Table of Contents
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
| o | Preliminary Proxy Statement | |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| þ | Definitive Proxy Statement | |
| o | Definitive Additional Materials | |
| o | Soliciting Material under Rule 14a-12 |
WOODWARD GOVERNOR COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| þ | No fee required. | |
| o | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11 |
| 1) | Title of each class of securities to which transaction applies: | ||
| 2) | Aggregate number of securities to which transaction applies: | ||
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | ||
| 4) | Proposed maximum aggregate value of transaction: | ||
| 5) | Total fee paid: |
| o | Fee paid previously with preliminary materials. |
| o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| 1) | Amount Previously Paid: | ||
| 2) | Form, Schedule or Registration Statement No.: | ||
| 3) | Filing Party: | ||
| 4) | Date Filed: |
Table of Contents
Table of Contents
|
Woodward Governor Company P.O. Box 1519 1000 E. Drake Road Fort Collins, Colorado 80525 Tel: 970-482-5811 Fax: 970-498-3058 |
WOODWARD
GOVERNOR COMPANY
NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
December 13, 2010
Dear Stockholder:
You are cordially invited to attend Woodward Governor
Company’s annual meeting of stockholders at 8:00 a.m.,
Mountain Standard Time, on Wednesday, January 26, 2011, at
the Hilton Fort Collins located at 425 West Prospect
Road, Fort Collins, Colorado. Registration for the meeting
will be conducted in Salon 1. We invite you to join our
directors and members of our management team for a continental
breakfast at 7:30 a.m. The formal meeting will begin
promptly at 8:00 a.m.
Parking is available on site. A map is located on the back of
this proxy statement.
Please complete and return your proxy card by mail, or vote via
telephone or the Internet, as soon as possible regardless of
whether you plan to attend in person.
Sincerely yours,
WOODWARD GOVERNOR COMPANY
Thomas A. Gendron
Chairman, Board of Directors
3
Table of Contents
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
Important Notice Regarding the Availability of Proxy
Materials for our Annual Meeting to be Held on January 26,
2011:
This Proxy Statement and our Annual Report on
Form 10-K
for the fiscal year ended September 30, 2010, including
consolidated financial statements, are available to you at
www.proxydocs.com/wgov.
|
Wednesday, January 26, 2011
8:00 a.m. MST Hilton Fort Collins 425 West Prospect Road Fort Collins, Colorado |
The purpose of our Annual Meeting is to:
1. Elect three directors to serve for a term of three years each;
2. Consider and act upon a proposal to ratify the appointment of Deloitte & Touche LLP as independent registered public accounting firm for the fiscal year ending September 30, 2011;
3. Consider and act upon a proposal to amend the Company’s Certificate of Incorporation to effect a name change of the Company to “Woodward, Inc.”;
4. Consider and act upon a proposal regarding the compensation of the Company’s named executive officers;
5. Consider and act upon a proposal regarding the frequency of stockholder advisory votes on executive compensation;
6. Consider a stockholder proposal to eliminate supermajority voting, if properly presented at the annual Stockholder’s meeting on January 26, 2011; and
7. Transact other business that properly comes before the meeting, or any postponement or adjournment thereof.
Stockholders who owned Woodward Governor Company common stock at the close of business on the record date, November 29, 2010, are entitled to vote at the meeting, or any postponement or adjournment thereof. By Order of the Board of Directors, WOODWARD GOVERNOR COMPANY  A. Christopher Fawzy Corporate Secretary December 13, 2010 |
YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting in person, please
date, sign, and return your
proxy card in the enclosed envelope, or vote via telephone or the Internet, as soon as
possible. Prompt response is helpful and your cooperation will be appreciated.
proxy card in the enclosed envelope, or vote via telephone or the Internet, as soon as
possible. Prompt response is helpful and your cooperation will be appreciated.
4
Table of
Contents
| 6 | ||
| 7 | ||
| 8 | ||
| 10 | ||
| 11 | ||
| 17 | ||
| 17 | ||
| 17 | ||
| 18 | ||
| 18 | ||
| 18 | ||
| 18 | ||
| 21 | ||
| 22 | ||
| 22 | ||
| 23 | ||
| 23 | ||
| 24 | ||
| 24 | ||
| 24 | ||
| 26 | ||
| 26 | ||
| 28 | ||
| 29 | ||
| 29 | ||
| 30 | ||
| 36 | ||
| 37 | ||
| 46 | ||
| 47 | ||
| 48 | ||
| 49 | ||
| 50 | ||
| 51 | ||
| 53 | ||
| 53 | ||
| 54 | ||
| A-1 | ||
| B-1 |
5
Table of Contents
Annual
Report on
Form 10-K
You may obtain a free copy of our Annual Report on
Form 10-K
for the year ended September 30, 2010, filed with the
Securities and Exchange Commission (“SEC”) and
available at its website at www.sec.gov. Please contact the
Corporate Secretary, Woodward Governor Company,
P. O. Box 1519, 1000 E. Drake Road,
Fort Collins, Colorado 80525 or email
investorrelations@woodward.com. This report is also available at
www.proxydocs.com/wgov.
6
Table of Contents
About the
Annual Meeting and Voting
Woodward Governor Company (“Woodward” or the
“Company”), on behalf of its Board of Directors (the
“Board”), is soliciting your proxy to vote at our
annual meeting of stockholders (or at any postponement or
adjournment of the meeting). This proxy statement summarizes the
information you need to know to vote at the meeting.
We began mailing this proxy statement and the enclosed proxy
card on or about December 13, 2010, to all stockholders
entitled to vote. The Woodward Governor Company Annual Report,
which includes our financial statements, is being sent with this
proxy statement.
Stockholders who owned Woodward common stock at the close of
business on the record date, November 29, 2010, are
entitled to vote at the meeting. As of the record date, there
were 68,858,638 shares of Woodward common stock outstanding.
Each share of Woodward common stock that you own entitles you to
one vote on each matter presented at the meeting, except for the
election of directors, for which you may cumulate your votes.
Since three directors are standing for election, you will be
entitled to three director votes for each share of stock you
own. Of this total, you may choose how many votes you wish to
cast for each director.
Woodward offers stockholders the opportunity to vote by mail, by
telephone, or via the Internet. Instructions to use these
methods are set forth on the enclosed proxy card.
If you vote by telephone or via the Internet, please have your
proxy or voting instruction card available. A telephone or
Internet vote authorizes the named proxies in the same manner as
if you marked, signed, and returned the card by mail. Voting by
telephone and via the Internet are valid proxy voting methods
under the laws of Delaware (our state of incorporation) and our
Amended and Restated Bylaws (our “Bylaws”).
If you properly fill in your proxy card and send it to us in
time to vote, one of the individuals named on your proxy card
(your “proxy”) will vote your shares as you have
directed. If you sign the proxy card but do not make specific
choices, your proxy will follow the Board’s recommendations
and vote your shares or abstain from voting as follows:
“FOR” the election of the Board’s nominees to
the Board;
“FOR” the proposal to ratify the appointment of
Deloitte & Touche LLP as independent registered public
accounting firm;
“FOR” the proposal to amend the Company’s
Certificate of Incorporation to effect a name change of the
Company to “Woodward, Inc.”;
“FOR” the proposal regarding the compensation of
the Company’s named executive officers;
FOR “OPTION #3 (Every Three Years)” under the
proposal regarding the frequency of stockholder advisory votes
on executive compensation; and
“AGAINST” the stockholder proposal to eliminate
supermajority voting, if properly presented at the annual
Stockholder’s meeting on January 26, 2011.
If any other matter is presented at the meeting, your proxy will
vote in accordance with your proxy’s best judgment. At the
time this proxy statement went to press, we knew of no other
matters to be acted on at the meeting.
You may revoke your proxy by:
| • | entering a new vote by telephone, over the Internet, or by signing and returning another signed proxy card at a later date, | |
| • | notifying our Corporate Secretary in writing before the meeting that you have revoked your proxy, or | |
| • | voting in person at the meeting. |
If you want to give your written proxy to someone other than the
individuals named on the proxy card:
| • | cross out the individuals named and insert the name of the individual you are authorizing to vote, or | |
| • | provide a written authorization to the individual you are authorizing to vote along with your proxy card. |
7
Table of Contents
Summary
of Proposals Submitted for Vote
The following are only summaries of the proposals. You should
review the full discussion of each proposal in this proxy
statement before casting your vote.
Proposal 1: Election of Directors
Nominees: At the annual meeting, you will be
asked to elect three directors to the Board. Each director will
be elected to a three-year term and will hold office until the
2013 Annual Meeting held in or about January 2014 and until a
successor is elected and qualifies.
Vote Required: Directors are elected by a
plurality vote of shares present at the meeting in person or by
proxy, meaning that the three director nominees receiving the
most votes will be elected.
Proposal 2: Ratification of the Appointment of
Independent Registered Public Accounting Firm
Independent Registered Public Accounting
Firm: At the annual meeting, you will be asked to
ratify the Audit Committee’s appointment of
Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the fiscal
year ending September 30, 2011.
Vote Required: The affirmative vote of the
holders of a majority of shares of Woodward common stock present
in person or by proxy and entitled to vote at the Annual Meeting
will be required to ratify the Audit Committee’s
appointment of the independent registered public accounting firm.
Proposal 3: Proposal to Amend the Company’s
Certificate of Incorporation to Effect a Name Change of the
Company to “Woodward, Inc.”
Amendment to the Certificate of Incorporation of the
Company: At the annual meeting, you will be asked
to approve an amendment to the Certificate of Incorporation to
change the Company’s name from “Woodward Governor
Company” to “Woodward, Inc.”
Vote Required: An affirmative vote by the
holders of two-thirds of the Company’s outstanding common
stock will be required to approve an amendment to the
Certificate of Incorporation to effect the name change.
Proposal 4: Advisory (Non-Binding) Vote Regarding
Executive Compensation
Compensation of the Company’s named executive
officers: At the annual meeting, you will be
asked to approve the compensation of the named executive
officers of the Company.
Vote Required: The affirmative vote of the
holders of a majority of shares of Woodward common stock present
in person or by proxy and entitled to vote at the Annual Meeting
will be required for the approval of the compensation of the
Company’s named executive officers.
The Board unanimously
recommends that the stockholders vote “FOR” each of
the proposals listed above.
Proposal 5: Advisory (Non-Binding) Vote Regarding
Frequency of Stockholder Advisory Votes on Executive
Compensation
Frequency of stockholder advisory votes on executive
compensation: At the annual meeting, you will be
asked to vote on whether a non-binding stockholder advisory vote
on the compensation of our named executive officers, such as the
stockholder vote described in Proposal 4, should occur
every one, two or three years.
Vote Required: The affirmative vote of the
holders of a majority of shares of Woodward common stock present
in person or by proxy and entitled to vote at the Annual Meeting
will be required for the approval of one of the three
resolutions described in Proposal 5.
The Board unanimously
recommends that the stockholders vote for “OPTION #3
(Every Three Years)” under Proposal 5.
Proposal 6: Stockholder Proposal to Eliminate
Supermajority Voting
Changes to Supermajority Voting
Requirements: At the annual meeting, a
stockholder proponent will ask you to approve a stockholder
resolution requesting the Board to take the steps necessary so
that each stockholder voting requirement in the Company’s
Certificate of Incorporation and Bylaws that calls for a greater
than simple majority vote be changed to a majority of the votes
cast for and against the proposal in accordance with applicable
laws. The proposal, if approved, would not be binding on the
Board and thus may not result in the requested changes.
8
Table of Contents
Summary of
Proposals Submitted for Vote (continued)
Vote Required: The affirmative vote of the
holders of a majority of shares of Woodward common stock present
in person or by proxy and entitled to vote at the Annual Meeting
will be required for the approval of this stockholder proposal.
The Board unanimously
recommends that the stockholders vote “AGAINST”
Proposal 6 above.
Quorum
A quorum of stockholders is necessary to hold a valid meeting.
The presence, in person or by proxy, at the meeting of holders
of shares representing a majority of the votes of the common
stock entitled to vote constitutes a quorum. Abstentions and
broker non-votes are counted as present for establishing a
quorum. A broker non-vote occurs when a stockholder does not
provide voting instructions to his or her broker or nominee and
the broker or nominee does not have discretionary authority to
vote on the matter, as further described below under
“Voting of Shares Held in Street Name by Your
Broker.”
Abstentions
Abstentions are counted as present for establishing a quorum.
Except for the election of directors and the advisory vote
regarding frequency of stockholder advisory votes on executive
compensation, abstentions have the same effect as votes against
the matter.
Voting of Shares Held in Street Name by Your Broker
If your shares are held in a stock brokerage account or by a
bank or other nominee, you are considered the beneficial owner
of shares held in street name and these proxy materials are
being forwarded to you by your broker or nominee who is
considered, with respect to those shares, the stockholder of
record. As the beneficial owner, you have the right to direct
your broker on how to vote your shares. You are also invited to
attend the annual meeting and vote your shares in person. In
order to vote your shares in person, you must provide us with a
legal proxy from your broker.
Brokerage firms have authority to vote customers’ shares
for which they have not received voting instructions on certain
“routine” matters, such as ratification of the
auditors. If you do not provide voting instructions, your
brokerage firm may either vote your shares on routine matters or
leave your shares unvoted (i.e., a broker non-vote). On the
other hand, absent instructions from customers, a brokerage firm
cannot vote customers’ shares on non-routine matters, such
as the election of directors, the advisory vote on executive
compensation, the advisory vote regarding frequency of
stockholder advisory votes on executive compensation, and the
stockholder proposal. Consequently, if you do not give your
brokerage firm specific instructions, your shares will not be
voted on the non-routine matters and will not be counted in
determining the number of shares necessary for approval,
although they will count for purposes of determining whether a
quorum exists. We encourage you to provide instructions to your
brokerage firm. This ensures your shares will be voted at the
meeting.
In order for your shares to be
voted on all matters presented at the meeting, including
election of directors, we urge all stockholders whose shares are
held in street name by a brokerage firm to provide voting
instructions to the brokerage firm.
9
Table of Contents
Board of
Directors
| Board Composition | The Board currently consists of ten directors and is divided into three classes for purposes of election. One class is elected at each annual meeting of stockholders to serve for a three-year term. | |
| Each of the three directors standing for election at the 2010 Annual Meeting of Stockholders has been nominated by the Board at the recommendation of the Nominating and Governance Committee to hold office for a three-year term expiring in 2014 or when a successor is elected and qualifies. Other directors are not standing for election at this meeting and will continue in office for the remainder of their respective terms. | ||
| If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Nominating and Governance Committee. | ||
| The Nominating and Governance Committee is responsible for recommending qualified director candidates for nomination by the Board based on the skills and characteristics that the Board seeks in its members as well as the composition of the Board as a whole. This review includes an assessment of, among other things, a candidate’s knowledge, experience, diversity, and skills in areas critical to understanding the Company and its business, with a commitment to enhancing stockholder value. The Nominating and Governance Committee also assesses a candidate’s integrity, reputation, ability to make independent analytical inquiries and willingness to devote adequate time to Board duties. The Nominating and Governance Committee seeks candidates with the highest professional and personal ethics and values, guided by the philosophy and concepts as expressed in the Company’s Constitution, and who will operate in accordance with the Company’s Codes of Business Conduct and Ethics. | ||
| We believe that our director nominees should possess the following experience, qualifications, attributes and skills: | ||
|
• a basic understanding of the principal operational
and financial objectives, plans and strategies of the Company;
|
||
|
• a basic understanding of the results of operations
and financial condition of the Company;
|
||
|
• a basic understanding of the relative standing of
the Company in relation to its competitors; and
|
||
|
• leadership experience at the policy-making level in
business, government, education or public interest.
|
||
| We identify below certain biographical information of each of our directors and the director nominees for election, including his or her principal occupation, public company directorships currently held or held during the past five years and other business affiliations. We also describe the specific experience, qualifications, attributes and skills of each director and director nominee that led the Board to conclude that he or she should serve as a member of the Board. |
10
Table of Contents
Board of
Directors (continued)
PROPOSAL 1 —
ELECTION OF DIRECTORS
Directors
Standing for Election at This Meeting for Terms Expiring in
2014:
![[PHOTO OF MARY L. PETROVICH]](d77398dd7739803.gif)
|
Mary L. Petrovich Age: 47 Mary Petrovich has served as General Manager of AxleTech International, a supplier of off-highway and specialty vehicle drive train systems and components, since its acquisition by General Dynamics in December 2008. Ms. Petrovich served as Chairman and Chief Executive Officer of AxleTech International from 2001 through the December 2008 sale of the company to General Dynamics. Prior to AxleTech, in 2000, Ms. Petrovich was President of the Driver Controls Division of Dura Automotive, possessing management responsibility for 7,600 employees. Ms. Petrovich has extensive experience with mergers, acquisitions and the integration of acquired businesses in the automotive, off-highway and transportation industries. This experience, together with her operational experience with Six Sigma lean manufacturing techniques and supply chain management, and her experience in evaluating new business opportunities, provides the Board with valuable knowledge in its oversight of Woodward’s operational efficiency and recent acquisitions. Ms. Petrovich has been a director of the Company since 2002. Other public company directorships: None held during the past five years. |
|
![[PHOTO OF LARRY E. RITTENBERG]](d77398dd7739804.gif)
|
Larry E. Rittenberg Age: 64 Dr. Larry Rittenberg, PhD, CPA and CIA, is the Ernst & Young Professor of Accounting & Information Systems at the University of Wisconsin. He has been on the faculty at the University since 1976, and served as the chair of the accounting department for 11 years. Dr. Rittenberg teaches auditing, enterprise risk management, governance and control, and has served in leadership positions across a number of professional organizations, including the American Institute of CPAs, the Institute of Internal Auditors (IIA), and the American Accounting Association (AAA), where he served as VP of Finance and established the first audit committee within the AAA. Dr. Rittenberg served as Chairman of The Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) from 2004 to 2009. COSO is a voluntary private sector organization dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance. He also served as a financial advisor providing counsel on Sarbanes-Oxley compliance to the Audit Committee and Board of Petro China, the largest publicly listed company in China. Dr. Rittenberg’s in-depth understanding of accounting and finance, Sarbanes-Oxley, and corporate governance is a valuable asset to the Board in its oversight of the integrity of the Company’s financial statements and financial reporting processes. Dr. Rittenberg has been a director of the Company since 2004. Other public company directorships: None held during the past five years. |
|
11
Table of Contents
Board of
Directors (continued)
![[PHOTO OF MICHAEL T. YONKER]](d77398dd7739805.gif)
|
Michael T. Yonker Age: 68 Michael T. Yonker retired as the President and Chief Executive Officer of Portec, Inc., a manufacturer of engineered products for the construction, railroad, and materials handling industries, in June 1998. Prior to Portec, Mr. Yonker served as Corporate Vice President of PT Components, with responsibility for operational management of its industrial gear business, from 1982 to 1988, and worked with FMC Corporation in corporate strategic planning, marketing and operational management of various of its engineered industrial products businesses from 1971 to 1981. Mr. Yonker has a technical understanding of engineered products and their applications, and has extensive experience with industrial markets and customers. Mr. Yonker brings to the Board extensive management experience at the senior executive and board-level, and expertise in manufacturing, finance, marketing and international business. Mr. Yonker also has significant experience in the oversight of compensation and governance issues for other public companies. Mr. Yonker has been a director of the Company since 1993. Other public company directorships: Modine Manufacturing Company, Inc. (since 1993); EMCOR Group, Inc. (since 2002); Proliance, Inc. (2005-2006). |
|
Your
Board recommends a vote “FOR” the nominees presented
in Proposal 1.
12
Table of Contents
Board of
Directors (continued)
Directors
Remaining in Office Until 2012:
![[PHOTO OF PAUL DONOVAN]](d77398dd7739806.gif)
|
Paul Donovan Age: 63 Paul Donovan retired in 2004 as special advisor to the Chairman of Wisconsin Energy Corporation. Mr. Donovan had previously served as the Chief Financial Officer of Wisconsin Energy Corporation from August 1999 until June 2003. Prior to Wisconsin Energy Corporation, Mr. Donovan was Executive Vice President and Chief Financial Officer of Sundstrand Corporation, a manufacturer of aerospace and industrial products, from June 1988 to August 1999. Prior to June 1988, he held a variety of financial positions at Allied Signal, TMS, PHH Group, and Ford Motor Company. Mr. Donovan’s demonstrated leadership of large company corporate finance and tax departments provides the Board with expertise regarding the intricacies of tax, banking, finance, and mergers and acquisitions. He also possesses direct knowledge of the power generation, transportation and aerospace markets, all of which are key business segments for Woodward. As a former member of the Office of the Chairman at Wisconsin Energy and a former member of the Executive Office at Sundstrand Corporation, Mr. Donovan contributes to the Board not only his strong knowledge of the markets in which Woodward competes, but also strong leadership and insight into large organizations. Mr. Donovan has been a director of the Company since 2000. Other public company directorships: AMCORE Financial, Inc. (since 1998); CLARCOR, Inc. (since 2000). |
|
![[PHOTO OF THOMAS A. GENDRON]](d77398dd7739808.gif)
|
Thomas A. Gendron Age: 49 Tom Gendron has been Chairman of the Board of the Company since January 2008, and has been Chief Executive Officer and President of the Company since July 2005. Mr. Gendron previously served as Chief Operating Officer and President of the Company from September 2002 until July 2005, and as Vice President and General Manager of Industrial Controls from June 2001 until September 2002. Prior to that, Mr. Gendron served as Vice President of Industrial Controls from April 2000 through May 2001, and as Director of Global Marketing and Industrial Controls’ Business Development from February 1999 through March 2000. Overall, Mr. Gendron has served with Woodward for 20 years in both the aircraft and industrial businesses, providing leadership in sales, marketing, business development, and product support management. His experience with and knowledge of the Company’s businesses and the industries in which they operate has enabled Mr. Gendron to lead the Company’s growth since his appointment to President and Chief Operating Officer in September 2002. He has brought significant insight to the Board due to his comprehensive understanding of the Company and its operations, including the Company’s strategic vision, products, suppliers, customers and markets. Mr. Gendron has been a director of the Company since 2005. Other public company directorships: Hexcel Corporation (appointed December 7, 2010). |
|
13
Table of Contents
Board of
Directors (continued)
![[PHOTO OF JOHN A. HALBROOK]](d77398dd7739809.gif)
|
John A. Halbrook Age: 65 John A. Halbrook retired as Chairman of the Board of the Company in January 2008, and previously served as Chief Executive Officer of the Company from November 1993 until July 2005. Mr. Halbrook has served in various other executive positions with the Company, including Chief Operating Officer and President. Prior to joining Woodward, Mr. Halbrook garnered broad experience in finance and accounting, budgeting, marketing, strategic planning and operations through positions with Worthington Pumps, McGraw Edison, Turbodyne, General Electric, and General Dynamics. Through his tenure as Chairman and Chief Executive Officer of Woodward, Mr. Halbrook brings to the Board insight into the Company’s operations and an understanding of the complex issues facing Woodward’s business segments and the markets in which the Company competes. Mr. Halbrook has been a director of the Company since 1991. Other public company directorships: AMCORE Financial, Inc. (since 1997); HNI Corporation (2004 — May 2010) |
|
![[PHOTO OF RONALD M. SEGA]](d77398dd7739810.gif)
|
Ronald M. Sega Age: 57 Dr. Ronald M. Sega, age 57, was appointed Vice President and Enterprise Executive for Energy and the Environment at Colorado State University (“CSU”) and The Ohio State University effective September 1, 2010. Dr. Sega held the position of Vice President for Energy, Environment, and Applied Research with the CSU Research Foundation through August 2010. Prior to joining CSU, Dr. Sega served as Under Secretary for the U.S. Air Force from August 2005 to August 2007. As Under Secretary, Dr. Sega led a team that developed a comprehensive energy strategy emphasizing supply, demand, and culture with results in 2006 of $100 million in energy-related savings and cost avoidance and receipt of the overall Presidential Award for Leadership in Federal Energy Management for the U.S. Government. As Under Secretary, Dr. Sega’s role also included the Department of Defense (“DOD”) Executive Agent for space, and the Air Force Service Acquisition Executive for space programs. From August 2001 until August 2005, Dr. Sega was Director of Defense Research and Engineering, Office of the Secretary of Defense, which is the Chief Technology Officer for the DOD. From July 1996 to August 2001, he served as Dean, College of Engineering and Applied Science, University of Colorado at Colorado Springs. Dr. Sega is a former NASA astronaut and veteran of two shuttle missions. He retired from the U.S. Air Force Reserves in the rank of Major General. Dr. Sega brings to the Board extensive experience in applying academic research to real-world situations, knowledge of U.S. government contracting practices, and expertise in aerospace and energy technology and markets. Dr. Sega has been a Director of the Company since 2008. Other public company directorships: Rentech, Inc. (Since 2007) |
|
14
Table of Contents
Board of
Directors (continued)
Directors
Remaining in Office Until 2013:
![[PHOTO OF JOHN D. COHN]](d77398dd7739811.gif)
|
John D. Cohn Age: 56 Mr. Cohn has served as Senior Vice President, European Business Planning and Execution, of Rockwell Automation, Inc., a global provider of innovative industrial automation and information products, services and solutions since March 2009. In this capacity, Mr. Cohn develops and directs regional and country level business strategies for over $1 billion of Rockwell sales. Additionally, Mr. Cohn leads business development activities, including strategic partnerships, acquisitions and other market expansion opportunities to generate incremental revenue. Prior to accepting this position in March 2009, Mr. Cohn served as Senior Vice President, Strategic Development and Communications, for Rockwell Automation from 1999 to March 2009. Mr. Cohn brings to the Board expertise in global market development, market penetration and experience with leading organizations through turnarounds, mergers and acquisitions. Mr. Cohn has been a director of the Company since 2002. Other public company directorships: None held during the past five years. |
|
![[PHOTO OF MICHAEL H. JOYCE]](d77398dd7739807.gif)
|
Michael H. Joyce Age: 70 Michael H. Joyce retired in July 2006 as President and Chief Operating Officer of Twin Disc, Inc., an international manufacturer and worldwide distributor of heavy-duty off-highway and marine power transmission equipment. Prior to joining Twin Disc in January 1991, Mr. Joyce was employed at Dana Corporation for 28 years, holding positions of increasing responsibility, including President of Dana’s Fluid Products Division; Vice President and General Manager of Dana’s Heavy Axle Division; and International Manager of Dana’s Axle Division. Mr. Joyce’s extensive experience in management, engineering, sales/marketing, and international manufacturing provides the Board with expertise in the engine and power generation markets as well as practical knowledge and leadership for overseeing the Company’s management. Mr. Joyce has been a director of the Company since 2000. Other public company directorships: Mr. Joyce served 15 years on the board of Twin Disc, Inc., from 1991 until his retirement as a director in July 2006. Mr. Joyce also served on the board of The Oilgear Company from 1998 until his retirement as a director in 2006. |
|
15
Table of Contents
Board of
Directors (continued)
![[PHOTO OF JAMES R. RULSEH]](d77398dd7739812.gif)
|
James R. Rulseh Age: 55 James Rulseh has served as the Chief Operating Officer, Tulip Corporation, a private manufacturing company, since October 2009. Prior to joining Tulip Corporation, Mr. Rulseh served in the following capacities for Modine Manufacturing Company, an NYSE listed company that is a diversified global leader in thermal management technology and solutions: Special Assistant to the Chief Executive Officer, from January 2009 to October 2009; Regional Vice President — Americas, and an officer of Modine Manufacturing Company, from October 2007 to January 2009; Regional Vice President — Asia and an officer of Modine Manufacturing Company, from November 2006 to October 2007; Group Vice President and an officer of Modine Manufacturing Company, from April 2001 to November 2006; Managing Director of the Automotive Business Unit of Modine Europe, from 1998 to March 2001. Prior to 1998, Mr. Rulseh had held various other positions with Modine beginning in 1977. Mr. Rulseh’s position as COO of Tulip Corporation and his extensive operational managerial experience at Modine Manufacturing Company provide him with significant insight and experience into the operations, challenges and complex issues facing major manufacturing corporations. Mr. Rulseh brings to the Board extensive senior executive level expertise in international manufacturing and business restructurings. Mr. Rulseh has been a director of the Company since 2002. Other public company directorships: Proliance International, Inc. (PLI), New Haven, CT (2005 — July 2010) — Member, Compensation and Nominating Committees. |
|
16
Table of Contents
Board of
Directors (continued)
Governance
Documents
Woodward’s policies and practices reflect corporate
governance initiatives that are compliant with the listing
requirements of The NASDAQ Stock Market, Inc.
(“NASDAQ”), SEC rules and regulations, and the
corporate governance requirements of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”). Woodward maintains a
corporate governance page on its website at
http://www.woodward.com
that can be accessed by clicking on “Investor
Information” and then on “Corporate Governance.”
Included on this site are the following documents adopted by our
Board: a Message from our Chairman and Chief Executive Officer;
the Woodward Constitution; our Director Guidelines;
Executive/Director Stock Ownership Guidelines; charters for our
Audit, Compensation, Executive, and Nominating and Governance
Committees; the Woodward Codes of Business Conduct and Ethics
for directors, officers, and members, including the Woodward
Code of Ethics for Senior Financial Officers and Other Finance
Members; the Business Conduct Oversight Committee charter; our
policy relating to “Insider” Trades of Securities; and
our Related Person Transaction Policies and Procedures.
Independent
Directors
The Board has determined that each member of the Board, other
than Mr. Gendron, is independent under the criteria
established by SEC rules and regulations and NASDAQ listing
requirements for independent board members. In addition, the
Board has determined that each members of the Audit Committee
meets the additional independence criteria required for audit
committee membership established by SEC rules and regulations
and NASDAQ listing requirements for audit committee membership.
Board
Leadership Structure
Mr. Gendron currently serves as our Chairman of the Board
and Chief Executive Officer. Because one individual serves as
Chairman and CEO, the Board appoints an independent director to
serve as “Lead Director.” Our current lead director is
Mr. Joyce, who was appointed to that position by the Board
in 2007. The independent Lead Director chairs separate meetings
of the independent directors following regularly scheduled Board
meetings. The duties and responsibilities of the independent
Lead Director are set forth under the “BOARD MEETINGS AND
COMMITTEES — LEAD DIRECTOR” section below. The
Board believes the combined Chairman/CEO position, together with
an independent Lead Director has certain advantages over other
board leadership structures and best meets the Company’s
current needs. Mr. Gendron’s leadership as Chairman
and CEO provides our Board with detailed and in-depth knowledge
of the Company’s strategy, markets, operations and
financial condition and enhances our ability to communicate a
clear and consistent strategy to our stockholders, employees and
business partners. The current leadership structure
differentiates the oversight role of the Lead Director and other
independent Directors from the oversight role of the
Chairman/CEO and other management.
The Board understands there is no single “one-size fits
all” approach to providing Board leadership in the
competitive and changing environment in which we operate. The
optimal Board leadership structure may vary as circumstances
warrant. At present, the Board believes its current structure
effectively maintains independent oversight and management.
Consistent with our Director Guidelines, the Board reviews and
considers whether the positions of Chairman and CEO should be
combined or separated as part of a regular review of the
effectiveness of the Company’s governance structure.
17
Table of Contents
Board
Meetings and Committees
The Board met five times in fiscal 2010; all incumbent directors
attended more than 80 percent of the aggregate of the total
meetings of the Board and all committees of the Board on which
they served. Directors are invited, but are not required, to
attend annual meetings of stockholders. All directors attended
the Company’s last annual meeting of stockholders.
The Board has the following standing committees: Audit
Committee; Compensation Committee; Nominating and Governance
Committee; and Executive Committee. All actions by committees
are reported to the Board at the next regularly scheduled
meeting.
| Committee Membership |
|
Nominating |
||||||||||||||||||||
| Name | Audit | Compensation | and Governance | Executive | ||||||||||||||||
|
John D. Cohn
|
n | |||||||||||||||||||
|
Paul Donovan
|
n | * | n | |||||||||||||||||
|
Thomas A. Gendron
|
n | * | ||||||||||||||||||
|
John A. Halbrook
|
n | |||||||||||||||||||
|
Michael H. Joyce
|
n | n | ||||||||||||||||||
|
Mary L. Petrovich
|
n | |||||||||||||||||||
|
Larry E. Rittenberg
|
n | n | ||||||||||||||||||
|
James R. Rulseh
|
n | * | n | |||||||||||||||||
|
Ronald M. Sega
|
n | n | ||||||||||||||||||
|
Michael T. Yonker
|
n | n | * | n | ||||||||||||||||
| * | Chairman |
| Audit Committee | The Audit Committee oversees and monitors the Company’s accounting and financial reporting processes, including the quality of internal controls over those processes and audits of the Company’s financial statements and internal controls over financial reporting, and assists the Board of Directors with overseeing the Company’s processes for monitoring compliance with laws and regulations and with the Company’s various programs related to its codes of conduct. The Audit Committee produces an annual report relating to the compliance of the Company’s financial statements with applicable rules and regulations and recommends to the Board of Directors, based on reviews and discussion with management and the Company’s independent registered public accounting firm, that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K. The Audit Committee also retains, oversees, and evaluates the Company’s independent registered public accounting firm. The Audit Committee operates under a charter that more fully describes the responsibilities of the Audit Committee. The Audit Committee also reviews its charter at least annually and recommends to the Board of Directors such revisions as it deems necessary or appropriate. The Audit Committee charter is available for review on the Company’s website at http://www.woodward.com/pdf/corp/AudCommCharter.pdf. |
| Consistent with SEC rules and regulations and NASDAQ’s independent director and audit committee listing standards, and in accordance with the Audit Committee charter, all members of the Audit Committee are independent directors. The Board of Directors has determined that Messrs. Donovan, Joyce and Rittenberg are Audit Committee Financial Experts, as the SEC defines that term, and have experience resulting in “financial sophistication” as defined under NASDAQ listing requirements. | ||
| The Audit Committee meets as often as necessary to perform its duties and responsibilities. The Audit Committee held six meetings in fiscal 2010. | ||
| Compensation Committee | The Compensation Committee reviews and approves the compensation of all of our executive officers. The Compensation Committee has oversight responsibility for the Company’s annual incentive plans, the Long-Term Management Incentive Compensation Plan, the 2002 Stock Option Plan, and the 2006 Omnibus Incentive Plan. The Compensation Committee determines and takes all action, including granting of all incentives and/or stock options to eligible Company |
18
Table of Contents
Board Meetings and
Committees (continued)
| employees, in accordance with the terms of the plans. Consistent with NASDAQ’s independent director listing requirements, and in accordance with the Compensation Committee charter, all members of the Compensation Committee are independent directors. The Compensation Committee reviews performance against targets for both the annual incentive compensation plan and the long-term incentive compensation plan. | ||
| The Compensation Committee regularly reviews the Company’s compensation policies and practices. The Company also conducted a review of its compensation plans and related risk to the Company. The Company and the Committee have concluded that any risks arising from its employee compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. | ||
| General | ||
| The principal responsibilities of the Compensation Committee are to, among other things, discharge the responsibilities of the Board relating to compensation of the Company’s Chief Executive Officer and other executive officers, conduct an annual performance review of the Chief Executive Officer with input from the independent members of the Board, produce an annual report relating to the Company’s Compensation Discussion and Analysis (“CD&A”), and recommend to the Board the inclusion of the CD&A in the Company’s Annual Report on Form 10-K and its proxy statement. The Compensation Committee’s written charter, which describes the specific duties of the Compensation Committee, is available on the Company’s corporate website at http://www.woodward.com/pdf/corp/CompCommCharter.pdf. | ||
| The Compensation Committee meets as often as necessary to perform its duties and responsibilities. The Compensation Committee held four meetings in fiscal 2010. These meetings were held to review company and executive performance in fiscal 2010, and to receive and review information regarding compensation trends and competitive compensation information. | ||
| In making its decisions and completing its annual review of our Executive Compensation Program, the Compensation Committee routinely examines the following important business factors: | ||
|
• financial reports on performance versus budget and
compared to prior year performance;
|
||
|
• calculations and reports on levels of achievement of
corporate performance objectives;
|
||
|
• reports on the Company’s strategic initiatives
and budget for future periods;
|
||
|
• information on the executive officers’ stock
ownership and option holdings;
|
||
|
• information regarding dilutive effects of the equity
compensation plan;
|
||
|
• data regarding the total compensation of our Chief
Executive Officer, Chief Financial Officer, and our three other
most highly compensated executive officers (our
“NEOs”), including base salary, cash incentives,
equity awards, and any perquisites;
|
||
|
• information regarding compensation programs and
compensation levels at our peer comparator group identified by
our compensation consultant and described under the caption
“COMPENSATION DISCUSSION AND ANALYSIS —
COMPENSATION PHILOSOPHY AND STRATEGY — COMPETITIVE
COMPARISONS;” and
|
||
|
• the design and administration of the Company’s
compensation programs and equity compensation plans, and
associated risks, if any.
|
||
| Delegation of Authority | ||
| The Compensation Committee Charter provides authority to the Compensation Committee to delegate its role and responsibilities to subcommittees entirely made up of Compensation Committee members. The Compensation Committee has delegated to the Chairman of the Compensation Committee the authority to approve any and all option exercises when the optionee will pay for the cost of the option and/or the taxes associated with the transaction |
19
Table of Contents
Board Meetings and
Committees (continued)
| with stock previously owned and held by the optionee for at least six months. The Chairman of the Compensation Committee has been authorized to further delegate these responsibilities to any other member of the Compensation Committee. | ||
| The Compensation Committee’s Interaction with Management | ||
| In order to design compensation programs that are aligned with appropriate Company performance goals and strategic direction, the Compensation Committee works closely with management, including the Chief Executive Officer, the Corporate Vice President, Human Resources, the Corporate Vice President and General Counsel and the Corporate Director, Global HR Support Services and Risk Management. Specifically, management facilitates the alignment process by: | ||
|
• providing compensation data to our executive
compensation consultant for comparative benchmarking;
|
||
|
• evaluating NEO performance (with the exception of
our Chief Executive Officer);
|
||
|
• making recommendations to the Compensation Committee
regarding annual short-term incentive plan design and
performance metrics; and
|
||
|
• making recommendations to the Compensation Committee
regarding the compensation of the NEOs (with the exception of
the Chief Executive Officer) for base salary, annual short-term
incentive compensation targets, long-term cash incentive
compensation targets, and long-term equity compensation. The
Chief Executive Officer’s compensation, including base
salary, is determined by the Compensation Committee, with
guidance from our compensation consultant, relative to
comparative market data, as well as measuring his performance
against a defined process led by the Compensation Committee
Chairman involving all independent Board members.
|
||
| All decisions regarding executive compensation are ultimately made by the Compensation Committee. | ||
| The Company’s Corporate Director, Global HR Support Services, works with the Compensation Committee Chair to establish the agenda for Compensation Committee meetings. At the Compensation Committee’s request, the Chief Executive Officer regularly attends the meetings and provides background information regarding the Company’s strategic objectives, evaluation of the performance of the executive officers, and compensation recommendations as to executive officers other than himself. The Compensation Committee may also seek input from the Corporate Vice President, Human Resources, and the Corporate Vice President and General Counsel, as necessary and appropriate, to carry out its duties. The Corporate Vice President, Human Resources, provides input on: executive compensation structure, performance assessment process and data, potential promotions, talent management and succession planning, and compensation associated with promotions. | ||
| Interaction with Compensation Consultants | ||
| In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation consultant. In fiscal 2010, the Compensation Committee retained the services of Hewitt Associates, Inc. (“Hewitt”) to assist with its review of the total compensation package of the NEOs. | ||
| The Compensation Committee retains Hewitt primarily to provide guidance for the executive compensation decision making process. Annually, Hewitt provides the Compensation Committee with a Management Compensation Analysis comparing the compensation for the NEOs to our compensation philosophy and the compensation philosophies of our peer comparator group for base salary, target bonus, target total cash, long-term cash and equity incentives, and target total compensation. In carrying out its assignment, the consultant may interact with members of management, including but not limited to the Chief Executive Officer, the Corporate Vice President, Human Resources, the Corporate Vice President and General Counsel, the Corporate Controller, and the Corporate Director, Global HR Support Services. |
20
Table of Contents
Board Meetings and
Committees (continued)
| In addition to their services with respect to compensation for the NEOs, Hewitt acts as a global compensation and benefits consultant for the Company and provides total compensation data for all of the Management Incentive Plan (“MIP”) participants other than the NEOs. Management also utilizes Hewitt’s benefits-related survey data with respect to compensation benchmarking for non-NEOs. | ||
| It is the Compensation Committee’s and the Company’s belief that the services provided by the consultant are independent and free from any conflict of interest. As a result of the interactions with the Compensation Committee and management, Hewitt has a well developed understanding of our business, and is well positioned to provide objective guidance on compensation and benefit plans that are aligned with, and reinforce, our strategies and goals. | ||
| Compensation Consultant Fees | ||
| For fiscal 2010, the Company paid Hewitt approximately $344,347 for advice and services provided to the Compensation Committee and the Company. Of this amount, approximately $147,687 was paid as a result of the work Hewitt performed for the Compensation Committee related to executive compensation advice and services, and $196,660 was paid as a result of the work Hewitt performed for the Company that was not related to executive compensation, including broad compensation benchmarking data applicable to Woodward employees outside the scope of executive compensation, including international benchmarking data and services; actuarial services for the Company’s health and welfare plans; and other health and welfare consulting services. | ||
| The decision to use Hewitt for advice and services not related to executive compensation was made by management. While the Compensation Committee does not pre-approve these non-executive compensation services, it does annually review Hewitt’s internal guidelines and practices designed to guard against conflicts and ensure the objectivity of advice, including the following practices: | ||
|
• Rigid enforcement of confidentiality requirements,
code of conduct, and strict policy against investing in client
organizations.
|
||
|
• Multiservice client relationships are managed by
separate professional account executives (where administrative
services provided) or by other practice consultants.
|
||
|
• Clearly defined engagements with compensation
committees that are separate from any other services provided
(executive compensation consulting will not be embedded in
agreements for any other Hewitt consulting/administrative
services).
|
||
|
• Formal segregation of executive compensation
services (and consultants) into separate business unit.
|
||
|
• No incentives to cross-sell other services, and no
rewards based on results other than for executive compensation
practice.
|
||
|
• Not offering more favorable financial terms for
executive compensation consulting service to companies who also
retain Hewitt for additional administrative or consulting
services (“no better and no worse”).
|
||
|
• Work only for board, compensation committee, and/or
company — do not represent individual executives in
any capacity.
|
||
| The Compensation Committee believes that advice and services Hewitt provided to the Company did not impact advice and services that Hewitt provided to the Compensation Committee on executive compensation matters. | ||
|
Nominating and Governance Committee |
The Nominating and Governance Committee recommends qualified individuals to fill any vacancies on the Board, develops and administers the Director Guidelines and the Company’s corporate governance guidelines, establishes other guidelines, such as stock holding requirements for officers and directors, oversees the Company’s program and policies related to its codes of conduct, and addresses other governance related matters. In accordance with SEC rules and |
21
Table of Contents
Board Meetings and
Committees (continued)
22
Table of Contents
Board Meetings and
Committees (continued)
| candidate, the Nominating and Governance Committee will recommend a candidate for consideration by the full Board. | ||
| Stockholders wishing to suggest a candidate for Board membership should write our Corporate Secretary at P.O. Box 1519, 1000 E. Drake Road, Fort Collins, Colorado 80525 and include: | ||
|
• the stockholder’s name and contact information;
|
||
|
• a statement that the writer is a stockholder of
record and is proposing a candidate for consideration by the
Nominating and Governance Committee;
|
||
|
• the name of, and contact information for, the
candidate and a statement that the candidate is willing to be
considered and serve as a director, if nominated and elected;
|
||
|
• a statement of the candidate’s business and
educational experience;
|
||
|
• information regarding the factors described above
sufficient to enable the Nominating and Governance Committee to
evaluate the candidate;
|
||
|
• a statement of the value that the candidate would
add to the board;
|
||
|
• a statement detailing any relationship between the
candidate and any of our customers, suppliers, or competitors;
and
|
||
|
• detailed information about any relationship or
understanding between the proposing stockholder and the
candidate.
|
||
| In connection with its evaluation, the Nominating and Governance Committee may request additional information from the candidate or the recommending stockholder. The Nominating and Governance Committee has discretion to decide which individuals to recommend for nomination as directors. In order to give the Nominating and Governance Committee sufficient time to evaluate a recommended candidate, the recommendation should be received by our Corporate Secretary not later than the 120th calendar day before the one year anniversary of the date our proxy statement was mailed to stockholders in connection with the previous year’s annual meeting of stockholders. No candidates for director nominations were submitted to the Nominating and Governance Committee by any stockholder in connection with the election of directors at this annual meeting. | ||
| Board Composition and Diversity | The Board does not maintain a formal diversity policy for its members. However, the Board meets periodically with the Nominating and Governance Committee to review Board composition for requisite knowledge, experience and diversity of background which, when taken together, ensures the Board possesses the skills and expertise necessary to effectively oversee the Company’s business. In this regard, the Nominating and Governance Committee is committed to exercising best practices of corporate governance and recognizes the importance of a Board that contains diverse experience at policy-making levels in business, public service, education, and technology, as well as other relevant knowledge that contributes to the Company’s global activities. The Board believes that diversity is an important component of Board membership, and is guided by the Company’s Bylaws, Director Guidelines, and Constitution, which requires the Board to adhere to the philosophy and concepts, including respect for the dignity, worth and equality of all members. | |
| Lead Director | Mr. Joyce serves as “Lead Director.” The Lead Director chairs separate meetings of the independent directors, generally following each regularly scheduled Board meeting. Topics discussed are at the discretion of the independent directors. The Lead Director then meets with the Chief Executive Officer to review items discussed at the meeting. The Lead Director conducts a quarterly review of the Chief Executive Officer and communicates to the Chief Executive Officer his annual performance review as conducted by the Compensation Committee with input from the independent members of the Board of Directors. The Lead Director also communicates with the Chief Executive Officer on a regular basis to discuss any other Board matters or concerns, and acts as a liaison in that regard between the independent members of the Board and the Chief Executive Officer. |
23
Table of Contents
Board Meetings and
Committees (continued)
24
Table of Contents
Board Meetings and
Committees (continued)
| “Related Person” also is defined in our RPT Policy with respect to the definitions contained in Item 404 of Regulation S-K. Generally, “Related Persons” consist of any director or executive officer of the Company, any nominee for director, any holder of five percent or more of the Company’s common stock, or any immediate family member of any such persons. “Immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of any such person, and any person (other than a tenant or employee) sharing the household of such person. It may also include entities with which any of such persons have a relationship. | ||
| The approval procedures in our RPT Policy state that the Audit Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances. In addition, our RPT Policy states that, in connection with the approval or ratification of an Interested Transaction involving an outside director or nominee for director, the Audit Committee should consider whether such transaction would compromise such director’s status as: (1) an independent director under NASDAQ’s independence standards, (2) an “outside director” under Section 162(m) of the Internal Revenue Code, or a “non-employee director” under Rule 16b-3 under the Exchange Act, if such non-employee director serves on the Compensation Committee of the Board, or (3) an independent director under Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee of the Board. Our RPT Policy also identifies certain transactions that are deemed to be pre-approved, including transactions involving competitive bids, regulated transactions, and employee transactions. | ||
| Our RPT Policy is available for review on the Company’s website at http://www.woodward.com/pdf/corp/RelatedPersonsTransactionPolicy.pdf. | ||
| Prior to November 2007, the Company’s unwritten policy with respect to Related Person transactions was to evaluate and monitor Related Person transactions. Any such material transaction was required to comply with the Company’s policies, including the Company’s Codes of Business Conduct and Ethics, which addresses conflicts of interest, and any payments by the Company to a director’s primary business affiliation or the primary business affiliation of an immediate family member of a director or officer for goods or services, or other contractual arrangements were required to be approved by the Audit Committee in accordance with the NASDAQ rules and be made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons. | ||
| In 2002, we purchased a company named Leonhard Reglerbau Dr. Ing. Adolf Leonhard GmbH from Gerhard Lauffer in an arms-length transaction. At the time, Mr. Lauffer was unaffiliated with the Company. In connection with this acquisition, the parties negotiated lease agreements for property located in Stuttgart, Germany used by the acquired company but owned by an entity owned and controlled by Mr. Lauffer (the “Lauffer Affiliate”). Upon completion of this acquisition, Mr. Lauffer became an employee of the Company and is currently its President, Electrical Power Systems. The terms of the lease agreements were agreed upon by us at a time when Mr. Lauffer was not a Related Person of the Company and, therefore, our RPT policy was not applicable in connection with this transaction. In November 2007, the rental rates were renegotiated in accordance with the terms of the original lease agreements to reflect current market prices for similar properties in the vicinity. Following this renegotiation, the modified rental rates were approved by the Audit Committee in accordance with our RPT Policy. These modified rental rates resulted in payments to Mr. Lauffer in Euros of an amount equivalent to approximately USD $850,977.52 in fiscal 2010 under the lease agreements. One of the lease agreements expires in 2011 and the other expires in 2013; however, each lease agreement is automatically extended for additional five-year terms if not terminated by either party one year before the end of the then-current term. The rental rate under the lease agreements was to be reevaluated every three years but no such revaluation had occurred until November 2007. Because the rental rates were not reviewed in 2005 as provided in the lease agreements, the Company had agreed to reevaluate the rates to reflect any additional market changes in |
25
Table of Contents
Board Meetings and
Committees (continued)
|
Monthly Retainer
|
$ | 3,000 | |||
|
Each Board Meeting Attended
|
$ | 2,000 | |||
|
Telephonic Board Meetings
|
$ | 500 | |||
|
Each Committee meeting attended — Chairman
|
$ | 2,500 | |||
|
Each Committee meeting attended — all others
|
$ | 1,500 | |||
|
Telephonic Committee meetings — Chairman
|
$ | 1,000 | |||
|
Telephonic Committee meetings — all others
|
$ | 500 | |||
|
Lead Director — each independent director meeting
|
$ | 2,500 | |||
|
Audit Committee Chairman — additional monthly retainer
|
$ | 750 | |||
The following table shows the compensation paid to the
non-employee members of the Board during the fiscal year ended
September 30, 2010:
|
Fees |
|||||||||||||||
|
Paid in Cash |
Option Awards |
Total |
|||||||||||||
| Director | ($) | ($)(1) | ($) | ||||||||||||
|
John D. Cohn
|
$ | 52,000 | $ | 83,676 | $ | 135,676 | |||||||||
|
Paul Donovan
|
$ | 67,500 | $ | 83,676 | $ | 151,176 | |||||||||
|
John A. Halbrook
|
$ | 46,000 | $ | 83,676 | $ | 129,676 | |||||||||
|
Michael H. Joyce
|
$ | 66,000 | $ | 83,676 | $ | 149,676 | |||||||||
|
Mary L. Petrovich
|
$ | 52,000 | $ | 83,676 | $ | 135,676 | |||||||||
|
Larry E. Rittenberg(2)
|
$ | 58,500 | $ | 83,676 | $ | 142,176 | |||||||||
|
James R. Rulseh
|
$ | 61,000 | $ | 83,676 | $ | 144,676 | |||||||||
|
Dr. Ronald M. Sega
|
$ | 58,500 | $ | 83,676 | $ | 142,176 | |||||||||
|
Michael T. Yonker
|
$ | 60,500 | $ | 83,676 | $ | 144,176 | |||||||||
| (1) | On October 1, 2009, each non-employee director was awarded options to purchase 7,600 shares of Woodward common stock at $23.18 per share, the closing price of Woodward common stock on that date as quoted on The NASDAQ Global Select Market, under our 2006 Omnibus Incentive Plan (the “2006 Plan”). These options vest at the rate of 25% per year. The amounts reported in the “Option Awards” column above represent the grant date fair value of the option awards in accordance with ASC 718. Assumptions used in calculating these amounts are included in Note 17 of Woodward’s financial statements in its Annual Report on Form 10-K for the fiscal year ended September 30, 2010 filed with the SEC on November 18, 2010. |
| (2) | In lieu of cash payments for his $3,000 monthly retainer fees (totaling $36,000 for fiscal 2010), Mr. Rittenberg has elected to receive shares of Woodward common stock from treasury with equivalent value. |
26
Table of Contents
Board Meetings and
Committees (continued)
Option awards outstanding as of
September 30, 2010 are as follows:
|
Options Not |
Options |
||||||||||||||
| Director | Vested | Options Vested | Outstanding | ||||||||||||
|
John D. Cohn
|
13,300 | 22,000 | 35,300 | ||||||||||||
|
Paul Donovan
|
13,300 | 3,800 | 17,100 | ||||||||||||
|
John A. Halbrook
|
13,300 | 369,334 | 382,634 | ||||||||||||
|
Michael H. Joyce
|
13,300 | 21,000 | 34,300 | ||||||||||||
|
Mary L. Petrovich(l)
|
13,300 | 0 | 13,300 | ||||||||||||
|
Petrovich Trust(l)
|
0 | 42,000 | 42,000 | ||||||||||||
|
Larry E. Rittenberg
|
13,300 | 30,000 | 43,300 | ||||||||||||
|
James R. Rulseh
|
13,300 | 21,000 | 34,300 | ||||||||||||
|
Dr. Ronald M. Sega
|
10,450 | 950 | 11,400 | ||||||||||||
|
Michael T. Yonker(2)
|
0 | 0 | 0 | ||||||||||||
|
Yonker Trust(2)
|
13,300 | 30,000 | 43,300 | ||||||||||||
| (1) | In fiscal 2010, Mrs. Petrovich transferred 42,000 vested options to the Petrovich Grantor Retained Annuity Trust — 2010 No. 1 (the “Petrovich Trust”). | |
| (2) | In fiscal 2010, Mr. Yonker transferred 30,000 vested options and 13,300 unvested options to the Michael Timothy Yonker, Trustee for Michael Timothy Yonker 1995 Declaration of Trust dated March 16, 1995 (the “Yonker Trust”). |
27
Table of Contents
Board Meetings and
Committees (continued)
Stock
Ownership of Management
| Directors and Named Executive Officers | The following table shows how much Woodward common stock was beneficially owned, as of November 15, 2010, by each director, each named executive officer of the Company, and all directors and executive officers as a group: |
|
Number |
||||||||||
| Non-Employee Directors | of Shares(1)(2) | Percent(1) | ||||||||
|
John D. Cohn
|
44,775 | * | ||||||||
|
Paul Donovan(3)
|
8,075 | * | ||||||||
|
John A. Halbrook(4)
|
1,634,561 | 2.29 | % | |||||||
|
Michael H. Joyce
|
38,327 | * | ||||||||
|
Mary L. Petrovich
|
21,713 | * | ||||||||
|
Petrovich Trust
|
42,000 | * | ||||||||
|
Larry E. Rittenberg
|
48,569 | * | ||||||||
|
James R. Rulseh
|
42,887 | * | ||||||||
|
Ronald M. Sega
|
3,800 | * | ||||||||
|
Michael T. Yonker
|
36,216 | * | ||||||||
|
Yonker Trust
|
34,275 | * | ||||||||
|
Named Executive Officers
|
||||||||||
|
Thomas A. Gendron
|
1,173,003 | 1.65 | % | |||||||
|
Robert F. Weber, Jr.
|
160,877 | * | ||||||||
|
Dennis M. Benning
|
90,544 | * | ||||||||
|
Martin V. Glass
|
233,529 | * | ||||||||
|
Gerhard Lauffer
|
206,000 | * | ||||||||
|
All directors and executive officers as a group (19 persons)
|
4,259,291 | 5.98 | % | |||||||
| * | Less than one percent | |
| (1) | The number of shares outstanding for purposes of calculating the percentages shown includes shares (does not include fractional shares) allocated to participant accounts of named executive officers under the Woodward Governor Company Retirement Savings Plan (the “Retirement Savings Plan”). The Plan directs the Trustee to vote the shares allocated to participants’ accounts under the Woodward Stock Plan portion of the Plan as directed by such participants and to vote all allocated shares for which no timely instructions are received in the same proportion as the allocated shares for which instructions are received. | |
| (2) | In addition, the number of shares outstanding for purposes of calculating the percentages shown includes a number of shares of our common stock that may be acquired by each person referenced through the exercise of options within 60 days of November 15, 2010 in accordance with the rules of the SEC. The below table summarizes all shares that may be acquired through the exercise of options within 60 days of November 15, 2010. |
|
Table to footnote (2) above |
Number of shares |
||||
| Non-Employee Directors | (see footnote (2) above) | ||||
|
John D. Cohn
|
26,275 | ||||
|
Paul Donovan
|
8,075 | ||||
|
John A. Halbrook
|
232,275 | ||||
|
Michael H. Joyce
|
25,275 | ||||
|
Mary L. Petrovich
|
4,275 | ||||
|
Petrovich Trust
|
42,000 | ||||
|
Larry E. Rittenberg
|
34,275 | ||||
|
James R. Rulseh
|
25,275 | ||||
|
Ronald M. Sega
|
3,800 | ||||
|
Michael T. Yonker
|
0 | ||||
|
Yonker Trust
|
34,275 | ||||
|
Named Executive Officers
|
|||||
|
Thomas A. Gendron
|
912,750 | ||||
|
Robert F. Weber, Jr.
|
149,250 | ||||
|
Dennis M. Benning
|
89,000 | ||||
|
Martin V. Glass
|
205,750 | ||||
|
Gerhard Lauffer
|
148,000 | ||||
| (3) | In addition to the 8,075 shares reflected above, Mr. Donovan previously gifted 9,012 shares to his wife, who shares Mr. Donovan’s household. Mr. Donovan disclaims beneficial ownership of the shares held by his wife, who currently owns 9,028 shares of Woodward common stock. | |
| (4) | Includes 879,656 shares of Woodward common stock that are pledged in a standard margin account. |
28
Table of Contents
Section 16(a)
Beneficial Ownership Reporting Compliance
Based upon a review of our records, all reports required to be
filed pursuant to Section 16(a) of the Securities Exchange Act
of 1934 (the “Exchange Act”) were filed on a timely
basis, with the exception of a late Form 4 filed by
Woodward on behalf of Mr. Weber on May 7, 2010. The
Form 4 related to Mr. Weber’s pre-election to
utilize a certain portion of investments in his Woodward
Executive Benefit Plan to acquire phantom stock units under that
plan.
Persons
Owning More Than Five Percent of Woodward Stock
The following table shows how many shares of Woodward common
stock were owned by each person known to us to own more than
five percent of our common stock as of November 19, 2010.
| Ownership of Common Stock | ||||||||||
| Principal Holders | Number of Shares | Percent | ||||||||
|
Royce & Associates, LLC 745 5th Avenue New York, New York 10151 |
5,322,428 | (1)(4) | 7.78 | % | ||||||
|
BlackRock, Inc. 40 East 52nd Street New York, New York 10022 |
4,060,681 | (2)(4) | 5.94 | % | ||||||
|
Woodward Governor Company Profit Sharing Trust P. O. Box 1519 1000 E. Drake Road Fort Collins, Colorado 80525 |
7,265,863 | (3) | 10.62 | % | ||||||
| (1) | Royce & Associates, LLC has stated in the most recent Form 13G filing with the SEC that it has sole investment power and sole voting power for the entire holding. |
| (2) | BlackRock, Inc., has stated in the most recent Form 13G filing with the SEC that it has sole investment power and sole voting power for the entire holding. | |
| (3) | Shares owned by the Woodward Governor Company Profit Sharing Trust are held in the Retirement Savings Plan. Vanguard Fiduciary Trust serves as Trustee of the Profit Sharing Trust. JPMorgan Chase Bank, N.A. serves as custodian of the Retirement Savings Plan and holds the actual shares in a custodial account. All shares held in the Profit Sharing Trust are allocated to participant accounts. The Retirement Savings Plan directs the Trustee to vote the shares allocated to participant accounts under the Woodward Stock Plan portion of the Retirement Savings Plan as directed by such participants and to vote all allocated shares for which no timely instructions are received in the same proportion as the allocated shares for which instructions are received. | |
| (4) | Stated number of shares owned based on filings with the SEC as of November 19, 2010 and reflects holdings as of December 31, 2009. |
29
Table of Contents
Compensation
Discussion and Analysis
2010
Overview
Our Executive Compensation Program has been designed to
(1) provide a competitive total compensation program which
enables us to attract, retain, and motivate a high-performance
executive management team, and (2) link the total
compensation program payouts to Company and individual
performance. We believe that proper administration of this
program should result in the development of a management team
that improves our fundamental financial performance and provides
value to the long-term interests of the Company and its
stockholders.
Our Executive Compensation Program is based on the overall
financial performance of the Company and is structured as a
total compensation package comprised of the following elements:
| • | Base salary; |
| • | Annual short-term incentives, and |
| • | Long-term incentive compensation, which includes cash and equity components. |
In addition, the compensation program for NEOs includes health
and welfare benefits, a deferred compensation program, defined
contribution plans, change of control arrangements, and other
ancillary benefits.
The Compensation Committee, comprised entirely of independent
directors, has oversight responsibilities for the compensation
program administration, and all compensation decisions with
respect to the NEOs are subject to Compensation Committee review
and approval. In making these decisions, the Compensation
Committee uses a market-based compensation model wherein the
responsibility and accountability of the NEOs are compared to
similar positions at companies in our peer comparator group. In
addition, Hewitt, an executive compensation consulting firm
engaged by the Compensation Committee, provides guidance
throughout the entire process, including guidance regarding the
selection of our peer comparator group and the level of base
salary, annual short-term incentive compensation, and long-term
incentive compensation.
Compensation
Philosophy and Strategy
Our compensation philosophy is to establish total compensation
packages such that, when our fundamental financial performance
is at target levels, total compensation (base salary, annual
short-term cash incentives, and long-term incentives) for each
NEO is competitive with the 50th percentile market value total
compensation for executives in comparable positions at companies
in our peer comparator group.
We place a strong emphasis on variable compensation. Variable
compensation plans (annual short-term incentives and long-term
incentives) are designed so that the payout opportunity is
directly linked to the achievement of pre-determined financial
performance metrics, with upside opportunity for exceeding the
pre-determined goals. We also use long-term incentives,
including equity-based compensation, to align NEO and
stockholder interests.
With each component of our Executive Compensation Program, we
strive to align the interests of the NEOs with the interests of
our stockholders in different ways, by focusing on both
short-term and long-term performance goals, by promoting
ownership of the Company, and by linking individual performance
to our fundamental financial performance.
Competitive
Comparisons
Our compensation programs are benchmarked to be competitive with
our peer comparator group. Generally, companies in our peer
comparator group are selected by the Compensation Committee, in
consultation with Hewitt and management. These selections are
made from the Hewitt Total Compensation Measurement database
companies on the basis of competition for business or talent,
global structure, level of operational complexity, similar
revenue size, market capitalization, and manufacturing profile.
The Compensation Committee analyzes compensation decisions based
on our peer comparator group as a whole and uses 50th percentile
compensation data as a benchmark in determining our target
compensation levels. In making these decisions and
determinations, the Compensation Committee, in consultation with
Hewitt and management, matches the NEOs with similarly
positioned executives at companies in the peer comparator peer
group. These matches facilitate pay comparisons based on
functional matches, job duties, responsibilities, level of
impact, and organizational level. The Compensation Committee
uses the statistical methodology of regression analysis to bring
comparator peer group revenues, and our corresponding target
compensation levels, in alignment with our revenue. We use
revenue for this analysis because we believe that revenue can be
a proxy for the scope and complexity of the NEO position that is
being compared.
Our peer comparator group identified below was used in fiscal
2010 to benchmark target compensation opportunities across each
component of compensation, including base salary, annual
short-term incentive compensation, and long-term incentive
compensation
30
Table of Contents
Compensation Discussion and
Analysis (continued)
and, when considered in the aggregate, the total compensation
for each NEO. No changes were made to our peer group when
compared to the previous year.
| Comparator Peer Group | ||||||
|
Actuant Corporation
Ameron International Corporation Ametek, Inc. AMSTED Industries Inc. BAE Systems, Inc. Brady Corporation Crane Co. Curtiss-Wright Corp. Donaldson Company, Inc. |
ESCO Technologies Inc. Flowserve Corporation FMC Technologies, Inc. Goodrich Corporation Graco Inc. Hubbell Inc. IDEX Corp. Joy Global Inc. Kaman Corporation |
MOOG Inc. Rockwell Automation Rockwell Collins Roper Industries Sauer-Danfoss Inc. Thomas & Betts Corporation Valmont Industries, Inc. Waters Corporation |
||||
For purposes of developing the performance metrics for
determining the payout under the cash component of the Long-Term
Incentive Plan (the “LTIP”), the Compensation
Committee has approved a relative measure methodology wherein we
compare our performance to the S&P Mid Cap 400, an external
index, for performance cycles starting after fiscal 2009. For
performance cycles prior to fiscal 2009, we used a relative
measure methodology where our performance was compared to the
S&P Small Cap 600. We believe that, for the cash component
of the LTIP, the S&P Mid Cap 400 relative measure
methodology is more appropriate as a benchmark of our
performance against a larger and broader population of
companies, which is representative of investment options
available to the market. We believe that outperforming the
benchmark should result in an increase in stockholder value.
Allocation
Between Current and Long-Term Compensation
We use a mix of pay comparison analysis when reviewing our total
compensation. This analysis reviews how pay is delivered at our
Company relative to companies in our peer comparator group, in
particular, the relationship between fixed and variable pay, and
short-term and long-term compensation. The following table sets
forth our pay mix in fiscal 2010:
|
Pay Mix |
||||||||||
| Base Salary | Annual Short Term Incentive | Long-Term Incentive | ||||||||
|
29%
|
21% | 50% | ||||||||
We look to market practice in our peer comparator group as a
guide for pay mix in order to minimize any recruiting
disadvantages that may result from a pay structure that differs
materially from outside opportunities. Accordingly, our pay mix
in fiscal 2010 was relatively consistent with the companies in
our peer comparator group. We believe it is important to provide
a smaller portion of total compensation in a more stable form,
such as base salary, and a more meaningful portion of total
compensation tied to incentives which can fluctuate, up or down,
based on our fundamental financial performance.
Allocation
Between Cash and Non-Cash Compensation
Total compensation for NEOs in fiscal 2010 was allocated 64% to
cash (base salary, annual short-term incentive and long-term
incentive) elements and 36% to non-cash (stock options)
elements. This allocation was the outcome of our analysis rather
than a starting point, as we do not have a targeted allocation
ratio between cash and non-cash elements for total compensation.
Our fiscal 2010 allocation was influenced by two important
factors:
| • | our efforts to minimize the extent to which the interests of existing stockholders are diluted by equity used as compensation; and |
| • | our desire to align the majority of our variable compensation with our fundamental financial performance (on which management has a great deal of direct influence) rather than to changes in stock price (on which management has relatively less direct influence). |
Elements
of Compensation
Base
Salary
Base salary is a standard compensation component we must pay to
remain competitive in our industry. The Compensation Committee
generally sets base salary and annual adjustments at levels
considered appropriate for comparable NEO positions at companies
in our peer comparator group. Base salaries are reviewed by the
Compensation Committee on an annual basis in the fourth quarter
of the fiscal year preceding the effectiveness of the change.
Specifically, base salaries are reviewed and approved in
September for an October effective date.
31
Table of Contents
Compensation Discussion and
Analysis (continued)
Using the statistical methodology of regression analysis
described under the caption “COMPENSATION PHILOSOPHY AND
STRATEGY — COMPETITIVE COMPARISONS,” we target
base salaries for the NEOs at the 50th percentile of our peer
comparator group base salaries.
Quantitative data in our peer comparator group is used to
determine the 50th percentile, but we may also use qualitative
performance data and factors to adjust an NEO’s base salary
as a result of an individual NEO’s performance, experience,
responsibilities, management, leadership skills, and rate of
increase from existing base. These qualitative factors are used
to determine the appropriate placement in the salary range and
the relationship between an NEO’s base pay and the 50th
percentile.
Base salary is found in the Summary Compensation Table in the
Salary column.
Annual
Short-Term Incentive Compensation
Annual short-term incentive compensation is provided through the
Management Incentive Plan (“MIP”). Payout under the
MIP is measured by our internal annual financial performance
against pre-determined metrics. The MIP is designed to be
competitive with compensation offerings in our peer comparator
group and to align compensation with financial performance
drivers that are intended to benefit stockholders. The MIP is
approved each year during the Compensation Committee’s
September meeting, with the pre-determined metrics generally
approved at its November meeting. For fiscal year 2010, the
Board considered the MIP and related threshold metrics at the
September 2009 meeting, which required that the Company’s
Earnings Per Share (“EPS”) in fiscal 2010 equals or
exceeds the Company’s adjusted EPS for the prior year,
which was $1.57. However, based on a difficult and uncertain
economic environment, the Compensation Committee also reserved
final approval of any payout under the MIP until after the
completion of fiscal 2010. As a result of
year-over-year
EPS performance ($1.59 EPS for 2010), the Compensation
Committee, at its sole discretion, approved a payout of 26.67%
of the target bonus, which is below the normal threshold of 40%.
However, due to the magnitude of the Company’s
year-over-year
performance, Mr. Gendron declined any bonus payout under
the MIP for fiscal 2010.
The target and actual payouts for each NEO under the MIP are
detailed in the following table:
| NEO | Target as a % of Base Salary | 2010 Actual Payout | ||||||||
|
Gendron
|
100% | $ | 0 | (1) | ||||||
|
Weber
|
60% | $ | 57,607 | |||||||
|
Benning
|
55% | $ | 48,416 | |||||||
|
Glass
|
55% | $ | 47,746 | |||||||
|
Lauffer
|
55% | $ | 47,795 | |||||||
| (1) | As stated above, Mr. Gendron declined any bonus payout under the MIP for fiscal 2010. |
Long-Term
Management Incentive Compensation
The long-term incentive compensation plan is a key component of
the total compensation package. The 2006 Plan, which was
approved by stockholders in January 2006, permits the grant of
Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Shares, Performance Units, Covered Employee Annual
Incentive Awards, Cash-Based Awards, and Other Stock-Based
Awards. To date, the Committee has authorized grants to NEOs of
only nonqualified stock option equity awards and a multi-year
cash based performance award.
The Company currently utilizes two primary components under the
2006 Plan: (1) stock options and (2) cash. These
components are paid to offer competitive benefits to our
executives and to align their interests with increasing
stockholder value. The aggregate values of these components are
aligned with the total value of the options (as determined using
the Black-Scholes-Merton methodology) plus the target cash
payout to provide the total long-term incentive compensation.
The Compensation Committee’s determination of total
long-term compensation under the 2006 Plan uses the statistical
method of regression analysis described under the caption
“Compensation
Philosophy and Strategy — Competitive
Comparisons,” and targets the 50th percentile of our
peer comparator group for each NEO. Total long-term compensation
may be adjusted by the Compensation Committee as a result of an
individual NEO’s performance, experience, responsibilities,
management, and leadership skills.
With respect to stock option awards, the option price of the
shares is determined at the date of the grant, which has been
set forth as of October 1st of each grant year, and
will not be less than the closing price as quoted on The NASDAQ
Global Select Market on that day.
With respect to the cash opportunity, the Compensation Committee
generally establishes three-year performance periods, and the
2011-2013
performance period cycle was established in September 2010. The
Committee establishes the three-year performance cycle
32
Table of Contents
Compensation Discussion and
Analysis (continued)
long-term cash based awards in the fourth quarter of the fiscal
year preceding the first year of the performance cycle. The
performance metrics for the multi-year plans were determined by
the Compensation Committee to be:
| • | Return on Capital (50% weight) |
| • | Growth in Earnings per Share (50% weight) |
The performance metrics were selected and weighted equally based
on important business measures for emphasis for the performance
period and are typical of the peer comparator group.
For the purposes of measuring performance, “return on
capital” is defined as net income, adjusted for accounting
changes and after-tax interest expense, divided by the sum of
total debt, stockholder’s equity, and any non-controlling
interest. EPS for this purpose is measured as net income,
adjusted for accounting changes, divided by fully diluted common
shares outstanding. EPS during the performance cycle is compared
to a baseline EPS to calculate the growth in EPS during such
cycle. There are currently three relevant cycles:
2008-2010
(basis is EPS for year ended 2007 of $1.39),
2009-2011
(basis is EPS for year ended 2008 of $1.75),
2010-2012
(basis is EPS for year ended 2009 of $1.37).
Company performance is measured relative to the performance of
the companies in the comparison group using the S&P Small
Cap 600 index for the
2008-2010
and
2009-2011
cycles, of which we were a member at the time these performance
cycles started. As discussed previously, the Committee approved
a change in our comparison group for future performance cycles
starting with the
2010-2012
cycle, to the S&P Mid Cap 400, in conjunction with our
placement in that index.
Payout in relation to our ranking within the S&P Small Cap
600 is as follows:
| Performance | Payout | ||
|
At
50th percentile
|
50% of target | ||
|
At
60th percentile
|
100% of target | ||
|
At
75th percentile
|
200% of target | ||
The above payout formula applies to each measure weighted
equally. If performance is below the 50th percentile, no award
will be earned or paid as it relates to that measure. Award
amounts are interpolated for performance results between the
above percentiles. The maximum award that can be earned for
performance at or above the 75th percentile is 200% of target as
it relates to that measure.
The Compensation Committee established a reward target for each
NEO, articulated as a percentage of base salary. These targets
are based on market data for our peer comparator group for
long-term incentive compensation. Targets and
2008-2010
actual payout for the cash component of LTIP are detailed in the
following table:
|
Cash Target LTIP |
||||||||||
|
Award as a % of |
2008-2010 Actual |
|||||||||
| NEO | Base | Payout | ||||||||
|
Gendron
|
50% | $ | 639,275 | |||||||
|
Weber
|
40% | $ | 257,756 | |||||||
|
Benning
|
35% | $ | 203,781 | |||||||
|
Glass
|
35% | $ | 206,535 | |||||||
|
Lauffer
|
35% | $ | 210,303 | |||||||
Payouts for the
2008-2010
cycle were based on the following performance levels:
| Metric | Performance | Payout | ||||
|
Return on Capital
|
87th Percentile | 200% | ||||
|
Growth in Earnings per Share
|
74th Percentile | 193.4% | ||||
These performance levels resulted in awards that aggregate to
196.7% of target for each NEO for the
2008-2010
cycle. The amounts paid under the cash portion of the Long-Term
Incentive Plan ending in fiscal 2010 can be found above and in
the Summary Compensation Table under Non-Equity Incentive Plan
Compensation.
33
Table of Contents
Compensation Discussion and
Analysis (continued)
Other
Compensation Programs
The NEOs participate in the same health, welfare, and retirement
benefits as does all of our employee membership. This includes a
group health insurance program; life insurance, inclusive of
employee life, additional
buy-up
employee life, optional spouse life, and optional child life;
Accidental Death & Dismemberment insurance; Long-Term
Disability; Woodward Retirement Savings Plan, inclusive of
employee contributions and Company contributions (100% match on
the first 3% of employee contributions, 50% on the next 3% of
employee contributions, maxing at 4.5%); Woodward Stock Plan
(Company contribution of 5% of base wages); Retirement Income
Plan (Company contribution of 1.5% of eligible wages, and 0.1%
for each year of additional service). The Retirement Income Plan
was closed to new participants as of September 30, 2003,
with prior participants grandfathered.
All plans are subject to applicable limitations set by the
Internal Revenue Service (“IRS”). Supplemental matches
and contributions to the Executive Benefit Plan
(“EBP”) described below are made for the Retirement
Savings Plan, the Woodward Stock Plan, and the grandfathered
Retirement Income Plan.
Our NEOs are also eligible to participate in a deferred
compensation plan, the EBP. This plan is also available to other
key members of management. Participants are able to defer up to
50% of base salary, and up to 100% of any incentive payments.
Mr. Benning will have the right to receive relocation
benefits whereby he and his wife may relocate anywhere within
the U.S. within one year following his retirement. In
addition, Woodward provides Mr. Benning a car and
reimburses for the cost of gas associated with business use of a
car, and for living accommodations and pays for costs associated
with household property management services for Mr. Benning
while serving as President, Airframe Systems. In addition,
Woodward reimburses certain travel expenses of Mr. Benning
and his wife.
The benefits described in this section are paid to remain
competitive in the marketplace. Amounts relating to certain of
these benefits may be found in the All Other Compensation column
of the Summary Compensation Table.
Post-Employment
Compensation and Employment Contracts
Change in control agreements exist for each of the
Company’s NEOs. We believe these are necessary to ensure
actions and behaviors that are aligned with, and in the best
interests of, our stockholders in the event of a change of
control transaction, to retain these executives through a change
of control transaction and to enable them to remain focused on
running the business to ensure a smooth transition.
Severance benefits are intended to ease the consequences of an
unexpected termination of employment. These benefits are also
designed to prevent our senior executives from seeking
employment with our competitors after termination or soliciting
our employees or customers during the restricted period. The
change of control benefits are designed to preserve
productivity, avoid disruption, and prevent attrition during a
period when we are involved in a change of control transaction.
The change of control severance program also motivates
executives to pursue transactions that are in our
stockholders’ best interests notwithstanding the potential
negative impact of the transaction on their future employment.
While cognizant of their terms, the Committee does not view the
change of control and severance arrangements as an element of
current compensation, and such arrangements do not necessarily
affect the Committee’s annual compensation decisions.
For a further description of the change in control agreements,
see the information under the caption “EXECUTIVE
COMPENSATION — POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE IN CONTROL — CHANGE OF CONTROL AGREEMENTS
POST-EMPLOYMENT PROVISIONS.”
Messrs. Gendron, Weber, Benning, and Glass are not employed
under general employment contracts and are employees at will.
Mr. Lauffer is employed under an employment contract, as
required by German labor laws. It is a five-year contract
expiring originally in 2007, which automatically extends without
further action by either party for successive additional
five-year periods. Liability is limited in accordance with the
five-year contract laws.
Discretion
Our compensation plans allow for the application of discretion
in determining performance metrics and awards thereunder in the
event of extraordinary circumstances. For fiscal 2009, no such
discretion or adjustments were applied.
Impact of
Accounting and Tax Issues on Executive Compensation
In setting individual executive’s compensation levels, we
do not explicitly consider accounting and tax issues. We do,
however, analyze the overall expense arising from aggregate
executive compensation levels and awards and the components of
our pay programs.
As one of the factors in our evaluation of compensation matters,
we also consider the anticipated tax treatment to the Company
and to the executive officers of various payments and benefits.
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the
34
Table of Contents
Compensation Discussion and
Analysis (continued)
“Code”), places a limit of $1,000,000 on the amount of
compensation that we may deduct in any one year with respect to
our CEO and each of the next four most highly compensated
executive officers. Certain performance-based compensation
approved by stockholders is not subject to the deduction limit.
The 2006 Omnibus Plan has been approved by stockholder vote. As
a result, stock option and cash-based performance awards under
this plan may qualify for performance-based deductions and may
not be subject to the deductibility limit imposed by
Section 162(m) of the Code. However, to maintain
flexibility in compensating our key executives, it is not a
stated policy that all compensation must be deductible. The
Company and the Compensation Committee will consider various
alternatives to preserving the deductibility of compensation
payments and benefits to the extent reasonably practicable and
to the extent consistent with our other compensation goals.
Stock
Ownership Guidelines
The Board has established stock ownership guidelines for
executives and non-employee directors to align their interests
and objectives with our stockholders. Non-employee directors are
committed to minimum ownership of our common stock of a value
equal to five times the annual retainer paid at the date of
election to the Board. Woodward executives are committed to
minimum ownership of our common stock of a value equal to
between two and four times their annual base salary at the date
of appointment. Accumulation of such number of stock is expected
within 60 months of the date of such person’s
appointment or election; provided, however, that the
Compensation Committee may in its discretion relieve any person
of such obligations on a
case-by-case
basis, taking into consideration special circumstances such as
retirement or health of the individual.
Pledges
Under our written policies, no employees of the Company are
permitted to margin our stock or engage in short sales or buying
or selling of puts and calls against our stock. In addition, no
employees of the Company are permitted to pledge our stock,
except in limited circumstances and with prior approval from the
Chief Financial Officer or General Counsel.
35
Table of Contents
Compensation
Committee Report on Compensation Discussion and
Analysis
Notwithstanding anything to the contrary set forth in any of
the Company’s previous or future filings under the
Securities Act of 1933, or the Exchange Act, that might
incorporate this Proxy Statement, in whole or in part, the
following Woodward Governor Company Compensation Committee
Report on Compensation Discussion and Analysis shall not be
deemed to be “soliciting material” or
“filed” with the SEC or incorporated by reference into
any such previous or future filings.
The Compensation Committee is charged with certain
responsibilities relating to compensation of the Company’s
executive officers. The Compensation Committee evaluates and
approves all compensation of executive officers, including base
salaries, annual and LTIP, and perquisite programs of the
Company. Compensation Committee determinations are presented to
the Board.
The Committee also fulfills its duties with respect to the
Compensation Discussion and Analysis and Compensation Committee
Report portions of the proxy statement, as described in the
Compensation Committee’s charter.
The Compensation Discussion and Analysis has been prepared by
management of the Company. The Company is responsible for the
Compensation Discussion and Analysis and for the disclosure
controls relating to executive compensation. The Compensation
Discussion and Analysis is not a report or disclosure of the
Compensation Committee.
The Compensation Committee met with management of the Company
and the Compensation Committee’s outside consultant to
review and discuss the Compensation Discussion and Analysis.
The Compensation Committee of the Board of Directors of the
Company has reviewed and discussed the Compensation Discussion
and Analysis included in this proxy statement and the 2010
Annual Report on
Form 10-K
with the management of the Company. 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 and the Company’s 2010 Annual Report
on
Form 10-K,
and the Board approved that recommendation.
|
Compensation Committee:
|
James R. Rulseh, Chairman | |||
| John D. Cohn | ||||
| Michael T. Yonker | ||||
| Mary L. Petrovich |
36
Table of Contents
Executive
Compensation
Summary
Compensation Table
The following tables set forth compensation information for the
NEOs for services rendered in all capacities to the Company and
its subsidiaries in fiscal 2010.
|
Non-Equity |
||||||||||||||||||||||||||||||
|
Option |
Incentive Plan |
All Other |
||||||||||||||||||||||||||||
|
Fiscal |
Awards(2) |
Compensation |
Compensation |
Total |
||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary(1)($) | ($) | (1)(3)(4)($) | ($)(5) | ($) | ||||||||||||||||||||||||
|
Thomas A. Gendron
|
2010 | 700,000 | 1,376,250 | 0 | (MIP)(6) | 88,941 | 2,804,466 | |||||||||||||||||||||||
| 639,275 | (LTIP) | |||||||||||||||||||||||||||||
|
Chief Executive Officer and President
|
2009 | 698,077 | 486,700 | 0 | (MIP) | 81,539 | 1,841,316 | |||||||||||||||||||||||
| 575,000 | (LTIP) | |||||||||||||||||||||||||||||
| 2008 | 647,115 | 1,125,900 | 893,343 | (MIP) | 93,668 | 3,260,026 | ||||||||||||||||||||||||
| 500,000 | (LTIP) | |||||||||||||||||||||||||||||
|
Robert F. Weber, Jr.
|
2010 | 360,000 | 330,300 | 57,607 | (MIP) | 113,890 | 1,119,553 | |||||||||||||||||||||||
| 257,756 | (LTIP) | |||||||||||||||||||||||||||||
|
Chief Financial Officer and Treasurer
|
2009 | 358,754 | 113,825 | 0 | (MIP) | 110,878 | 833,091 | |||||||||||||||||||||||
| 249,634 | (LTIP) | |||||||||||||||||||||||||||||
| 2008 | 327,001 | 325,260 | 270,856 | (MIP) | 124,224 | 1,287,373 | ||||||||||||||||||||||||
| 240,032 | (LTIP) | |||||||||||||||||||||||||||||
|
Gerhard Lauffer(7)
|
2010 | 325,839 | 308,280 | 47,795 | (MIP) | 10,085 | 902,302 | |||||||||||||||||||||||
| 210,303 | (LTIP) | |||||||||||||||||||||||||||||
|
President, Electrical Power Systems
|
2009 | 324,232 | 109,900 | 0 | (MIP) | 10,782 | 590,143 | |||||||||||||||||||||||
| 145,229 | (LTIP) | |||||||||||||||||||||||||||||
| 2008 | 338,346 | 325,260 | 256,898 | (MIP) | 13,281 | 1,079,996 | ||||||||||||||||||||||||
| 146,211 | (LTIP) | |||||||||||||||||||||||||||||
|
Dennis Benning
|
2010 | 330,070 | 308,280 | 48,416 | (MIP) | 234,822 | 1,125,369 | |||||||||||||||||||||||
| 203,781 | (LTIP) | |||||||||||||||||||||||||||||
|
President, Airframe Systems
|
2009 | 328,759 | 109,900 | 0 | (MIP) | 156,284 | 724,943 | |||||||||||||||||||||||
| 130,000 | (LTIP) | |||||||||||||||||||||||||||||
| 2008 | 295,195 | 325,260 | 224,134 | (MIP) | 59,977 | 1,024,628 | ||||||||||||||||||||||||
| 120,062 | (LTIP) | |||||||||||||||||||||||||||||
|
Martin Glass
|
2010 | 325,500 | 308,280 | 47,746 | (MIP) | 46,806 | 934,867 | |||||||||||||||||||||||
| 206,535 | (LTIP) | |||||||||||||||||||||||||||||
|
President, Turbine Systems
|
2009 | 324,519 | 109,900 | 0 | (MIP) | 44,307 | 603,734 | |||||||||||||||||||||||
| 125,008 | (LTIP) | |||||||||||||||||||||||||||||
| 2008 | 299,041 | 325,260 | 227,055 | (MIP) | 42,461 | 1,009,361 | ||||||||||||||||||||||||
| 115,544 | (LTIP) | |||||||||||||||||||||||||||||
| Note: | The Stock Awards column and the Change in Pension Value and Non-Qualified Deferred Compensation Earnings column have been omitted from this table because they are not applicable. |
| (1) | All cash compensation received by each NEO for fiscal 2010 is found in either the Salary or Non-Equity Incentive Plan Compensation columns of this Table. Fiscal 2010 salaries became effective in October 2009. Differences between fiscal 2010 and 2009 salaries above relate solely to payroll timing and do not reflect any salary increase, as the Compensation Committee determined in September 2009 that no salary increases would be made for any Company officers, including NEOs, for fiscal 2010. |
| (2) | The amounts reported in the “Option Awards” column above represent the grant date fair value of the option awards granted in accordance with ASC 718. Assumptions used in calculating these amounts are included in Note 17 of Woodward’s financial statements in its Annual Report on Form 10-K for the fiscal year ended September 30, 2010 filed with the SEC on November 18, 2010. |
| (3) | The first line item in this column represents payouts for fiscal 2009 performance under the MIP. The second line item in this column represents payouts under the cash component of the long-term management incentive compensation plan established under the 2006 Plan. See “COMPENSATION DISCUSSION AND ANALYSIS” and “— NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE” for a discussion of how amounts were determined. |
| (4) | MIP amounts shown for 2010 are 26.67% of the NEOs’ target bonus (which is below the normal threshold of 40%), as approved by the Compensation Committee at its sole discretion. |
| (5) | The amounts reported include the following: |
| • | Matching contributions to the Woodward Retirement Savings Plan that all participating employees receive. The Retirement Savings Plan consists of a 401(k) component, a Woodward common stock component and a Retirement Incentive Plan. The Retirement Incentive Plan was closed to new entrants hired after 2003. | |
| • | Credit to the EBP for contributions to which the executive would have been entitled if the benefit had been calculated without regard to the limit under the Internal Revenue Code on total contributions, benefit eligible compensation, and/or salary deferrals. | |
| • | Perquisites — Mr. Lauffer: company car; Mr. Benning: company car. | |
| • | Other — travel and living accommodation expenses for Mr. Benning and his spouse associated with his appointment as President, Airframe Systems. |
| (6) | Due to the magnitude of the Company’s year-over-year performance, Mr. Gendron declined any bonus payout under the MIP for fiscal 2010. |
37
Table of Contents
Executive
Compensation (continued)
| (7) | Certain amounts paid to Mr. Lauffer as reflected in this and the following tables were paid in Euros and such amounts have been converted to dollars based on the average exchange rate during the 2010 fiscal year of $1 to 0.736560 Euros. |
The amounts of All Other Compensation reflected in this column
for each NEO are quantified as required below:
|
Thomas A. |
Robert F. |
Gerhard |
Dennis |
Martin |
|||||||||||||||||||||
| Description | Gendron | Weber, Jr. | Lauffer | Benning | Glass | ||||||||||||||||||||
|
Retirement Savings Plan match
|
$ | 29,400 | $ | 23,275 | $ | 30,699 | $ | 32,509 | |||||||||||||||||
|
Executive Benefit Plan credit
|
$ | 57,831 | $ | 87,240 | $ | 12,318 | $ | 12,464 | |||||||||||||||||
|
Perquisites
|
$ | 10,085 | $ | 13,364 | |||||||||||||||||||||
|
Other
|
$ | 1,710 | $ | 3,375 | $ | 178,441 | $ | 1,833 | |||||||||||||||||
|
Total
|
$ | 88,941 | $ | 113,890 | $ | 10,085 | $ | 234,822 | $ | 46,806 | |||||||||||||||
Grants of
Plan-Based Awards for Fiscal 2010
The following table provides additional information with respect
to stock-based awards granted in fiscal 2010, the value of which
was provided in the Option Awards column of the Summary
Compensation Table, and the potential range of payouts
associated with the MIP for fiscal 2010.
|
All Other |
|||||||||||||||||||||||||||||||||||||||||||||
|
All Other |
Option |
||||||||||||||||||||||||||||||||||||||||||||
|
Stock Awards: |
Awards |
Exercise |
Grant Date |
||||||||||||||||||||||||||||||||||||||||||
|
Estimated Possible Payouts Under |
Number of |
Number of |
or |
Closing |
Fair Value |
||||||||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan |
Shares of |
Securities |
Base Price |
Price on |
of Stock |
||||||||||||||||||||||||||||||||||||||||
|
Stock or |
Underlying |
of Option |
Date of |
and Option |
|||||||||||||||||||||||||||||||||||||||||
|
Grant |
Threshold |
Target |
Maximum |
Units |
Options |
Awards |
Grant |
Awards |
|||||||||||||||||||||||||||||||||||||
| Name | Date | ($) | ($) | ($) | (#) | (#) | ($/Sh) | ($/Sh) | ($)(2) | ||||||||||||||||||||||||||||||||||||
|
Thomas A. Gendron
|
LTIP $ | 175,000 | $ | 350,000 | $ | 700,000 | 0 | ||||||||||||||||||||||||||||||||||||||
| MIP(1) $ | 280,000 | $ | 700,000 | $ | 1,400,000 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10/1/2009 | 125,000 | $ | 23.18 | $ | 23.18 | $ | 1,376,250 | ||||||||||||||||||||||||||||||||||||||
|
Robert F. Weber, Jr.
|
LTIP $ | 72,000 | $ | 144,000 | $ | 288,000 | 0 | ||||||||||||||||||||||||||||||||||||||
| MIP(1) $ | 86,400 | $ | 216,000 | $ | 432,000 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10/1/2009 | 30,000 | $ | 23.18 | $ | 23.18 | $ | 330,300 | ||||||||||||||||||||||||||||||||||||||
|
Martin Glass
|
LTIP $ | 56,963 | $ | 113,925 | $ | 227,850 | 0 | ||||||||||||||||||||||||||||||||||||||
| MIP(1) $ | 66,000 | $ | 179,025 | $ | 358,050 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10/1/2009 | 28,000 | $ | 23.18 | $ | 23.18 | $ | 308,280 | ||||||||||||||||||||||||||||||||||||||
|
Dennis Benning
|
LTIP $ | 57,762 | $ | 115,525 | $ | 231,049 | 0 | ||||||||||||||||||||||||||||||||||||||
| MIP(1) $ | 72,615 | $ | 181,539 | $ | 363,077 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10/1/2009 | 28,000 | $ | 23.18 | $ | 23.18 | $ | 308,280 | ||||||||||||||||||||||||||||||||||||||
|
Gerhard Lauffer
|
LTIP $ | 57,022 | $ | 114,044 | $ | 228,087 | 0 | ||||||||||||||||||||||||||||||||||||||
| MIP(1) $ | 71,685 | $ | 179,211 | $ | 358,423 | 0 | |||||||||||||||||||||||||||||||||||||||
| 10/1/2009 | 28,000 | $ | 23.18 | $ | 23.18 | $ | 308,280 | ||||||||||||||||||||||||||||||||||||||
| Notes: | “LTIP” references the cash component of our Long-Term Incentive Compensation Plan. |
| (1) | The Management Incentive Plan payment amounts are earned based on the achievement of the established financial performance objectives of the Plan on a sliding scale of 40% to 200% of the target amount established. These amounts are based on the individual’s position and a percentage of the individual’s base salary for the fiscal year preceding the year for which the MIP bonus is payable. However, based on a difficult and uncertain economic environment, the Compensation Committee agreed to consider a potential payment under the MIP for 2010, at its sole discretion, that is below the MIP threshold in a normal year, conditioned on the Company’s achievement of certain EPS objectives. See “COMPENSATION DISCUSSION AND ANALYSIS” and “— NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE” for information regarding the description of performance-based conditions. |
| (2) | The amounts reported in this column represent the grant date fair value of the option awards in accordance with ASC 718. Assumptions used in calculating these amounts are included in Note 17 of Woodward’s financial statements in its Annual Report on Form 10-K for the fiscal year ended September 30, 2010 filed with the SEC on November 18, 2010. For such purposes, the options are valued at $11.01 per share. |
Narrative
Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table
Stock option awards under the 2006 Plan consist of non-qualified
options issued for a
10-year
term. Options granted to officers and directors vest over four
years at the rate of 25% per year, and options granted to
directors prior to fiscal 2008 vested in one year. The exercise
or base price represents the Woodward closing price as reported
on NASDAQ on the date of the award. If employment is terminated,
the options granted will be cancelled unless exercised within
three months following the date of termination or the term of
the option whichever is earlier. If the termination is due to
retirement, all outstanding options vest and must be exercised
within three
38
Table of Contents
Executive
Compensation (continued)
years from the date of retirement or the term of the option,
whichever is earlier. For the foregoing purposes, our directors
are eligible for retirement upon attaining age 55, and the
NEOs are eligible for retirement upon attaining age 55 with
at least ten years of service with us or age 65 with no
minimum years of service. Dividends are not paid on unexercised
stock option awards.
The MIP is presented in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table because it
is performance based. The actual amounts of the awards under the
MIP and the cash portion of the LTIP listed in the Non-Equity
Incentive Plan Compensation column were paid in November 2010.
The awards under both plans as set forth in the Grants of
Plan-Based Awards Table are based on Threshold/Target/Maximum
percentages applied to base wages as of the beginning of the
fiscal year. If employment is terminated, the employee must have
had full-time employee status at the end of the fiscal year, in
the case of the MIP, or at the end of the last fiscal year of
the multi-year period, in the case of the LTIP, to receive a
payout under both plans. If the termination is due to
retirement, the payout under both plans will be prorated. In
either event, the payout under both plans will be based on
actual goal performance. Please see “COMPENSATION
DISCUSSION AND ANALYSIS” for additional information
relating to these provisions, including performance criteria
relating to these plans.
39
Table of Contents
Executive
Compensation (continued)
Outstanding
Equity Awards at Fiscal Year End (September 30,
2010)
The following table provides information regarding the
outstanding equity awards held by each of the NEOs as of
September 30, 2010:
| Option Awards | ||||||||||||||||||||
|
Number of |
Number of |
|||||||||||||||||||
|
Securities |
Securities |
|||||||||||||||||||
|
Underlying |
Underlying |
|||||||||||||||||||
|
Unexercised |
Unexercised |
Option |
Option |
|||||||||||||||||
|
Options — |
Options — |
Exercise |
Expiration |
|||||||||||||||||
| Name | Exercisable | Unexercisable | Price ($) | Date | ||||||||||||||||
|
Thomas A. Gendron
|
58,500 | — | 6.97 | 11/21/2010 | ||||||||||||||||
| 105,000 | — | 8.17 | 10/1/2011 | |||||||||||||||||
| 120,000 | — | 7.95 | 10/7/2012 | |||||||||||||||||
| 144,000 | — | 7.74 | 11/21/2013 | |||||||||||||||||
| 120,000 | — | 11.91 | 11/24/2014 | |||||||||||||||||
| 120,000 | — | 13.50 | 11/23/2015 | |||||||||||||||||
| 130,500 | 43,500 | 18.49 | 11/15/2016 | |||||||||||||||||
| 45,000 | 45,000 | 32.73 | 11/16/2017 | |||||||||||||||||
| 15,500 | 46,500 | 18.67 | 11/24/2018 | |||||||||||||||||
| — | 125,000 | 23.18 | 10/1/2019 | |||||||||||||||||
|
Robert F. Weber, Jr.
|
85,000 | — | 14.14 | 8/23/2015 | ||||||||||||||||
| 22,500 | 7,500 | 18.49 | 11/15/2016 | |||||||||||||||||
| 13,000 | 13,000 | 32.73 | 11/16/2017 | |||||||||||||||||
| 3,625 | 10,875 | 18.67 | 11/24/2018 | |||||||||||||||||
| — | 30,000 | 23.18 | 10/1/2019 | |||||||||||||||||
|
Gerhard Lauffer
|
42,000 | — | 11.91 | 11/24/2014 | ||||||||||||||||
| 43,500 | — | 13.50 | 11/23/2015 | |||||||||||||||||
| 21,750 | 7,250 | 18.49 | 11/15/2016 | |||||||||||||||||
| 13,000 | 13,000 | 32.73 | 11/16/2017 | |||||||||||||||||
| 3,500 | 10,500 | 18.67 | 11/24/2018 | |||||||||||||||||
| — | 28,000 | 23.18 | 10/1/2019 | |||||||||||||||||
|
Dennis Benning
|
12,000 | — | 11.91 | 11/24/2014 | ||||||||||||||||
| 21,750 | — | 13.50 | 11/23/2015 | |||||||||||||||||
| 14,500 | 7,250 | 18.49 | 11/15/2016 | |||||||||||||||||
| 13,000 | 13,000 | 32.73 | 11/16/2017 | |||||||||||||||||
| 3,500 | 10,500 | 18.67 | 11/24/2018 | |||||||||||||||||
| — | 28,000 | 23.18 | 10/1/2019 | |||||||||||||||||
|
Martin Glass
|
12,000 | — | 6.97 | 11/21/2010 | ||||||||||||||||
| 12,000 | — | 8.17 | 10/1/2011 | |||||||||||||||||
| 12,750 | — | 7.95 | 10/7/2012 | |||||||||||||||||
| 27,000 | — | 7.74 | 11/21/2013 | |||||||||||||||||
| 48,000 | — | 11.91 | 11/24/2014 | |||||||||||||||||
| 43,500 | — | 13.50 | 11/23/2015 | |||||||||||||||||
| 21,750 | 7,250 | 18.49 | 11/15/2016 | |||||||||||||||||
| 13,000 | 13,000 | 32.73 | 11/16/2017 | |||||||||||||||||
| 3,500 | 10,500 | 18.67 | 11/24/2018 | |||||||||||||||||
| — | 28,000 | 23.18 | 10/1/2019 | |||||||||||||||||
40
Table of Contents
Executive
Compensation (continued)
Option
Exercises and Stock Vested Table
The following table provides the amounts received upon the
exercise of options or similar instruments or the vesting of
stock or similar instruments during the most recent fiscal year:
| Option Awards | ||||||||||
|
Number of Shares |
||||||||||
|
Acquired on |
Value Realized |
|||||||||
| Name | Exercise | on Exercise ($) | ||||||||
|
Thomas A. Gendron
|
0 | 0 | ||||||||
|
Robert F. Weber, Jr.
|
0 | 0 | ||||||||
|
Gerhard Lauffer
|
0 | 0 | ||||||||
|
Dennis Benning
|
0 | 0 | ||||||||
|
Martin Glass
|
0 | 0 | ||||||||
Nonqualified
Deferred Compensation Table
The following table discloses contributions, earnings and
balances under the EBP, the Company’s nonqualified deferred
compensation plan, for each NEO:
|
Aggregate |
Executive |
Company |
Aggregate |
Aggregate |
Aggregate |
|||||||||||||||||||||||||
|
Balance at |
Contributions |
Contributions |
Earnings |
Withdrawals/ |
Balance at |
|||||||||||||||||||||||||
|
September 30, |
in Fiscal |
in Fiscal |
in Fiscal |
Distributions |
September 30, |
|||||||||||||||||||||||||
| Name | 2009 | 2010 | 2010(1) | 2010 | in Fiscal 2010 | 2010 | ||||||||||||||||||||||||
|
Thomas A. Gendron
|
$ | 1,862,739 | $ | 0 | $ | 57,831 | $ | 650,222 | $ | 502 | $ | 2,570,290 | ||||||||||||||||||
|
Robert F. Weber, Jr.
|
$ | 574,446 | $ | 28,523 | $ | 87,240 | (2) | $ | 74,695 | $ | 0 | $ | 764,904 | |||||||||||||||||
|
Martin Glass
|
$ | 439,884 | $ | 0 | $ | 12,464 | $ | 79,374 | $ | 0 | $ | 531,722 | ||||||||||||||||||
|
Dennis Benning
|
$ | 519,745 | $ | 0 | $ | 12,318 | $ | 51,867 | $ | 0 | $ | 583,930 | ||||||||||||||||||
|
Gerhard Lauffer
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
| (1) | These amounts are included in amounts reported in the All Other Compensation column of the Summary Compensation Table. |
| (2) | Mr. Weber became the Chief Financial Officer and Treasurer of the Company effective August 22, 2005. At that time, it was agreed that Mr. Weber would receive an annual bonus in the form of a Company contribution into the EBP (nonqualified deferred compensation plan) of $75,000 on December 31, 2005 and would continue to receive this amount each year through December 31, 2009 in order to compensate Mr. Weber for benefits lost when leaving his prior employer. Fiscal 2010 was the final year of this contribution. |
Narrative
Disclosure of Nonqualified Deferred Compensation Table
The EBP is a non-qualified, unfunded deferred compensation plan
that is designed to allow for supplemental retirement savings
above the limits imposed by the IRS. All of the NEOs other than
Mr. Lauffer have participated in the EBP. If deferrals are
above the Internal Revenue Code limits on eligible compensation,
then the account is credited by the Company with a percentage
“match” contribution equivalent to that available
under our Woodward Retirement Savings Plan. All contributions
are made on a tax-deferred basis. Eligible members are selected
to participate based on criteria that includes job grade, salary
level and significant accountability to produce or contribute to
key business results. Amounts deferred into the EBP are indexed
to the same investment alternatives available to all eligible
employees under the Retirement Savings Plan. With approval from
the Board, investment into Woodward common stock is permitted.
Eligible employees may defer up to 50% of base salary for a plan
year and up to 100% of short-term cash incentive compensation
under the MIP. All elections must be made in advance of the plan
year. At the time of the deferral election, the employee must
designate the time and form of distribution. Distributions may
be elected upon retirement or termination of employment.
Distributions may also be elected for future dates during
employment; however, any future date selected must be at least
five plan years after the plan year in which the deferral is
credited to the account. Distributions may be modified if
executed a year before the originally scheduled distribution
date. Distributions from the plan are made in cash; however, any
payment made that is attributable to the portion of the
participant’s account deemed invested in Company stock is
made in whole shares of Company stock with fractional shares
paid in cash. Amounts included in the EBP are 100% vested at all
times.
41
Table of Contents
Executive
Compensation (continued)
Potential
Payments Upon Termination or Change in Control
This section explains the payments and benefits to which the
NEOs would be entitled in various terminations of employment
scenarios. These are hypothetical situations only, as we
currently employ all of the NEOs. For purposes of this
explanation and these scenarios, we have assumed that
termination of employment and
change-in-control
occurred on September 30, 2010, the last day of our 2010
fiscal year.
The intent of this section is to isolate those payments and
benefits for which the amount, vesting, or time of payment is
altered by the termination of employment in the described
circumstances. This section does not cover all amounts the NEOs
would receive following termination. Specifically they are
entitled to COBRA, life insurance conversion, and payouts from
their Retirement Savings Plan; however, all employees are
entitled to these benefits.
The age and years of service of the NEOs as of
September 30, 2010 were as follows:
|
Years |
||||||||||
| Name | Age | of Service | ||||||||
|
Mr. Gendron
|
49 | 19 | ||||||||
|
Mr. Weber
|
56 | 5 | ||||||||
|
Mr. Lauffer
|
49 | 8 | ||||||||
|
Mr. Benning
|
69 | 25 | ||||||||
|
Mr. Glass
|
53 | 32 | ||||||||
Voluntary
Termination
The post-termination benefits that apply in a voluntary
termination situation are:
| • | the right to receive bonus payouts under the MIP and LTIP compensation programs (the NEO must be a full-time employee on the last day of the fiscal year to receive any bonus payout); |
| • | a lump-sum distribution of any deferred compensation balance under the EBP; and |
| • | the right to exercise stock options that are vested on the last day of employment. Stock option vesting does not accelerate, unless the NEO is retirement eligible, or is 55 years of age with at least ten years of service or age 65 with no minimum service requirement. |
No additional payments are made in the event of a voluntary
termination.
Based on the ages and years of service of the NEOs on
September 30, 2010, the payouts upon voluntary termination
would be as follows:
| Voluntary Termination | Mr. Gendron | Mr. Weber | Mr. Lauffer | Mr. Benning | Mr. Glass | ||||||||||||||||||||
|
MIP Bonus
|
$ | 0 | $ | 57,607 | $ | 47,795 | $ | 48,416 | $ | 47,746 | |||||||||||||||
|
LTIP Bonus(1)
|
$ | 639,275 | $ | 257,756 | $ | 210,303 | $ | 203,781 | $ | 206,535 | |||||||||||||||
|
EBP Lump Sum Distribution
|
$ | 2,570,290 | $ | 764,904 | $ | 0 | (2 | ) | $ | 531,722 | |||||||||||||||
| (1) | As this calculation assumes termination at fiscal year end, the entire amount would be earned but termination prior to year end results in no amount being earned or paid. |
| (2) | Eligible for retirement so payout would follow designation at the time of the election. |
Involuntary
Termination
The post-termination benefits that apply in an involuntary
termination situation (other than a change of control
termination as described below) are:
| • | the right to receive bonus payouts under the MIP and LTIP compensation program; |
| • | a lump-sum distribution of any deferred compensation balance under the EBP; and |
| • | the right to exercise stock options that are vested on the last day of employment. Stock option vesting does not accelerate, unless the NEO is retirement eligible, i.e., upon attaining 55 years of age with at least ten years of service or age 65 with no minimum service requirement. |
42
Table of Contents
Executive
Compensation (continued)
No additional payments are made in the event of an involuntary
termination.
Based on the ages and years of service of the NEOs on
September 30, 2010, the payouts upon involuntary
termination would be as follows:
| Involuntary Termination | Mr. Gendron | Mr. Weber | Mr. Lauffer | Mr. Benning | Mr. Glass | ||||||||||||||||||||
|
MIP Bonus
|
$ | 0 | $ | 57,607 | $ | 47,795 | $ | 48,416 | $ | 47,746 | |||||||||||||||
|
LTIP Bonus(1)
|
$ | 639,275 | $ | 257,756 | $ | 210,303 | $ | 203,781 | $ | 206,535 | |||||||||||||||
|
EBP Lump Sum Distribution
|
$ | 2,570,290 | $ | 764,904 | $ | 0 | (2 | ) | $ | 531,722 | |||||||||||||||
| (1) | As this calculation assumes termination at fiscal year end, the entire amount would be earned but termination prior to year end results in no amount being earned or paid. |
| (2) | Eligible for retirement, so payout would follow designation at the time of the election. |
If the NEO was involuntarily terminated for deliberate and
serious disloyal or dishonest conduct he would not be eligible
for the benefits described above and his stock options would be
cancelled.
Death
If a NEO dies while employed the post-termination benefit
consists of:
| • | bonus payouts to beneficiaries; |
| • | a lump-sum distribution of any deferred compensation balance under the EBP; and |
| • | accelerated vesting of non-qualified stock option awards that the beneficiary must exercise within one year (this is a broad based benefit to all stock option participants). |
Based on the ages and years of service of the NEOs on
September 30, 2010, the payouts in the event of death would
be as follows:
| Death | Mr. Gendron | Mr. Weber | Mr. Lauffer | Mr. Benning | Mr. Glass | ||||||||||||||||||||
|
MIP Bonus
|
$ | 0 | $ | 57,607 | $ | 47,795 | $ | 48,416 | $ | 47,746 | |||||||||||||||
|
LTIP Bonus(1)
|
$ | 639,275 | $ | 257,756 | $ | 210,303 | $ | 203,781 | $ | 206,535 | |||||||||||||||
|
EBP Lump Sum Distribution
|
$ | 2,570,290 | $ | 764,904 | $ | 0 | (1 | ) | $ | 531,722 | |||||||||||||||
| (1) | As this calculation assumes death at fiscal year end, the entire amount would be earned. If a NEO dies mid-year the payout will be prorated based on the month of death and payable within the normal timetable. |
Disability
If a NEO becomes totally and permanently disabled while
employed, the post-termination benefits consist of:
| • | monthly payment under the Woodward Governor Long-Term Disability plan available to all employees; |
| • | the right to receive bonus payouts under the MIP and LTIP compensation program; and |
| • | accelerated vesting of non-qualified stock option awards that must be exercised within one year (this is a broad based benefit to all stock option participants). |
| Disability | Mr. Gendron | Mr. Weber | Mr. Lauffer | Mr. Benning | Mr. Glass | ||||||||||||||||||||
|
MIP Bonus
|
$ | 0 | $ | 57,607 | $ | 47,795 | $ | 48,416 | $ | 47,746 | |||||||||||||||
|
LTIP Bonus(1)
|
$ | 639,275 | $ | 257,756 | $ | 210,303 | $ | 203,781 | $ | 206,535 | |||||||||||||||
|
EBP Lump Sum Distribution(2)
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
| (1) | As this calculation assumes disability at fiscal year end, the entire amount would be earned and would not be subject to proration. If a NEO becomes disabled mid-year the payout will be prorated based on the month of disability and payable within the normal timetable. |
| (2) | Payments from the EBP may, but do not have to be taken as a lump sum in the event of disability. They may be paid out in the manner that was designated at the time the deferral was elected, based on the aggregate amounts shown. |
Change of
Control and Restrictive Covenant Agreements Post-Employment
Provisions
In 2010 we entered into new transitional compensation agreements
with certain of our officers, including all of our NEOs, that
become operative only in the event of a qualifying termination
following a Change of Control or other specified event. These
new agreements replace older agreements that applied to our CEO
and CFO.
43
Table of Contents
Executive
Compensation (continued)
For purposes of these agreements, a Change in Control occurs if:
| • | any person, entity, or group (with certain exceptions) becomes the beneficial owner of 30% or more of the combined voting power of the then-outstanding shares of Woodward common stock; or |
| • | there is a change in a majority of the Board during any consecutive 12-month period, other than by election or nomination by a vote of two-thirds of the Board members as of the beginning of the period; |
| • | Woodward’s stockholders approve a merger, consolidation, sale of assets, or share exchange resulting in Woodward’s stockholders owning less than 51% of the combined voting power of the surviving corporation following the transaction. |
If, following a Change in Control (but prior to the second
anniversary of the occurrence thereof), the executive’s
employment is terminated by Woodward (other than for cause or
due to death or disability), or the executive terminates with
good reason (as defined in the agreement), the executive would
receive an amount (payable in a lump sum) equal to: (1) the
executive’s unpaid base salary, accrued vacation pay,
unreimbursed business expenses, and any other accrued
obligations owed by the Company to the executive; (2) a
payment equal to the Company’s cost to provide the
executive with two years continued health and welfare benefit
coverage under Company-provided plans; (3) a payment equal
to two years of contributions the Company would have made on
behalf of the executive to its tax-qualified defined
contribution retirement plan(s); (4) a payment, pro-rated
based on relevant service, of the greater of the then-current
year’s annual incentive award target or actual amount
earned based on annualized
year-to-date
performance; (5) a payment, pro-rated based on relevant
service, of the greater of target or the actual amount earned
based on annualized
year-to-date
performance of all outstanding cash-based long-term incentive
awards; (6) 100% (200% in the case of our CFO) of the sum
of the executive’s annual base salary and target annual
incentive.
In addition, all unvested stock option awards are accelerated
and become immediately exercisable.
Further, in consideration for the executive to enter into
restrictive covenants in the event of a qualifying termination
following a Change of Control covering: Noncompetition,
Confidentiality, Nonsolicitation, Cooperation, and
Nondisparagement, the executive would receive an incremental
amount (payable in a lump sum) equal to: 100% of the sum of the
executive’s annual base salary and target annual incentive.
The following table describes the payments and benefits that are
triggered by the occurrence of a Change in Control and the
termination of employment following a Change in Control.
Although the executives would have three months from such a
termination to exercise their options, for purposes of this
table, we have assumed the exercise of stock options on
September 30, 2010, the last day of fiscal 2010, at the
closing price on that day of $32.42 per share.
| Change in Control | Mr. Gendron | Mr. Weber | Mr. Benning | Mr. Glass | Mr. Lauffer | ||||||||||||||||||||
|
200% of Base Salary(1)
|
$ | 1,400,000 | $ | 1,080,000 | $ | 660,140 | $ | 651,000 | $ | 651,678 | |||||||||||||||
|
200% of Annual Target Bonus(1)
|
$ | 1,400,000 | $ | 648,000 | $ | 363,078 | $ | 358,050 | $ | 358,422 | |||||||||||||||
|
Pro Rata Bonus
|
$ | 700,000 | $ | 216,000 | $ | 181,539 | $ | 179,025 | $ | 179,211 | |||||||||||||||
|
Stock Options
|
$ | 2,400,330 | $ | 531,207 | $ | 504,088 | $ | 504,088 | $ | 504,088 | |||||||||||||||
|
LTIP(2)
|
$ | 474,600 | $ | 195,264 | $ | 156,652 | $ | 154,482 | $ | 154,644 | |||||||||||||||
| 200% of Retirement Savings Plan and Executive Benefit Plan Registrant Contributions in Most Recent Plan Year | $ | 174,462 | $ | 221,030 | $ | 86,034 | $ | 89,946 | $ | 0 | |||||||||||||||
|
Benefits: Health, Life, Disability for Two Years
|
$ | 21,494 | $ | 21,494 | $ | 0 | $ | 21,494 | $ | 21,494 | |||||||||||||||
|
Effect of Alternate Cap Provision
|
$ | 0 | $ | 98,892 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
|
Total
|
$ | 6,570,886 | $ | 2,814,103 | $ | 1,836,006 | $ | 1,958,085 | $ | 1,869,537 | |||||||||||||||
| (1) | 300% for Mr. Weber |
| (2) | The LTIP amounts reflected in the above table do not include LTIP payments for the completed 3-year cycle ended fiscal 2010, which were otherwise earned as of September 30, 2010. |
44
Table of Contents
Executive
Compensation (continued)
If the payments described above would constitute an “excess
parachute payment” within the meaning of Section 208G
of the IRS tax code, the Company will not provide reimbursement
to the executive for any excise taxes imposed. An executive may
ask the Company to reduce certain payments such that the overall
value of payments subject to 208G falls below the “safe
harbor” threshold where no excise tax obligation would
result.
|
Number of Securities |
|||||||||||||||
|
Number of Securities to |
Remaining Available for |
||||||||||||||
|
be Issued upon |
Weighted Average |
Future Issuance under |
|||||||||||||
|
Exercise of |
Exercise Price of |
Equity Compensation Plans |
|||||||||||||
|
Outstanding Options, |
Outstanding Options, |
(excluding securities reflected |
|||||||||||||
| Plan Category | Warrants, and Rights | Warrants, and Rights | in the first column) | ||||||||||||
| Equity compensation plans approved by security holders | 2,754,834 | $ | 13.92 | 5,221,088 | |||||||||||
| Equity compensaton plans not approved by security holders | 0 | 0 | 0 | ||||||||||||
| Total | 2,754,834 | $ | 13.92 | 5,221,088 | |||||||||||
45
Table of Contents
Audit
Committee Report to Stockholders
Notwithstanding anything to the contrary set forth in any of
the Company’s previous or future filings under the
Securities Act of 1933 or the Exchange that might incorporate
this Proxy Statement in whole or in part, the information set
forth above under “Board Meetings and Committees
— Audit Committee,” relating to the charter of
the Audit Committee and the independence of the Audit Committee
members, and the following report shall not be deemed to be
“soliciting material” or “filed” with the
SEC or incorporated by reference into any such previous or
future filings.
Audit
Committee Report
The Audit Committee oversees the Company’s financial
reporting process and compliance with the Sarbanes/Oxley Act on
behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting
process, including the systems of internal controls.
Based on the review and discussions referred to in this report,
we recommended to the Board of Directors that the consolidated
balance sheets of the Company at September 30, 2010 and
2009, and the related statements of consolidated earnings,
shareholders’ equity, and cash flows of the Company for the
three years ended September 30, 2010, be included in the
Company’s Annual Report on
Form 10-K
filed with the SEC for the year ended September 30, 2010.
Our recommendation was based on our review and discussion of the
audited financial statements with management, and our
discussions with Deloitte & Touche LLP, the
independent registered public accounting firm that audited the
financial statements.
In addition, our recommendation was based on our discussion with
Deloitte & Touche LLP of the matters required to be
discussed under Statement of Auditing Standards No. 61, as
amended. We also discussed with Deloitte & Touche LLP
their independence, received from them the written disclosures
and the letter required by Independence Standards Board Standard
No. 1, and considered whether the provision of services
other than audit services (the fees for which are disclosed in
the table that follows) is compatible with maintaining their
independence. We have based our recommendation on the foregoing
discussions, disclosures and considerations.
|
Audit Committee:
|
Paul Donovan, Chairman Larry E. Rittenberg Michael H. Joyce Ronald M. Sega |
Audit
Committee’s Policy on Pre-Approval of Services Provided
by
Independent
Registered Public Accounting Firm
The Audit Committee is responsible for appointing, setting
compensation for, and overseeing the work of the independent
registered public accounting firm. As a result, the Audit
Committee has established a policy regarding pre-approval of all
services provided by the independent registered public
accounting firm. Under the established policy, all audit and tax
services and related fees require the specific approval of the
Audit Committee. For audit-related services and all other
services, the Audit Committee has determined specific services
and dollar thresholds under which such services would be
considered pre-approved. To the extent that management requests
services other than these pre-approved services, or beyond the
dollar thresholds, the Audit Committee must specifically approve
the services. Furthermore, under the established policy, the
independent registered public accounting firm is prohibited from
performing the non-audit services identified by the SEC and the
Public Company Accounting Oversight Board (“PCAOB”) as
prohibited. The policy also requires management to periodically
prepare reports for the Audit Committee on the Company’s
use of the independent registered public accounting firm.
Fees Paid
to Independent Registered Public Accounting Firm
The following table represents fees for professional audit
services rendered by Deloitte & Touche LLP for the
audit of the Company’s consolidated financial statements as
of and for the years ended September 30, 2010 and
September 30, 2009, and fees billed for other services
rendered by Deloitte & Touche LLP during that period.
| Year Ended September 30 | 2010 | 2009 | ||||||||
|
Audit Fees
|
$ | 2,105,149 | $ | 1,519,502 | ||||||
|
Audit Related Fees(1)
|
$ | 91,863 | $ | 498,478 | ||||||
|
Tax Fees
|
$ | 592,034 | $ | 441,270 | ||||||
|
All Other Fees
|
$ | 188 | $ | 130 | ||||||
|
Total
|
$ | 2,789,234 | $ | 2,459,380 | ||||||
| (1) | Audit-Related Fees consist of assurance and related services that are reasonably related to the performance of the audit of the financial statements. This category includes fees for pension and benefit plan audits, consultations concerning accounting and financial reporting standards, assistance with statutory financial reporting, consultation on general internal control matters or Sarbanes-Oxley Act assistance, due diligence related to mergers and acquisitions, and other auditing procedures and issuance of special purpose reports. |
46
Table of Contents
Audit Committee Report to
Stockholders (continued)
On November 17, 2010, the Audit Committee recommended and
approved the appointment of Deloitte & Touche LLP as
the Company’s independent registered public accounting
firm. During the fiscal year ended September 30, 2010 and
through November 17, 2010, there were no consultations with
Deloitte & Touche LLP on any matters described in
item 304(a)(2)(i) and item 304(a)(2)(ii) of
regulation S-K.
The Audit Committee has selected the accounting firm of
Deloitte & Touche LLP to serve as the Company’s
independent registered public accounting firm for the fiscal
year ending September 30, 2011. The decision of the Audit
Committee to appoint Deloitte & Touche LLP was based
on careful consideration of the firm’s qualifications as an
independent registered public accounting firm.
Deloitte & Touche LLP was originally selected by the
Audit Committee as the Company’s independent registered
public accounting firm effective December 6, 2007.
Although the Audit Committee is directly responsible for the
appointment, compensation, retention and oversight of the work
of any independent registered public accounting firm engaged for
the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the
Company, the Audit Committee and the Board are requesting, as a
matter of policy, that stockholders ratify the appointment of
Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the fiscal
year ending September 30, 2011. The Audit Committee is not
required to take any action as a result of the outcome of the
vote on this proposal. However, if the stockholders do not
ratify the appointment, the Audit Committee would investigate
the reasons for the stockholders’ rejection and would
consider whether to retain Deloitte & Touche LLP or to
appoint another independent registered public accounting firm.
Furthermore, even if the appointment is ratified, the Audit
Committee in its discretion may direct the appointment of a
different independent registered public accounting firm 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.
A proposal to ratify the appointment of Deloitte &
Touche LLP for the current year will be presented at the Annual
Meeting. A representative from Deloitte & Touche LLP
is expected to attend the annual meeting and will have the
opportunity to make a statement, if he or she desires to do so,
and be available to answer appropriate questions.
Your
Board recommends a vote “FOR” the ratification of the
appointment of the independent
registered public accounting firm presented in Proposal 2.
registered public accounting firm presented in Proposal 2.
47
Table of Contents
| PROPOSAL 3 — | AMENDMENT OF THE COMPANY’S CERTIFICATE OF INCORPORATION TO EFFECT A NAME CHANGE |
The Company proposes to amend its Certificate of Incorporation
to change the name of the Company from “Woodward Governor
Company” to “Woodward, Inc.”
The Board of Directors has determined at this time that it would
be in the best interests of the Company and its stockholders to
seek approval for this name change, including the corresponding
amendment to the Certificate of Incorporation. The Company
believes the name “Woodward, Inc.” better reflects our
current business activities in light of the advancements
Woodward has made in delivering energy control solutions. The
Board thus believes that the proposed name change would better
communicate to the public the Company’s broad portfolio of
energy control systems and components.
The proposed amendment to the Company’s Certificate of
Incorporation is attached as Exhibit B to this proxy
statement. If the amendment is approved by our stockholders, the
Company expects to file the amendment with the Delaware
Secretary of State promptly after the annual meeting. It is also
anticipated that the Company’s trading symbol for NASDAQ
would be changed as soon as practicable after the effective date
of the amendment to the Certificate of Incorporation to
effectuate the name change.
The name change amendment would affect all of the Company’s
stockholders uniformly and would not affect any
stockholder’s ownership of our common shares. If you hold
your shares in certificate form, you would not be required to
exchange your certificate for a certificate under the new
corporate name “Woodward, Inc.” Stockholders who would
wish, however, to exchange their current certificate for a new
certificate in the new name of the Company would be able to do
so following the annual meeting by contacting the Company’s
transfer agent, American Stock Transfer &
Trust Company, LLC, at 6201 15th Avenue, Brooklyn, New York
11219, or by calling
(800) 937-5449,
and paying the fee required by the transfer agent.
Your
Board recommends a vote “FOR” the approval of the
proposed amendment to the Company’s
Certificate of Incorporation to effectuate a name change as presented in Proposal 3.
Certificate of Incorporation to effectuate a name change as presented in Proposal 3.
48
Table of Contents
PROPOSAL 4 —
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
As required by Section 14A of the Securities Exchange Act
of 1934, we are offering our stockholders an opportunity to cast
an advisory vote on the compensation of our named executive
officers, as disclosed in this proxy statement. Although the
vote is non-binding, we value continuing and constructive
feedback from our stockholders on compensation and other
important matters. The Board and the Compensation Committee will
consider the voting results when making future compensation
decisions.
As described in the “COMPENSATION DISCUSSION AND
ANALYSIS” section of this proxy statement beginning on
page 28, we believe that our Executive Compensation Program
(1) provides a competitive total compensation program that
enables us to attract, retain and motivate a high-performance
executive management team, and (2) aligns the interests of
the NEOs with the interests of our stockholders in different
ways, by focusing on both short-term and long-term performance
goals, by promoting ownership of the Company, and by linking
individual performance to our fundamental financial performance.
For example:
| • | The Chief Executive Officer declined to receive his bonus payout under the MIP for fiscal 2010. |
| • | We encourage long-term stock ownership by our executive officers with award features such as graduated vesting on stock option awards at 25% per year beginning on the first anniversary of the grant date. |
| • | We have stock ownership guidelines that require our CEO to own shares of our common stock equal to 4 times annual base salary, our CFO and group presidents to own shares of our common stock equal to 2.5 times annual base salary, and our other corporate vice presidents to own shares of our common stock equal to 2 times annual base salary, other than in special circumstances as determined by the Compensation Committee. |
| • | Our annual incentive compensation plans are aligned between Company executives and all other employees of the Company to ensure unified achievement of Company goals and objectives. |
| • | We establish total compensation packages such that, when our fundamental financial performance is at target levels, total compensation (base salary, annual short-term cash incentives, and long-term incentives) for each NEO is competitive with the 50th percentile market value total compensation for executives in comparable positions at companies in our peer comparator group. |
| • | We place a strong emphasis on variable compensation, which is designed so that the payout opportunity is directly linked to the achievement of pre-determined financial performance metrics, with upside opportunity for exceeding the pre-determined goals. |
| • | Our allocation of cash to non-cash compensation is weighted significantly toward cash-based compensation in order to (1) minimize the extent to which the interests of existing stockholders are diluted by equity used as compensation and (2) align the majority of our variable compensation with our fundamental financial performance (on which management has a great deal of direct influence) rather than to changes in stock price (on which management has relatively less direct influence). |
We believe that proper administration of our Executive
Compensation Program should result in the development of a
management team that improves our fundamental financial
performance and provides value to the long-term interests of the
Company and its stockholders. Additional information relevant to
your vote can be found in the “Compensation Discussion and
Analysis” and “Executive Compensation” sections
of this proxy statement on pages 28 to 41.
For these reasons, we recommend that stockholders vote in favor
of the following resolution:
“RESOLVED, that the stockholders hereby approve the
compensation of Woodward’s named executive officers, as
disclosed in this proxy statement pursuant to the compensation
disclosure rules of the Securities and Exchange Commission.”
Your
Board unanimously recommends that you vote “FOR”
approval of this proposal.
49
Table of Contents
| PROPOSAL 5 — | ADVISORY (NON-BINDING) VOTE REGARDING FREQUENCY OF STOCKHOLDER ADVISORY VOTES ON EXECUTIVE COMPENSATION |
As required by Section 14A of the Securities Exchange Act
of 1934, we are offering our stockholders an opportunity to cast
an advisory vote on whether a non-binding stockholder advisory
vote on the compensation of our named executive officers, such
as the stockholder vote described in Proposal 4 of this
proxy statement, should occur every one, two or three years.
Although the vote is non-binding, we value continuing and
constructive feedback from our stockholders on compensation and
other important matters. The Board and the Compensation
Committee will take into consideration the voting results when
determining how often a non-binding stockholder advisory vote on
the compensation of our named executive officers should occur.
We ask for your advisory vote to choose among the following
three alternative resolutions. You may only choose from
“OPTION #1 (Every Year),” “OPTION #2
(Every Two Years)” or “OPTION #3 (Every Three
Years),” or you may abstain from voting.
OPTION #1
(Every Year)
“RESOLVED, that the stockholders believe that a non-binding
stockholder advisory vote on the compensation of Woodward’s
named executive officers, as disclosed in Woodward’s proxy
statements pursuant to the compensation disclosure rules of the
Securities and Exchange Commission, should occur every
year.”
OPTION #2
(Every Two Years)
“RESOLVED, that the stockholders believe that a non-binding
stockholder advisory vote on the compensation of Woodward’s
named executive officers, as disclosed in Woodward’s proxy
statements pursuant to the compensation disclosure rules of the
Securities and Exchange Commission, should occur every two
years.”
OPTION #3
(Every Three Years)
“RESOLVED, that the stockholders believe that a non-binding
stockholder advisory vote on the compensation of Woodward’s
named executive officers, as disclosed in Woodward’s proxy
statements pursuant to the compensation disclosure rules of the
Securities and Exchange Commission, should occur every three
years.”
We are aware of the significant interest in executive
compensation matters by investors and the general public, and
value and encourage constructive dialogue on executive
compensation and other important governance topics with our
stockholders, to whom we are ultimately accountable. As
discussed above, our executive compensation philosophy is
focused on aligning Company objectives with long-term
stockholder value, and accordingly, our executive compensation
approach does not vary significantly from year to year. We
believe that providing our stockholders with an advisory vote on
executive compensation every three years aligns with this long
term philosophy (e.g., our three-year cycles for LTIP awards),
achieves our stockholder outreach objectives, and provides an
appropriate means by which to receive input on our executive
compensation policies and practices.
Under our bylaws, the affirmative vote of the holders of a
majority of the shares of common stock in Woodward present in
person or by proxy and entitled to vote at the Annual Meeting
will be required to pass one of the three resolutions described
in this proposal. If none of the three resolutions receives a
majority vote, the Board and the Compensation Committee will
take into consideration the resolution receiving the most votes
when determining how often a non-binding stockholder advisory
vote on the compensation of our named executive officers should
occur.
Your
Board unanimously recommends that you vote for “OPTION #3
(Every Three Years).”
50
Table of Contents
Table of Contents
Opposition
Statement of Woodward Governor Company to Stockholder
Proposal Received From Gerald R. Armstrong
Your
Board of Directors unanimously recommends that you vote
“AGAINST” this proposal.
Under Woodward’s governing documents and Delaware law, most
matters submitted to stockholders for approval require the
approval of the holders of a majority of Woodward’s
outstanding shares, including most matters voted upon at
Woodward’s annual meetings (other than the election of
directors, which requires a plurality vote). As permitted by
Delaware law, Woodward’s Restated Certificate of
Incorporation (the “charter”) and bylaws do, however,
require more than a majority vote of the stockholders for
actions affecting certain elements of Woodward’s corporate
governance. These corporate governance elements include:
(i) certain business combination transactions and
dissolution of Woodward, (ii) director removal and calling
of special meetings, and (iii) amendments to the charter
and bylaws.
These supermajority voting requirements are important to
Woodward’s corporate governance. They have been included in
Woodward’s charter for many years and are included in the
corporate charters and bylaws of many publicly-traded Delaware
companies. In general, these provisions encourage focus on the
long-term interests of stockholders to maximize stockholder
value and provide minority stockholders with protection against
self-interested actions by larger stockholders with short-term
goals.
For example, provisions relating to business combinations,
removal of directors and calling of special meetings are
designed to discourage takeover attempts by significant
stockholders and to empower a minority of stockholders to
prevent consummation of significant business combinations or
other transactions that may be inadequately priced, unfair,
coercive or otherwise not in their best interests. Similarly,
provisions relating to charter and bylaw amendments are designed
primarily to prevent an acquirer from bypassing the takeover
defense provisions contained in Woodward’s governing
documents. These supermajority voting requirements are not
intended to, and do not, preclude unsolicited, non-abusive
offers to acquire Woodward at a fair price. Like other takeover
defenses, they are designed to encourage a potential acquirer to
negotiate directly and at arm’s length with the
stockholder-elected Board so that the Board can seek to maximize
value for all stockholders and protect stockholders against
abusive takeover tactics. In the event of an unsolicited
takeover bid, the elimination of these supermajority protections
could result in significantly diminished value for many
stockholders.
The Board believes that there are important reasons for
obtaining broad stockholder consensus to amend Woodward’s
charter and bylaws, and that requiring a supermajority vote for
these amendments protects many stockholders against the
self-interested actions of a few. The stockholder-elected Board
has a duty to act on a fully informed basis and in the best
interests of all stockholders. Stockholders do not have similar
duties to one another. Under the proposed majority of votes cast
standard, a small number of very large stockholders, whose
interests may conflict with those of most stockholders, could
approve an amendment to Woodward’s governing documents to
further their own goals. A supermajority voting requirement
helps to ensure that fundamental changes to Woodward’s
governing documents are made only with a broad consensus of
stockholders, rather than by a “simple majority,”
which may, in practice, reflect the holders of a minority of
outstanding shares.
The Board also believes that the proponent ignores the long-term
interests and stockholder protections served by the
supermajority provisions contained in Woodward’s governing
documents. Although some corporations have eliminated certain
supermajority provisions, the Board does not believe that the
mechanical approach suggested by the proponent is appropriate.
The proponent’s own statement in support of the proposal
fails to provide a coherent rationale for his proposal. Rather
than addressing the long-term implications of eliminating
supermajority provisions, the proponent’s supporting
statement merely itemizes criticisms of Woodward and attempts to
disparage its directors and employees. The Board, after careful
consideration, continues to believe that more meaningful voting
requirements are appropriate for certain issues that have a
long-lasting effect on Woodward and its stockholders. The Board
will continue to consider in the future whether particular
changes to Woodward’s charter and bylaws are appropriate
and in the best interests of Woodward and its stockholders.
However, for the reasons set forth above, the Board believes at
this time that implementation of the proposal would not serve
the best interests of Woodward or its stockholders.
Your
Board of Directors recommends a vote “AGAINST” this
proposal for the reasons described above. Proxies solicited by
the Board of Directors will be voted “AGAINST” this
proposal unless a stockholder has indicated otherwise in voting
the proxy.
52
Table of Contents
Stockholder
Nominations and Proposals for 2011 Annual Meeting
Stockholders who, in accordance with SEC
Rule 14a-8,
wish to present proposals for inclusion in our proxy statement
and form of proxy to be distributed in connection with next
year’s annual meeting must submit their proposals so that
they are received by us at our principal executive offices no
later than the close of business on August 12, 2011.
Proposals should be sent to the attention of the Corporate
Secretary. As the rules of the SEC make clear, simply submitting
a proposal does not guarantee that it will be included.
Under our Bylaws, certain procedures are provided that a
stockholder must follow to nominate persons for election as
directors or to introduce an item of business at an annual
meeting of stockholders (other than a proposal brought pursuant
to SEC
Rule 14a-8).
These procedures provide that nominations for director
and/or an
item of business to be introduced at an annual meeting of
stockholders must be submitted in writing to the Corporate
Secretary of the Company at our principal executive offices by a
stockholder of record on both the date of giving notice and the
record date for the annual meeting. In general, our Bylaws
require that such a notice for nominating a director or
introducing an item of business at the 2011 Annual Meeting must
be received not earlier than September 28, 2011 and not
later than October 28, 2011. However, if the 2011 Annual
Meeting is called for a date that is not within 30 days
before or after the anniversary date of the 2010 Annual Meeting,
the notice must be received not later than the close of business
on the tenth day following the date on which notice of the date
of the 2011 Annual Meeting was mailed or public disclosure of
the date of the Annual Meeting was made, whichever first occurs,
or no less than 90 days or more than 120 days prior to
the 2011 Annual Meeting. To be in proper form, a
stockholder’s notice must include the specified information
concerning the proposal or nominee as described in
Section 2.11 of our Bylaws attached as Exhibit A. A
stockholder who wishes to submit a proposal or nomination is
encouraged to seek independent counsel about our Bylaw and SEC
requirements. We will not consider any proposal or nomination
that does not meet the Bylaw and SEC requirements for submitting
a proposal or nomination.
Notices of intention to nominate a director or present proposals
at the 2010 Annual Meeting should be addressed to the Corporate
Secretary, Woodward Governor Company, P.O. Box 1519,
1000 E. Drake Road, Fort Collins, Colorado 80525.
We reserve the right to reject, rule out of order, or take other
appropriate action with respect to any nomination or proposal
that does not comply with these and other applicable
requirements.
Householding
of Proxy Materials
In an effort to reduce printing costs and postage fees, we have
adopted a practice approved by the SEC called
“householding.” Under this practice, stockholders who
have the same address and last name and do not participate in
electronic delivery of proxy materials will receive only one
copy of our proxy materials, unless one or more of these
stockholders notifies us that he or she wishes to continue
receiving individual copies. Stockholders who participate in
householding will continue to receive separate proxy cards.
If you share an address with another stockholder and received
only one set of proxy materials and would like to request a
separate copy of these materials or any other proxy materials in
the future, please: (1) mail your request to Woodward
Governor Company, P. O. Box 1519, 1000 E. Drake Road,
Fort Collins, Colorado 80525, Attn: Corporate Secretary;
(2) send an
e-mail to
investorrelations@woodward.com; or (3) call our Investor
Relations department at 1-815-877-7441. Additional copies of the
proxy materials will be sent within 30 days after receipt
of your request. Similarly, you may also contact us if you
received multiple copies of the proxy materials and would prefer
to receive a single copy in the future.
53
Table of Contents
Other
Matters
Woodward is soliciting this proxy on behalf of its Board and
will bear the entire cost of proxy solicitation, including the
preparation, assembly, printing, mailing and distribution of the
proxy materials. This solicitation is being made by mail, but
also may be made personally or by facsimile, telephone,
messenger, or via the Internet. The Company has employed
Morrow & Co., LLC to solicit proxies for the annual
meeting from brokers, bank nominees, other institutional
holders, and certain individual stockholders. The Company has
agreed to pay $6,000, plus the
out-of-pocket
expenses of Morrow & Company, for these services. The
Company will also pay the regular charge of brokers and other
nominees who hold shares of record for forwarding proxy material
to the beneficial owners of such shares.
We do not know of any matters to be acted upon at the meeting
other than those discussed in this statement. If any other
matter is presented, proxy holders will vote on the matter in
their discretion.
By Order of the Board of Directors
WOODWARD GOVERNOR COMPANY
A. Christopher Fawzy
Corporate Secretary
December 13, 2010
54
Table of Contents
Exhibit A
Section 2.11 of the Amended and Restated Bylaws Requiring Written Notice
Section 2.11 of the Amended and Restated Bylaws Requiring Written Notice
Section 2.11 Notice of Stockholder Nominations and Other
Business.
| (a) | Proper Business; Nominations. No business may be transacted at an annual meeting of stockholders, other than business that is: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof); (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof); or (iii) otherwise properly brought before the annual meeting by any stockholder. In addition to any other applicable requirements, for nominations or other business to be properly brought before an annual meeting by a stockholder: (i) such stockholder must be a stockholder of record on the date of the giving of the notice provided for in this Section 2.11 and on the record date for the determination of stockholders entitled to vote at such annual meeting; (ii) such stockholder must provide timely notice in writing to the Corporation’s Secretary pursuant to the procedures set forth in this Section 2.11; (iii) such other business must be a proper matter for stockholder action under the DGCL; (iv) if the stockholder, or the beneficial owner on whose behalf any such nomination or proposal is made, provides the Corporation with a Solicitation Notice (as defined in this Section 2.11), such stockholder or beneficial owner must in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in those materials the Solicitation Notice; and (v) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 2.11, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice. |
| (b) | Timeliness. To be timely, a stockholder’s notice to the Secretary (other than a request for inclusion of a proposal in the Corporation’s proxy statement pursuant to Rule l4a-8 of the Securities Exchange Act of 1934 (the ‘‘Exchange Act”)) must be delivered to, or mailed and received at, the Corporation’s principal executive offices (addressed to the attention of the Secretary) not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders. Provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be delivered to, or mailed and received at, the Corporation’s principal executive offices not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs, or no less than ninety (90) days nor more than one hundred twenty (120) days prior to the annual meeting. In the event that the number of a class of directors to be elected is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.11 will also be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to, or mailed and received at, the Corporation’s principal executive offices (addressed to the attention of the Secretary) not later than ten (10) days following the day on which the Corporation makes such public announcement. |
| (c) | Information Required. The stockholder’s notice pursuant to this Section 2.11 must include all of the following: (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all of the information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act and Rule 14a-11 thereunder (including such nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (iii) the name and record address of such stockholder and such beneficial owner; (iv) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such stockholder and beneficial owner; (v) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the nomination or proposal of such business by such stockholder; (vi) whether such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting; and (vii) whether such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”). |
A-1
Table of Contents
Exhibit A
Section 2.11 of the Amended and Restated Bylaws Requiring Written Notice (continued)
Section 2.11 of the Amended and Restated Bylaws Requiring Written Notice (continued)
| (d) | Inclusion in Company Proxy Statement. Notwithstanding the foregoing provisions of this Section 2.11, in order to include information with respect to a stockholder proposal in the Corporation’s proxy statement and form of proxy for a stockholder’s meeting, a stockholder must provide notice as required by the regulations promulgated under the Exchange Act. Nothing in these Bylaws is deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 of the Exchange Act or any successor rule. |
| (e) | Special Meeting Nominations. At any special meeting of the stockholders, only such business may be conducted as is brought before the meeting pursuant to the Corporation’s notice of meeting. In the event that a special meeting of the stockholders is called for the purpose of electing one or more directors, nominations of a person or persons for election may be made (i) by or at the direction of the Board of Directors or (ii) by a stockholder who complies with the procedures in this Section 2.11 if such stockholder is a stockholder of record on the date of the giving of the notice provided for in this Section 2.11 and on the record date for the determination of stockholders entitled to vote at such special meeting and such stockholder provides timely notice in writing to the Corporation’s Secretary (including all of the information required by paragraph (c) of this Section 2.11) not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the special meeting was mailed or such public disclosure of the date of the special meeting was made, whichever first occurs, or no less than ninety (90) days nor more than one hundred twenty (120) days prior to the special meeting. |
| (f) | Determination of Proper Business. Only such persons who are nominated in accordance with the procedures set forth in this Section 2.11 will be eligible to serve as directors and only such business may be conducted at a meeting of stockholders as is brought before the meeting in accordance with the procedures set forth in this Section 2.11; provided, however, that once business has been properly brought before a meeting in accordance with such procedures, nothing in this Section 2.11 will be deemed to preclude discussion by any stockholder of any such business (subject to any rules for the orderly conduct of the meeting as may be adopted by the Chairman of the meeting or the Board of Directors). The Chairman of the meeting and the Board of Directors each has the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.11 and, if any proposed nomination or business is not in compliance with this Section 2.11, to declare that such defective proposal be disregarded and not presented for stockholder action. |
| (g) | No New Time Period. In no event will the public announcement of an adjournment or postponement of an annual or special meeting commence a new time period for the giving of a stockholder’s notice. |
| (h) | Public Announcement. For the purposes of this Section 2.11, a “public announcement” includes disclosure in a press release issued to a national news service, in a document publicly filed by the Corporation with, or furnished on Form 8-K to, the Securities and Exchange Commission pursuant to the Exchange Act, or other method deemed to be a public announcement under the rules and regulations of the Securities and Exchange Commission. |
| (i) | Delivery. For purposes of this Section 2.11, delivery of a proxy statement or delivery of a form of a proxy includes sending a Notice of Internet Availability of Proxy Materials in accordance with Rules 14a-16 under the Exchange Act. |
A-2
Table of Contents
Table of Contents
WOODWARD GOVERNOR COMPANY
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, JANUARY 26, 2011, AT 8:00 A.M.
FORT COLLINS HILTON
425 West Prospect Road
Fort Collins, Colorado
Table of Contents
| PROXY PROXY WOODWARD GOVERNOR COMPANY Proxy for Annual Meeting of Stockholders — January 26, 2011 Solicited by the Board of Directors The undersigned hereby appoints Thomas A. Gendron and Robert F. Weber, Jr., and each or any of them, as the undersigned’s proxies, with full power of substitution, to represent and to vote, as designated on the reverse side, all the undersigned’s common stock in Woodward Governor Company at the Annual Meeting of Stockholders to be held on Wednesday, January 26, 2011, and at any adjournment thereof, with the same authority as if the undersigned were personally present. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSALS 1, 2, 3 AND 4; FOR “OPTION #3 (EVERY THREE YEARS)” WITH RESPECT TO PROPOSAL 5; AND “AGAINST” PROPOSAL 6. Important Notice Regarding the Availability of Proxy Materials for our Annual Meeting to be Held on January 26, 2011: This Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, including consolidated financial statements, are available to you at http://www.proxydocs.com/wgov. FOLD AND DETACH HERE |
Table of Contents
| 1. ELECTION OF DIRECTORS FOR ALL FOR WITHHOLD EXCEPT 1 Mary L. Petrovich 03 Michael T. Yonker 2 Larry E. Rittenberg FOR AGAINST ABSTAIN INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the “FOR ALL EXCEPT” box and strike a line through the nominee’s name in the list provided above. Your shares will be voted for the remaining nominees. Instruction for Cumulative Voting for Directors: Unless otherwise specified above, this proxy/instruction card shall authorize the proxies listed herein to cumulate all votes that the undersigned is entitled to cast at the Annual Meeting for, and to allocate such votes among, one or more of the nominees for directors, as such proxies shall determine in their sole discretion. To specify a method of cumulative voting, mark the box below with an “X” and write the number of Shares and the name(s) of the nominee(s) for directors in the space below. If you wish to cumulate your votes, you must vote by using the proxy card rather than voting by telephone or the Internet. 2. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2011. 3. PROPOSAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION TO EFFECT A NAME CHANGE OF THE COMPANY TO “WOODWARD, INC.” FOR AGAINST ABSTAIN PLEASE MARK VOTES AS IN THIS EXAMPLE 4. PROPOSAL REGARDING ADVISORY (NON- BINDING) VOTE ON EXECUTIVE COMPENSATION. 5. PROPOSAL ON ADVISORY (NON-BINDING) VOTE REGARDING FREQUENCY OF STOCKHOLDER ADVISORY VOTES ON EXECUTIVE COMPENSATION. 6. STOCKHOLDER PROPOSAL TO ELIMINATE SUPERMAJORITY VOTING. OPTION #1 OPTION #2 OPTION #3 (EVERY (EVERY TWO (EVERY THREE YEAR) YEARS) YEARS) ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Any and each of said attorneys or proxies, who are present at the meeting shall have, and may exercise, all of the powers, jointly and severally, of all said attorneys or proxies hereunder. Date: Signature Signature (if held jointly) NOTE: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE. FOLD AND DETACH HERE VOTE BY TELEPHONE OR INTERNET QUICK EASY IMMEDIATE ANNUAL MEETING OF STOCKHOLDERS OF WOODWARD GOVERNOR COMPANY January 26, 2011 PROXY VOTING INSTRUCTIONS TO VOTE BY MAIL Please date, sign and mail your proxy card in the envelope provided as soon as possible. TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY) Please call 1-888-266-6788 toll-free and follow the instructions. Have your control number and the proxy card available when you call. TO VOTE BY INTERNET Please access the web page at www.proxyvoting.com/wgov and follow the on-screen instructions. Have your control number available when you access the web page. Control Number for Internet/Telephone Voting |