The following table presents information regarding grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2017. For more information on the terms applicable to the awards reflected below, please see “2017 Compensation Program Elements” on page 35.
Nonqualified
Deferred Compensation
The following table presents information concerning each of the Company’s defined contribution or other plans that provides for the deferral of compensation of the NEOs on a basis that is not tax qualified.
|
Name
|
Executive
Contributions
in Last FY
($)
|
Registrant
Contributions in
Last FY
($)
|
(1)
|
Aggregate
Earnings in Last
FY
($)
|
(2)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance at
Last FYE
($)
|
|
|
Thomas
C. Gentile, III
|
|
600,000
|
|
6,979
|
|
|
606,979
|
|
|
Sanjay Kapoor
|
|
|
|
|
|
|
|
|
|
Samantha Marnick
|
|
100,000
|
|
3,548
|
|
|
205,469
|
(3)
|
|
Duane
F. Hawkins
|
|
|
|
|
|
|
|
|
|
Michelle
J. Lohmeier
|
|
47,500
|
|
1,719
|
|
|
122,664
|
(4)
|
|
|
(1)
These
amounts represent Company contributions to the DCP and are included in the “All Other Compensation” column of the
“ Summary Compensation Table .”
(2)
These
amounts represent earnings on plan balances from January 1-December 31, 2017 and are not included in the “ Summary
Compensation Table .”
(3)
This amount includes $101,921 consisting of executive contributions, Company contributions, and earnings on balances prior to 2017 (and as reported in our 2016 proxy statement).
(4)
This amount includes $73,445 consisting of executive contributions, Company contributions, and earnings on balances prior to 2017 (and as reported in our 2016 proxy statement).
|
More information on the DCP can be found under “Other Compensation Elements and Information - Benefits and Perquisites” on page 45. There were no “above-market” earnings (defined by SEC rule as that portion of interest that exceeds 120% of the applicable federal long-term rate) under the DCP during fiscal year 2017, as the Company used 120% of the applicable federal long-term rate to determine the amounts to be contributed.
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Potential
Payments Upon Termination or Change-in-Control
The Company believes competitive severance protection is an appropriate incentive in attracting and retaining talent and, accordingly, has provided for certain termination compensation through individual employment agreements. In addition, when appropriate, the Company has also agreed to individual severance arrangements at the time of termination of employment, taking into account the specific facts and circumstances of termination. The Company does not maintain any change-in-control agreements or other similar plans or arrangements intended specifically to provide income protection for executive officers upon a change-in-control.
In addition, the Company maintains several programs - the STIP, LTIP, Perquisite Allowance Program, and DCP - that deliver benefits upon certain types of termination or a change-in-control.
Information about these severance benefits is contained below followed by a table summarizing the monetary benefits upon triggering events.
Employment
Agreements
Spirit maintains employment agreements with all of its NEOs. However, only the employment agreements of Messrs. Gentile and Kapoor currently provide for any payments to be made, or benefits provided, beyond the date of termination. These benefits are paid only in the circumstances described below. Receipt of these benefits is conditioned upon the execution of a release of claims against the Company and satisfaction of a covenant not to compete and a covenant not to solicit customers or employees of Spirit.
Termination
Without Cause or For Good Reason
Upon
a termination without cause or for good reason, Messrs. Gentile and Kapoor will be entitled to their base salary in effect
prior to termination and the costs of providing COBRA medical and dental benefits coverage for a period of 12 months. In
addition, if such termination occurs for Mr. Gentile before April 1, 2018, any unvested shares of restricted stock that were
awarded as a signing bonus under his employment agreement will immediately vest. In addition, if such a termination occurs
before April 1, 2019, the following long-term incentives will vest to the extent not previously vested:
•
66 2/3% of the RS award granted to Mr. Gentile in 2017 - 36,915 shares of Common Stock; and
•
33 1/3% of the RS award granted to Mr. Gentile in 2018 (provided the 2018 RS awards have been made on or prior to the date of termination) - 13,994 shares of Common Stock.
Termination
of Mr. Kapoor due to expiration of his employment agreement without renewal constitutes a termination without cause.
A termination for “good reason” is a voluntary termination of employment by the executive within 90 days after one of the following conditions:
(1)
For Mr. Gentile: If he is assigned to a diminished position prior to April 1, 2019.
(2)
For Mr. Kapoor: Upon a change-in-control or within 12 months thereafter, the executive is not offered continued employment in a position other than a diminished position.
A position is a “diminished position” if it reflects: (1) a material diminution in base compensation; (2) a material diminution in authority, duties, or responsibilities; (3) a change in reporting requirements; (4) relocation of the executive’s principal office to a location greater than 50 miles from Wichita, Kansas; or (5) any action or inaction on Spirit’s part that constitutes a material breach by Spirit of the employment agreement.
For
Mr. Kapoor, a “ change-in-control” means (a) a transaction where any person acquires more than 50% of
the Company’s total voting power, or (b) a transaction where the Company sells or transfers all or substantially all of
its assets to a person if all or substantially all of the proceeds are distributed to the Company’s stockholders.
For context, a “for cause” termination is defined as a termination resulting from the following:
(1)
Commission of a material breach or acts involving moral turpitude, fraud, dishonesty, unauthorized disclosure of confidential information, the commission of a felony, or material violations of the Company’s policies;
(2)
Direct and deliberate acts constituting a material breach of the duty of loyalty;
(3)
Refusal or material failure (other than by reason of disability) to perform job duties and responsibilities if not remedied within 30 days after receiving written notice thereof;
(4)
material underperformance, as reflected in two consecutive performance reviews provided no less than six months apart; or
(5)
inability to obtain and maintain the appropriate level of U.S. security clearance.
Voluntary
Termination without Good Reason
In the event Mr. Gentile voluntarily terminates his employment with the Company before April 1, 2018, any unvested shares of restricted stock that were awarded as a signing bonus under his employment agreement will immediately vest.
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Awards
under the OIP: ACI and Long-Term Incentives
Annual
Cash Incentive
In
the event of a “ q ualifying r etirement” that occurs 90 days or more after the beginning of the plan year,
the participant will be entitled to receive a prorated ACI based on full-year performance metrics actually achieved for such year.
None of the NEOs qualify for this benefit.
In
the event of a change-in-control of the Company, each participant who incurs a q ualifying t ermination, either in
anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and
ending two years after the change-in-control, will be entitled to receive a cash award equal to the full-year ACI that the participant
would have been entitled to receive for the year during which such termination occurs had the target performance metrics established
for that year been met.
Long-Term
Incentives
2017
Long-Term Incentives
. Except as otherwise provided in a participant’s award agreement, each participant who incurs
a q ualifying t ermination either in anticipation of the change-in-control or during the period beginning 30 days
before the date of the change-in-control and ending two years after the change-in-control, will become fully vested upon termination
of employment. If an award is subject to performance conditions, the portion that vests will, at the discretion of the Compensation
Committee, be determined based upon actual performance through the date of the change-in-control (or, if later, the date of the
q ualifying termination) or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably
assessed, the assumed achievement of target performance.
In
addition, each such participant who qualifies for accelerated vesting above will also receive a cash award equal to the dollar
value of the long-term incentive that would have been made to the participant in the ordinary course of business within the 12-month
period following the date of qualifying termination based on the participant’s annual base pay in effect on the date
of qualifying termination .
2015
and 2016 Long-Term Incentives
. Except as otherwise provided in a participant’s award agreement, the unvested long-term
incentives of a participant who is employed by Spirit on the date of a change-in-control, or whose employment was involuntarily
terminated by Spirit (other than for c ause) within the ninety (90) days preceding a change-in-control, become fully vested
upon a change-in-control. If an award is subject to performance conditions, the portion that vests will, at the
discretion of the Compensation Committee, be determined based upon actual performance through the date of the change-in-control
or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed
achievement of target performance.
In
addition, each such participant who qualifies for accelerated vesting above will also receive a cash award equal to the dollar
value of the long-term incentive that would have been made to the participant in the ordinary course of business within the 12-month
period following the date of the change-in-control based on the participant’s annual base pay in effect on the date
of the change-in-control or termination, if earlier .
Definitions:
“Qualifying
termination” means a participant’s termination either (i) by the Company without c ause, or (ii) by the participant
for g ood r eason.
“Cause” means, unless an award agreement states otherwise, that the Company has “cause” to terminate the employee, as defined in any applicable employment or consulting agreement, or any of the following has occurred:
(1)
gross negligence or willful misconduct in the exercise of responsibilities;
(2)
breach of fiduciary duty;
(3)
material breach of any provision of an employment contract or consulting agreement;
(4)
the commission of a felony crime or crime involving moral turpitude;
(5)
theft, fraud, misappropriation, or embezzlement (or reasonable suspicion of the same);
(6)
willful violation of any federal, state, or local law (except traffic violations and other similar matters not involving moral turpitude); or
(7)
refusal to obey any resolution or direction of the participant’s supervisor or the Board.
“Good
r eason” means a voluntary termination within ninety (90) days after the participant is assigned to a diminished position,
so long as the participant has, within thirty (30) days after being assigned to such diminished position, notified the Company
of the participant’s intent to terminate as a result of such assignment and within thirty (30) days after receipt of that
notice the Company has not reassigned the participant to a position that is not a diminished position.
“Diminished position” means a position that reflects any of the following changes or actions, unless the participant has consented to the change or action in writing: (A) a material diminution in the participant’s base compensation; (B) a material diminution in the participant’s authority, duties, or responsibilities or associated job title; (C) relocation of the participant’s principal office to a location
SPIRIT
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that
is greater than 50 miles from the location of the participant’s principal office immediately before such relocation;
or (D) any action or inaction with respect to the terms and conditions of the participant’s service that constitutes a material
breach by the Company of any written agreement between the participant and the Company.
“Qualifying
r etirement” is defined, for purposes of the ACI , as a voluntary termination of employment on or after attaining
the age of 55 with at least 10 years of service with the Company and its affiliates or the age of 60 with at least five years
of such service.
A change-in-control is (1) a transaction pursuant to which a person, or more than one person acting as a group, acquires more than 50% of the total voting power of the stock of the Company, (2) a merger or consolidation involving the Company in which the Company is not the surviving entity, or (3) a transaction that is a sale of all or substantially all the assets of the Company if all or substantially all the proceeds from such transaction are distributed to the stockholders of the Company.
Perquisite
Allowance Plan
Upon
the occurrence of a change-in-control of the Company, an NEO who incurs a q ualifying t ermination (as defined under
the OIP, above) either in anticipation of the change-in-control or during the period beginning 30 days before the change-in-control
and ending two years after the closing of the change-in-control would have been entitled to receive a cash award equal to (1)
any remaining unused portion of the NEO’s allowance for the calendar year in which the q ualifying t ermination
occurs, plus (2) an amount equal to 100% of the NEO’s allowance for the calendar year in which the q ualifying t ermination
occurs.
Deferred
Compensation Plan
Individuals participating in the DCP are entitled to receive payment of amounts credited to their deferred compensation accounts under the DCP upon a separation from service. However, in the event of a termination for cause, no amounts credited to the employer match account or employer discretionary contribution amount shall be payable to the participant. Payment to a participant of any employer matching or discretionary contributions made under the DCP is subject to satisfaction by the participant of non-competition, non-solicitation, and confidentiality requirements during the term of the participant’s employment and for so long as the participant receives payments under the DCP.
For purposes of the DCP, a “termination for cause” means a separation from service involving (1) gross negligence or willful misconduct in the exercise of responsibilities; (2) breach of fiduciary duty; (3) material breach of any provision of an employment contract; (4) the commission of a felony crime or crime involving moral turpitude; (5) theft, fraud, misappropriation, or embezzlement (or suspicion of the same); (6) willful violation of any federal, state, or local law (except traffic violations and other similar matters not involving moral turpitude); or (7) refusal to obey any resolution or direction of the participant’s supervisor or the Board.
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Summary
Table-Potential Payments Upon Termination or Change-in-Control
The following table summarizes the value of compensation and benefits payable to each NEO upon termination that would exceed the compensation or benefits generally available to salaried employees. Benefits and payments are calculated using a termination date of December 31, 2017. For valuation purposes, the table below uses $87.25, the closing price of Common Stock on December 29, 2017. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (i.e., the single sum does not reflect any discount).
|
|
Severance
(1)
($)
|
ACI
(2)
($)
|
RS
($)
|
PB
One-Time, PB-TSR
and PB-FCF
($)
|
Cash Award in
Respect of LTIP
Awards
(15)
($)
|
Perquisite
Allowance
Plan
(16)
($)
|
Other
Benefits
(17)
($)
|
Total
($)
|
|
Tom
C.
Gentile, III
|
|
|
|
|
|
|
|
|
|
Voluntary Termination
|
|
|
2,850,109
(3)
|
|
|
|
|
2,850,109
|
|
Termination for Cause
|
|
|
|
|
|
|
|
|
|
Involuntary Termination without Cause/ Termination by Executive for Good Reason
|
1,150,000
|
|
6,070,942
(4)
|
|
|
|
20,713
|
7,241,655
|
|
Death or Disability
|
|
|
|
|
|
|
|
|
|
Change-in-Control
|
|
|
2,850,109
(5)
|
|
5,175,000
|
|
|
8,025,109
|
|
Change-in-Control and Qualifying Termination
|
|
1,603,671
|
7,681,403
(6)
|
2,641,668
(11)
|
5,175,000
|
50,000
|
|
17,151,742
|
|
Sanjay
Kapoor
|
|
|
|
|
|
|
|
|
|
Voluntary Termination
|
|
|
|
|
|
|
|
|
|
Termination for Cause
|
|
|
|
|
|
|
|
|
|
Involuntary Termination without Cause/ Termination by Executive for Good Reason
|
650,000
|
|
|
|
|
|
10,699
|
660,699
|
|
Termination Upon Expiration of Employment Agreement
|
650,000
|
|
|
|
|
|
10,699
|
660,699
|
|
Death or Disability
|
|
|
|
|
|
|
|
|
|
Change-in-Control
|
|
|
1,832,774
(7)
|
2,764, 429
(12)
|
1,820,000
|
|
|
6,417, 203
|
|
Change-in-Control and Qualifying Termination
|
650,000
|
650,000
|
3,531,880
(8)
|
3,693, 554
(13)
|
1,820,000
|
26,000
|
10,699
|
10,382, 133
|
|
Samantha
Marnick
|
|
|
|
|
|
|
|
|
|
Change-in-Control
|
|
|
960,186
(7)
|
1,448,176
(12)
|
931,000
|
|
|
3,339,362
|
|
Change-in-Control and Qualifying Termination
|
|
490,000
|
1,829,371
(8)
|
1,923,426
(13)
|
931,000
|
26,000
|
|
5,199,797
|
|
Duane F.
Hawkins
|
|
|
|
|
|
|
|
|
|
Change-in-Control
|
|
|
1,287,548
(7)
|
1,012,798
(12)
|
1,144,000
|
|
|
3,444,346
|
|
Change-in-Control and Qualifying Termination
|
|
518,192
|
2,355,576
(8)
|
1,596,850
(13)
|
1,144,000
|
26,000
|
|
5,640,618
|
|
Michelle J.
Lohmeier
|
|
|
|
|
|
|
|
|
Change-in-Control
|
|
|
1,413,188
(9
)
|
486,506
(14)
|
807,500
|
|
|
2,707,194
|
|
Change-in-Control and Qualifying Termination
|
|
475,000
|
2,167,116
(10)
|
898,850
(13)
|
807,500
|
26,000
|
|
4,374,466
|
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(1)
Represents
annual base salary for 12 months pursuant to each recipient’s employment agreement. For Mr. Kapoor, with respect to the
row titled “Change-in-Control and Qualifying Termination,” represents payment of severance to Mr. Kapoor provided
he is not offered continued employment in a position other than a diminished position.
(2)
Represents a cash amount equal to the value of the full-year ACI that such NEO would have been entitled to receive for 2017 had the target performance metrics for 2017 been met.
(3)
Represents
a cash amount equal to the unvested shares under Mr. Gentile’s sign-on award multiplied by $87.25.
(4)
Represents
a cash amount equal to the unvested shares under Mr. Gentile’s sign-on award and 66 2/3% of the RS award granted to
Mr. Gentile in 2017 multiplied by $87.25.
(5)
Represents
a cash amount equal to the unvested shares under Mr. Gentile’s sign-on award multiplied by $87.25.
(6)
Represents
a cash amount equal to the unvested shares under Mr. Gentile’s sign-on award and the unvested shares in the 2017 RS
award multiplied by $87.25.
(7)
Represents
a cash amount equal to the unvested shares under the 2015 and 2016 RS awards (awards
granted prior to 2017 were subject to a single-trigger) multiplied by $87.25.
(8)
Represents a cash amount equal to the unvested shares under the 2015, 2016, and 2017 RS awards multiplied by $87.25.
(9)
Represents
a cash amount equal to the unvested shares under Ms. Lohmeier’s sign-on award and the 2016 RS award multiplied by
$87.25.
(10)
Represents
a cash amount equal to the unvested shares under Ms. Lohmeier’s sign-on award and the unvested shares under the 2016 and 2017 RS awards multiplied by $87.25.
(11)
Represents
the sum of the following: (i) a cash amount equal to the number of target shares with respect to the 2017 PB-TSR award
multiplied by 162.5%, the projected payout percentage of the award as of December 29, 2017, multiplied by $87.25, plus (ii)
a cash amount equal to the number of target shares in the 2017 PB-FCF award multiplied by 0.00%, the projected payout percentage
of the award as of December 29, 2017, multiplied by $87.25.
(12)
Represents
the sum of the following: (i) a cash amount equal to the number of target shares in the 2015 PB-TSR award multiplied by 192.5%,
the projected payout percentage of the award as of December 29, 2017, multiplied by $87.25, plus (ii) a cash amount equal to the
number of target shares in the 2016 PB-TSR award multiplied by 150.0%, the projected payout percentage of the award as of December
29, 2017, multiplied by $87.25, plus (iii) for Mr. Kapoor and Ms. Marnick, a cash amount equal to the unvested shares under
PB One-Time awards granted to Mr. Kapoor and Ms. Marnick in May 2016 multiplied by $87.25 (assuming full vesting of such awards
upon a change-in-control based on an assumed determination of the Board of satisfactory performance as of the date of such change-in-control).
(13)
Represents the sum of the amount included in each person’s “Change-in-Control” row plus a cash amount equal to the number of target shares in the 2017 PB-TSR award multiplied by 162.5%, the projected payout percentage of the award as of December 29, 2017, multiplied by $87.25. Represents a cash amount equal to the number of target shares in the 2017 PB-FCF award multiplied by 0.00%, the projected
payout percentage of the award as of December 29, 2017, multiplied by $87.25.
(14)
Represents a cash amount equal to the number of target shares in the 2016 PB-TSR award multiplied by 150.0%, the projected payout percentage of the award as of December 29, 2017, multiplied by $87.25.
(15)
Represents
a cash amount equal to the value of the full-year long-term incentive that would have been made to such NEO in the
ordinary course of business within the 12-month period following the date of the change-in-control or qualifying
termination, as applicable, based on the participant’s annual base pay in effect on such date.
(16)
Assumes
that each NEO’s allowance for 2017 was entirely unused upon the occurrence of the qualifying termination . Represents
a cash award of (i) the remaining 2017 annual allowance, plus (ii) the allowance the NEO would receive for 2018.
(17)
Represents
average monthly contribution toward COBRA medical and dental benefits coverage for 12 months pursuant to each
recipient’s employment agreement.
|
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AEROSYSTEMS
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2017
CEO Pay Ratio
The 2017 annual total compensation of the Company’s CEO was $9,907,398. The 2017 annual total compensation of the median employee (excluding the CEO) was $70,452. The ratio between the two amounts is 141:1.
Determining
the Median Employee
The
Company believes that the ratio of pay included above is a reasonable estimate calculated in a manner consistent with
applicable SEC rules.
To
identify the median employee, we reviewed base pay paid to all of our employees as of October 1, 2017 (the “ Pay Ratio
Employee Population”). We used base pay as our compensation measure to avoid variations in pay due to overtime worked
or other items that may yield one-time pay increases. As a result of such review, we identified 901 employees with similar median
base pay. Subsequently, we reviewed total compensation paid to each of those 901 employees as of October 12, 2017, as reflected
in the Compa n y’s payroll records, and estimated total compensation for each of those employees through December 31,
2017. Comparing total and expected earnings of each of the 901 employees, we identified ten employees with similar median pay.
We studied each of the ten employees’ specific pay and employment circumstances and eliminated nine employees from the group
that had significant variations in their pay due to one-time events occurring in 2017. The remaining employee from that analysis
is our median employee.
The Pay Ratio Employee Population included all U.S. and non-U.S. persons employed by the Company on a full-time, part-time, seasonal, or temporary basis. Further, the Pay Ratio Employee Population excluded independent contractors and leased workers who provide services to the Company but are employed, and whose compensation is determined, by an unaffiliated third party. In calculating base pay for the Pay Ratio Employee Population, we did not make any assumptions, adjustments (including cost of living adjustments), or estimates with respect to base pay, and we did not annualize base pay. In calculating total compensation of each person in the group of 901 employees, we did not make any assumptions or adjustments (including cost of living adjustments), and we did not estimate annualized compensation for any full-time employees that were not employed by us for the full 2017-year through October 12, 2017.
As
required by SEC rules, after identifying our median employee, we calculated annual total compensation for both our median employee
and our CEO using the same methodology that we used to determine our NEOs’ annual total compensation for the “Summary
Compensation Table . ”
Given the different methodologies that companies use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
Compensation
Committee Report
The Compensation Committee establishes and oversees the design and functioning of the Company’s executive compensation program. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section in this Proxy Statement with the Company’s management. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2018 Annual Meeting of Stockholders and also be incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year 201 7 .
Compensation
Committee
Paul Fulchino, Chairman
Charles Chadwell
Robert Johnson
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RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Overview
Ernst & Young LLP (“E&Y”) conducted the audit of the Company’s accounts for fiscal year 2017. The Audit Committee has selected E&Y as the Company’s independent registered public accounting firm for fiscal year 2018, and the Board is asking the Company’s stockholders to ratify that selection. The Company expects that representatives of E&Y will be present at the Annual Meeting and they may make a statement if they desire to do so. Further, the Company expects that such representatives will be available to respond to appropriate questions.
Voting
Standard
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 3. With respect to Proposal 3, a stockholder may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions and broker non-votes will not be counted as votes “FOR” or “AGAINST” Proposal 3. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have the effect of votes “AGAINST” Proposal 3. Unless otherwise instructed, the proxy holders will vote proxies received by them “FOR” the proposal.
If
a majority of votes cast on this matter are not cast in favor of the selection of E&Y, the Audit Committee will
reconsider the selection of such firm as the Company’s independent registered public accounting firm. Even if the
Company’s stockholders vote on an advisory (non-binding) basis in favor of the selection, the Audit Committee may, in
its discretion, direct the selection of a different independent auditor at any time during the year if it determines that
such a change would be in the best interests of the Company and its stockholders.
Proposal 3 is considered a routine matter under NYSE rules. As a result, brokers who do not receive voting instructions generally may vote on Proposal 3 in their discretion.
✓
The
Board recommends you vote “FOR” the ratification of the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm.
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Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm
The Audit Committee’s pre-approval policy requires the Audit Committee to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm prior to engagement. Under this policy, the Audit Committee has delegated approval authority to the Chair of the Audit Committee provided the Chair reports all pre-approval decisions in writing to the Audit Committee and the decisions are discussed at the Audit Committee’s next scheduled meeting. In 2017, all audit and permissible non-audit services provided by E&Y were pre-approved by the Audit Committee.
Audit
and Other Fees
The fees incurred by the Company, including its majority-owned subsidiaries, for services provided by E&Y in 2016 and 2017 are set forth below. The Audit Committee concluded that the provision of the non-audit services listed below was compatible with E&Y’s independence.
|
|
December 31,
|
|
|
2016 (Dollars in thousands)
($)
|
2017 (Dollars in thousands)
($)
|
|
Audit Fees
(1)
|
3,419.7
|
3,724.9
|
|
Audit-Related Fees
(2)
|
230.5
|
593.1
|
|
Tax Fees
(3)
|
128.9
|
259.5
|
|
All Other Fees
(4)
|
0
|
369.0
|
|
TOTAL
|
3,779.1
|
4,946.5
|
(1)
Represents fees and expenses for professional services provided in connection with the audit of the Company’s annual financial statements and review of the Company’s quarterly financial statements, statutory audits, and advice on accounting matters directly related to the audit.
(2)
For 2017, represents $575.3 (in thousands) in fees related to implementation of FASB’s new revenue recognition standard and $17.8 (in thousands) in fees related to Exchange Act filings, comfort letters, and related matters. For 2016, represents $155.4 (in thousands) in fees related to implementation of FASB’s new revenue recognition standard and $75.1 (in thousands) in fees related to services provided in connection with the refinancing of our credit facility and bonds.
(3)
Represents fees and expenses for tax consultations and advice related to compliance with tax laws and tax planning strategies.
(4)
For 2017, represents amount billed to the Company related to merger and acquisition analysis.
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Audit Committee Report
The Audit Committee currently consists of three non-employee directors. Each of the members of the Audit Committee satisfies the NYSE’s requirements with respect to independence and financial literacy. In addition, the Board of Directors has determined that Ms. Esteves and Mr. Raborn are audit committee financial experts as defined by the SEC. The responsibilities of the Audit Committee are set forth in its charter, which is available on our website at
http://investor.spiritaero.com/govdocs
. The Audit Committee’s responsibilities include the appointment, compensation, and oversight of the independent registered public accounting firm.
The Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the Company’s audited financial statements as of and for the year ended December 31, 2017, as well as the representations of management regarding the Company’s internal control over financial reporting. The Audit Committee has discussed with the independent registered public accounting firm all items required by the standards of the Public Company Accounting Oversight Board (“PCAOB”), including the Statement on Auditing Standards, No. 61, as amended by American Institute of Certified Public Accountants, Professional Standards, Vol. 1, AU section 380, as adopted by the PCAOB in Rule 3200T,
Communication
with
Audit
Committees
. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence from the Company and its management.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the SEC, and selected E&Y as the Company’s independent registered public accounting firm for fiscal year 2018.
Audit
Committee
Irene M. Esteves, Chair
John Plueger
Francis Raborn
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BOARD’S PROPOSAL TO LOWER THE SPECIAL MEETING OWNERSHIP THRESHOLD TO 25%
Overview
The Company’s bylaws currently provide that a special meeting of stockholders may be called by the holders of a majority of the Company’s outstanding Common Stock. After conducting a peer and market review, and in consideration of corporate governance best practices, the Board of Directors believes that it is appropriate to lower the threshold required to call special meetings to holders of 25% of the Company’s outstanding Common Stock. Accordingly, the Board has determined that stockholders should be provided the opportunity to consider this proposal that provides stockholders an enhanced right to request a special meeting and provides an appropriate balance of the competing interests described below.
Stockholders are being asked to approve, on a non-binding advisory basis, the Board’s proposal to allow stockholders who own at least 25% of the outstanding Common Stock and satisfy certain other procedures and requirements, to require the Company to call a special meeting of stockholders.
Elements
of Proposal 4
The
Board is requesting that stockholders vote “ FOR” an enhanced stockholder right to call special meetings
that contains the following elements:
•
A special meeting of stockholders may be called by the written request of one or more stockholders of record representing in the aggregate at least 25% of the outstanding shares of Common Stock.
•
Stock
ownership is determined under a “ net long” standard to provide assurances that stockholders possess full voting
rights and the full economic interest in the shares that they purport to hold. Borrowed, loaned, or hedged shares will generally
not count as owned.
•
Stockholders requesting to call a special meeting will be required to provide information similar to information required for stockholder proposals and director nominations in the Company’s current bylaws.
•
The special meeting right would be designed to prevent duplicative and unnecessary meetings and a special meeting request would not be valid if (i) the request relates to an item of business that is not a proper subject for stockholder action under applicable law, (ii) the request is received within 90 days prior to the anniversary of the previous annual meeting and before the date of the next annual meeting, or (iii) an annual or special meeting of the stockholders that included an identical or substantially similar item of business (“Similar Business”) was held not more than 120 days before the date that the request was received by the Company. The nomination, election, or removal of directors shall be deemed to be Similar Business with respect to all items of business involving the nomination, election, or removal of directors, changing the size of the Board and filling of vacancies and/or newly created directorships resulting from any increase in the authorized number of directors.
The
Board’s Reasoning
The Board believes that the right of stockholders to call a special meeting is a very important and fundamental right to public company stock ownership. However, overuse of the special meeting request right, or use of the mechanism by stockholders to advance their own narrow interests, could result in significant costs to the Company. Therefore, the Board seeks to achieve a balance between enhancing the stockholders’ right to request special meetings and preventing the Company and its stockholders from the expensive, disruptive, unproductive use of this right by a small minority of stockholders with narrow interests. The Board believes that 25% is the appropriate threshold to effectively create that balance.
Special meetings of stockholders cost the Company tens of thousands of dollars. This is due to the legal, printing, and mailing expenses involved with providing sufficient notice and information about such meetings and the expenses required to host the meeting. In addition, preparing for a special meeting requires significant attention from our management and diverts their attention from their primary role of creating long-term stockholder value by successfully executing our business strategy and operations.
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Due to the financial impact to the Company and significant focus required by the Board and management, stockholder meetings should be reserved to consider matters that a significant portion of stockholders believes warrant immediate attention and cannot be delayed for consideration until the next annual meeting. The Board considered the Company’s largely institutional ownership and market capitalization, relative to larger companies that have adopted a 25% threshold, when considering the appropriate threshold.
The adoption of special meeting rights with a meaningful threshold has become common among large public companies. The specific threshold varies from company to company, but for a number of years, 25% has been the most common threshold for public companies that have adopted a special meeting right. In addition, the Company engages with its stockholders frequently and on many topics. The Company is committed to listening and, when appropriate, taking action based on stockholder concerns. Our commitment to a strong engagement program and the value we place on stockholder input mitigates the need for stockholders to call special meetings. As a result of the Company’s engagement with stockholders and commitment to corporate governance best practices, the Company has adopted a proxy access right, has adopted a majority voting standard for uncontested director elections, and does not have super majority voting requirements for approval of a merger or amendments to the Company’s certificate of incorporation or bylaws. In addition, the Company does not have a classified board structure and has separated the roles of the chairman of the Board and the CEO. The Board is strongly committed to good corporate governance practices and, for the foregoing reasons, the Board believes that its Proposal 4 is in the best interests of the Company and all of its stockholders and should be approved.
Proposal
4 versus Proposal 5
Proposal
4 reflects the views of the Board and management, after consideration of corporate governance best practices and after conducting
a peer and market review, while Proposal 5 reflects the view of one stockholder. The Board believes that the special meeting threshold
of 10% sought by Proposal 5 would not effectively balance the interests of the stockholders against the potential for corporate
waste. At a 10% threshold, owners of a small minority of shares could call a special meeting to consider a matter of little or
no interest to most stockholders, while a 25% threshold, coupled with procedural requirements, appropriately advances the rights
of stockholders. Accordingly, the Board requests you to vote “ FOR” Proposal 4 and “ AGAINST”
Proposal 5.
Effect
of Voting Outcome
You should carefully read the descriptions of each proposal, and the Board’s statement in opposition to Proposal 5. Although Proposal 4 and Proposal 5 concern the same subject matter, the terms and effects of each proposal differ. You may vote for both proposals, and approval of one proposal is not conditioned on approval or disapproval of the other.
If
Proposal 4 is approved by a majority of stockholders present at the Annual Meeting, the Board will amend the Company’s bylaws
to provide for an enhanced special meeting right with the elements described under “ Elements of Proposal 4,”
above. However, because Proposal 4 is non-binding, if Proposal 4 is not approved, the Board will take Proposal 4 under further
advisement to determine appropriate next steps and may nevertheless amend the Company’s bylaws to reflect the enhanced special
meeting right.
If both Proposal 4 and Proposal 5 are approved, then the stockholders will have approved two different and conflicting proposals. In such case, the Board expects that it will implement the special meeting right it believes is appropriate, based on the reasons set forth above, which is set forth in this Proposal 4. The Board will consider approval of this Proposal 4 as supporting the implementation of such proposal, even if Proposal 5 is also approved.
Voting Standard
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 4.
With
respect to Proposal 4, a stockholder may vote “ FOR,” “ AGAINST,” or “ ABSTAIN.”
Abstentions and broker non-votes will not be counted as votes “ FOR” or “ AGAINST”
Proposal 4. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have
the effect of votes “ AGAINST” Proposal 4.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on non-routine matters such as this one unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 4 if you want your broker to vote your shares on the matter.
✓
The
Board recommends that you vote “FOR” the Board’s proposal to lower the special meeting ownership threshold to
25%.
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STOCKHOLDER PROPOSAL: SPECIAL SHAREOWNER MEETING IMPROVEMENT
Resolved, Shareowners ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 10% of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our board’s current power to call a special meeting.
Scores of Fortune 500 companies allow 10% of shares to call a special meeting. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal may be particularly timely because we may now have a need for board refreshment after 2018 with 3 directors past age 73:
Charles Chadwell
Richard Gephardt
Francis Raborn
Any claim that a shareholder right to call a special meeting can be costly—may be largely moot. When shareholders have a good reason to call a special meeting - our board should be able to take positive responding action to make a special meeting unnecessary.
Please vote to improve management accountability to shareholders:
Special
Shareholder
Meeting
Improvement—Proposal
5
The
Board of Directors’ Statement in Opposition
The
Company agrees that an enhanced special meeting right is an important corporate governance practice. However, the Board believes
that a special meeting right requiring a threshold of only 10% may result in disruptive, unproductive use of the mechanism that
is not in the best interests of the Company and its stockholders. Due to the Company’s largely institutional ownership,
this could mean that only one or two stockholders (among tens of thousands) could call a special meeting. This is particularly
true considering the Company’s market capitalization relative to other companies that have determined that thresholds higher
than 10% are appropriate. Such a threshold could result in the Company and other stockholders being held hostage to topics that
do not concern them or may be of little or no importance to them. Accordingly, the Board recommends that stockholders vote “ AGAINST”
Proposal 5.
As mentioned in Proposal 4, an effective enhanced special meeting right must appropriately guard against misuse. A special meeting is a time-consuming process that will draw the Board and management’s attention away from business operations and maximizing stockholder value through appropriate strategic initiatives. The process will also divert Company funds towards preparing and distributing proxy materials and preparing for the meeting.
After balancing these important, yet competing interests, the Board determined that the 25% threshold proposed by the Board in Proposal 4 effectively safeguards the interests of the Company and its stockholders. It is small enough for stockholders that feel the same way about a topic to effectively pool together and request a meeting. However, it is not so small that it allows the special meeting process to be held hostage by minority stockholders seeking to advance their own interests.
For these reasons, the Board requests that you vote “AGAINST” the foregoing stockholder proposal, Proposal 5.
Voting Standard
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 5.
With
respect to Proposal 5, a stockholder may vote “ FOR,” “ AGAINST,” or “ ABSTAIN.”
Abstentions and broker non-votes will not be counted as votes “ FOR” or “ AGAINST” Proposal
5. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have the effect
of votes “ AGAINST” Proposal 5.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on non-routine matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 5 if you want your broker to vote your shares on the matter.
×
The
Board recommends that you vote “AGAINST” the foregoing stockholder proposal.
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GENERAL INFORMATION REGARDING THE ANNUAL MEETING
Questions
and Answers About the Annual Meeting and Voting
Why
am I being asked to vote?
The Company’s Board of Directors is asking you to vote with respect to proposals being presented at the Company’s Annual Meeting. You may either vote in person at the Annual Meeting, through the Internet, or, if you received a paper copy of the materials, by returning a proxy card or voting information form. If you want to vote in person by attending the Annual Meeting, please read “How do I attend the Annual Meeting?’
Who
can vote at the Annual Meeting?
You
are entitled to vote if our records show that you were a stockholder of record as of the record date, February 26, 2018. On the
Record Date, there were 114,631,080 shares of Common Stock outstanding. Each outstanding share of Common Stock is entitled
to one vote.
Why
did I receive a Notice and not a full set of materials?
In 2018, we primarily delivered our proxy materials to stockholders over the Internet by using “notice and access” delivery, rather than mailing paper copies to each stockholder. Using this method has reduced our printing and mailing costs and the impact of our Proxy Statement on the environment. If you received a Notice by mail or email, you will not receive a paper copy of the proxy materials or Annual Report unless you request one. Instead, the Notice will tell you how to access these materials over the Internet. If you received a Notice and would like to request a full set of printed materials, you may do so by following the instructions provided under “How do I request a printed set of proxy materials?”
If you are a beneficial owner, the Notice has been forwarded to you by your broker or bank, who is considered, with respect to your shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank, or other holder of record on how to vote your shares.
How
do I view the Proxy Statement online?
Go
to
http:// www.proxyvote.com
and follow the instructions to view the materials.
How
do I request a printed set of proxy materials?
You can easily request a paper copy of the proxy materials at no cost to you using one of the following methods:
•
By
Internet
at
http:// www.proxyvote.com
•
By
Telephone
, toll free at 1-800-579-1639
•
By
Email
to sendmaterial@proxyvote.com
You will need to provide the 16-digit control number printed in the box marked by the arrow located on the Notice. When sending your request by email, send a blank email with the 16-digit control number in the subject line.
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How
can I vote my shares?
By
Internet.
You
may vote your shares via the Internet at
http:// www.proxyvote.com
.
In
Person at the Annual Meeting.
You may vote your shares in person at the Annual Meeting. Please see “How do I attend the annual meeting?”
By
Mail.
If you received a paper copy of the proxy materials, you may vote your shares by returning your completed and executed proxy card or voting instruction form by mail.
You
are encouraged to read all of the proxy materials before voting your shares as they contain important information for making an
informed voting decision.
How
many shares must be present to hold the meeting?
A
quorum is necessary for us to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of
stockholders entitled to cast a majority of the votes which all stockholders are entitled to vote. Your shares will be
counted as being present for purposes of determining a quorum if you attend the Annual Meeting and vote in person or properly
return proxy instructions. Abstentions (where you abstain from voting) will be counted for purposes of
establishing a quorum. Further, the Company will also count broker non-votes for the purpose of determining the presence or
absence of a quorum. Broker non-votes occur when a person holding shares through a bank or brokerage account does not provide
instructions as to how his or her shares should be voted and the broker does not exercise discretion to vote those shares on
a particular matter.
What
vote is required to approve each item?
For Proposal 1 - the Election of Directors - a director nominee will be elected if the votes “FOR” that nominee exceed the votes “AGAINST” that nominee. Abstentions and broker non-votes will have no effect on the proposal.
Proposals 2-5 require the affirmative “FOR” vote of a majority of shares present, in person or by proxy. Abstentions and broker non-votes will have the effect of a vote against the proposal.
How
do I vote as a beneficial owner?
If
you hold your stock as a beneficial owner, you may vote as provided under “How can I vote my shares?” If
you want to vote in person at the Annual Meeting, you must obtain a legal proxy from your broker, bank, or other nominee and bring
it to the meeting, and submit it with your vote. If you do not submit voting instructions to your broker, bank, or other nominee,
your broker, bank, or other nominee will not be permitted to vote your shares in their discretion on Proposal 1, 2, 4, or 5, but
may still be permitted to vote your shares in their discretion on Proposal 3.
Why
did I receive more than one proxy card, voting information form, or Notice?
If you received more than one proxy card, voting information form, or Notice, you own shares in more than
one account. To ensure that all of your shares are voted, please vote each account separately as set forth under “How can
I vote my shares?”
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If
I vote by proxy, what voting options do I have?
The
Board-designated proxies are Robert Johnson and Stacy Cozad. With respect to all proposals, you may instruct the proxies to vote
“FOR” or “AGAINST” each proposal, or you may instruct the proxies to “ABSTAIN” from voting.
The shares will be voted in accordance with the instructions specified on the proxy card or voting information form. If no instructions
are provided, your shares will be voted as recommended by the Board of Directors: “ FOR” each director nominee,
“ FOR” ratification of the appointment of the independent registered public accounting firm, “ FOR”
the advisory vote to approve NEO compensation, “FOR” ratification of the appointment of the independent registered
public accounting firm, “FOR” the Board’s proposal to lower the special meeting ownership threshold to 25%,
and “ AGAINST” the stockholder proposal.
Can
I change my vote?
Before the Annual Meeting, you have the power to revoke your proxy and change your vote. If you hold your shares in street name, you must follow the instructions of your broker, bank, or other nominee to revoke your proxy. If you are a holder of record and wish to revoke your proxy, you must provide instructions by Internet, in writing or by voting in person at the Annual Meeting. The Company’s principal executive offices are located at 3801 S . Oliver St., Wichita, KS 67210-2112.
Who
counts the votes?
Votes will be received and tabulated by Broadridge, the Company’s inspector of elections for the Annual Meeting.
How
do I attend the Annual Meeting?
To attend the meeting, you must be a stockholder as of the Record Date. For stockholders of record who received a paper copy of the proxy materials, the top half of your proxy card is your admission ticket. For stockholders of record who received a Notice, please request an admission ticket by writing to the Corporate Secretary, Spirit AeroSystems Holdings, Inc., 3801 S. Oliver St., Wichita, KS 67210-2112 or send an email to CorporateSecretary@spiritaero.com. Your request must be received by the close of business on April 24, 2018. At the meeting, we will request a government-issued photo i.d. and confirm your Common Stock ownership against our list of registered stockholders.
If you hold your shares in street name, you will need to request an admission ticket in writing as set forth above and will need to bring proof of Common Stock ownership to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you want to vote your shares held in street name in person, you must get a legal proxy in your name from the broker, bank, or other nominee that holds your shares, and submit it with your vote.
Please note that the use of cameras at the Annual Meeting is prohibited and they will not be allowed into the meeting or any other related areas, except by credentialed media. We realize that many cellular phones and other wireless mobile devices have built in digital cameras, and while these devices may be brought into the venue, the camera function may not be used at any time.
What
is householding?
SEC
rules permit us to deliver a single copy of proxy materials to stockholders residing at the same address unless the
stockholders have notified us to deliver multiple copies . This allows us to eliminate multiple unnecessary mailings. If this
situation applies to you and you want to receive more than one set, please follow the instructions under “How do I
request a printed set of proxy materials?”
Who
is paying for this proxy solicitation?
The
Company is soliciting the proxies accompanying this Proxy Statement. Proxies may be solicited by officers, directors, and regular
supervisory and executive employees of Spirit, none of whom will receive any additional compensation for their services. We have
retained D.F. King & Co., Inc. to assist in the solicitation of proxies for a fee of $15,000 plus reimbursement of out-of-pocket
expenses. The Company will pay persons holding shares of Common Stock in their names or in the names of nominees, but not owning
such shares beneficially, such as brokerage houses, banks and other fiduciaries, for the expense of forwarding solicitation materials
to their principals. All of the costs of solicitation of proxies will be paid by the Company.
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What
happens if an incumbent director nominee is not elected at the Annual Meeting?
If an incumbent director nominee is not elected and no one is elected in his or her place, then, under Delaware General Corporation Law, the director would continue to serve as a “hold-over director.” Under our bylaws, the director is required to tender his resignation to the Board. Upon receipt of the resignation, the Governance Committee will make a recommendation to the Board as to whether to accept or reject the resignation. In considering the tendered resignation, the Board will consider the Governance Committee’s recommendation as well as any other factors it deems relevant, which may include:
•
The qualifications of the director whose resignation has been tendered;
•
The director’s past and expected future contributions to the Company;
•
The overall composition of the Board and its committees;
•
Whether accepting the tendered resignation would cause the Company to fail to meet any applicable rule or regulation (including NYSE listing standards and the federal securities laws); and
•
The percentage of outstanding shares represented by the votes cast at the Annual Meeting.
The Board will act on a tendered resignation within 90 days following certification of the stockholder vote for the Annual Meeting and will promptly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, in a filing with the SEC, or by other public announcement, which may include a posting on the Company’s website.
If a director’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is not elected, the Board may fill the resulting vacancy or may decrease the size of the Board pursuant to the Company’s bylaws.
Where
can I find the voting results after the Annual Meeting?
At the conclusion of the Annual Meeting, we will announce preliminary voting results. Final voting results will be disclosed in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting.
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Stockholder
Proposals and Director Nominations for the 2019 Annual Meeting
Proposals of stockholders intended to be included in the Company’s proxy statement for presentation at the Company’s 2019 Annual Meeting of Stockholders must be received by the Company at its offices no later than November 12, 2018 (120 days preceding the one-year anniversary of the Mailing Date) and must otherwise comply with SEC rules in order to be eligible for inclusion in the proxy statement for the 2019 Annual Meeting of Stockholders.
In
addition, pursuant to the Company’s bylaws, a stockholder desiring to propose any matter for consideration at the 2019
Annual Meeting of Stockholders, other than through inclusion in the Company’s proxy materials, must notify the
Company’s Corporate Secretary at the Company’s offices, on or before December 26, 2018 (120 days prior
to the one-year anniversary of the immediately preceding annual meeting).
Pursuant
to our bylaws, a stockholder may nominate an individual for election as a director at the 2019 Annual Meeting of
Stockholders by providing notice to the Company’s Corporate Secretary at the address set forth below by December 26,
2018 (120 days preceding the one-year anniversary of the immediately preceding annual meeting) (the
“Nominee Deadline”). Further, pursuant to the Company’s proxy access right, a stockholder may elect to have
their nominee included in the Company’s proxy statement if the stockholder provides notice to the Company’s
Corporate Secretary at the address set forth below by the Nominee Deadline and expressly elects to have such nominee included
in the Company’s proxy materials pursuant to Section 1.13 of the Company’s bylaws. Any notice of a nomination
must be made in compliance with the procedures required by the Company’s bylaws.
Stockholder
recommendations and nominations for candidates to the Board as described above should be sent to the Company’s
Corporate Secretary at 3801 S Oliver St., Wichita, KS 67210-2112.
Annual
Report
The
Company’s 2017 Annual Report on Form 10-K is available at
http://www.spiritaero.com
. The Company will provide to
any stockholder, without charge, a paper copy of the 2017 Annual Report on Form 10-K upon written request to Spirit AeroSystems
Holdings, Inc., Corporate Secretary, 3801 S. Oliver St., Wichita, KS 67210-2112.
By order of the Board of Directors.
Sincerely,
Stacy
Cozad
Senior Vice President, General Counsel, Chief Compliance Officer , and Corporate Secretary
Spirit
AeroSystems Holdings, Inc.
March 12 ,
2018
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement includes “forward-looking statements.” Forward-looking statements generally can be identified by the use of forward-looking terminology such as “aim,” “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “should,” “target,” “will,” “would,” and other similar words or phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following:
• our ability to continue to grow our business and execute our growth strategy, including the timing, execution, and profitability of new and maturing programs;
• our ability to perform our obligations under our new and maturing commercial, business aircraft, and military development programs, and the related recurring production;
• our ability to accurately estimate and manage performance, cost, and revenue under our contracts, including our ability to achieve certain cost reductions with respect to the B787 program;
• margin pressures and the potential for additional forward losses on new and maturing programs;
• our ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft;
• the effect on aircraft demand and build rates of changing customer preferences for business aircraft, including the effect of global economic conditions on the business aircraft market and expanding conflicts or political unrest in the Middle East or Asia;
• customer cancellations or deferrals as a result of global economic uncertainty or otherwise;
• the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including fluctuations in foreign currency exchange rates;
• the success and timely execution of key milestones such as the receipt of necessary regulatory approvals and customer adherence to their announced schedules;
• our ability to successfully negotiate, or re-negotiate, future pricing under our supply agreements with Boeing and our other customers;
• our ability to enter into profitable supply arrangements with additional customers;
• the ability of all parties to satisfy their performance requirements under existing supply contracts with our two major customers, Boeing and Airbus, and other customers, and the risk of non-payment by such customers;
• any adverse impact on Boeing’s and Airbus’ production of aircraft resulting from cancellations, deferrals, or reduced orders by their customers or from labor disputes, domestic or international hostilities, or acts of terrorism;
• any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks;
• our ability to avoid or recover from cyber-based or other security attacks, information technology failures, or other disruptions;
• returns on pension plan assets and the impact of future discount rate changes on pension obligations;
• our ability to borrow additional funds or refinance debt;
• competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers;
• the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad;
• the effect of changes in tax law, such as the effect of The Tax Cuts and Jobs Act that was enacted on December 22, 2017, and changes to the interpretations of or guidance related thereto, and the Company’s ability to accurately calculate and estimate the effect of such changes;
• our ability to effectively assess, manage, and integrate acquisitions that we pursue;
• our ability to continue selling certain of our receivables through our supplier financing program;
• any reduction in our credit ratings;
• our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components;
• our ability to recruit and retain a critical mass of highly-skilled employees and our relationships with the unions representing many of our employees;
• spending by the U.S. and other governments on defense;
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• the possibility that our cash flows and our credit facility may not be adequate for our additional capital needs or for payment of interest on and principal of our indebtedness;
• our exposure under our revolver to higher interest payments should interest rates increase substantially;
• the risks of doing business internationally, including fluctuations in foreign current exchange rates, impositions of tariffs or embargoes, compliance with foreign laws, and domestic and foreign government policies, among other things;
• the effectiveness of any interest rate hedging programs;
• the effectiveness of our internal control over financial reporting;
• the outcome or impact of ongoing or future litigation, claims, and regulatory actions; and
• our exposure to potential product liability and warranty claims.
These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should review carefully the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for a more complete discussion of these and other factors that may affect our business.
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APPENDIX A
NON-GAAP
FINANCIAL MEASURES
Overview
In
addition to reporting our financial information in our Annual Report on Form 10-K using U.S. Generally Accepted
Accounting Principles (“GAAP”), management believes that certain non-GAAP measures (which are indicated by * in
this Proxy Statement) provide investors with important perspectives into the Company’s on-going business performance.
The non-GAAP measures we use in this Proxy Statement are (i) adjusted diluted earnings per share (“Adjusted
EPS”), (ii) free cash flow (“Free Cash Flow”), (iii) adjusted free cash flow (“Adjusted Free Cash
Flow”), and (iv) adjusted earnings before interest and taxes (“Adjusted EBIT”), which are
described further below. The Company does not intend for the information to be considered in isolation or as a substitute for
the related GAAP measures. Other companies may define and calculate the measures differently than we do, limiting the
usefulness of the measures for comparison with other companies.
Use
of Non-GAAP Financial Measures with Respect to Annual EBIT, Annual FCF, and FCF Percentage
We use Adjusted EBIT (as set forth below) to calculate Annual EBIT under the ACI. We use Adjusted Free Cash Flow to calculate Annual FCF under the ACI. We use Free Cash Flow to calculate FCF Percentage under the PB-FCF (cumulative Free Cash Flow over the performance period divided by cumulative GAAP revenue over the performance period).
Adjusted
EPS and Reconciliation
To provide additional transparency, we have disclosed non-GAAP Adjusted EPS. This metric excludes various items that are not considered to be directly related to our operating performance. Management uses Adjusted EPS as a measure of business performance and we believe this information is useful in providing period-to-period comparisons of our results. The most comparable GAAP measure is diluted earnings per share. The table below presents a reconciliation of GAAP earnings per share to non-GAAP Adjusted EPS:
|
|
Fiscal Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
Diluted
Earnings
Per
Share
($)
|
3.01
|
|
3.70
|
|
5.66
|
|
Impact of Airbus Agreement, CEO Retirement, and Debt Refinancing
|
|
|
0.86
|
|
|
|
|
Impact of Partial Release of Deferred Tax Asset Valuation Allowance
|
|
|
|
|
(1.74)
|
|
|
Impact of U.S. Tax Reform
|
2.10
|
|
|
|
|
|
|
Impact of MOU with Boeing
|
0.24
|
|
|
|
|
|
|
Adjusted
Diluted
Earnings
Per
Share
($)
|
5.35
|
|
4.56
|
|
3.92
|
|
|
Diluted Shares (millions)
|
117.9
|
|
127.0
|
|
139.4
|
|
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Cash
Flow Measures and Reconciliation: Free Cash Flow and Adjusted Free Cash Flow
Free
Cash Flow
Free
Cash Flow is defined as GAAP cash from operations , less capital expenditures for property, plant, and equipment. Management
believes Free Cash Flow provides investors with an important perspective on the cash available for stock holders, debt repayment,
and acquisitions after making the capital investments required to support ongoing business operations and long term value creation.
Free Cash Flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory
expenditures. Management uses Free Cash Flow as a measure to assess both business performance and overall liquidity.
Adjusted
Free Cash Flow
Management considers certain items that arise from time to time to be outside the ordinary course of our operations. Management believes that excluding these items provides a better understanding of the underlying trends in the Company’s operating performance and allows more accurate comparisons of the Company’s operating results to historical performance. Accordingly, Adjusted Free Cash Flow is defined as Free Cash Flow less these special items. The most comparable GAAP measure is cash provided by operating activities. The tables below provide reconciliations between the GAAP and non-GAAP measures.
Reconciliation
The
table below presents a reconciliation of Free Cash Flow and Adjusted Free Cash Flow to cash from operations for each of the
periods presented.
|
|
Fiscal Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
($ in millions)
|
|
Cash
from
Operations
|
574
|
|
717
|
|
1,290
|
|
|
|
(273)
|
|
(254)
|
|
(360
|
)
|
|
Free
Cash
Flow
(Used for FCF Percentage)
|
301
|
|
463
|
|
930
|
|
Cash (Received)/Returned under 787 Interim Pricing Agreement
|
236
|
|
(43)
|
|
(192)
|
|
|
Adjusted
Free
Cash
Flow
(Annual FCF)
|
537
|
|
420
|
|
738
|
|
Adjusted EBIT and Reconciliation
As presented in this Proxy Statement, Adjusted EBIT is defined as earnings before interest and taxes as adjusted to exclude certain non-operating and/or non-recurring items which the Company believes are not reflective of operating performance. The table below presents a reconciliation of Adjusted EBIT to net income (loss) for each of the periods presented.
|
|
Fiscal Year Ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
($ in millions)
|
|
|
Net
Income
|
354.9
|
|
469.7
|
|
788.7
|
|
|
Interest
E xpense, N et
|
41.7
|
|
53.7
|
|
50.6
|
|
|
Income
T ax P rovision
|
180.0
|
|
192.1
|
|
20.6
|
|
|
Equity
in N et ( I ncome) L oss of N on- W holly O wned A ffiliates
|
(0.3)
|
|
(1.3)
|
|
(1.2)
|
|
|
|
(6.4)
|
|
|
|
|
|
|
EBIT
|
569.9
|
|
714.2
|
|
858.7
|
|
|
Impact
F rom S evere W eather E vent
|
|
|
12.1
|
|
|
|
|
Other
(1)
|
346.0
|
|
176.3
|
|
37.1
|
|
|
Adjusted
EBIT
(Annual
EBIT)
|
915.9
|
|
902.6
|
|
895.8
|
|
(1)
Includes adjustments to reflect customer settlements, amounts paid to our former CEO upon his retirement, and other non-recurring items.
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AEROSYSTEMS
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