Additional Proxy Soliciting Materials (definitive) (defa14a)
June 22 2017 - 03:50PM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Definitive Proxy Statement
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Definitive Additional Materials
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Triumph Group, Inc.
(Name of Registrant as Specified In Its Charter)
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June 2017
Shareholder Outreach
Business, Executive Compensation, and
Governance Overview
Introduction
2
Large Scale Transformation Underway. The implementation of our transformation
plan in fiscal 2017 and significant progress to date better positions us for fiscal 2018.
Executive Compensation Program Aligned with Company Strategy. Our fiscal
2017 incentive awards focused on key outcomes critical to driving the transformation. Our
annual incentive program brings compensation in line with peers and maintains strong
alignment between pay and performance.
Non-Employee Director Compensation Program Aligned with Market Practice.
The changes to our non-employee director compensation program provide market
competitive levels of pay and encourage meaningful stock ownership.
Ongoing Board Refreshment. At the 2017 Annual Meeting, two legacy directors are
stepping down. Six of the eight directors have joined the Board in the last seven years.
We request your support at our Annual Meeting on July 20th, 2017.
This presentation addresses how our Board manages our executive
compensation and non-employee director compensation programs.
Company Overview
3
NYSE: TGI
Headquarters: Berwyn, PA
Incorporated: 1993
Employees: ~14,000
Fiscal year ending March 31
Market cap as of 6/15/17: $1.6 billion
Shares outstanding: 49.6 million
FY 2017 revenues: $3.5 billion
FY 2017 adjusted EPS: $6.54**
Backlog as of 3/31/17: $4.0 billion
**Non-GAAP financial measure. See Appendix A for a reconciliation to GAAP
financial measure and other information.
Key Statistics
Business Overview
4
Fiscal 2017 Revenue by Business Unit
Consolidated Highlights
Integrated
Systems
~$1.0B
Aerospace
Structures
~$1.3B
Precision
Components
~$1.0B
Product
Support
~$340MM
Summary Financial Results**
** Adjusted EPS and Adjusted EBITDA are non-GAAP financial measures. See Appendix A for a reconciliation to GAAP financial measures and other
information.
Large Scale Transformation
on Track
5
RESHAPING
THE PORTFOLIO
INVESTING & GROWTH
OPERATIONAL TURNAROUND
CREATING
ONE TRIUMPH
• Innovation, R&D
• Capital allocation
• Win strategy
• Divestitures
• Strategic M&A
• Adjacencies
• “Return to Green” programs
• Improved cash conversion
• Improved customer contracts
• Consolidations & cost reduction
• Simpler organization
• Triumph Operating System
• Key talent
• Performance culture
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Corporate Governance Best Practices
Key Governance Highlights
Annual Election of All Directors
Independent Chairman
Highly Independent Board (7 of 8 Directors) and Committees
Majority Voting for Directors
No Supermajority Vote Requirements
Annual Board and Committee Self-Evaluations
Ongoing Board Succession Planning
Regular Executive Sessions of Independent Directors Without
Management Present
Engaged Board with Strong Participation Attendance Record
6
We are committed to a governance structure that is informed by our shareholders and that
provides strong shareholder rights and meaningful accountability
7
Our Board is comprised of highly engaged directors with the skills and experience necessary
to provide sound judgment as well as strong and independent oversight
Highly Qualified and
Independent Board
B
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M
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Board Expertise and Key Skills
Aerospace & Defense Industry M&A and Capital Markets
Business Operations and Strategy Investor Perspective
Financial Literacy and Expertise Public Company Board Experience
Global Business Senior Management and Leadership
PAUL BOURGON (2008)
General Manager – Global Sales and Engineering for
SKF Aeroengine
DAWNE S. HICKTON (2015)
Former Vice Chair, President and CEO of RTI
International Metals
Chair of the Governance Committee
DANIEL J. CROWLEY (2016)
President and CEO of Triumph Group
WILLIAM L. MANSFIELD (2012)
Former Chairman and CEO of The Valspar
Corporation
Chair of the Audit Committee
JOHN G. DROSDICK (2012)
Former Chairman, President and CEO of Sunoco, Inc.
Chair of the Compensation Committee
ADAM J. PALMER (2010)
Managing Director at the Carlyle Group
Chair of the Finance Committee
RALPH E. EBERHART (2010)
Former Commander of the North American Aerospace
Defense Command
Non-Executive Chairman and Chair of the
Executive Committee
JOSEPH M. SILVESTRI (2008)
Managing Director of Court Square Capital Partners
Board Refreshment
• Size of Board: 10
• No new
members
2014
• Size of Board: 10
• Mr. Jeffry Frisby
resigned from
the Company
• Addition of
Ms. Dawne
Hickton to the
Board
2015 • Size of Board: 10• Mr. George
Simpson did not
stand for
reelection
• Addition of
Mr. Daniel
Crowley to the
Board
2016
• Size of Board: 8
• Mr. Richard Ill
and Mr. Richard
Gozon are not
standing for
reelection
• No new
members
2017
8
In light of our strategy, we have added four current or former public company CEOs in the
past five years (Mr. Bill Mansfield, Mr. John Drosdick, Ms. Dawne Hickton, and Mr. Daniel
Crowley)
Key Principles of Pay Program
9
Strategic Focus
Triumph’s compensation philosophy is to align pay with performance
and shareholders’ interests, and to provide competitive compensation
programs that attract and retain the right people
Pay and
Performance
Alignment
Triumph’s variable pay programs are funded based on financial results,
with fixed compensation representing only a small portion of overall pay
Support
Turnaround
Priorities
Triumph’s executive compensation programs are designed to support the
Company’s turnaround strategy and align with the Company’s longer-
term goals (e.g., reducing operational costs, continued generation of cash,
improving productivity, meeting customer commitments, and driving
organic growth)
Enhanced
Governance
Enhanced governance and compensation practices reflect peer alignment
and shareholder input
Executive Compensation Philosophy
and Practices
10
Compensation Philosophy
Our compensation program is designed to:
– Recruit and retain executives
– Motivate our executives to achieve our
transformation goals
– Instill in our executives a long-term commitment
– Provide compensation that recognizes individual
contributions as well as overall business results
Fiscal 2017 Compensation Mix
CEO All Other NEOs
Compensation Governance Practices
What We Do
Pay for performance
Establish sound performance goals
Maintain stock ownership guidelines
Use double-trigger acceleration provisions
Engage an independent compensation
consultant
What We Don’t Do
No stock option grants with an exercise price
less than the fair market value on the date of
grant
No new executives have excise tax gross ups
No repricing or exchanging of equity awards
without stockholder approval
No hedging and pledging is restricted
No excessive perquisites
Salary
22%
AIP
22%
PSUs
39%
RSUs
17%
Variable
Compensation: 78%
Salary
32%
AIP
32%
PSUs
25%
RSUs
11%
Variable
Compensation: 68%
Fiscal 2017 Annual Incentive
Payout Decision
11
Annual Incentive Payout Potential Final Annual Incentive Payout
Based on achievement of goals, the annual
incentive payout potential for corporate
executives was 109% of target
The Committee considered various
factors including:
Substantial progress the new
management team made
Successful negotiations of customer
contracts
Full year performance results
including stock price performance
The need to do additional work to
restore confidence
In light of these factors, the Committee
applied negative discretion resulting in a
final payout of 75% of target
Metric
Target
Performance
Actual
Performance
Weighted
Payout
Adjusted
Operating
Income
(60%)
$424MM
$342MM**
(81% of
target)
49%
Adjusted
Free Cash
Flow
(30%)
$0MM
$84MM**
(168% of
target)
50%
Strategic
Measures
(10%)
-
(100% of
target)
10%
Total - - 109%
109%
Corporate
Achievement
Final Corporate
Achievement
75%Committee Discretion
** See Appendix B for a reconciliation of GAAP to non-GAAP results and a description of adjustments made to performance metrics.
Overview of Executive Fiscal 2017
Incentive Plans
12
Performance‐Based
RSUs (70% weighting)
Base Salary
Annual Incentives
Long‐Term Incentives
Pay
Component Form Performance Link
Cash
Cash
Time‐Based RSUs (30%
weighting)
Fixed compensation to attract and retain NEOs
100% based on Triumph performance
Value tied to stock price performance; vests ratably
over 3 years
Operating
income (60%)
Free cash flow
(30%) Strategic (10%)
Value also tied to stock price performance
3 year cumulative EPS
(50%)
3 year cumulative
adjusted RONA (50%)
Strategic measures include cost reduction initiatives and Triumph Operating System
(“TOS”) initiatives that align with the transformation plan.
CEO Compensation Package
13
Annual Pay
Base Salary
$900,000
Annual Incentive
Target: 100% of base
salary
Long‐Term Incentive
Target: 250% of base
salary
Total Compensation
Target: $4.050 million
Sign-On Awards
150,000 stock options
Inducement Award
Make-Whole Award
50,000 time‐based
restricted shares
50,000 performance‐based
restricted shares
39,567 time‐based
restricted shares
39,567 performance‐
based restricted shares
Requires
Compound Annual
TSR Growth Rate ≥
10%
Requires a Compound
Annual TSR Growth
Rate of At Least 11% and
Capping out at 14%
Non-Employee Director Compensation
Program Provides Competitive Pay
Element Details
Annual Cash Retainer $85,000
Additional Retainer for Non-
Executive Chairman
$100,000
Additional Committee Chair
Retainers
Audit: $15,000
Compensation: $10,000
Nominating and Governance: $7,500
Finance: $5,000
Other: $5,000
Annual Equity Award $140,000, in the form of restricted stock units
(“RSUs”); eliminated sign-on awards
Stock Ownership Guidelines 5x the annual cash retainer (i.e., $425,000)
Stock Retention Requirement At least 50% of the after-tax value of vested equity
awards until retirement or departure from the Board
14
We increased the stock ownership guidelines and stock retention requirement to encourage
meaningful ownership of equity
Consistent with our ongoing Board refreshment, more competitive compensation allows us
to attract individuals to our Board with strong experience in our business
We Ask for Your Support
at the 2017 Annual Meeting
15
2017 Triumph Board Recommendations
Proposal 1 FOR All Director Nominees
Proposal 2 FOR Advisory Say on Pay
Proposal 3 FOR Annual Say on Pay Voting Frequency
Proposal 4 FOR 2016 Directors’ Equity Compensation Plan
Proposal 5 FOR Appointment of Ernst and Young LLP
Appendix A
16
17
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Appendix B
20
In fiscal year 2017, we adjusted our operating income and free cash flow performance metrics in our annual
incentive plan. The tables below provide a reconciliation between the GAAP and non-GAAP operating income, and
shows how free cash flow (a non-GAAP metric) was calculated and adjusted, as used in the determination of our
annual incentive plan payouts. We also provide a reconciliation that shows the adjustments made to RONA as used
in the historical pay and performance alignment chart.
($ in thousands)
12 Fiscal Months Ended
March 31, 2017
GAAP operating income $56,889
Add back: Loss on divestitures 19,124
Add back: Goodwill impairment 266,298
Adjusted operating income (non-GAAP) $342,311
($ in thousands)
12 Fiscal Months Ended
March 31, 2017
Cash flow from operations $281,319
Capital expenditures (51,832)
Sale of assets 16,823
Sale of businesses 69,364
Free cash flow $315,674
($ in thousands)
12 Fiscal Months Ended
March 31, 2017
Free cash flow $315,674
Less: Proceeds on divestitures (69,364)
Less: 50% of Q4 FY17 cash advances from Boeing agreement (162,000)
Adjusted free cash flow(1) $84,310
___________
(1) This is a non-GAAP performance measure.
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