence, the Board determined that none of the non-employee directors has any material relationship with the Company other than being a director and stockholder or has engaged in any transaction or arrangement that interferes with such directors independence.
Fees of Independent Registered Public Accounting Firm
The independent registered public accounting firm of the Company during the year ended December 31, 2013 was PricewaterhouseCoopers LLP (PwC). All PwC services were approved in advance by the Audit Committee. The aggregate fees billed by PwC during the years 2013 and 2012 are set forth in the table below:
Approval of Audit and Non-Audit Services
The Audit Committee has adopted policies and procedures for the pre-approval of all audit and permissible non-audit services provided by our independent registered public accounting firm. The Audit Committee annually reviews the audit and non-audit services to be performed by the independent registered public accounting firm during the upcoming year. The Audit Committee considers, among other things, whether the provision of specific non-audit services is permissible under existing law and whether it is consistent with maintaining the auditors independence. The Audit Committee then approves the audit services and any permissible non-audit services it deems appropriate for the upcoming year. The Audit Committees pre-approval of non-audit services is specific as to the services to be provided and includes pre-set spending limits. The provision of any additional non-audit services during the year, or the provision of services in excess of pre-set spending limits, must be pre-approved by either the Audit Committee or by the Chair of the Audit Committee, who has been delegated authority to pre-approve such services on behalf of the Audit Committee. Any pre-approvals granted by the Chair of the Audit Committee must be reported to the full Audit Committee at its next regularly scheduled meeting. All of the fees described above under audit fees, audit-related fees, tax fees and all other fees for 2013 were pre-approved by the Audit Committee pursuant to its pre-approval policies and procedures.
The following documents were previously filed as part of the Original Filing:
Consolidated Statement of Income for the years ended December 31, 2013, 2012, and 2011.
Consolidated Statement of Comprehensive Income for the years ended December 31, 2013, 2012, and 2011.
Consolidated Balance Sheet as of December 31, 2013 and 2012.
Consolidated Statement of Cash Flows for the years ended December 31, 2013, 2012, and 2011.
Consolidated Statement of Equity for the years ended December 31, 2013, 2012, and 2011.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
All schedules are omitted because the required information was shown in the financial statements or the notes thereto in our Original Filing.
Management Contracts and Compensatory Plans and Arrangements
Other Material Contracts
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RECONCILIATION OF NON-GAAP MEASURES
Use of Non-GAAP Financial Information
Management believes the measures used in this report that are not presented in accordance with generally accepted accounting principles (GAAP) provide investors with important perspectives into the Companys ongoing business performance by excluding certain items, referred to as charges / gains, that management believes are not indicative of the Companys underlying results for purposes of analyzing performance on a year-over-year basis. The Companys definition of charges / gains includes (when applicable) restructuring charges, other charges related to restructuring initiatives that cannot be reported as restructuring under GAAP, acquisition and integration related costs, gain/loss on the disposition of assets, asset impairment charges, loss on early extinguishment of debt and distribution gains from the wind down of our former Maxxium investment. Charges / gains excluded from GAAP results may also include other items which management believes are not indicative of the Companys underlying operating performance for purposes of evaluating past and future performance; such items are excluded from GAAP results to improve comparability between periods.
Additional non-GAAP measures included in this report include amounts identified as consist of income statement data on a before charges/gains basis, comparable net sales growth, adjusted free cash flow, and adjusted return on invested capital. The Company does not intend for this information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. Reconciliations of non-GAAP measures to the most closely comparable GAAP measures, together with a further explanation as to why management believes the non-GAAP measures provide useful information, are included on the following pages.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
($ in millions, except per share)
Reconciliation of Percentage Change in GAAP Net Sales to Percentage Change in Comparable Net Sales
Comparable net sales growth rate represents the percentage increase (decrease) in reported net sales in accordance with GAAP, adjusted for certain items. We believe comparable net sales growth is useful in evaluating sales growth on a year-over-year basis exclusive of items that are not indicative of the brands performance such as foreign exchange impacts and acquisitions/divestitures. See the section Use of Non-GAAP Financial Information (above) for additional information related to the use of Non-GAAP measures.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
Free Cash Flow (a)
($ in millions)
See the page entitled Use of Non-GAAP Financial Information for further information relating to the Companys use of non-GAAP measures.
Reconciliations of GAAP to Non-GAAP Measures (Unaudited)
Return on Invested Capital (ROIC) from Continuing Operations
ROIC is income from continuing operations plus after-tax interest expense and loss on extinguishment of debt divided by the average of invested capital (debt less cash plus stockholders equity plus after-tax amounts of interest expense and loss on early extinguishment of debt). Adjusted ROIC is adjusted for the amounts used to calculate adjusted income from continuing operations. Invested capital is a multi-point average of the 12 months ended December 31, 2013.
See the page entitled Use of Non-GAAP Financial Information for further information relating to the Companys use of non-GAAP measures.