Proposal 3 Ratification of Independent Registered Public Accounting Firm
The
Board is seeking your confirmation of Ernst & Young LLP as our independent registered public accountants for the fiscal year ending September 30, 2020.
The
following table sets forth the aggregate fees billed to us by Ernst & Young LLP, our independent auditor, for 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Rendered
|
|
|
2019
|
|
|
2018
|
|
|
|
Audit fees(1)
|
|
$
|
3,648,000
|
|
$
|
4,988,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-related fees(2)
|
|
|
138,000
|
|
|
136,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees(3)
|
|
|
115,000
|
|
|
172,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other fees(4)
|
|
|
7,000
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
3,908,000
|
|
$
|
5,301,000
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
For
professional services rendered for the audits of our 2019 and 2018 annual financial statements, the reviews of our financial statements included in our Quarterly
Reports on Forms 10-Q, statutory audits of foreign subsidiaries and consultation on accounting matters during fiscal years 2019 and 2018. The audit fees for 2019 are estimated. The final amount
of the fees for those services may vary from the estimate provided.
-
(2)
-
These
fees included due diligence procedures.
-
(3)
-
These
fees were primarily for foreign tax compliance and consulting as well as consulting regarding U.S. tax reform.
-
(4)
-
These
fees were for EY online services.
8 www.cubic.com/investor-relations
Table of Contents
We
encourage your personal attendance.
Proxies
in the form enclosed and/or as shown at www.proxyvote.com are solicited by the Board of Directors (the "Board") for use at the Annual Meeting of Shareholders to be held in San Diego,
California, on February 17, 2020, and at any adjournments or postponements of the meeting. Execution of a proxy will not in any way affect a shareholder's right to attend the meeting and vote
in person, and any shareholder giving a proxy has the right to revoke it at any time before it is exercised by filing with the Corporate Secretary of Cubic Corporation ("Cubic" or the "Company") a
written revocation or duly executed proxy bearing a later date or by attending the meeting and voting in person. The proxy will be suspended if the shareholder is present at the meeting and elects to
vote in person.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 2020
This
proxy statement and our 2019 annual report are available electronically at www.proxyvote.com.
Outstanding Shares and Voting Rights
A quorum of shareholders is required. A quorum exists if a majority of the common shares issued and outstanding and entitled to vote are represented by
shareholders present at the meeting or by proxy. Abstentions and broker non-votes will be counted towards the quorum requirement. 31,274,052 shares of our common stock were outstanding at the
record date of December 19, 2019.
Each
holder of common shares is entitled to one vote for each share held on the record date. Votes will be counted by the Inspector of Elections. Abstentions will be counted towards the vote total for
each proposal, and will have the same effect as "Against" votes. Broker non-votes have no effect on, and are not counted towards the vote total for any proposal. Advisory votes are not binding, but
the Board will consider the outcome of such votes when making future decisions.
If
you are a beneficial holder and do not provide specific voting instructions to your broker, we expect that the organization that holds your shares will not be authorized to vote your shares, which
would result in "broker non-votes," on proposals other than Proposal 3 ratifying the selection of Ernst & Young LLP as the Company's independent public accountant for 2020. However,
whether brokers have discretion to vote on matters is ultimately up to the NYSE (which regulates certain banks, brokers and other nominees), and the NYSE may make a determination that is different
from what we expect, which could result in your shares being voted in a manner you would not choose yourself. Accordingly, we strongly encourage you to submit your
proxy
and exercise your right to vote as a shareholder to ensure your shares are voted as you want them.
In
Proposal 1, nominees for director are to be elected by an affirmative vote of a majority of the votes cast in favor of such nominee's election. Any incumbent nominee for director who does
not receive an affirmative vote of a majority of the votes cast in favor of such nominee must promptly tender his or her resignation after the Annual Meeting. Proposals 2 and 3 require an affirmative
vote of a majority of shares having voting power, present in person or represented by proxy.
|
|
|
|
|
|
|
|
|
|
|
|
Proposal
|
|
Vote
Required
|
|
Broker Discretionary
Voting Expected
to be Allowed
|
|
|
Election of Directors
|
|
Majority of
votes cast
|
|
|
No
|
|
|
|
|
|
|
|
|
|
|
Advisory Vote on Named Executive Officer Compensation
|
|
Majority of
shares present in person or represented by proxy
|
|
|
No
|
|
|
|
|
|
|
|
|
|
|
Ratification of Ernst & Young LLP
|
|
Majority of
shares present in person or represented by proxy
|
|
|
Yes
|
|
|
|
|
|
|
|
|
|
|
Shareholder Proposals, if properly presented at the Annual Meeting
|
|
Majority of
shares present in person or represented by proxy
|
|
|
No
|
|
|
|
|
|
|
|
|
|
There
are no rights of appraisal or similar rights of dissenters with respect to any matter to be acted upon at the Annual Meeting.
2020 Notice and Proxy Statement / 9
Table of Contents
|
|
|
|
PROPOSAL 1
ELECTION OF DIRECTORS
|
|
|
Our
Board of Directors ("Board") has nine members who are to be elected by a majority vote at the Annual Meeting, each to hold office for one year and until his or her successor is elected. The
Nominating, Governance, Ethics and Corporate Responsibility Committee and the Board have recommended the election of the nine directors listed below. Eight nominated directors are independent
("Independent Directors") and one is an executive employee of the Company. Proxy holders will, unless
authorization
to do so is withheld, vote the proxies received by them for the election of the listed directors, in accordance with this proxy authorization. The proxies cannot be voted for a greater
number of persons than the number of nominees named. Although it is not contemplated that any nominee will be unable to serve as a director, in such event, the proxies will be voted by the proxy
holders for such other persons as may be designated by the Board.
The Board of Directors
Board Leadership Structure
The
Board regularly evaluates the appropriate leadership structure of the Company and currently believes that the Company and its shareholders are best served by not having a formal policy on whether
the same individual may serve as both Chief Executive Officer and Chairman. This flexibility allows the Board to elect the most appropriate director as Chairman, while maintaining the ability to
separate the Chairman and Chief Executive Officer roles if necessary. While the Board is confident that the combined Chairman and CEO structure, balanced by a strong Lead Independent Director
position, is best suited to the current needs of the business, the Board remains committed to evaluating Cubic's leadership structure on an ongoing basis as part of its annual self-assessment.
Chairman
Currently,
the Company's Chairman and Chief Executive Officer roles are held by Mr. Feldmann. The Board believes that this structure serves the Company and its shareholders well based primarily
on Mr. Feldmann's background, skills and experience, as detailed in his biography below, including his history with Cubic and
successful
track record spearheading the Company's strategic growth plan, including strong improvements to financial performance, IT infrastructure, operations and talent development.
The
Chairman has the authority to call meetings of the Board and presides at such meetings. He has primary responsibility for shaping Board agendas (in consultation with the Lead Independent Director)
and
will communicate with all directors on key issues and concerns outside of Board meetings.
Lead Independent Director
Ed
Guiles served as Lead Independent Director until his passing in June 2019. Following his passing, General David Melcher was unanimously elected by the Board as the new Lead Independent Director and
has been serving in this capacity since July 2019. General Melcher was appointed as Lead Independent Director because of his strong contributions to the Board and his deep expertise in the defense
industry, including his leadership experience as a public company president and chief executive officer. The table below describes the key duties and responsibilities of the Lead Independent Director.
10 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL 1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
Key Responsibilities of Lead Independent Director
|
|
•
Review with the Chairman and approve all Board meeting agendas
|
|
|
|
•
Call and chair all meetings of the Independent Directors
|
|
|
|
•
Preside at all meetings of the Board at which the Chairman is not present
|
|
|
|
•
Facilitate full and candid Board discussions and discussions among Independent Directors outside of Board meetings, including oversight of the CEO
|
|
|
|
•
Be authorized to attend all committee meetings, as appropriate
|
|
|
|
•
Serve as the liaison between the Independent Directors and the Chairman
|
|
|
|
•
Be available for consultation and communication with significant shareholders
|
|
|
|
•
Collaborate with the Executive Compensation Committee on the annual performance evaluation of the CEO
|
|
|
|
•
Collaborate with the Nominating, Governance, Ethics and Corporate Responsibility Committee on the performance and structure of the Board and its committees, including the performance of individual directors
|
|
|
|
•
Guide the CEO succession planning process in conjunction with the Nominating, Governance, Ethics and Corporate Responsibility Committee
|
|
|
Meetings
The
Board met seven times during fiscal year 2019.
During
that year, each director attended at least 75% of the total number of meetings held during such director's term of service by the Board and each committee of the Board on which such director
served.
Non-employee
directors regularly meet without management present at the conclusion of each regular Board meeting and the Audit and Compliance Committee meetings and at other times as necessary.
During
fiscal year 2019, the Lead Independent Directors, Mr. Guiles and General Melcher, chaired these sessions for the Board, and Mr. Blakley chaired these sessions for the Audit and
Compliance Committee.
The
Board encourages its members to attend the Annual Meeting of Shareholders. The 2019 Annual Meeting was attended by all directors.
Independent Directors
The
Nominating, Governance, Ethics and Corporate Responsibility Committee determined and the Board agreed that all directors nominated, except Mr. Feldmann, met the independence standards of
the
NYSE
and the categorical independence standards adopted by the Company's Board as defined in the Company's Corporate Governance Guidelines.
Board Qualifications
The
Nominating, Governance, Ethics and Corporate Responsibility Committee and the Board believe the nominees are qualified to serve the best interests of our
shareholders
and should be elected because they possess the following experience, qualifications, attributes and skills.
2020 Notice and Proxy Statement / 11
Table of Contents
|
PROPOSAL 1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
|
|
|
|
BRADLEY H. FELDMANN
|
|
|
PRESIDENT AND CHIEF EXECUTIVE OFFICER
|
|
|
Age 58
|
|
|
Director since 2014
|
|
|
Chairman since 2018
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Classified Business Oversight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Mr. Feldmann has served as Chairman of the Board of Directors of Cubic since February 2018, Chief Executive Officer ("CEO") of Cubic since July 2014, and as President since January 2013. He also served as Chief Operating Officer of Cubic from
January 2013 to July 2014. Prior to that, he was President of the companies comprising the Cubic Defense Systems segment, a role he assumed in 2008. He previously worked at Cubic Defense Systems from 1989 to 1999.
|
|
|
Prior to rejoining Cubic in 2008, Mr. Feldmann held senior leadership positions at OMNIPLEX World Services Corporation and ManTech International. He is a Board Leadership Fellow of the National Association of Corporate Directors, a member of
the Aerospace Industries Association Board of Governors and is a member of the Board of the National Defense Industrial Association and serves on their Executive Committee and as Chair of the Finance Committee. He also serves on the Board of
UrbanLife, a non-profit organization, as Chair of the Finance Committee.
|
|
|
Qualifications
|
|
|
|
•
Extensive defense,
intelligence and transportation industry expertise
•
Long history and successful track record with Cubic; spearheaded the Company's strategic growth plan, including customer-centric innovations, strong improvements to financial
performance, IT infrastructure, operations and talent development
•
Executive management
experience at global companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRITHVIRAJ BANERJEE
|
|
|
CHIEF TECHNOLOGY OFFICER,
ANSYS CORPORATION
|
|
|
Age 59
|
|
|
Director since 2018
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Executive Compensation
|
|
|
|
•
Technology Strategy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Dr. Banerjee has served as Chief Technology Officer of ANSYS Corporation since October 2018, and prior to that, served as a senior client partner for Korn Ferry from June 2017 to October 2018 where he was responsible for the Internet of Things and
digital transformation advisory services within the organization's global industrial practice. Prior to his role at Korn Ferry, Dr. Banerjee was the Executive Vice President and Chief Technology Officer for Schneider Electric SE from September
2015 to June 2017, and served in several senior leadership roles including Managing Director of Global Technology R&D at Accenture PLC from 2013 to 2015; Chief Technology Officer and Executive Vice President of ABB Ltd. from 2012 to 2013; and
Senior Vice President of Research and Director of HP Labs at Hewlett-Packard.
|
|
|
Dr. Banerjee founded AccelChip, a developer of products and services for electronic design automation in 2000 and BINACHIP, where he was also Chairman and Chief Scientist in 2006. He has also served as Dean of the College of Engineering at the
University of Illinois at Chicago, Walter P. Murphy Professor and Chairman of Electrical and Computer Engineering ("ECE") at Northwestern University and Professor of ECE at the University of Illinois. From 2013 to 2019, Dr. Banerjee served on the
Board of Directors of Cray Inc., a company that specialized in supercomputers and solutions for storage and analytics.
|
|
|
Qualifications
|
|
|
|
•
Leadership experience
in engineering, disruptive technology and research and development
•
Global experience in both public and private sectors with a track record of driving innovation and technology differentiation
|
|
|
|
|
|
|
|
|
|
12 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
|
|
|
|
BRUCE G. BLAKLEY
|
|
|
RETIRED MANAGING PARTNER,
COOPERS & LYBARND AND FACULTY MEMBER AT UNIVERSITY OF CALIFORNIA, SAN DIEGO
|
|
|
Age 74
|
|
|
Director since 2008
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Audit and Compliance
|
|
|
|
•
Nominating, Governance, Ethics and Corporate Responsibility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Mr. Blakley was an audit partner and, from 1996 to 1998, was Managing Partner in the San Diego office of the national accounting firm Coopers & Lybrand (PricewaterhouseCoopers since 1998). He was employed there in auditing private and public
companies and consulting with their boards of directors and executives for 32 years until his retirement in 2005. He maintains his CPA license, teaches at the University of California, San Diego, and serves as a Director of a privately held
manufacturing company. He previously served as a Director and Chair of the Audit Committee of Excel Trust, Inc. from April 2010 to August 2015 and as Board Chair of The San Diego Foundation, a non-profit organization with over $575 million in assets,
including as Chair of its Finance, Audit, and Executive Committees, and as a Director of The San Diego Foundation for 14 years.
|
|
|
Qualifications
|
|
|
|
•
Public, private and
non-profit business experience as well as experience in academia
•
Extensive financial expertise including financial reporting, accounting and controls
•
Enhanced corporate governance experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAUREEN BREAKIRON-EVANS
|
|
|
FORMER CHIEF FINANCIAL OFFICER, TOWERS PERRIN
|
|
|
Age 65
|
|
|
Director since 2017
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Audit and Compliance
|
|
|
|
•
Technology Strategy
|
|
|
Other Public Company Boards
|
|
|
|
•
Ally Financial, Inc.
|
|
|
|
•
Cognizant Technology Solutions Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Ms. Breakiron-Evans served as the Chief Financial Officer of Towers Perrin, a global professional services company from 2007 through 2008. Prior to that she was Vice President and General Auditor of CIGNA Corporation, a health services organization,
from 2005 to 2006, and was Executive Vice President and Chief Financial Officer of Inovant, LLC, VISA's captive technology development and transaction processing company from 2001 to 2004. She served 16 years in public accounting, ultimately as a
partner at Arthur Andersen LLP through 1994.
|
|
|
Ms. Breakiron-Evans currently serves on the Boards of Cognizant Technology Solutions Corp., where she serves as Chair of the Audit Committee and on the Nominating and Corporate Governance Committee, and Ally Financial, Inc., where she serves on the
Audit Committee and Digital Transformation Committee. She recently served on the Heartland Payment Systems, Inc. board, where she served as Chair of the Audit Committee until its sale in April 2016. Ms. Breakiron-Evans served on the board of the
Federal Home Loan Bank-Pittsburgh from 2011 through 2014. She received an NACD Cyber Security Certificate in 2017 and is a Board Leadership Fellow of the National Association of Corporate Directors.
|
|
|
Qualifications
|
|
|
|
•
Experience as an Audit
Partner with a strong command of the financial reporting and tax issues facing public companies
•
Former chief financial
officer with extensive leadership, technology, financial and risk management experience
|
|
|
|
|
|
|
|
|
|
2020 Notice and Proxy Statement / 13
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
|
|
|
|
DENISE L. DEVINE
|
|
|
FOUNDER AND CEO OF FNB HOLDINGS, LLC AND CO-FOUNDER AND CFO OF RTM VITAL SIGNS, LLC
|
|
|
Age 64
|
|
|
Director since 2019
|
|
|
✓Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Audit and Compliance
|
|
|
|
•
Technology Strategy
|
|
|
Other Public Company Boards
|
|
|
|
•
AgroFresh Solutions, Inc.
•
Fulton Financial Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Ms. Devine was the founder and since 2014 has served as the Chief Executive Officer of FNB Holdings, LLC and since 2014 was co-founder, Chief Administrative Officer and Chief Financial Officer of RTM Vital Signs, LLC. Ms. Devine
was also founder and previously served for more than ten years as the Chief Executive Officer of Nutripharm, Inc. Ms. Devine previously served as Chief Financial Officer for Energy Solutions International and in financial management
positions for Campbell Soup Company.
|
|
|
Ms. Devine has served as Chair of the Pennsylvania State Board of Accountancy and on the Board of the American Institute of CPAs. Ms. Devine has served as a director of Fulton Financial Corporation since 2012 and as a director of AgroFresh
Solutions, Inc. since 2018. Ms. Devine was a member of the Board of Trustees of Villanova University from 2005 to 2015, where she was the Chair of the Audit and Risk Committee. She has also served as a member of the Board of Trustees of
Lourdes Health System from 2010 to 2019 and on the Board of AUS, Inc. a privately-owned company, since 2016 and was appointed to the Board of Ben Franklin Technology Partners of Southeastern Pennsylvania in 2016. Ms. Devine is a certified
public accountant.
|
|
|
Qualifications
|
|
|
|
•
Global leadership
experience spanning from entrepreneurial start-ups to Fortune 100 corporations
•
Extensive financial and capital markets experience
•
Deep experience developing and commercializing technology platforms
•
Co-inventor on more than twenty U.S. and international
patents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAROLYN A. FLOWERS
|
|
|
MANAGING PRINCIPAL, INFRASTRATEGIES LLC, FORMER AMERICAS TRANSIT PRACTICE LEADER—AECOM
|
|
|
Age 70
|
|
|
Director since 2019
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Executive Compensation
|
|
|
|
•
Technology Strategy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Ms. Flowers has served as a Partner and Managing Principal of InfraStrategies LLC since February 2019. Ms. Flowers is an experienced transportation executive who was formerly the Senior Vice President of Americas Transit Market Sector
at AECOM where she was responsible for client and industry relations and business development in the U.S. and Canada from March 2017 to February 2019. Prior to joining AECOM, she served as the acting administrator of the Federal Transit
Administration under President Obama from January 2015 through January 2017.
|
|
|
Ms. Flowers was the CEO and Director of Public Transit for the Charlotte Area Transit System from January 2010 to January 2015 and spent 19 years at Los Angeles County Metropolitan Transportation Authority where she completed her tenure as
its Chief Operating Officer. Ms. Flowers currently serves on the American Public Transportation Association's (APTA) Board of Directors. She previously served as Co-Chair of the Reauthorization Task Force and Publication Advisory, Leadership,
Legislative and Awards committees. She currently serves on the Finance Committee of APTA.
|
|
|
Qualifications
|
|
|
|
•
Recognized thought leader
in the transportation and infrastructure space
•
Unique understanding in the areas of policy, public-private partnerships and creative collaboration among stakeholders and the business community
•
Extensive leadership experience in public transportation
|
|
|
|
|
|
|
|
|
|
14 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
|
|
|
|
JANICE M. HAMBY
|
|
|
RETIRED REAR ADMIRAL, U.S. NAVY
|
|
|
Age 61
|
|
|
Director since 2015
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Classified Business Oversight
|
|
|
|
•
Executive Compensation
|
|
|
|
•
Nominating, Governance, Ethics and Corporate Responsibility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Admiral Hamby retired as a U.S. Navy Rear Admiral in 2012 and is an information technology expert with more than 30 years of experience in the U.S. Navy cyber security arena, most recently as a Deputy Chief Information Officer for the U.S.
Department of Defense from 2011 to 2012. Prior to that she served as Vice Director, Command, Control, Computers and Communications for the Joint Chiefs of Staff. She subsequently served as the Chancellor at the College of Information and Cyberspace,
National Defense University in Washington, D.C., from October 2014 until July 2018. Admiral Hamby served twice as Commanding Officer of critical telecommunications and technology services organizations, as well as on the staffs of the Chairman of the
Joint Chiefs of Staff and the Commander of Multi-National Force in Iraq. She holds a Doctor of Management degree and consults and speaks on cyber security and leadership. She co-owns and operates Fair Winds Farm, LLC with her husband.
|
|
|
Qualifications
|
|
|
|
•
Strong background in
directing and implementing information technology systems in complex organizations as well as deep experience in cyber security
•
Extensive defense
industry and military leadership experience
•
Experience in strategy development, human capital management and development, and international negotiations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAVID F. MELCHER
|
|
|
FORMER PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR OF EXELIS, INC., FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE AEROSPACE INDUSTRIES ASSOCIATION, AND RETIRED LIEUTENANT GENERAL, U.S.
ARMY
|
|
|
Age 65
|
|
|
Director since 2018
|
|
|
Lead Independent Director since 2019
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Classified Business Oversight
|
|
|
|
•
Executive Compensation
|
|
|
|
•
Nominating, Governance, Ethics and Corporate Responsibility
|
|
|
Other Public Company Boards
|
|
|
|
•
Becton Dickinson & Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
General Melcher served as the President and CEO of the Aerospace Industries Association from June 2015 through the end of December 2017 and served on the FAA's NextGen Advisory Council until 2017. From 2011 to 2015, he was President, CEO, and a
member of the Board of Directors of Exelis Inc., a diversified, global aerospace defense, information and technology services company, spun off from ITT Corporation in 2011 and acquired by Harris Corporation in 2015. From 2008 to 2011, he was the
President of ITT's Defense and Information Solutions business and retired from the Army as a Lieutenant General in 2008 after a successful 32-year career. He served in the Pentagon as the Army's Military Deputy for Budget and Deputy Chief of Staff
for Programs.
|
|
|
General Melcher served on the Board of Directors of CR Bard Corporation from 2014 to 2017 and was a member of the Audit, Finance and Compensation and Personnel Committees. Becton Dickinson and Co ("BD") acquired CR Bard on December 29, 2017 and
General Melcher was appointed to serve on BD's Board of Directors as of that date, as well as the Audit and Compensation and Management Development Committees. As of August 2019, he was elected to the Uniformed Services Automobile Association (USAA)
board of directors and serves on the Audit and Compensation and Workforce committees. General Melcher was also selected in September 2019 as a member of the General Motors Defense, LLC board of managers.
|
|
|
Qualifications
|
|
|
|
•
Extensive aerospace
and defense industry leadership expertise, including as a former public company CEO
•
Experience with military
programs and budgeting
•
Background in strategy, business development, finance and engineering
•
Extensive corporate governance experience
|
|
|
|
|
|
|
|
|
|
2020 Notice and Proxy Statement / 15
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS | The Board of Directors
|
|
|
|
|
|
|
|
|
STEVEN J. NORRIS
|
|
|
CHAIR, SOHO ESTATES; PRESIDENT, ITS UK; AND FORMER MEMBER OF PARLIAMENT
|
|
|
Age 74
|
|
|
Director since 2014
|
|
|
✓ Independent
|
|
|
|
|
|
|
|
|
|
Committees
|
|
|
|
•
Audit and Compliance
|
|
|
|
•
Nominating, Governance, Ethics and Corporate Responsibility
|
|
|
Other Public Company Boards
|
|
|
|
•
Driver Group Plc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background
|
|
|
Mr. Norris is a recognized authority on transport and infrastructure issues. Before joining the Cubic Board in 2014, he served as a member of the Cubic Transportation Systems, Inc. ("CTS") strategic advisory board from 2012 to 2014. He is the chair
of Soho Estates, one of the largest real estate operations in the United Kingdom, and was appointed Chairman of Driver Group Plc in March 2015 and as a Director of Optare PLC in August 2014. He also serves as the President of ITS UK, the sister
organization of ITS US, which represents transport technology business in their respective countries.
|
|
|
Mr. Norris became a Member of Parliament in 1983 and remained in government service until 1997. While serving as Parliamentary Undersecretary of State for Transport and Minister for Transport in former Prime Minister Sir John Major's government,
Norris was responsible for the Jubilee Line Extension, the largest extension of the London Underground network to date. He is also a former member of the Board of Transport for London, which operates the London public transit system.
|
|
|
Qualifications
|
|
|
|
•
Recognized authority on
transportation and infrastructure issues
•
Deep experience in government affairs
•
Global leadership experience drawing from many years in government service in the UK
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting Recommendation
|
|
✓ The Board recommends
that you vote FOReach of the nine nominees listed above.
|
16 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS | The Board of Directors
|
Board Committee Members
-
(1)
-
Effective
November 21, 2019, the Ethics and Corporate Responsibility and Nominating and Corporate Governance Committees were combined into one new committee, the
Nominating, Governance, Ethics and Corporate Responsibility Committee. In fiscal year 2019 the Nominating and Corporate Governance Committee had four meetings and the Ethics and Corporate
Responsibility Committee had four meetings.
Communications with Directors
Any
interested person may communicate at any time with the whole Board, the Independent Directors or any individual director with the correspondence addressed to "Board of Directors" or "Independent
Directors" or to a named director, by writing to:
|
|
|
|
|
|
|
Cubic Corporation
c/o Corporate Secretary
9333 Balboa Avenue
San Diego, CA 92123
|
or by e-mail to:
|
|
|
|
CorporateSecretary@Cubic.com
|
The
Corporate Secretary will promptly relay all communications to the appropriate directors, other than communications that are unrelated to the duties and responsibilities of the Board or its
committees. Those unrelated matters include, without limitation, business solicitations, advertisements and surveys; requests for donations and sponsorships; job referral materials such as resumes;
product-related communications; unsolicited ideas and business proposals; and material that is determined to be illegal or otherwise inappropriate. The Corporate Secretary will coordinate responses,
if appropriate.
2020 Notice and Proxy Statement / 17
Table of Contents
|
PROPOSAL 1 ELECTION OF DIRECTORS | Board Committees
|
Board Committees
|
|
|
|
|
|
|
|
|
Audit & Compliance Committee
|
|
|
|
|
|
•
Bruce G. Blakley
|
|
•
Denise L. Devine
|
|
|
|
|
|
•
Maureen Breakiron-Evans
|
|
•
Steven J. Norris
|
|
|
|
|
All members are independent and financially literate.
|
|
|
|
|
|
|
|
|
Responsibilities
-
•
-
Oversee the Company's
financial reporting process.
-
•
-
Responsible for the
appointment, retention and termination of independent auditors and their compensation.
-
•
-
Resolve disputes between
management and auditors.
-
•
-
Pre-approve all audit and
non-audit services according to a written plan and budget submitted by the auditors.
-
•
-
Meet quarterly (at a minimum)
with the auditors and review their periodic reports.
-
•
-
Discuss with auditors the
scope and plan for the audit and include management in its review of accounting and financial controls, assessment of business risks and legal and ethical compliance programs.
Committee Composition
During fiscal year 2019, Mr. Blakley, Ms. Breakiron-Evans, Mr. Guiles, Mr. Norris and Dr. Warner served as members of the
Audit and Compliance Committee. In November 2019, Ms. Devine was appointed to the Audit and Compliance Committee to replace Mr. Guiles and Dr. Warner.
Qualifications
Each member of the Audit and Compliance Committee is independent as defined under Section 303A.02 of the NYSE Listed Company Manual, Section 10A-3
under the Securities Exchange Act of 1934, as amended, and in our Corporate Governance Guidelines, and is financially literate. Mr. Blakley, Ms. Breakiron-Evans and Ms. Devine are
our Audit and Compliance Committee Financial Experts with extensive accounting experience.
Mr. Blakley,
Ms. Breakiron-Evans and Ms. Devine have all served on the audit committee of another publicly-held company. Mr. Blakley previously served as chair of an audit
committee for Excel Trust, Inc., a publicly held real estate investment trust, until August 2015. The trust is unrelated to Cubic and its subsidiaries and does not present any conflicts of
interest for Cubic or the industry in which it operates.
Ms. Breakiron-Evans
currently serves as Chair of the Audit Committee of the Board of Cognizant Technology Solutions Corp., and on the Audit Committee of the Board of Ally Financial, Inc.
She recently served as Chair of the Audit Committee of the Board of Heartland Payment Systems, Inc. until its sale in April 2016. The companies are unrelated to Cubic and its subsidiaries and
do not present any conflicts of interest for Cubic or the industry in which it operates.
Ms. Devine
currently serves on the Audit Committee for AgroFresh Solutions, Inc. and Fulton Financial Corporation. She previously served as Chair of the Audit Committee of Villanova
University. The companies and organizations are unrelated to Cubic and its subsidiaries and do not present any conflicts of interest for Cubic or the industry in which it operates.
18 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL 1 ELECTION OF DIRECTORS |Board Committees
|
Report of the Audit and Compliance Committee
The
Committee selected Ernst & Young LLP as the independent registered public accountants ("Accountants") of the Company for fiscal year 2019. The Committee has reviewed and discussed
with management and the Accountants the audited financial statements of the Company for the fiscal year ended September 30, 2019. The Committee met with the Accountants on numerous occasions
and discussed the matters required to be discussed under generally accepted auditing standards and the matters listed in Public Company Accounting Oversight Board ("PCAOB") AS 1301 (Communications
with Audit Committees), has received from the Accountants the written disclosures and the letter required by the PCAOB (Independence Discussions with Audit Committees), and has discussed with the
Accountants their independence.
Based
on its review of the audited financial statements for fiscal year 2019 and its discussions with management and the Accountants, the Committee recommended to our Board that the 2019 audited
financial statements be included in the Company's Annual Report on Form 10-K.
The
Committee recently conducted a competitive selection process to determine the Company's independent registered public accounting firm for the fiscal year ending September 30, 2020. The
Committee invited one international public accounting firm to participate in this process in addition to the incumbent, Ernst & Young. As a result of an extensive review process, the Committee
approved the continuation of Ernst & Young as the Company's independent registered public accounting firm for the fiscal year ending September 30, 2020.
AUDIT AND COMPLIANCE COMMITTEE
Bruce
G. Blakley, Chair
Maureen Breakiron-Evans
Denise L. Devine
Steven J. Norris
2020 Notice and Proxy Statement / 19
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
|
|
|
|
|
|
|
|
|
Executive Compensation Committee
|
|
|
|
|
|
•
David F. Melcher
|
|
•
Janice M. Hamby
|
|
|
|
|
|
•
Carolyn A. Flowers
|
|
•
Prithviraj Banerjee
|
|
|
|
|
All members are independent.
|
|
|
|
|
|
|
|
|
Responsibilities
-
•
-
Establish and oversee the
Company's executive compensation programs.
-
•
-
Approve employment and
severance arrangements and other material commitments concerning the Company's executive officers.
-
•
-
Annually review and approve
goals and objectives relevant to compensation for executive officers, evaluate each executive's performance in light of those goals and objectives, and either as a committee or together with the other
Independent Directors of the Board, determine and approve the executives' compensation.
Committee Composition
During fiscal year 2019, Messrs. Blakley, Guiles, Admiral Hamby, General Melcher and Dr. Banerjee served as members of the Executive Compensation
Committee. In November 2019, Ms. Flowers was appointed to the Executive Compensation Committee to replace Messrs. Blakley and Guiles.
Qualifications
Each of the members of the Executive Compensation Committee is independent as defined under Section 303A.02 of the NYSE Listed Company Manual and in our
Corporate Governance Guidelines.
Compensation Committee Interlocks and Participation
During
fiscal year 2019, none of the members serving on the Executive Compensation Committee served either as a director or as a member of the compensation committee of any other entity whose
executive officers served either as a director or as a member of the Executive Compensation Committee of the Company. Therefore, there were no "interlocks" with other
companies
within the meaning of the proxy rules of the Securities and Exchange Commission. No member of the Executive Compensation Committee is a former or current officer or employee of Cubic or any
of its subsidiaries. See also the section "Executive Compensation and Other Information" later herein.
20 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
|
|
|
|
|
|
|
|
|
Nominating, Governance, Ethics and Corporate Responsibility Committee
|
|
•
Steven J. Norris
|
|
•
Janice M. Hamby
|
|
|
|
|
|
•
Bruce G. Blakley
|
|
•
David F. Melcher
|
|
|
|
|
All members are independent.
|
|
|
|
|
|
|
|
|
Responsibilities
-
•
-
Track important legal and
regulatory changes and new concepts in public company governance.
-
•
-
Oversee annual Board, Board
member and committee evaluations.
-
•
-
Make recommendations regarding
Board composition, Board committee structure and Board refreshment.
-
•
-
Oversee the Board's annual
self-evaluations and peer member evaluations with third party evaluations conducted every three years.
-
•
-
Review succession planning
process for executive management, other members of senior management and Board succession.
-
•
-
Review and recommend to
management and the Board objective policies and procedures that best serve Cubic's and its shareholders' interests in maintaining a business environment with high standards of ethics, integrity and
compliance in the area of corporate responsibility, including topics such as conflict minerals, human trafficking, global data privacy, human testing, employee relations, health and safety, political
participation and environmental stewardship.
Committee Composition
During fiscal year 2019, Ms. Breakiron-Evans, General Melcher, Mr. Norris and Dr. Warner served as members of the Nominating &
Corporate Governance Committee, and Admiral Hamby, Mr. Norris and Dr. Warner served as members of the Ethics and Corporate Responsibility Committee. In November 2019, the Nominating & Corporate
Governance and Ethics and Corporate Responsibility Committees were combined to form the new Nominating, Governance, Ethics and Corporate Responsibility Committee. Mr. Blakley and Admiral Hamby
were appointed to the Nominating, Governance, Ethics and Corporate Responsibility Committee to replace Ms. Breakiron-Evans and Dr. Warner.
Qualifications and Policy
Each of the members of the Nominating, Governance, Ethics and Corporate Responsibility Committee is independent as defined under Section 303A.02 of the
NYSE Listed Company Manual and in our Corporate Governance Guidelines.
The
Committee's policy is to consider Board candidate recommendations of shareholders that are received by the Corporate Secretary at least 120 days prior to the one-year anniversary of the
mailing of notice of the previous annual meeting of shareholders. In considering additions to the Board or filling vacancies, the Committee assesses current needs of the Company and considers
candidates' expertise, experience and background. The Committee does not have a formal diversity policy that is applied when evaluating candidates but takes diversity, including geographic, gender,
age, ethnic and racial diversity, into account among other factors it considers. In such circumstances, the Committee seeks recommendations from the Board, senior management personnel and relevant
professional organizations regarding potential candidates.
The
Committee will also review any shareholder recommendations on file. The Committee evaluates candidates submitted by shareholders using the same criteria as candidates identified by the Board,
senior management personnel and other sources. The Committee screens and personally interviews appropriate candidates. Selected candidates may meet with additional Board members, certain members of
management and the Chair of the Board. The Committee evaluates responses and recommends to the full Board the name of any candidate it feels should become a nominee for election or appointment.
The
Committee conducted an extensive search for two additional directors in fiscal year 2019, using criteria based on a matrix that set forth existing skills, experience and tenure and the qualities,
skills and diversity sought in future candidates. Carolyn A. Flowers was recommended by Matthew J. Cole, former President of Cubic Transportation Systems, Inc. Denise L.
Devine was recommended by Maureen Breakiron-Evans.
2020 Notice and Proxy Statement / 21
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
The
newly combined Nominating, Governance, Ethics and Corporate Responsibility Committee will also review and recommend to management and the Board objective policies and procedures that best serve
Cubic's and its shareholders' interests in maintaining a business environment of high standards of ethics, integrity and compliance. The Committee will also focus on corporate responsibility matters,
including topics such as conflict minerals, human trafficking, global data privacy, human testing, employee relations, health and safety, political participation and environmental stewardship.
Board Service Guidelines
The Company's Corporate Governance Guidelines generally limit individual Board service by tenure and/or age as described in the table below. These metrics are
not absolute but are guidelines for maximums. When either of the individual maximums are reached, there must be compelling reasons for a director's continued participation on the Board. When both
maximums are reached, there will be a strong presumption for transition off the Board.
|
|
|
|
|
|
•
Succession planning process for near-term and 5-year needs of Cubic Corporation
|
|
|
|
•
Annual individual director evaluations
|
|
|
|
•
Regular Board refreshment to ensure staggered terms, ages and diversity
|
|
|
|
•
Endeavor to limit individual Board tenure to 12 years and/or age 75 maximum
|
|
|
|
•
Service on no more than 3 other public company boards
|
|
|
|
|
|
|
|
|
|
|
|
Classified Business Oversight Committee
|
|
|
|
|
|
•
Admiral Janice M. Hamby
|
|
•
David F. Melcher
|
|
|
|
|
|
•
Bradley H. Feldmann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Responsibilities
-
•
-
Provide oversight of the
Company's business activities that for purposes of national security have been designated as classified by the United States government.
The Committee meets on an as-needed basis.
22 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
|
|
|
|
|
|
|
|
|
Technology Strategy Committee
|
|
|
|
|
|
•
Prithviraj Banerjee
|
|
•
Denise L. Devine
|
|
|
|
|
|
•
Maureen Breakiron-Evans
|
|
•
Carolyn A. Flowers
|
|
|
|
|
All members are independent.
|
|
|
|
|
|
|
|
|
Responsibilities
-
•
-
Provide oversight of Cubic's
technology directions and cyber resilience consistent with Cubic's strategic plan.
-
•
-
Provide advice on our digital
strategy and reviews our research and development ("R&D") investments to ensure they support the competitiveness of our products and services.
-
•
-
Review the technical
competencies within Cubic and advises on the R&D organization and structure to support the R&D investment.
Risk Management
The
Board reviews and approves the procedures adopted and conclusions reached by our Executive Management Committee ("EMC") and discusses with the General Counsel, who is responsible for the
Enterprise Risk Management ("ERM") process, and the CEO, the major risk exposures and the steps that have been taken to monitor and control such exposures.
The
EMC reviews and assesses perceived risks to the enterprise as a whole and its major subsidiaries. It works with relevant managers and develops mitigation and remediation plans. Periodic reports
are brought to the attention of the Board by the General Counsel.
We
have an ERM process for the parent company and sub-groups for our business segments. Each group consists of its senior officers who meet periodically to
identify,
assess and rank the perceived severity of risks unique to their businesses. Appropriate mitigation plans and training are implemented. To date, the EMC has not identified any risks, capable
of control, that it believes cannot be reasonably controlled or mitigated.
The
Board's focus and concern is to identify, and ensure the Company has a plan to respond to those few issues which could seriously impact our, or one of our material divisions', short or long-term
ability to continue normal operations.
In
conjunction with the risk management review, the Board also addresses our legal compliance efforts in certain complex areas, such as export control, antitrust and foreign corrupt practices.
Compliance Steering Committee
Cubic
has an internal Compliance Steering Committee ("CSC"), comprised of senior leaders with a wide variety of subject-matter expertise and authority, led by the Vice President of Compliance
reporting to the Nominating, Governance, Ethics and Corporate Responsibility Committee. The CSC's mission is to promote a culture of ethical integrity and legal accountability across the global
organization and to mitigate risks associated with compliance. The program that the CSC supports includes, among other things, an employee Code of Business Conduct, a Code of Conduct for Third
Parties, a third party due diligence and management system, an anonymous and global complaint reporting mechanism for both employees and third parties (Cubic Helpline), global mechanisms for employees
to report conflicts of
interest
and any environmental, health or safety concerns, a complaint investigation and reporting process, regular communications to and training of Cubic employees on matters of ethics and
compliance, global surveys regarding the Company's ethical culture, and regular reporting to senior management and the Nominating, Governance, Ethics and Corporate Responsibility Committee regarding
the effectiveness of program components. We require all employees to receive annual training related to our Code of Business Conduct and related policies in order to confirm that employees are
familiar with those standards of conduct and to mitigate the risks associated with employees' failure to meet those standards.
2020 Notice and Proxy Statement / 23
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
In addition to the Board's and the EMC's review of risk through the ERM process described above, the Board's committees are also involved in the assessment of
risks relevant to their area of responsibility and the implementation of actions designed to address or mitigate those risks. The types of risks that are considered by the committees include:
|
|
|
|
|
|
|
|
|
Audit and Compliance
|
|
Risks related to tax, accounting, financial reporting systems and processes, and legal and regulatory compliance
|
|
|
|
|
|
Classified Business Oversight
|
|
Risks related to classified and sensitive high-risk work, supporting defense, intelligence, and international clients, as well as personnel performance, information security and industrial security
|
|
|
|
|
|
Executive Compensation
|
|
Risks related to our compensation and benefit programs
|
|
|
|
|
|
Nominating, Governance, Ethics and Corporate Responsibility
|
|
Risks related to our corporate governance, management and internal ethics policies
|
|
|
|
|
|
Technology Strategy
|
|
Risks related to our growth initiatives and strategic plans
|
|
|
|
|
Corporate Governance Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board Committee Charters
|
Audit and
Compliance
Committee Charter
|
|
|
|
Classified Business
Oversight
Committee Charter
|
|
|
|
Executive
Compensation
Committee Charter
|
|
|
|
Nominating,
Governance, Ethics and
Corporate
Responsibility
Committee Charter
|
|
|
|
Technology
Strategy Committee
Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governance Documents
|
Code of Ethical
Conduct
|
|
|
|
Code of Business
Conduct
|
|
|
|
Code of Business Conduct
for Third Parties
|
|
|
|
Corporate Governance
Guidelines
|
|
|
|
Cubic, UK Tax
Strategy – 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each
of our Board Committee Charters and Corporate Governance documents are available at www.cubic.com/investor-relations/governance. Cubic's UK Tax Strategy – 2019 is available at
www.cubic.com/united-kingdom-disclosures. The information contained on our website is not incorporated by reference in, or considered part of, this proxy statement.
Hedging Policy
Pursuant to Cubic's insider trading policy, all directors and executive officers, as well as other employees who are designated as subject to
the policy ("Designated Employees"), are prohibited from purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to
hedge or offset any decrease in the market value of equity securities which: (1) have been granted to the director, executive officer or Designated Employee by the Company as part of their
compensation, or (2) are held directly or indirectly by the director, executive officer or Designated Employee. Designated Employees are selected by the Company as those employees that may have
or be exposed to insider trading information by nature of their position.
24 www.cubic.com/investor-relations
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
Director Compensation
The
following table represents the annualized retainer fees payable to each of the directors for service on the Board and on various committees of the Board. Based on an evaluation in November 2019 by
Pay Governance LLC, our Executive Compensation Committee's independent compensation consultant and the evolving requirements for service, the annual retainers for the non-employee directors were
revised commencing with fiscal year 2020. Specifically, the base annual retainer for all non-employee directors was increased, in exchange for
which the additional retainers for committee chairs were decreased or left at the same levels, and the additional retainers for committee membership were
eliminated, as noted in the table below. The value of the annual equity awards to non-employee directors remained unchanged at $135,000. The changes to director compensation were recommended by the
independent compensation consultant after a review of the Company's peers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Retainer
|
|
|
FY 2019
($)
|
|
|
|
|
FY 2020
($)
|
|
|
|
Director Base Annual Retainer
|
|
|
60,000
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lead Independent Director Base Additional Annual Retainer
|
|
|
25,000
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit and Compliance Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
Chair
|
|
|
24,000
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified Business Oversight Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
Chair
|
|
|
5,000
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Compensation Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
Chair
|
|
|
15,000
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating, Governance, Ethics and Corporate Responsibility Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
Chair
|
|
|
10,000
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Strategy Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
Chair
|
|
|
10,000
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee
directors also participate in the Company's equity plan. In November 2018, each non-employee director received an award of 2,268 restricted stock units ("RSUs"). The non-employee
directors' awards granted during fiscal 2019, other than those received by Mr. Guiles, vest in two equal installments on each of October 1, 2019 and 2020. The RSUs awarded to
Mr. Guiles in fiscal 2019 vested in June 2019 when Mr. Guiles passed away. All of the non-employee directors' RSUs will also vest in full upon death or a change in control of the
Company.
Commencing
with the RSUs awarded to our non-employee directors in November 2019, non-employee director RSUs will vest on the next occurring October 1 following the grant date and will be
eligible for accelerated vesting upon a director's retirement from the Board. Retirement for this purpose is generally defined as retirement from the Board after 6 years of service.
Employee
directors receive no additional compensation for their service as directors. All non-employee directors are reimbursed for travel expenses.
Directors
are also allowed to defer some or all of their cash compensation. One director elected to defer all of his cash compensation received during fiscal year 2019.
Our
directors are also subject to stock ownership guidelines to further align the interests of directors with the Company's shareholders, as described further below under "Compensation Discussion and
Analysis," as well as a policy against engaging in hedging transactions with respect to Company stock, as described further above under "Hedging Policy."
2020 Notice and Proxy Statement / 25
Table of Contents
|
PROPOSAL
1 ELECTION OF DIRECTORS |Board Committees
|
Director Compensation Fiscal Year 2019
The
following table sets forth a summary of the compensation paid to our non-employee directors pursuant to the Company's compensation policies for fiscal year 2019.
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Fees Earned or
Paid in Cash(1)
($)
|
|
|
Stock
Awards(2)
($)
|
|
Change in Pension Value
and Nonqualified Deferred
Compensation Earnings(3)
($)
|
|
|
Total
($)
|
|
|
|
Prithviraj Banerjee
|
|
|
77,500
|
|
|
135,000
|
|
—
|
|
|
212,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce G. Blakley
|
|
|
91,500
|
|
|
135,000
|
|
—
|
|
|
226,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maureen Breakiron-Evans
|
|
|
82,000
|
|
|
135,000
|
|
—
|
|
|
217,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin A. Guiles(4)
|
|
|
84,000
|
|
|
135,000
|
|
—
|
|
|
219,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janice M. Hamby
|
|
|
82,925
|
|
|
135,000
|
|
—
|
|
|
217,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David F. Melcher
|
|
|
90,625
|
|
|
135,000
|
|
—
|
|
|
225,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Norris
|
|
|
87,000
|
|
|
135,000
|
|
—
|
|
|
222,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John H. Warner, Jr.(5)
|
|
|
90,750
|
|
|
135,000
|
|
—
|
|
|
225,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Mr. Feldmann,
who served as an executive director during fiscal year 2019, received no additional compensation for his service as a director during that time
and is not included in this table.
-
(2)
-
This
column represents the aggregate grant date fair value, calculated in accordance with FASB ASC Topic 718, of the RSUs granted in fiscal year 2019. These
amounts generally reflect the amount that the Company expects to expense in its financial statements over the award's vesting schedule, and do not correspond to the actual value that will be realized
by the directors. For additional information on the valuation assumptions used in the calculation of these amounts, refer to note 1 to the financial statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC. The aggregate number of RSUs outstanding as of September 30, 2019 held by each non-employee director was
as follows: Mr. Banerjee (2,105); Mr. Blakley (2,716); Ms. Breakiron Evans (2,716); Admiral Hamby (2,716); General Melcher (2,717); Mr. Norris (2,716); Dr. Warner
(2,716).
-
(3)
-
In
fiscal year 2019, one of the non-employee directors elected to participate in the Cubic Corporation Amended and Restated Deferred Compensation Plan. Earnings are
not reported in the non-employee Director Compensation Table because the earnings are not above market or preferential.
-
(4)
-
Mr.
Guiles passed away on June 7, 2019 and all of his outstanding equity awards vested at this time.
-
(5)
-
Dr. Warner
is not standing for reelection at the Annual Meeting. Upon his retirement from the Board, all of his outstanding equity awards will vest.
26 www.cubic.com/investor-relations
Table of Contents
|
|
|
|
|
|
|
|
|
PROPOSAL 2
|
|
|
|
ADVISORY VOTE ON NAMED EXECUTIVE
|
|
|
|
OFFICER COMPENSATION
|
|
|
|
|
|
|
In
accordance with Section 14A of the Securities Exchange Act of 1934, as amended, the Board is seeking your approval, on an advisory basis, of the compensation of our named executive officers
as disclosed in this proxy statement, including the Compensation Discussion and Analysis and other related tables and disclosure. Accordingly, the Board recommends that you vote "FOR" the following
resolution:
-
-
"Resolved, that the compensation of Cubic's named executive officers during fiscal year 2019, as described in its proxy statement
for its 2020 Annual Meeting of Shareholders, including the Compensation Discussion and Analysis and other related tables and disclosure, is hereby approved."
This
proposal, commonly known as "say-on-pay," gives you the opportunity to express your views on the Company's executive compensation practices. Because your vote is advisory, it will not be binding
upon the Board. However, the Executive Compensation Committee will carefully consider the outcome of the vote when
making
future executive compensation decisions. At our 2019 Annual Meeting, shareholders approved our named executive officer compensation policies by a strong majority, with approximately 96% of
shareholder votes cast in favor of our 2019 say-on-pay resolution (excluding abstentions and broker non-votes). We expect to bring a similar proposal to you at each annual meeting of shareholders.
|
|
|
|
|
|
|
|
|
2019
|
|
96% approval
|
|
|
|
|
|
2018
|
|
94% approval
|
|
|
|
|
As
described more fully in the Compensation Discussion and Analysis herein, the Board believes that the Company's executive compensation policies are balanced, appropriately focused on pay for
performance principles, aligned with the long-term interests of our shareholders, and enable the Company to attract and retain experienced senior executives.
|
|
|
Voting Recommendation
|
|
✓ The Board recommends
that you vote FOR this proposal.
|
2020 Notice and Proxy Statement / 27
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE COMPENSATION AND
OTHER INFORMATION
|
|
|
Executive Compensation and Other
Information – Table of Contents
Named Executive Officers
The following individuals are our named executive officers for fiscal year 2019 as listed in the Summary Compensation Table below (the "Named
Executive Officers" or "NEOs").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley H. Feldmann
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
Anshooman Aga
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Cole
|
|
|
|
Former Senior Vice President of Cubic and President of Cubic Transportation Systems(1)
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Twyman
|
|
|
|
Senior Vice President of Cubic and President of Cubic Mission Solutions
|
|
|
|
|
|
|
|
|
|
|
|
Michael Knowles
|
|
|
|
Senior Vice President of Cubic and President of Cubic Global Defense
|
|
|
|
|
|
|
|
|
-
(1)
-
On
January 6, 2020, Mr. Cole notified the Company of his resignation from his position as Senior Vice President of Cubic and President of Cubic
Transportation Systems, effective January 13, 2020.
28 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 1
|
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes the Company's compensation philosophy and the objectives of the Company's compensation
program for its executive officers, including the NEOs, and how the Executive Compensation Committee oversees the executive compensation program. This Compensation Discussion and Analysis also
describes the compensation determination process for fiscal year 2019 and how each element of compensation was determined.
SECTION 1: OVERVIEW OF PERFORMANCE AND COMPENSATION HIGHLIGHTS
2019 Performance Highlights
Overall, Cubic delivered another year of strong improvement in our financial performance while continuing to invest in R&D, strategic
acquisitions, talent development and business optimization to further advance our strategy.
In
2019, Cubic delivered strong growth driven by the Cubic Transportation Systems and Cubic Mission Solutions business segments. While Sales declined slightly in the Cubic Global Defense business
segment, disciplined cost
2020 Notice and Proxy Statement / 29
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 1
|
management
and solid project execution drove increases in Operating Income and Adjusted EBITDA for this segment. Compared to fiscal 2018, Cubic's total Sales increased 24% to $1,496 million.
Our
growth also reflects expansion through acquisitions to advance our strategic priorities in transportation and defense by further enhancing our portfolio with customer-centric innovations,
expanding our addressable markets and positioning Cubic for continued growth and margin expansion. Excluding the impact of acquisitions, Sales increased approximately 18%. Our 2019 results also
reflect the impact of the new revenue recognition standard (ASC 606), which increased Sales by $109.2 million, including organic growth from Cubic's next-generation fare payment system
contract in Boston and other projects. For a discussion of the impact of the adoption of ASC 606, see "Recently Adopted Accounting Pronouncements" in Note 1 of the Consolidated Financial
Statements of the Form 10-K.
Net
Income from continuing operations attributable to Cubic increased to $51.1 million compared to $8.1 million in fiscal 2018. Earnings Per Share (GAAP EPS) increased 476% to $1.67 in 2019 compared
to $0.29 in 2018. Adjusted Earnings Per Share (Adjusted EPS) increased 43% to $3.13 in 2019 compared to $2.19 in 2018. The table below reconciles Adjusted EPS to GAAP EPS. Adjusted EBITDA increased
40% to $146.6 million compared to $104.6 million in fiscal 2018. Please see pages 52 through 54 of our Annual Report on Form 10-K filed with the SEC on November 20, 2019, for a reconciliation of Net
Income to Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income to Adjusted Net Income Reconciliation and
GAAP EPS to Adjusted EPS Reconciliation
|
|
|
Years Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
GAAP EPS
|
|
$
|
(0.95
|
)
|
$
|
0.29
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net income (loss) from continuing operations attributable to Cubic
|
|
$
|
(25.7
|
)
|
$
|
8.1
|
|
$
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in the loss of the VIE
|
|
|
—
|
|
|
(0.3
|
)
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
30.2
|
|
|
27.1
|
|
|
42.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of fixed assets
|
|
|
0.4
|
|
|
—
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
2.3
|
|
|
5.0
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses, excluding amortization
|
|
|
(0.2
|
)
|
|
4.5
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic and IT system resource planning expenses
|
|
|
34.4
|
|
|
24.1
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense (income), net
|
|
|
(0.4
|
)
|
|
0.7
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in Adjusted Net Income of VIE
|
|
|
—
|
|
|
—
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact related to acquisitions(1)
|
|
|
(0.1
|
)
|
|
(1.2
|
)
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of US Tax Reform
|
|
|
—
|
|
|
(7.0
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact related to non-GAAP adjustments(2)
|
|
|
3.0
|
|
|
(1.0
|
)
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
43.9
|
|
$
|
60.0
|
|
$
|
95.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS
|
|
$
|
1.62
|
|
$
|
2.19
|
|
$
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Diluted Shares Outstanding (in thousands)
|
|
|
27,173
|
|
|
27,351
|
|
|
30,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the tax accounting impact of significant discrete items recorded at the time of acquisition.
-
(2)
-
The
tax effect of the non-GAAP adjustments is generally based on the statutory tax rate of the jurisdiction of the event.
30 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 1
|
2019 Compensation
Elements
Three primary elements make up our executive compensation program: base salary, annual incentives and long-term incentives. The chart below
summarizes these compensation elements for fiscal year 2019, which are described in more detail in the discussion that follows.
2020 Notice and Proxy Statement / 31
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 1
|
Fiscal Year Target Total Compensation Mix
The charts below show that the significant majority of target total direct compensation for our NEOs is variable or "at-risk," and tied to
achievement of performance objectives or stock price performance.
2019 Key Executive Compensation Outcomes
-
•
-
Market-based Base Salary Adjustments. The Executive Compensation Committee approved adjustments
to the NEOs' base salaries for fiscal year 2019 based on its review of comparable company data and an evaluation of the NEOs' individual performance. Mr. Feldmann's base salary was increased by 6.8%
over fiscal year 2018, while the other NEOs' base salary increases averaged 9.3% over fiscal year 2018 (which average excludes the increase for Mr. Knowles of 21.1%, which represented an increase in
connection with his promotion to the position of Senior Vice President of Cubic and President of Cubic Global Defense for fiscal year 2019).
-
•
-
Annual Incentive Plan. The Executive Compensation Committee has full discretion as to the form
and amount of the annual incentive payments to our NEOs. As Cubic closed the 2019 fiscal year, despite strong year-over-year growth, negative discretion resulting in multipliers ranging from 0.7 to
0.9 was applied to the NEO's 2019 annual incentive payouts based on qualitative measures of business performance that were outside the plan formulas.
-
-
The
Executive Compensation Committee then approved individual performance multipliers for the NEOs ranging from 0.95 to 1.20. Finally, in order to
achieve our fiscal year 2019 financial commitments and to enhance retention and long-term performance, the Executive Compensation Committee determined that the 2019 annual incentives for the NEOs and
other key employees would be satisfied in the form of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PRSUs"), with a 20% enhancement added to avoid adverse
tax consequences to the NEOs under applicable tax rules and to recognize the transition from cash to equity settlement of the 2019 annual incentives.
-
•
-
No Vesting of Fiscal Year 2017-2019 PRSUs. All of the 2017-2019 PRSUs were forfeited following
the end of the three-year performance period that ended on September 30, 2019 as a result of the level of Sales growth, Adjusted EBITDA growth and return on equity ("ROE") falling below threshold
levels for the three-year performance period without adjustment for the sale of the Global Defense Services business on May 31, 2018.
32 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 1
|
Investor Feedback, Response to the 2019 Say-On-Pay Vote and Key Changes to Compensation
Program
As described in Proposal 2, Cubic seeks an annual non-binding advisory say-on-pay vote from its shareholders to approve the compensation of
its Named Executive Officers as described in the Compensation Discussion and Analysis and other related tables and disclosure.
In
February 2019, we held our most recent say-on-pay vote, with approximately 96% of shareholder votes cast in favor of our 2019 say-on-pay resolution (excluding abstentions and broker non-votes).
While this represented overwhelming support of our executive compensation program, our Executive Compensation Committee takes into consideration the outcome of our say-on-pay votes as they review
executive compensation decisions.
Based
in part on feedback from discussions with shareholders following our two most recent say-on-pay votes and, in part, on its reevaluation of our compensation program and advice from its
independent compensation consultant to better align our program with shareholder interests, the Executive Compensation Committee implemented certain changes to our executive compensation program for
fiscal year 2019 and fiscal year 2020, as described below.
Key Changes to Long-Term Equity Incentives from Fiscal Year 2018 to Fiscal Year
2019
In response to the foregoing feedback and certain changes in our business, our executive compensation program for fiscal 2019 contained a few
key changes to the PRSUs that comprise 50% of our long-term equity incentive program.
-
•
-
In view of the divestiture of the Global Defense Services business and known acquisitions in the pipeline, we adopted a transitional approach
whereby Adjusted EBITDA growth and Sales growth would be equally-weighted and measured over three one-year periods with the average of the performance in each of those three years determining the
basis for the final assessment of performance.
-
•
-
Eliminated the ROE metric for plan simplicity.
-
•
-
Added a relative TSR modifier to ensure that PRSUs reward long-term performance for shareholders.
-
•
-
The relative TSR modifier adjusts the final number of PRSUs earned up or down by 25% by comparing Cubic's relative TSR to the
Russell 2000 index TSR for the performance period based on a scale established by the Executive Compensation Committee.
-
•
-
The total shares that may be earned at the end of the three-year performance is capped at 250% of the target number of PRSUs, a
result that can only occur if maximum achievements are earned in both Sales growth and Adjusted EBITDA growth, in addition to Cubic's TSR for the performance period being at least 2,500 basis points
above the Russell 2000 Index TSR for the performance period.
Key Changes to Executive Compensation Program for Fiscal Year
2020
Our executive compensation program for fiscal 2020 contains a few key changes to the annual incentive awards and RSUs and PRSUs.
-
•
-
Annual Incentive Plan. For fiscal year 2020, the Executive Compensation Committee replaced the
invested capital and asset turnover metrics with operating cash flow to reflect feedback from shareholders and our financial priorities for fiscal year 2020.
-
•
-
PRSUs. Fiscal year 2020 PRSU awards incorporate the following key changes:
-
•
-
Completing our transition to a performance-based and shareholder return focused long-term incentive plan, the fiscal year 2020
PRSUs return to the measurement of Sales growth and Adjusted EBITDA growth against three-year cumulative performance goals. In addition, Sales growth and Adjusted EBITDA growth will be calculated in a
manner to exclude the effect of acquisitions or divestitures and foreign exchange rates.
2020 Notice and Proxy Statement / 33
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 2
|
-
•
-
The relative TSR modifier (up or down by 25%) is unchanged from the 2019 awards, but the modifier is capped at 1.0 if Cubic's
absolute TSR is negative over the three-year performance period.
-
•
-
The total shares that may be earned at the end of the three-year performance is capped at 200% of the target number of PRSUs.
-
•
-
Removed single trigger vesting upon a change in control.
-
•
-
RSUs. Fiscal year 2020 RSU awards will vest ratably over three years, consistent with
competitive norms.
Review of Executive Compensation Best Practices
Below is a summary of best practices we have implemented and practices we avoid.
|
|
|
|
|
|
|
|
|
|
|
Our Executive Compensation Best Practices
|
|
✓
|
|
Stock ownership guidelines apply to both executive officers and directors
|
|
✓
|
|
Independent compensation consultant
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
|
Clawback policy for incentive compensation
|
|
✓
|
|
No tax gross-ups
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
|
"Double trigger" change-in-control agreements
|
|
✓
|
|
No employment contracts
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
|
Modest perquisites
|
|
✓
|
|
No hedging by executive officers and directors
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
|
Long-term equity incentive award program aligns executive incentives with shareholder interests
|
|
✓
|
|
No repricing of stock options without stockholder approval
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
|
Executive compensation program that received strong shareholder response (96% of votes cast voted in favor) in 2019 say-on-pay vote
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECTION 2: KEY OBJECTIVES AND SETTING EXECUTIVE COMPENSATION
Guiding Principles and
Objectives
We align the interests of management with those of shareholders and other stakeholders through our executive compensation programs to ensure
Cubic's future as a technology-driven, market-leading global company that makes the world better through innovation, technology solutions, and world-class products. Our policies intend to support the
development of a strong executive team provided with appropriate incentives that support the business strategy, build and retain the team and address different risks associated with compensation. We
strive to provide a total compensation package that fairly and equitably rewards our senior leadership team as a team and as individuals, from each of whom we expect superior performance. Our total
direct compensation program is designed so that the majority of pay is variable or "at risk," with emphasis on performance over the long term.
Our
executive compensation and benefits programs are guided by the following principles:
Pay for
Performance
-
•
-
Our incentive programs are tied to multiple growth goals that we
believe are leading indicators of shareholder value to be achieved in manners consistent with our values.
-
•
-
We measure performance as a team and by each individual executive's
contribution to outcomes.
Retention of a Strong Leadership
Team
-
•
-
Compensation opportunities are intended to be competitive against our
peers and broader industry competitors for talent.
34 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 2
|
-
•
-
By allowing pay to exceed median when performance warrants, we expect
to be able to attract and retain the kind of leadership that is demanded by the complexity of opportunities and challenges in our business.
Aligned with Shareholder
Interests
-
•
-
We balance fixed and variable compensation opportunities to manage
risk while emphasizing performance.
-
•
-
All of our long-term incentives are earned in the form of equity that
vests over time on the basis of performance and/or continued contribution.
-
•
-
Stock ownership guidelines and our compensation recovery policy
encourage long-term results for shareholders.
Use of Comparable Company Compensation
Data
-
•
-
Our pay opportunities and our compensation programs are reviewed
against a peer group and comparable company data and best practices, as further described below, and are modified when we can better attract, retain, and motivate as a result.
-
•
-
We strive to target overall target compensation at the median for
seasoned performers, but our actual compensation can vary between the lower and the upper quartiles based on delivered performance, with such variances determined in the discretion of our Executive
Compensation Committee.
Pay
Positioning
-
•
-
Our Executive Compensation Committee reviews competitive peer and
survey compensation at the 25th, 50th, and 75th percentiles in order to understand how the marketplace pays for roles similar to our NEOs. Without targeting a
specific percentile for target total direct compensation, the Executive Compensation Committee expects that actual executive compensation will vary between the lower and the upper quartiles based on
experience and delivered performance.
-
•
-
In setting fiscal year 2019 executive compensation, after a review of
the comparable company data, the Executive Compensation Committee noted that Mr. Feldmann's total direct target compensation was below the median of chief executives at comparable companies in the
peer group and survey data. After evaluating his performance and experience, the Executive Compensation Committee approved increases to Mr. Feldmann's base salary and long-term incentive award target
value that brought his total direct target compensation to a level somewhat above the 50th percentile of the comparable company data.
-
•
-
Additionally, the Executive Compensation Committee noted that the
total direct target compensation of the other NEOs fell below the 50th percentile of executives in comparable positions and approved recommendations presented by Mr. Feldmann for base
salary increases and adjustments to their target long-term incentive award values to bring, on average, total direct compensation approximating the 50th percentile of the comparable
company data.
-
•
-
While the Executive Compensation Committee used this comparable
company data as a guide in determining which compensation components to increase and by how much, the final determinations were not made by reference to specific targeted levels for any of the
individual compensation components.
Oversight
-
•
-
Our compensation programs and their outcomes are approved by an
independent Executive Compensation Committee.
-
•
-
By overseeing the establishment and evolution of policies and
programs, the Executive Compensation Committee motivates decision-making and behaviors that delivers value to shareholders and stakeholders within a mandate to build Company sustainability, culture
and productivity.
2020 Notice and Proxy Statement / 35
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 2
|
Setting Executive Compensation
Our
annual compensation evaluation process includes a review of salary, annual incentives and long term incentive practices of organizations of similar size, in comparable industries, and specific
individuals with relevant responsibilities and experience. In addition to reviewing comparable company data from our identified peer group and third party compensation consultants surveys, the
Executive Compensation Committee also relies on the judgment of its members in making
compensation
decisions consistent with the guiding principles and objectives of our compensation program described above. After carefully reviewing our performance, as well as evaluating a NEO's
annual performance compared to established goals, leadership qualities, operational performance, business responsibilities, career with our Company, current compensation arrangements and long-term
potential to enhance shareholder value, an informed decision is reached.
The
roles of management, the Executive Compensation Committee and the committee's independent compensation consulting in setting executive compensation are further described below:
|
|
|
|
|
|
|
|
|
|
|
|
Executive Compensation Committee
|
|
•
Oversees our executive compensation program for executive officers
•
Authorized to retain the services of an independent compensation consultant in connection with the oversight of our executive
compensation program
•
Determines and approves ongoing compensation arrangements for our executive officers and recommends to the Board the compensation for Independent Directors
•
Evaluates and approves compensation elements annually
|
|
|
|
|
|
|
|
Management
|
|
•
CEO provides the Executive Compensation Committee with recommendations regarding salary, annual incentives and equity compensation for the executive officers (other than himself)
•
Human
resources department assists in the formulation of compensation recommendations to the Executive Compensation Committee, and other executive officers may provide relevant input as needed for persons other than themselves
•
CEO and our human resources department support their recommendations regarding executive compensation with competitive market data
|
|
|
|
|
|
|
|
Independent Compensation Consultant
|
|
•
Reports to the Executive Compensation Committee
•
Advises on our compensation levels and compensation program
|
|
|
|
|
|
During
fiscal years 2018 and 2019, the Executive Compensation Committee independently engaged Radford to provide senior executive compensation and non-employee director compensation advice. Radford
surveyed executive compensation for similar sized companies in comparable businesses specific to senior executive positions and responsibilities.
After
review and consultation with Radford, the Executive Compensation Committee determined Radford to be independent and that no conflict of interest resulted
from
retaining Radford during fiscal year 2019. In reaching these conclusions, the Executive Compensation Committee considered the factors set forth in Exchange Act Rule 10C-1 and NYSE listing
standards.
In
late fiscal year 2019, in preparation for fiscal year 2020 compensation planning, the Executive Compensation Committee independently engaged Pay Governance LLC to provide senior executive
compensation and non-employee director compensation advice.
36 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 2
|
After
review and consultation with Pay Governance, the Executive Compensation Committee determined Pay Governance to be independent and that no conflict of interest resulted from retaining Pay
Governance during fiscal year 2019. In reaching these conclusions, the Executive Compensation Committee considered the factors set forth in Exchange Act Rule 10C-1 and NYSE listing standards.
Comparable Company Compensation Data and Peer Group Used for Fiscal Year 2019
Executive Compensation Decisions
The Executive Compensation Committee's annual compensation evaluation process includes a review of the salary, annual incentive and long-term
incentive practices of organizations of similar size, in comparable industries, and concerning individuals with relevant responsibilities and experience. The Executive Compensation Committee also
reviews recommendations of our CEO and our human resources department that are supported by this competitive market data.
For
fiscal year 2019 compensation setting purposes, industry survey data was provided by three independent consulting firms (Radford, Mercer and Willis Towers Watson). These surveys were subscribed to
by our human resources department (data is not customized to our Company), and included surveys with both a regional and national focus. These surveys included data from approximately 4,000 companies
and included executive
and
non-executive salaries, annual incentives and long-term incentive compensation data.
Providers
of this data do not vary their reports from a standard format, the identities of the individual companies are not included in the surveys, and the Committee did not receive individual
compensation information for the companies included in the surveys. Our objective was to obtain data from a broad spectrum of technology and defense companies and also from public companies with
similar revenue levels.
As
part of its compensation review, Radford also prepared an independent assessment of competitive compensation levels and incentive practices for the Company's CEO for fiscal year 2019. The review
was based on the survey data provided by our human resources department, as described above, as well as proxy disclosures by a select group of relevant peer companies.
Sixteen
peer companies were approved by the Executive Compensation Committee in November 2018 with review and input from the Committee's then-current independent compensation consultant, Radford, and
senior management based on industry sector, similarity of business activities, size and performance. The objective was to have a group of companies sufficient in size and relevance to provide
meaningful assessments of compensation levels and practices. The peer group used for the fiscal year 2019 compensation setting process included the following defense and technology companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
AAR Corp
|
|
•
HEICO Corporation
|
|
•
Teradata Corporation
|
|
|
|
|
|
|
|
|
|
•
Comtech Telecommunications Corp.
|
|
•
Kratos Defense & Security Solutions, Inc.
|
|
•
Tyler Technologies, Inc.
|
|
|
|
|
|
|
|
|
|
•
Crane Co.
|
|
•
Maxar Technologies Inc.
|
|
•
VeriFone Systems, Inc.
|
|
|
|
|
|
|
|
|
|
•
Curtiss-Wright Corporation
|
|
•
Mercury Systems. Inc.
|
|
•
Viasat, Inc.
|
|
|
|
|
|
|
|
|
|
•
Esterline Technologies Corporation
|
|
•
OSI Systems, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
•
FLIR Systems, Inc.
|
|
•
Teledyne Technologies Incorporated
|
|
|
|
|
|
|
|
|
|
After
the divestiture of Cubic Global Defense Services, the peer group was adjusted to focus on companies that are technology driven. The peer group changes from fiscal year 2018 included removing
AeroVironment, Inc., CACI International Inc., Engility Holdings, Inc., ManTech
International Corporation and NIC Inc. and adding Comtech Telecommunications, Crane Co., Curtiss-Wright, FLIR Systems, Maxar Technologies and OSI
Systems.
2020 Notice and Proxy Statement / 37
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 3
|
SECTION 3: FISCAL YEAR 2019
EXECUTIVE COMPENSATION DECISIONS
The
table below summarizes the fiscal year 2019 compensation decisions for our NEOs. Details about the 2019 compensation decisions are more fully discussed below in this Section 3.
|
|
|
|
|
|
|
|
Pay Element
|
|
CEO (Mr. Feldmann)
|
|
Other NEOs
|
|
Additional Comments
|
|
Base Salary
|
|
•
Base salary was increased to $940,000 (up 6.8%)
|
|
•
Merit increases averaged 9.3% for Aga, Cole and Twyman; Knowles was newly promoted beginning fiscal 2019
|
|
•
Adjustment to base salaries based on comparable company data and evaluation of individual performance by Executive Compensation Committee
|
|
|
|
|
|
|
|
|
|
Annual Incentive
|
|
•
Target: 100% of base salary
|
|
•
Target: Average 72.5% of base salary
|
|
•
Targets were unchanged from prior year (average of 70% for fiscal 2018) with the exception of Mr. Aga, whose target was increased to 80% to align with comparable company data
|
|
|
|
•
Earned award paid at 87.5% of target
|
|
•
Average earned award for NEOs in place at year end was 108% of individual target awards
|
|
•
2019 annual incentive awards paid in the form of RSUs and PRSUs, as described below under "Annual Incentive Plan"
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive – PRSUs Annual Grant
|
|
•
Represented 50% of 2019 annual LTI awards (at "target")
|
|
•
Represented 50% of 2019 annual LTI awards for other NEOs (at target) in position at the time of the annual LTI awards in November 2019
|
|
•
Vests based on annual Company Sales growth and annual Adjusted EBITDA growth and relative TSR for performance period as described below under "Long-Term Equity Incentive Awards"
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive – RSUs Annual Grant
|
|
•
Represented 50% of 2019 annual LTI awards
|
|
•
Represented 50% of 2019 annual LTI awards for other NEOs in position at the time of the annual LTI awards in November 2019
|
|
•
Vests over 4 years
|
|
|
|
|
|
|
|
|
38 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
BASE SALARY
Base
salaries for our executives are established based on individual factors such as the scope of their responsibilities, background, track record, training and experience, as well as competitive
comparable company data and an evaluation of their performance.
In
November 2018, the Executive Compensation Committee, upon establishing the total target compensation for the NEOs for 2019 consistent with our overall compensation philosophy, established the
following 2019 base salaries for the NEOs:
|
|
|
|
|
|
|
|
|
|
Named Executive Officers
|
|
|
2019
Base
Salary
|
|
|
Year-
over-
Year
|
|
|
Mr. Feldmann
|
|
$
|
940,000
|
|
|
+6.8%
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Aga
|
|
$
|
484,000
|
|
|
+10.0%
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Cole
|
|
$
|
521,813
|
|
|
+10.0%
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Twyman
|
|
$
|
515,687
|
|
|
+8.0%
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Knowles
|
|
$
|
350,000
|
|
|
+21.1%
|
|
|
|
|
|
|
|
|
|
|
The
adjustments to the NEOs' base salaries for fiscal year 2019 were made at the beginning of fiscal year 2019 based on the Executive Compensation Committee's review of comparable company data, as
described above, and their assessment of each individual's performance.
The
fiscal year 2019 base salaries for each of the NEOs are reflected in the Summary Compensation Table in the Executive Compensation Tables section below.
ANNUAL INCENTIVE PLAN
Our
annual incentive awards emphasize pay-for-performance by providing our executives with the opportunity to receive performance awards based on annual corporate and business segment objectives and
individual performance.
At
the beginning of the fiscal year, the Executive Compensation Committee sets each listed NEO's annual incentive target amount as part of the annual performance review and compensation adjustment
cycle.
Individual
target percentages for the last two years were:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Target
Annual
Incentive Award
|
|
|
2019 Target
Annual
Incentive Award
|
|
|
Mr. Feldmann
|
|
|
100
|
%
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Aga
|
|
|
70
|
%
|
|
80%
|
|
|
|
|
|
|
|
|
|
|
|
Other NEOs
|
|
|
70
|
%
|
|
70%
|
|
|
|
|
|
|
|
|
|
|
Mr.
Aga's 2019 target incentive award was increased by the Executive Compensation Committee following their review of peer competitive practices and an assessment of the importance of the Chief
Financial Officer role.
Individual
target annual incentive awards for the NEOs were determined by multiplying their 2019 fiscal year base salary by their individual target award percentage.
Target Performance Levels and Metrics
NEO annual incentives are determined through a three-step performance measurement process:
The
various performance objectives under the annual incentive plan are weighted depending on the Executive Compensation Committee's belief regarding the suitability of emphasis of each factor for that
year's performance.
The
following table describes each of the corporate and segment performance metrics (85% weighting to specific financial metrics) and the relative weighting percentage for each metric.
2020 Notice and Proxy Statement / 39
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrics
|
|
Rationale
|
|
|
Weighting
CEO & CFO
|
|
|
Weighting
other NEOs
|
|
|
|
Total Cubic Sales
|
|
Drives achievement of key annual performance goals aligned with our strategy and our objective to deliver growth and shareholder value
|
|
|
15
|
%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cubic Adjusted EBITDA
|
|
Key measure of growth and operating performance; target is set to exceed Sales growth to drive improved profitability
|
|
|
50
|
%
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cubic Invested Capital Turnover
|
|
Promotes efficient use of capital
|
|
|
20
|
%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Sales
|
|
Aligns with company-wide objective and the individual's specific area of responsibility
|
|
|
—
|
|
|
10
|
%
|
|
|
Segment Adjusted EBITDA
|
|
|
|
|
—
|
|
|
35
|
%
|
|
|
Segment Asset Turnover
|
|
|
|
|
—
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
Aligns with our strategic objective to enhance long-term value for our customers and shareholders
|
|
|
15
|
%
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
levels for the various performance objectives are set to require challenging but attainable goals depending on current market conditions and our
business
prospects. The following table describes the minimum and maximum achievement levels attributable to the 2019 performance measures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min
|
|
|
Max
|
|
|
|
Adjusted EBITDA
|
|
% of Target
|
|
|
70
|
%
|
|
120
|
%
|
|
|
|
|
% of Award
|
|
|
0
|
%
|
|
200
|
%
|
|
|
each 1% achievement above target, payout amount increases by 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
% of Target
|
|
|
75
|
%
|
|
115
|
%
|
|
|
|
|
% of Award
|
|
|
0
|
%
|
|
200
|
%
|
|
|
each 1% achievement above target, payout amount increases by 6.67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested Capital Turnover
|
|
% of Target
|
|
|
75
|
%
|
|
120
|
%
|
|
|
|
|
% of Award
|
|
|
0
|
%
|
|
200
|
%
|
|
|
each 1% achievement above target, payout amount increases by 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
% of Target
|
|
|
70
|
%
|
|
100
|
%
|
|
|
|
|
% of Award
|
|
|
0
|
%
|
|
100
|
%
|
|
|
Digital Strategy is a subjective measure and is capped at 100% achievement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below sets forth the performance objectives and weighting for each of the NEOs, our actual performance relative to those objectives during fiscal 2019 and the formulaic weighted percentage
achievement for the annual incentive awards. As described in the table below, the overall formulaic weighted percentage achievement relative to all the corporate and segment performance measures for
fiscal year 2019, prior to the application of the Executive Compensation Committee's negative discretion as described below, was 91.17% for Messrs. Feldmann and Aga, 75.65% for Mr. Cole, 118.77% for
Mr. Twyman and 118.18% for Mr. Knowles.
40 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance measures
(In thousands, except ratios)
|
|
2019
Weighting
%
|
|
|
2019 Target
|
|
|
2019 Actual
|
|
|
% of Target
Achieved
|
|
|
Formulaic
% of Payout
Earned
|
|
|
Cubic Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance measures for Cubic Corporation are for Mr. Feldmann and Mr. Aga
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales(1)
|
|
15%
|
|
|
$1,328,082
|
|
|
$1,414,708
|
|
|
106.52%
|
|
|
21.52%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
50%
|
|
|
$124,243
|
|
|
$118,283
|
|
|
95.20%
|
|
|
42.80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested Capital Turnover(3)
|
|
20%
|
|
|
1.60
|
|
|
1.52
|
|
|
95.00%
|
|
|
16.72%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
15%
|
|
|
|
|
|
|
|
|
92.50%
|
|
|
10.13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91.17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic Transportation Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance measures for Cubic Transportation Systems are for Mr. Cole
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Sales(1)
|
|
10%
|
|
|
$810,299
|
|
|
$775,454
|
|
|
95.70%
|
|
|
8.71%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA(2)
|
|
35%
|
|
|
$102,122
|
|
|
$86,516
|
|
|
84.72%
|
|
|
16.18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Asset Turnover(3)
|
|
20%
|
|
|
2.96
|
|
|
3.06
|
|
|
103.38%
|
|
|
23.51%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA(2)
|
|
20%
|
|
|
$124,243
|
|
|
$118,283
|
|
|
95.20%
|
|
|
17.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
15%
|
|
|
|
|
|
|
|
|
92.50%
|
|
|
10.13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.65%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic Mission Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance measures for Cubic Mission Solutions are for Mr. Twyman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Sales(1)
|
|
10%
|
|
|
$235,000
|
|
|
$321,329
|
|
|
136.74%
|
|
|
20.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA(2)
|
|
35%
|
|
|
$34,000
|
|
|
$35,255
|
|
|
103.69%
|
|
|
41.46%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Asset Turnover(3)
|
|
20%
|
|
|
2.50
|
|
|
2.75
|
|
|
110.00%
|
|
|
30.06%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA(2)
|
|
20%
|
|
|
$124,243
|
|
|
$118,283
|
|
|
95.20%
|
|
|
17.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
15%
|
|
|
|
|
|
|
|
|
92.50%
|
|
|
10.13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118.77%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic Global Defense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance measures for Cubic Global Defense are for Mr. Knowles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Sales(1)
|
|
10%
|
|
|
$312,783
|
|
|
$317,925
|
|
|
101.64%
|
|
|
11.10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA(2)
|
|
35%
|
|
|
$25,621
|
|
|
$31,400
|
|
|
122.56%
|
|
|
57.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Asset Turnover(3)
|
|
20%
|
|
|
2.20
|
|
|
2.25
|
|
|
102.27%
|
|
|
22.28%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA(2)
|
|
20%
|
|
|
$124,243
|
|
|
$118,283
|
|
|
95.20%
|
|
|
17.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Strategy
|
|
15%
|
|
|
|
|
|
|
|
|
92.50%
|
|
|
10.13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118.18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
For
purposes of the 2019 Annual Incentive Plan, Sales and segment Sales exclude the Sales of businesses acquired during 2019. The following is a reconciliation of
our fiscal year 2019 Sales as defined by the Executive Compensation Committee for purposes of the 2019 Annual Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (in millions)
|
|
|
Consolidated
|
|
|
CTS
|
|
|
CMS
|
|
|
CGD
|
|
|
|
Sales as reported
|
|
$
|
1,496.5
|
|
$
|
849.8
|
|
$
|
328.8
|
|
$
|
317.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales from companies acquired in fiscal year 2019
|
|
|
(81.8)
|
|
|
(74.3)
|
|
|
(7.5)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales used in 2019 Annual Incentive Plan calculation
|
|
$
|
1,414.7
|
|
$
|
775.5
|
|
$
|
321.3
|
|
$
|
317.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(2)
-
Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), and Segment Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization ("Segment Adjusted EBITDA") are non-GAAP performance measures that exclude income taxes, non-operating income and expenses, depreciation, amortization, ERP/supply chain initiative
expenses, acquisition related expenses, restructuring costs, intangible asset impairment charges, fixed asset and other long-lived asset impairment charges, and goodwill impairment charges. For
purposes of the 2019 Annual Incentive Plan, Adjusted EBITDA excludes the Adjusted EBITDA of businesses acquired during 2019 as well as an adjustment to incentive compensation expense that was made
only for purposes of this calculation.
2020 Notice and Proxy Statement / 41
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
The
following is a reconciliation of Consolidated and Segment Adjusted EBITDA to Net Income as defined by the Executive Compensation Committee for purposes of the 2019 Annual Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019
(in millions)
|
|
|
Consolidated
|
|
|
CTS
|
|
|
CMS
|
|
|
CGD
|
|
|
|
Net income from continuing operations attributable to Cubic
|
|
|
$51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in loss of VIE
|
|
|
(9.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense (income), net
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
86.2
|
|
|
$77.2
|
|
|
$7.8
|
|
|
$23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64.7
|
|
|
30.7
|
|
|
23.3
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating (expense) income, net
|
|
|
(20.0)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
130.9
|
|
|
107.9
|
|
|
31.1
|
|
|
29.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in EBITDA of VIE
|
|
|
(8.9)
|
|
|
(8.9)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses, excluding amortization
|
|
|
13.4
|
|
|
8.3
|
|
|
3.3
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic and IT system resource planning expenses
|
|
|
8.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of fixed assets
|
|
|
(32.5)
|
|
|
—
|
|
|
—
|
|
|
(2.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
15.4
|
|
|
3.2
|
|
|
—
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense (income), net
|
|
|
20.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
146.6
|
|
|
110.5
|
|
|
34.4
|
|
|
32.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from companies acquired in 2019
|
|
|
(17.8)
|
|
|
(20.0)
|
|
|
2.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments approved by the Executive Compensation Committee
|
|
|
(10.5)
|
|
|
(4.0)
|
|
|
(1.3)
|
|
|
(1.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA used in annual incentive calculations
|
|
|
$118.3
|
|
|
$86.5
|
|
|
$35.3
|
|
|
$31.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(3)
-
For
purposes of the 2019 Annual Incentive Plan, the Invested Capital Turnover measure uses Sales as defined in note (1) above. Invested capital is defined as
total equity, plus total short- and long-term borrowings, less cash and marketable securities. Invested Capital Turnover is Sales divided by invested capital. Segment Asset Turnover uses Segment Sales
as defined in note (1) above divided by segment average inventory and accounts receivable balances. Accounts receivable includes billed accounts receivable, contract assets and long-term
financing receivables less contract liabilities.
Application of Negative Discretion
The Executive Compensation Committee has full discretion as to the form and amount of the annual incentive payments. As Cubic closed the 2019 fiscal year,
despite strong year-over-year growth, negative discretion was applied to the NEO's fiscal 2019 formulaic annual incentive payouts based on the Executive Compensation Committee's subjective assessment
of qualitative measures of business performance that were outside the plan formulas. The additional multipliers for fiscal year 2019 were as follows:
Cubic
(Messrs. Feldmann and Aga) – 0.8; Cubic Transportation Systems (Mr. Cole) – 0.7; Cubic Mission Solutions (Mr. Twyman) – 0.9; and Cubic
Global Defense (Mr. Knowles) – 0.8
Individual Multiplier
The overall weighted percentage achievement relative to all performance goals for fiscal year 2019 for each NEO (after application of the reductions
implemented by the Executive Compensation Committee pursuant to its
exercise
of negative discretion) was also multiplied by an individual performance factor and then by each NEO's target annual incentive to determine his final fiscal year 2019 annual incentive payout.
The
individual performance multipliers were based on the annual performance rating given to each individual, which is based on an aggregate consideration of organizational role, business results,
performance against objectives, operational excellence, talent development and employee engagement. The ratings provided for a possible range of 0% to 130% for the multiplier factor.
Mr. Feldmann rated Messrs. Aga, Cole, Twyman and Knowles and recommended the multiplier for each. The Executive Compensation Committee reviewed and approved the multipliers for each
executive. The Executive Compensation Committee rated Mr. Feldmann, and then assigned a multiplier. Individual performance multipliers were based on internal performance evaluations and the
Executive Compensation Committee's subjective evaluation of each NEO's performance relative to his or her individual performance objectives for the fiscal year.
42 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
The
individual performance multipliers determined by the Executive Compensation Committee for fiscal year 2019 were as follows:
Mr. Feldmann –
1.0; Mr. Aga – 1.05; Mr. Cole – 0.95; Mr. Twyman – 1.2; and Mr.
Knowles – 1.1
Payment of Fiscal 2019 Approved Annual Incentives in Equity
Finally, in order to achieve our fiscal year 2019 financial commitments and to enhance retention and long-term
performance,
the Executive Compensation Committee determined that the 2019 annual incentives for the NEOs and other key employees would be satisfied in the form of RSUs and PRSUs, with a 20%
enhancement added to avoid adverse tax consequences to the NEOs under applicable tax rules and to recognize the transition from cash to equity settlement of the 2019 annual incentives.
After
applying the formulaic payout percentages described above, applying the multipliers resulting from the Executive Compensation Committee's negative discretion, and deciding individual performance
multipliers for each NEO, the Executive Compensation Committee approved 2019 annual incentive payments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualitative Portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Base
Salary
|
|
x
|
|
Individual
Target
Percentage
|
|
=
|
|
Target
Award
|
|
x
|
|
Formulaic
Portion
|
|
x
|
|
Company
Performance
Multiplier
|
|
x
|
|
Individual
Performance
Multiplier
|
|
=
|
|
Annual
Incentive
Cash
Award
Earned
|
|
x
|
|
Adjustment
for Tax
Purposes
|
|
=
|
|
Final
Annual
Incentive
Award
Granted in
Equity
|
|
|
|
Bradley H. Feldmann
|
|
$
|
940,000
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
$
|
940,000
|
|
|
|
|
|
|
91.17
|
%
|
|
|
|
|
|
|
0.80
|
|
|
|
|
|
|
|
1.00
|
|
|
|
|
|
|
|
$
|
685,627
|
|
|
|
|
|
|
|
120
|
%
|
|
|
|
|
|
|
$
|
822,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anshooman Aga
|
|
$
|
484,000
|
|
|
|
|
|
|
80
|
%
|
|
|
|
|
|
$
|
387,200
|
|
|
|
|
|
|
91.17
|
%
|
|
|
|
|
|
|
0.80
|
|
|
|
|
|
|
|
1.05
|
|
|
|
|
|
|
|
$
|
296,541
|
|
|
|
|
|
|
|
120
|
%
|
|
|
|
|
|
|
$
|
355,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Cole
|
|
$
|
521,813
|
|
|
|
|
|
|
70
|
%
|
|
|
|
|
|
$
|
365,269
|
|
|
|
|
|
|
75.65
|
%
|
|
|
|
|
|
|
0.70
|
|
|
|
|
|
|
|
0.95
|
|
|
|
|
|
|
|
$
|
183,749
|
|
|
|
|
|
|
|
120
|
%
|
|
|
|
|
|
|
$
|
220,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Twyman
|
|
$
|
515,687
|
|
|
|
|
|
|
70
|
%
|
|
|
|
|
|
$
|
360,981
|
|
|
|
|
|
|
118.77
|
%
|
|
|
|
|
|
|
0.90
|
|
|
|
|
|
|
|
1.20
|
|
|
|
|
|
|
|
$
|
463,019
|
|
|
|
|
|
|
|
120
|
%
|
|
|
|
|
|
|
$
|
555,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Knowles
|
|
$
|
350,000
|
|
|
|
|
|
|
70
|
%
|
|
|
|
|
|
$
|
245,000
|
|
|
|
|
|
|
118.18
|
%
|
|
|
|
|
|
|
0.80
|
|
|
|
|
|
|
|
1.10
|
|
|
|
|
|
|
|
$
|
254,787
|
|
|
|
|
|
|
|
120
|
%
|
|
|
|
|
|
|
$
|
305,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This
final adjusted annual cash incentive value for each NEO was then converted into a number of RSUs and PRSUs based on the closing price per share of Cubic's common stock ($59.55) on the grant date
(November 29, 2019) in accordance with the methodology set forth below. The RSUs and PRSUs were granted on the same terms as the other fiscal year 2020 long-term incentive awards granted to the NEOs,
as further described below under 'Long-Term Equity Incentive Awards.'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Final Annual
Incentive Award
|
|
|
/
|
|
|
Closing Price
on Grant Date
|
|
|
=
|
|
|
Annual Incentive
Award Granted
in Equity (Total
RSUs and
PRSUs)
|
|
|
RSUs
Granted
|
|
|
PRSUs
Granted
|
|
|
Bradley H. Feldmann
|
|
|
$822,753
|
|
|
|
|
|
$59.55
|
|
|
|
|
|
13,816
|
|
|
6,908
|
|
|
6,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anshooman Aga
|
|
|
$355,849
|
|
|
|
|
|
$59.55
|
|
|
|
|
|
5,976
|
|
|
2,988
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Cole
|
|
|
$220,499
|
|
|
|
|
|
$59.55
|
|
|
|
|
|
3,703
|
|
|
1,851
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Twyman
|
|
|
$555,623
|
|
|
|
|
|
$59.55
|
|
|
|
|
|
9,330
|
|
|
4,665
|
|
|
4,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Knowles
|
|
|
$305,744
|
|
|
|
|
|
$59.55
|
|
|
|
|
|
5,134
|
|
|
2,567
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM EQUITY INCENTIVE AWARDS
We award both RSUs and PRSUs pursuant to our long-term equity incentive award program. All of the awards are made under our 2015 Incentive Award Plan. Each
RSU represents a contingent right to receive one share of our common stock. Vested shares will be delivered to the recipient following each vesting date. Dividend equivalent rights accrue with respect
to the RSUs when and as dividends are paid on our common
stock
and vest proportionately with the RSUs to which they relate.
The
use of PRSUs as a component of the overall equity awards granted is based upon the Executive Compensation Committee's consideration of competitive market data, the desirability of utilizing a
balanced system to mitigate risk, the desire to encourage superior performance while building ownership, and the desirability of this type of equity award as a component of a pay-for-performance
program.
2020 Notice and Proxy Statement / 43
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
Fiscal 2019 Long-Term Equity Incentive Awards
In November 2018, the Executive Compensation Committee awarded the RSUs and PRSUs to the NEOs listed below.
Grants
were made such that 50% of the total long-term incentive value must be earned on the basis of both performance and service over the 3-year performance period.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Title
|
|
|
Time-Based
Vesting
RSUs
(#)
|
|
|
Target Number
of PRSUs
(#)
|
|
|
|
Bradley H. Feldmann
|
|
Chairman, President and Chief Executive Officer
|
|
|
31,182
|
|
|
31,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anshooman Aga
|
|
Executive Vice President and Chief Financial Officer
|
|
|
7,796
|
|
|
7,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Cole
|
|
Former Senior Vice President, Cubic Corporation; President, Cubic Transportation System
|
|
|
5,457
|
|
|
5,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Twyman
|
|
Senior Vice President, Cubic Corporation; President, Cubic Mission Solutions
|
|
|
5,457
|
|
|
5,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Knowles
|
|
Senior Vice President, Cubic Corporation; President, Cubic Global Defense
|
|
|
3,898
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
RSUs vest in four equal installments on each of October 1, 2019, 2020, 2021 and 2022, subject to the recipient's continued service with the Company through each such vesting date, except as
otherwise provided in the applicable RSU agreement. RSUs granted commencing in fiscal year 2020 will vest in three equal annual installments.
The
PRSUs granted to our NEOs are intended to reward the achievement of the following objectives over a three-year period:
|
|
|
|
|
|
|
|
|
Metric
|
|
Rationale
|
|
Weight
|
|
|
|
Annual Sales growth over prior year
|
|
•
Key to our long-term
success and reflects our focus on performance metrics that drive growth and shareholder value
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
Annual Adjusted EBITDA growth over prior year
|
|
•
Drives performance towards
achieving profitable growth and our strategic objectives related to building a technology-driven, market-leading company; target is set to exceed Sales growth to drive improved profitability
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
Relative TSR multiplier
|
|
•
To further link the
long-term interests of management and shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
The
three-year performance period for the PRSUs granted on November 21, 2018 commenced on October 1, 2018 and will end on September 30, 2021.
These performance-based RSUs are referred to as the "2019-2021 PRSUs."
The
2019-2021 PRSUs vest at the end of a three-year performance period based 50% on Cubic's annual Sales growth and 50% on Cubic's annual Adjusted EBITDA growth for each of the three fiscal years
within the performance period, subject to the recipient's continued service through the end of the three-year performance period, except as otherwise provided in the applicable PRSU agreement.
If
the Company's annual Sales growth achievement and/or annual Adjusted EBITDA growth achievement for
each
fiscal year during the performance period equals or exceeds one of three different achievement levels (threshold, target and maximum), then an annual achievement percentage for such fiscal year
will be determined (50%, 100% and 200%, respectively), as reflected in the table below:
|
|
|
|
|
|
|
|
Annual Sales Growth
|
|
|
Annual Sales
Growth
Achievement
Percentage
|
|
|
|
Less than 2.5%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
2.5%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
5.0%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
7.5% or Greater
|
|
|
200
|
%
|
|
|
|
|
|
|
|
|
44 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
|
|
|
|
|
|
|
|
Annual Adjusted
EBITDA Growth
|
|
|
Annual Adjusted
EBITDA Growth
Achievement
Percentage
|
|
|
|
Less than 2.75%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
2.75%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
5.5%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
8.25% or Greater
|
|
|
200
|
%
|
|
|
|
|
|
|
|
|
Performance
below the threshold level for a performance measure will result in a 0% achievement percentage for the applicable fiscal year for that measure.
Following
the completion of the three-year performance period, the Executive Compensation Committee will determine the annual achievement percentage relative to Sales growth and Adjusted EBITDA growth
for each of the three fiscal years in the performance period and determine the final average achievement percentage for the performance period for each factor.
Cubic's
annual Sales growth for each fiscal year during the performance period will be determined by dividing Cubic's Sales during the applicable fiscal year, divided by Cubic's Sales for the
preceding fiscal year, expressed as a percentage. Cubic's annual Adjusted EBITDA growth for each fiscal year during the performance period will be determined by dividing Cubic's Adjusted EBITDA during
the applicable fiscal year, divided by Cubic's Adjusted EBITDA for the preceding fiscal year, expressed as a percentage.
For
these 2019-2021 PRSUs, Cubic's relative TSR as compared to the Russell 2000 Index over the performance period will result in a multiplier for the number of PRSUs that will vest, after the final
annual Sales and Adjusted EBITDA achievement percentages have been determined for the performance period. If
Cubic's
relative TSR performance exceeds the performance of the Russell 2000 Index based on a scale established by the Executive Compensation Committee, the multiplier will result in up to an
additional 25% of the PRSUs vesting at the end of the performance period. If Cubic's TSR performance is below the performance of the Russell 2000 Index based on a scale established by the
Executive Compensation Committee, the multiplier could result in a reduction of up to 25% of these PRSUs vesting at the end of the performance period. The relative TSR performance multiplier is
described in the table below:
|
|
|
|
|
|
|
|
Relative TSR Performance
|
|
|
TSR Multiplier
|
|
|
|
Cubic TSR is 2500 basis points or more above the Russell 2000 Index TSR
|
|
|
125
|
%
|
|
|
|
|
|
|
|
|
|
Cubic TSR is 1000 basis points above the Russell 2000 Index TSR
|
|
|
110
|
%
|
|
|
|
|
|
|
|
|
|
Cubic TSR is 1000 basis points below the Russell 2000 Index TSR
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
Cubic TSR is 2500 basis points or more below the Russell 2000 Index TSR
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
In
no event will the number of 2019-2021 PRSUs that vest at the end of the three-year performance period exceed 250% of the target PRSUs.
The
percentage for determining the number of PRSUs that will vest if performance is between specified achievement levels will be determined by linear interpolation.
As
described in the table below, based on the level of Sales growth and Adjusted EBITDA growth for fiscal year 2019, the achievement levels for fiscal year 2019 relative to these objectives that will
be used in determining the final average achievement percentage at the end of the three-year performance period are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
|
2019-2021
PRSU
Weighting
Percentage
|
|
|
2019
Growth
Achieved
|
|
|
Annual
Achievement
Percentage
for 2019
|
|
|
|
Cubic Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Growth Factor(1)
|
|
|
50%
|
|
|
15.3%
|
|
|
200%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Growth Factor(2)
|
|
|
50%
|
|
|
34.5%
|
|
|
200%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
annual Sales growth for fiscal year 2019 is calculated based upon the amounts included in the Company's respective Annual Reports on Form 10-K for the
fiscal years ended September 30, 2018 and September 30, 2019, as filed with the SEC, less $109,199,000 of the impact of ASU 2014-09, Revenue from Contracts
with Customers, (commonly referred to as ASC 606) on the fiscal year 2019 Sales. The achieved Sales growth for fiscal year 2019 was 15.3%.
-
(2)
-
Adjusted
EBITDA is a non-GAAP performance measure used by management. In the context of the vesting criteria for the 2019-2021 PRSUs, Adjusted EBITDA excludes income
taxes, non-operating income and expenses, depreciation, amortization, intangible asset impairment charges, fixed asset and other long-lived asset impairment charges, and goodwill impairment charges.
The annual Adjusted EBITDA growth for fiscal year 2019 is calculated based upon the amounts included in the Company's respective Annual Reports on Form 10-K for the fiscal years ended
September 30, 2018 and September 30, 2019, as filed with the SEC, less the impact of ASC 606. Refer to footnote 2, of the 2017-2019 PRSUs table below, for a reconciliation of
Adjusted EBITDA to net income as defined by the Executive Compensation Committee. The achieved Adjusted EBITDA growth for fiscal year 2019 was 34.5%.
2020 Notice and Proxy Statement / 45
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
PRSUs for Performance Period Ended
September 30, 2019
The PRSUs granted on November 14, 2016 (referred to as the "2017-2019 PRSUs") were intended to reward the achievement of the following objectives over
a three-year performance period, which commenced on October 1, 2016 and ended on September 30, 2019. These RSUs were eligible to vest based
on:
-
•
-
Sales growth (40% weighting)
-
•
-
Adjusted EBITDA growth, (40% weighting)
-
•
-
ROE (20% weighting)
If
the Company's achievement of these objectives for the performance period equaled or exceeded one of three different achievement levels (threshold, target and maximum), then a certain percentage of
the RSUs were eligible to vest (25%, 100% and 200%, respectively). The
percentage
for determining the number of RSUs that would vest if performance was between the specified achievement levels was determined by linear interpolation between the applicable achievement
amounts for each measure. Performance below the threshold level for a performance measure would result in no vesting with respect to that measure.
As
described in the table below, based on the level of such Sales growth, Adjusted EBITDA growth, and ROE, without adjustment for the sale of the Global Defense Services business on May 31,
2018, for the three-year performance period, the Executive Compensation Committee determined that none of the 2017-2019 PRSUs would vest and all of the awards were forfeited.
The
Company's performance as compared with the targets, which resulted in a 0% payout with respect to the 2017-2019 PRSUs, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
|
2017-2019
PRSU
Weighting
Percentage
|
|
|
2017-2019
PRSU
Threshold
|
|
|
2017-2019
PRSU
Target
|
|
|
2017-2019
PRSU
Maximum
|
|
|
2017-2019
Actual
Achievement
|
|
|
Percentage
of Vesting
Achieved
|
|
|
Weighted
Vesting
Earned
|
|
|
|
Cubic Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Growth Factor(1)
|
|
|
40
|
%
|
|
1.05
|
|
|
1.10
|
|
|
1.15
|
|
|
0.93
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Growth Factor(2)
|
|
|
40
|
%
|
|
1.06
|
|
|
1.11
|
|
|
1.17
|
|
|
0.99
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Equity(3)
|
|
|
20
|
%
|
|
5.5
|
%
|
|
8.0
|
%
|
|
10.5
|
%
|
|
1.9
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
Sales growth factor for the 2017-2019 PRSUs was calculated as the cumulative Sales achieved in fiscal years 2017, 2018 and 2019 divided by the baseline
cumulative Sales amount of $4,385,000,000. The Sales for 2017, 2018 and 2019 are based upon the amounts included in the Company's respective Annual Reports on Form 10-K for the fiscal years
ended September 30, 2017, September 30, 2018, and September 30, 2019, as filed with the SEC, less $109,199,000 of the impact of ASC 606 on fiscal year 2019 Sales. The cumulative
Sales achieved in fiscal years 2017, 2018 and 2019, excluding the impact of ASC 606, totaled $4,076,035,000. As such the achieved Sales growth factor was 0.93.
-
(2)
-
Adjusted
EBITDA is a non-GAAP performance measure used by management. In the context of the vesting criteria for the 2017-2019 PRSUs, Adjusted EBITDA excludes income
taxes, non-operating income and expenses, depreciation, amortization, intangible asset impairment charges, fixed asset and other long-lived asset impairment charges, and goodwill impairment charges.
The Adjusted EBITDA for 2017, 2018 and 2019 is calculated based upon the amounts included in the Company's respective Annual Reports on Form 10-K for the fiscal years ended September 30,
2017, September 30, 2018, and September 30, 2019, as filed with the SEC, less the impact of ASC 606. As such, the 2017 amounts include discontinued operations while the 2018 and 2019
amounts only include continuing operations. The Adjusted EBITDA growth factor for the 2017-2019 PRSUs is calculated as the cumulative Adjusted EBITDA achieved in fiscal years 2017, 2018 and 2019
divided by the baseline cumulative Adjusted EBITDA amount of $354,300,000. The adjusted EBITDA achieved in fiscal years 2017, 2018 and 2019, excluding the impact of ASC 606, totaled $350,818,000. As
such the achieved Adjusted EBITDA growth factor was 0.99. The following is a reconciliation of Adjusted EBITDA to net income as defined by the Executive Compensation Committee for purposes of the
vesting of the 2017-2019 PRSUs:
46 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
|
Three Years
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
|
2019
|
|
|
|
Net income (loss) attributable to Cubic
|
|
|
($11,209)
|
|
|
$12,310
|
|
|
$49,694
|
|
|
|
|
$50,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
—
|
|
|
(4,243)
|
|
|
1,423
|
|
|
|
|
(2,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in the loss of the VIE
|
|
|
—
|
|
|
(274)
|
|
|
(9,811)
|
|
|
|
|
(10,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
14,033
|
|
|
8,809
|
|
|
13,934
|
|
|
|
|
36,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
15,059
|
|
|
7,093
|
|
|
11,040
|
|
|
|
|
33,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51,099
|
|
|
46,600
|
|
|
64,742
|
|
|
|
|
162,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in EBITDA of VIE
|
|
|
—
|
|
|
—
|
|
|
(8,940)
|
|
|
|
|
(8,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
68,982
|
|
|
70,295
|
|
|
122,082
|
|
|
|
|
261,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses, excluding amortization
|
|
|
(274)
|
|
|
4,420
|
|
|
13,437
|
|
|
|
|
17,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ERP System Development
|
|
|
34,406
|
|
|
24,141
|
|
|
8,242
|
|
|
|
|
66,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of fixed assets
|
|
|
—
|
|
|
—
|
|
|
(32,510)
|
|
|
|
|
(32,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
2,468
|
|
|
5,018
|
|
|
15,386
|
|
|
|
|
22,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense (income), net
|
|
|
36
|
|
|
687
|
|
|
19,957
|
|
|
|
|
20,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
105,618
|
|
|
104,561
|
|
|
146,594
|
|
|
|
|
356,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of ASC 606
|
|
|
—
|
|
|
—
|
|
|
(5,955)
|
|
|
|
|
(5,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA excluding the impact of ASC 606
|
|
$
|
105,618
|
|
$
|
104,561
|
|
$
|
140,639
|
|
|
|
$
|
350,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
In
the context of the vesting criteria for the 2017-2019 PRSUs above, the Adjusted EBITDA amount for 2017 excludes income taxes, non-operating income and expenses,
depreciation, amortization, intangible asset impairment charges, fixed asset and other long-lived asset impairment charges, and goodwill impairment charges as reflected in the Annual Report on
Form 10-K for the fiscal year ended September 30, 2017, as filed with the SEC before such amounts were reported excluding the impact of discontinued operations, beginning in fiscal 2018.
As such, the 2017 amounts include discontinued operations, which if excluded would reduce Adjusted EBITDA by $18,148,000 for the year ended September 30, 2017.
-
(3)
-
The
ROE measure is calculated as (i) the sum of: (A) the percentage determined by dividing (a) the Company's net income attributable to Cubic
for the fiscal year ending September 30, 2017, by (b) the Company's beginning equity as of October 1, 2016; plus (b) the percentage determined by dividing (a) the
Company's net loss attributable to Cubic for the fiscal year ending September 30, 2018, by (b) the Company's beginning equity as of October 1, 2017; plus (C) the percentage
determined by dividing (a) the Company's net income attributable to Cubic for the fiscal year ending September 30, 2019, less the $8.8 million impact of ASC 606, by (b) the
Company's beginning equity as of October 1, 2018, excluding the impact of ASC 606; (ii) divided by three (3).
PRSUs for Performance Period Ended
September 30, 2022
The
Executive Compensation Committee granted PRSUs to the NEOs on November 29, 2019 as part of Cubic's
long-term
equity incentive award program and also in satisfaction of the NEOs' fiscal year 2019 annual incentives, as described above. These PRSUs granted to our NEOs are intended to reward the
achievement of the following objectives over a three-year period:
|
|
|
|
|
|
|
|
|
|
Metric
|
|
Rationale
|
|
|
Weighting
|
|
|
|
Cumulative Sales growth over performance period
|
|
•
Key to our long-term
success and reflects our focus on performance metrics that drive growth and shareholder value
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Adjusted EBITDA growth over performance period
|
|
•
Drives performance towards
achieving profitable growth and our strategic objectives related to building a technology-driven, market-leading company; target is set to exceed Sales growth to drive improved profitability
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative TSR multiplier
|
|
•
To further link the
long-term interests of management and shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
three-year performance period for the PRSUs granted on November 29, 2019 commenced on October 1, 2019 and will end on September 30, 2022.
These
performance-based RSUs are referred to as the "2020-2022 PRSUs."
2020 Notice and Proxy Statement / 47
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
The
2020-2022 PRSUs vest at the end of a three-year performance period based 50% on Cubic's Sales growth and 50% on Cubic's Adjusted EBITDA growth for the performance period, subject to the
recipient's continued service through the end of the three-year performance period, except as otherwise provided in the applicable PRSU agreement.
If
the Company's Sales growth achievement and/or Adjusted EBITDA growth achievement for the performance period equals or exceeds one of three different achievement levels (threshold, target and
maximum), then an achievement percentage for the performance period will be determined (50%, 100% and 200%, respectively). Performance below the threshold level for a performance measure will result
in a 0% achievement percentage for the applicable fiscal year for that measure.
Following
the completion of the three-year performance period, the Executive Compensation Committee will determine the achievement percentage relative to Sales growth and Adjusted EBITDA growth for
the performance period and determine the final average achievement percentage for the performance period for each factor.
Cubic's
Sales growth for purposes of the 2020-2022 PRSUs generally means the aggregate of the Company's Sales during the performance period, divided by a baseline Sales level determined by the
Executive Compensation Committee. Cubic's Adjusted EBITDA growth for purposes of the 2020-2022 PRSUs generally means the aggregate of the Company's Adjusted EBITDA during the performance period,
divided by a baseline Adjusted EBITDA level determined by the Executive Compensation Committee. For purposes of the 2020-2022 PRSUs, Sales and Adjusted EBITDA will be calculated in a manner to exclude
the effect of acquisitions or divestitures and foreign exchange rates.
For
these 2020-2022 PRSUs, Cubic's relative TSR as compared to the Russell 2000 Index over the performance period will result in a multiplier for the number of PRSUs that will vest, after the final
Sales growth and Adjusted EBITDA growth achievement percentages have been determined for the
performance period. If Cubic's relative TSR performance exceeds the performance of the Russell 2000 Index based on a scale established by the Executive Compensation Committee, the multiplier will
result in up to an additional 25% of the PRSUs vesting at the end of the performance period. If Cubic's TSR performance is below the performance of the Russell 2000 Index based on a scale established
by the Executive Compensation Committee, the multiplier could
result
in a reduction of up to 25% of these PRSUs vesting at the end of the performance period. The relative TSR performance multiplier is described in the table below:
|
|
|
|
|
|
|
Relative TSR Performance
|
|
|
TSR Multiplier
|
|
|
Cubic TSR is 2500 basis points or more above the Russell 2000 Index TSR
|
|
|
125%
|
|
|
|
|
|
|
|
|
Cubic TSR is 1000 basis points above the Russell 2000 Index TSR
|
|
|
110%
|
|
|
|
|
|
|
|
|
Cubic TSR is 1000 basis points below the Russell 2000 Index TSR
|
|
|
90%
|
|
|
|
|
|
|
|
|
Cubic TSR is 2500 basis points or more below the Russell 2000 Index TSR
|
|
|
75%
|
|
|
|
|
|
|
|
If
Cubic's absolute TSR is negative for the performance period, in no event will the relative TSR multiplier exceed 100%, regardless of performance relative to the Russell 2000 Index.
In
addition, in no event will the number of 2020-2022 PRSUs that vest at the end of the three-year performance period exceed 200% of the target PRSUs.
The
percentage for determining the number of PRSUs that will vest if performance is between specified achievement levels will be determined by linear interpolation.
Accelerated Vesting of RSUs
RSUs
are generally forfeited unless an executive is continuously employed through the applicable vesting dates. There are, however, certain exceptions to this treatment.
RSUs Granted Prior to Fiscal Year 2020. For purposes of RSUs granted prior to fiscal year 2020, the RSUs granted by us vest immediately upon a
recipient's termination of employment or service as a result of his or her death or disability. In addition, the RSUs vest immediately upon a recipient's termination without cause or resignation for
good reason within 12 months following a change in control.
RSUs Granted Beginning in Fiscal Year 2020. Commencing with the RSUs granted in fiscal year 2020, the accelerated vesting provisions applicable to the
RSUs were revised. The RSUs granted commencing in fiscal year 2020 vest immediately upon a recipient's termination of employment or service as a result of his or her death or disability. In addition,
the RSUs granted to our executive officers vest immediately upon a recipient's termination without cause or resignation for good reason
48 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 3
|
in
either case within 3 months prior to or 18 months following a change in control or during the required 12-month retirement notice period. Finally, the RSUs granted to our executive
officers will vest upon retirement.
For
purposes of the equity awards granted commencing in fiscal year 2020, retirement means an executive's resignation following the attainment of age 60 and 10 years of service, and the
satisfaction of a 12-month notice period.
Accelerated Vesting of PRSUs
PRSUs
are generally forfeited unless an executive is continuously employed through the last day of the performance period. The underlying principle is that the executive needs to have been an active
employee during the entire performance period in order to have contributed to the results on which the earned awards are based. There are, however, certain exceptions to this treatment.
PRSUs Granted Prior to Fiscal Year 2019. With respect to PRSUs granted prior to fiscal year 2019, upon a change in control of the Company, a number of PRSUs equal
to the target RSUs will vest immediately prior to
the date of such change in control. In the event of a recipient's termination of employment or service as a result of his or her disability, termination without cause or resignation for good reason,
the recipient will remain eligible to vest in the PRSUs based on actual performance for the three-year performance period, with the resulting PRSUs prorated for the portion of the performance period
that elapsed prior to the date of such termination.
In
the event of a recipient's death, the recipient will vest in the target PRSUs, which target PRSUs shall be prorated for the portion of the performance period that elapsed prior to the date of
death.
PRSUs Granted in Fiscal Year 2019. For purposes of the PRSUs granted in fiscal year 2019, upon a change in control of the Company, a number of PRSUs equal to the
target PRSUs, or, if greater, the application of the relative TSR multiplier to the target PRSUs calculated for the performance period through the date of the change in control, will vest on the date
of the change in control.
In
the event of a recipient's termination of employment or service as a result of his or her disability, termination without cause or resignation for good reason, the recipient will remain eligible to
vest in the PRSUs based on actual performance for the performance period, with the resulting PRSUs prorated for the portion of the
performance
period that elapsed prior to the date of such termination.
In
the event of a recipient's death prior to a change in control, the recipient will vest in the target PRSUs.
PRSUs Granted Beginning in Fiscal Year 2020. Commencing with the PRSUs granted in fiscal year 2020, the accelerated vesting provisions applicable to the PRSUs
were further revised.
Upon
a change in control of the Company, the number of PRSUs a participant will remain eligible to vest in following the change in control will be equal to the target PRSUs, or, if greater, the
application of the relative TSR multiplier to the target PRSUs calculated for the performance period through the date of the change in control (the "vesting eligible PRSUs"). The vesting eligible
PRSUs will then vest on the last day of the three-year performance period, subject to an employee's continued employment through such date.
If,
following a change in control, a recipient's employment or service is terminated as a result of his or her death, disability or retirement, the vesting eligible PRSUs will vest upon such
termination. In addition, if an executive's employment or service is terminated as a result of his or her termination without cause or resignation for good reason within 3 months prior or
18 months following a change in control, or during his or her required 12-month notice period, all of the vesting eligible PRSUs will vest upon such termination.
In
the event a recipient's employment or service is terminated as a result of his or her termination without cause or resignation for good reason or disability prior to a change in control, the
recipient will remain eligible to vest in the PRSUs based on actual performance for the performance period (or in the vesting eligible shares if a change in control occurs prior to the end of the
performance period), with the resulting PRSUs prorated for the portion of the performance period that elapsed prior to the date of such termination (unless such termination without cause or
resignation for good reason occurs within 3 months prior to a change in control or such termination or disability occurs during the required retirement notice period, in which case no proration will
apply).
In
the event of a recipient's retirement prior to a change in control, the recipient will remain eligible to vest in the PRSUs based on actual performance for the performance
period (or in the vesting eligible shares if a change in control occurs prior to the end of the performance period).
In
the event of a recipient's death prior to a change in control, the recipient will vest in the target PRSUs.
2020 Notice and Proxy Statement / 49
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS | Section 4
|
SECTION 4: OTHER COMPENSATION MATTERS AND BENEFIT PROGRAMS
Stock Ownership Requirements
In
keeping with corporate governance best practices, management and directors align their stock ownership interests with those of our shareholders. Beginning in fiscal year 2020, enhancements to stock
ownership guidelines were established for our senior management and non-employee directors. These new guidelines are
expected
to be achieved within five years of implementation date. All company shares held by the director or officer, his or her related trusts and immediate family, unvested RSUs but not PRSUs shall
be included in the calculations.
COMPENSATION RECOVERY POLICY
Management and our Board believe our compensation policies are not reasonably likely to result in a material adverse financial or other effect. Also, we
believe our compensation policies and practices have not and will not impact our risk management objectives and do not create risks that are reasonably likely to have a material adverse effect on the
Company.
However,
our Board is committed to following good corporate governance practices and believes it is prudent to maintain a compensation recovery, or "claw-back," policy. This claw-back policy is in
addition to any policies or recovery rights that are provided under applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.
Pursuant
to the terms of the "claw-back" policy, our Board has the right to require reimbursement or forfeiture of incentive compensation from an executive officer in the event the officer's
wrongdoing is later determined by the Board to have resulted in (1) a restatement of the Company's financial results due to its material noncompliance with any financial reporting requirement
under U.S. securities law; or (2) a material negative revision of a financial or operating measure on the basis of which incentive compensation was awarded (a "Recoverable Event").
Under
our claw-back policy, if the Board determines that a Recoverable Event was caused by an executive officer's fraud, gross negligence or willful misconduct, it may
require
reimbursement from the executive officer for vested incentive compensation and/or the forfeiture of unvested or unpaid incentive compensation. The amount of incentive compensation that may be
recovered or subject to forfeiture is any incentive compensation awarded, vested or paid to the executive officer that the executive officer would not have been awarded, vested or paid if the
Company's financial results had been reported properly. The right to cause a forfeiture or recovery of incentive compensation applies to incentive compensation awarded, vested and/or paid during the
twelve months prior to the date on which we are required to prepare an accounting restatement and would be determined on an after-tax basis for any incentive compensation to be recovered from the
executive officer.
ANTI-HEDGING POLICY APPLICABLE TO NEOS
Pursuant to Cubic's insider trading policy, all NEOs are prohibited from purchasing financial instruments (including prepaid variable forward contracts,
equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of equity securities which: (1) have been granted to the NEO by the Company as
part of their compensation, or (2) are held directly or indirectly by the NEO.
DEFERRED COMPENSATION PLAN
Certain of the directors and NEOs participate in the Cubic Corporation Amended and Restated Deferred Compensation Plan (the "Deferred Compensation Plan").
50 www.cubic.com/investor-relations
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 4
|
For
more information, please see the Nonqualified Deferred Compensation table below.
RETIREMENT BENEFITS
All of our regular employees, including our NEOs, who meet certain defined requirements, may participate in our 401(k) plan. 401(k) matching payments and
profit sharing plan contribution are equally available to all eligible employees. The profit sharing contribution percentage is based on a scale ranging from 2.5% to 9% of eligible compensation and is
tied to the Company's ROE for the fiscal year.
For
2019, the minimum threshold for ROE was not achieved, resulting in a profit sharing payout at the floor percentage of 2.5%. The value of the Company's contributions on behalf of the NEOs during
fiscal year 2019 is set forth in the Summary Compensation Table below.
Mr.
Feldmann is also a participant in the Cubic Corporation Pension Plan (the "Pension Plan"), which plan was frozen as of December 31, 2006. Mr. Cole is a participant in the Cubic (UK)
Limited Pension Scheme, which was closed to future service accruals as of September 30, 2010. For more information, please see the Pension Benefits table below.
OTHER BENEFITS
We provide certain perquisites and personal benefits to our senior executives. These include annual physical examinations, term life insurance, a financial
planning and wellness benefit of up to $15,000 per year per NEO, and an auto allowance for certain NEOs.
During
fiscal 2019, we also provided each NEO a limited amount of administrative support for personal travel arrangements and other personal business at the Company's expense.
Our
Executive Compensation Committee periodically reviews the levels of perquisites and other personal benefits to the NEOs to ensure they fit within the Company's overall compensation philosophy.
SEVERANCE AND CHANGE IN CONTROL BENEFITS
The Board has approved severance and change in control arrangements in which our NEOs participate to provide for certain severance benefits in the event that
a NEO's employment is involuntarily or constructively terminated, including in connection with a change in control. The Company recognizes the challenges executives often face securing new employment
following termination.
To
mitigate these challenges and to secure the focus of our management team on the Company's affairs, all NEOs are entitled to receive severance payments under the Company's severance policy upon a
termination by the Company without cause. The Company believes that reasonable severance benefits for its executive officers are important because it may be difficult for its executive officers to
find comparable employment within a short period of time following certain qualifying terminations.
In
lieu of normal severance, we provide enhanced benefits in the event of an involuntary termination or a constructive termination within specified period before or after a change in control as a
means of reinforcing and encouraging the continued attention and dedication of our executives to their duties of employment without personal distraction or conflict of interest in circumstances that
could arise from the occurrence of a change in control.
The
Company believes that the interests of shareholders will be best served if the interests of its executive officers are aligned with them, and providing these changes in control benefits should
eliminate, or at least reduce, the reluctance of the Company's executives to pursue potential change in control transactions that may be in the best interests of shareholders.
Our
Transition Protection Plan (the "Protection Plan"), under which the foregoing change in control severance benefits are provided, also assists in the retention and attraction of senior individuals
by reducing their concern for financial security in the event of a job loss in connection with a change of control. The terms of these severance arrangements are described below under "Potential
Payments Upon Termination or Change in Control."
Deductibility of Executive Compensation
As
part of its role, the Executive Compensation Committee reviews and considers the deductibility of our executive compensation under Section 162(m) of the Internal Revenue Code.
Section 162(m) generally limits the tax deduction for compensation in excess of one
million
dollars paid to certain executive officers. This Committee does not necessarily limit executive compensation to the amount deductible under that provision.
2020 Notice and Proxy Statement / 51
Table of Contents
|
COMPENSATION
DISCUSSION AND ANALYSIS | Section 4
|
In
its review and establishment of compensation programs and awards for our NEOs, the Committee considers the anticipated deductibility or non-deductibility of the compensation as only one factor in
assessing whether a particular compensatory arrangement is appropriate, particularly in light of the goals of maintaining a competitive executive compensation system generally (i.e., paying for
performance and maximizing shareholder return).
The
Executive Compensation Committee reserves the right to use their judgment to authorize compensation payments that do not qualify for the compensation deduction if, in light of all applicable
circumstances, they believe that such payments are appropriate and in the Company's best interests and that of our shareholders.
Executive Compensation Committee Report
The
Executive Compensation Committee of the Board of Directors of Cubic Corporation has reviewed and discussed with management the Compensation Discussion and Analysis and, based on such review and
discussions, recommended to the Board that the Compensation Discussion and Analysis be included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019
and in the Company's Proxy Statement for its 2020 Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION COMMITTEE
David F. Melcher, Chair
Prithviraj Banerjee
Carolyn A. Flowers
Janice M. Hamby
52 www.cubic.com/investor-relations
Table of Contents
|
EXECUTIVE COMPENSATION TABLES
|
Executive Compensation Tables
Summary Compensation Table
The
following table shows the compensation for the three fiscal years ended September 30, 2019, 2018 and 2017 earned by our CEO, our Executive Vice President
and
Chief Financial Officer, and our next three most highly compensated executive officers who were serving as executives as of September 30, 2019.