UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
 
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Lennox International Inc.

   
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(LENNOX LOGO)

2140 Lake Park Blvd.
Richardson, Texas 75080

April 3, 2013

Dear Stockholders:

It is my pleasure to invite you to the 2013 Annual Meeting of Stockholders of Lennox International Inc. The meeting will be held at 10:30 a.m., local time, on Thursday, May 16, 2013, at the Lennox International Inc. Corporate Headquarters, 2140 Lake Park Blvd., Richardson, Texas 75080.

Under the Securities and Exchange Commission rules that allow companies to furnish proxy materials to stockholders over the Internet, Lennox has elected to deliver our proxy materials to the majority of our stockholders over the Internet. This delivery process allows us to provide stockholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On or about April 3, 2013, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement for our 2013 Annual Meeting of Stockholders and fiscal 2012 annual report to stockholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail.

The accompanying Notice of Annual Meeting of Stockholders and proxy statement describe the items of business that will be discussed and voted upon during the meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the 2013 Annual Meeting of Stockholders, we urge you to vote and submit your proxy by the Internet, telephone or mail, pursuant to the instructions on your proxy card. We encourage you to vote via the Internet. It is convenient and saves the Company postage and other costs. Please use the website shown on your proxy card to vote through the Internet. If you attend the meeting you will have the right to revoke the proxy and vote your shares in person.

I look forward to seeing you at the Annual Meeting of Stockholders. On behalf of management and our Board of Directors, I want to thank you for your continued support and confidence in 2013.

   
  Sincerely,
   
  -s- Todd M. Bluedorn
   
   Todd M. Bluedorn
  Chairman of the Board and Chief Executive Officer
 
 

(LENNOX LOGO)

2140 Lake Park Blvd.
Richardson, Texas 75080
April 3, 2013

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2013

 

Notice is hereby given that the 2013 Annual Meeting of Stockholders of Lennox International Inc. will be held on Thursday, May 16, 2013 at 10:30 a.m., local time, at the Lennox International Inc. Corporate Headquarters, 2140 Lake Park Blvd., Richardson, Texas 75080, to:

elect four Class III directors to hold office for a three-year term expiring at the 2016 Annual Meeting of Stockholders;
ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2013 fiscal year;
conduct an advisory vote to approve the compensation of the named executive officers as disclosed in this Proxy Statement; and
transact any other business that may properly come before the Annual Meeting of Stockholders in accordance with the terms of our Amended and Restated Bylaws.

The Board of Directors has determined that our stockholders of record at the close of business on March 22, 2013 are entitled to notice of, and to vote at, the Annual Meeting of Stockholders.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 16, 2013. This Proxy Statement and the Annual Report to Stockholders are available on our website at http://www.lennoxinternational.com/financials/financialreportproxy.htm and also at the website appearing on your proxy card. A Proxy Statement, Proxy Card, and Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, accompany this Notice.

Your Vote Is Important. Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote and submit your proxy in order to ensure the presence of a quorum.

Most shareholders have a choice of voting on the Internet, by telephone or by mail. Please refer to the proxy card or other voting instructions included with these proxy materials for information on the voting method(s) available to you. If you vote by telephone or on the Internet, you do not need to return your proxy card. If your shares are held in the name of a brokerage firm, bank or other nominee of record, follow the voting instructions you receive from such holder of record to vote your shares.

   
  By Order of the Board of Directors,
   
  -s- John D. Torres
   
  John D. Torres
  Corporate Secretary
 
 

TABLE OF CONTENTS

     
    Page
GENERAL INFORMATION REGARDING THE 2013 ANNUAL MEETING OF STOCKHOLDERS   1
PROPOSAL 1: ELECTION OF DIRECTORS   4
NOMINEES   5
CONTINUING DIRECTORS   7
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM        10
AUDIT COMMITTEE REPORT   11
CORPORATE GOVERNANCE   12
PROPOSAL 3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS      17
EXECUTIVE COMPENSATION   18
COMPENSATION DISCUSSION AND ANALYSIS   18
COMPENSATION COMMITTEE REPORT   28
SUMMARY COMPENSATION TABLE   29
FISCAL 2012 GRANTS OF PLAN-BASED AWARDS   31
OUTSTANDING EQUITY AWARDS AT FISCAL 2012 YEAR-END   32
FISCAL 2012 OPTION EXERCISES AND STOCK VESTED   34
RETIREMENT PLANS   35
FISCAL 2012 PENSION BENEFITS   36
FISCAL 2012 NONQUALIFIED DEFERRED COMPENSATION   37
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL   38
DIRECTOR COMPENSATION   45
FISCAL 2012 DIRECTOR COMPENSATION TABLE   47
EQUITY COMPENSATION PLAN INFORMATION   49
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   50
OWNERSHIP OF COMMON STOCK   51
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE   52
OTHER INFORMATION   53
-i-
 

GENERAL INFORMATION REGARDING THE 2013
ANNUAL MEETING OF STOCKHOLDERS

Meeting Date and Location

The 2013 Annual Meeting of Stockholders (the “Annual Meeting”) of Lennox International Inc. (also referred to in this Proxy Statement as the “Company,” “us,” “we,” or “our”) will be held on Thursday, May 16, 2013 at 10:30 a.m., local time, at the Company’s Corporate Headquarters, 2140 Lake Park Blvd., Richardson, Texas 75080. We began mailing this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders, Proxy Card and Annual Report to Stockholders, which includes our Annual Report on Form 10-K, to our stockholders on or about April 3, 2013 for the purpose of soliciting proxies on behalf of our Board of Directors (our “Board”).

Matters to be Voted On

At the meeting, you will be asked to vote on three proposals. Our board recommends you vote “for” each of the director nominees, and “for” proposals 2 and 3, as described below.

Proposal 1: Election of four Class III directors to hold office for a three-year term expiring at the 2016 Annual Meeting of Stockholders.
Proposal 2: Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2013 fiscal year.
Proposal 3: Advisory vote to approve the compensation of the named executive officers (“NEOs”) as disclosed in this Proxy Statement.

Record Versus Beneficial Ownership of Shares

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the “stockholder of record.” If you are a stockholder of record, we sent our proxy materials directly to you.

If your shares are held in a stock brokerage account or by a bank, you are considered the “beneficial owner” of shares held in street name. In that case, our proxy materials have been forwarded to you by your broker or bank, which is considered, with respect to those shares, the stockholder of record. Your broker or bank will also send you instructions on how to vote. If you have not heard from your broker or bank, please contact them as soon as possible.

Record Date and Number of Votes

The record date for the Annual Meeting is March 22, 2013. If you were a stockholder of record at the close of business on the record date, you may vote. At the close of business on the record date, there were 50,381,941 shares of our common stock outstanding and entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each other proposal to be voted on.

Quorum and Vote Required

A quorum is required to transact business at the Annual Meeting. To achieve a quorum at the Annual Meeting, stockholders holding a majority of our outstanding shares entitled to vote must be present either in person or represented by proxy. Shares held by us in treasury will not count towards the calculation of a quorum. In the event a quorum is not present at the Annual Meeting, we expect the meeting will be adjourned or postponed to solicit additional proxies.

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Our Amended and Restated Bylaws (“Bylaws”) require that a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). Each of our director nominees is currently serving on the Board. If a nominee who is currently serving as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under our Bylaws and Corporate Governance Guidelines, each director submits an advance, contingent resignation that the Board may accept if stockholders do not re-elect the director. In that situation, our Corporate Governance and Nominating Committee would make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board would act on the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose its decision and the rationale behind it within 90 days from the date that the election results were certified.

If a quorum is present, ratification of our independent registered public accounting firm and approval of the advisory vote on the compensation of our named executive officers require that the votes cast in favor of these proposals exceed the votes cast against proposals.

Abstentions and Broker Non-Votes

If a broker or bank holds shares in “street name” (that is, in the name of a bank, broker, nominee or other holder of record) and the beneficial owner does not provide the broker or bank with specific voting instructions, (referred to as “broker non-votes”), the broker or bank generally has discretion to vote on routine matters but does not have discretion to vote on non-routine matters.

Pursuant to New York Stock Exchange (“NYSE”) rules, Proposal 1 (election of directors) and Proposal 3 (advisory vote on the compensation of named executive officers) will be considered non-routine proposals for which your broker or bank may not exercise voting discretion if it does not receive voting instructions from you, and Proposal 2 (ratification of the appointment of our independent auditor) will be considered a routine proposal for which your broker or bank may exercise voting discretion even if it does not receive voting instructions from you. As a result, if you hold your shares in street name, it is critical that you cast your vote in order for it to be counted on Proposals 1 and 3.

Abstentions and broker non-votes, if applicable, will be included in determining whether a quorum is present, but will not be counted as votes “for” or “against” Proposals 1 or 3.

Voting Procedures

Registered holders may vote in person at the Annual Meeting, via the Internet, by telephone, or, if they received a printed copy of these proxy materials, by mail. If your shares are held in street name, you will receive instructions from the holder of record that you must follow in order for your shares to be voted.

A representative of Alliance Advisors LLC will tabulate the votes and act as inspector of election at the Annual Meeting.

Changing Your Vote

You can revoke or change your vote on a proposal at any time before the Annual Meeting for any reason by revoking your proxy. For stockholders of record, proxies may be revoked by delivering a written notice of revocation, bearing a later date than your proxy, with our Corporate Secretary at or before the Annual Meeting. Proxies may also be revoked by:

submitting a new written proxy bearing a later date than a proxy you previously submitted prior to or at the Annual Meeting;
voting again by telephone or Internet before 11:59 p.m., Eastern Time, on May 15, 2013; or
attending the Annual Meeting and voting in person; however, attendance at the meeting will not in and of itself constitute a revocation of your proxy.

In each case, the later submitted vote will be recorded and the earlier vote revoked. Any written notice of a revocation of a proxy should be sent to Lennox International Inc., 2140 Lake Park Blvd., Richardson, Texas 75080, Attention: Corporate Secretary. To be effective, the revocation must be received by our Corporate Secretary before the taking of the vote at the Annual Meeting.

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If your shares are held in street name, you must follow the specific voting directions provided to you by your bank, broker, nominee or other holder of record to change or revoke any instructions you have already provided. Alternatively, obtain a proxy from your bank, broker or other holder of record and provide it with your vote at the Annual Meeting.

Other Business; Adjournments

We are not aware of any other business to be acted upon at the Annual Meeting. However, if you have voted by proxy and other matters are properly presented at the Annual Meeting for consideration in accordance with our Bylaws, the persons named in the accompanying Proxy Card will have discretion to act on those matters according to their best judgment or the Board’s recommendation. In the absence of a quorum, stockholders representing a majority of the votes present in person or by proxy at the meeting may adjourn the meeting.

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PROPOSAL 1: ELECTION OF DIRECTORS

Our Bylaws provide that our Board may be composed of no less than three and no more than 15 members. The size of our Board has been fixed by our Board at 10 members, divided into three classes, with each class serving a three-year term.

Upon the recommendation of the Board Governance Committee, the Board has nominated four Class III directors for re-election to our Board to hold office for a three-year term expiring at the 2016 Annual Meeting of Stockholders. All Class I and Class II directors will continue in office, in accordance with their previous election, until the expiration of the terms of their classes at the 2014 and 2015 Annual Meeting of Stockholders, respectively. The process followed by the Board in nominating directors and the criteria considered for director nominees is described in the “Corporate Governance — Director Nomination Process and Nominee Criteria” section of this Proxy Statement.

We provide below biographical information for each nominee for Class III director and for each current director in the classes continuing in office following the Annual Meeting. For each director and director nominee, the information presented includes the positions held, principal occupation, and business experience as of April 3, 2013. The biographical description below for each director and director nominee also includes the specific experience, qualifications, attributes and skills that led to the Board’s conclusion that such person should serve as a director of the Company at this time, in light of our business and structure.

If you do not wish your shares to be voted for any particular nominee, you may withhold your vote for that particular nominee. If any nominee for Class III director becomes unavailable to serve, the persons named in the accompanying Proxy Card may vote for any alternate designated by the incumbent Board, upon the recommendation of the Board Governance Committee, or the number of directors constituting the Board may be reduced.

4
 

Nominees

The Board has nominated the following individuals for re-election as Class III directors for a three-year term expiring at the 2016 Annual Meeting of Stockholders:

     
(PHOTO OF TODD M. BLUEDORN)   Todd M. Bluedorn, 49, became Chief Executive Officer (“CEO”) and was elected as a director of our Company in April 2007. He was appointed as Chairman of the Board on May 10, 2012. Prior to joining the Company, Mr. Bluedorn served in numerous senior management positions for United Technologies since 1995, including President, Americas — Otis Elevator Company; President, North America — Commercial Heating, Ventilation and Air Conditioning for Carrier Corporation; and President, Hamilton Sundstrand Industrial. He began his professional career with McKinsey & Company in 1992. A graduate of West Point with a B.S. in electrical engineering, Mr. Bluedorn served in the United States Army as a combat engineer officer and United States Army Ranger from 1985 to 1990. He received his MBA from Harvard University School of Business in 1992.

Mr. Bluedorn serves on the Board of Directors of Eaton Corporation, a diversified industrial manufacturer.

Mr. Bluedorn possesses considerable industry knowledge and executive leadership experience. Mr. Bluedorn’s extensive knowledge of our Company and its business, combined with his drive for excellence and innovation, position him well to serve as CEO and a director of our Company.
     
(PHOTO OF C.L. JERRY HENRY)  

C.L. (Jerry) Henry, 71, has served as a director of our Company since 2000. He is the Chairman of the Board Governance Committee and a member of the Audit Committee. Prior to his retirement, Mr. Henry served as Chairman, President, and CEO of Johns Manville Corporation, a leading manufacturer of insulation and building products, from 1996 to 2004. Mr. Henry served as Executive Vice President and CFO for E. I. du Pont de Nemours and Company, a global science and technology company, from 1993 to 1996.

Mr. Henry currently serves on the Board of Directors of MWH Global, Inc., a firm providing water, wastewater, energy, natural resource, program management, consulting, and construction services to clients around the world.

As a former CEO and CFO, Mr. Henry contributes a broad knowledge of financial matters, strategy development, risk management, and mergers and acquisitions in his service as a director.

     
(PHOTO OF TERRY D. STINSON)   Terry D. Stinson, 71, has served as a director of our Company since 1998. He is a member of the Board Governance Committee and the Compensation and Human Resources Committee. Mr. Stinson currently serves as Group Vice President of AAR Corp., an international, publicly traded aerospace manufacturing and services firm. In addition, Mr. Stinson has served as CEO of his own consulting practice, Stinson Consulting, LLC, engaged in strategic alliances and marketing for the aerospace industry, since 2001. From 2002 to 2005, Mr. Stinson served as CEO of Xelus, Inc., a collaborative enterprise service management solution company. From 1998 to 2001, Mr. Stinson was Chairman and CEO of Bell Helicopter Textron Inc., the world’s leading manufacturer of vertical lift aircraft, and served as President from 1996 to 1998. From 1991 to 1996, Mr. Stinson served as Group Vice President and Segment President of Textron Aerospace Systems and Components for Textron Inc. Prior to that position, he was President of the Hamilton Standard Division of United Technologies Corporation, a defense supply company, since 1986.
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    Mr. Stinson previously served on the Board of Directors of Triumph Group, Inc., a company engaged in the manufacturing and repair of aircraft components, subassemblies and systems, from September 2003 to March 2008.
     
    As a former senior executive of two Fortune 500 companies, Mr. Stinson contributes extensive general management experience in technology-driven businesses, and a thorough knowledge of corporate governance, director recruitment and development, talent management, and strategy development in his service as a director.
     
(PHOTO OF RICHARD L. THOMPSON)   Richard L. Thompson, 73, has served as a director of our Company since 1993 and Lead Director since May 2012. He is a member of the Board Governance Committee and Compensation and Human Resources Committee. He served as Vice Chairman of the Board from February 2005 to July 2006 and as Chairman of the Board from July 2006 to May 2012. Mr. Thompson served as Group President and Member of the Executive Office of Caterpillar Inc., a manufacturer of construction and mining equipment, from 1995 until his retirement in 2004. He joined Caterpillar in 1983 as Vice President, Customer Services. In 1989, he was appointed President of Solar Turbines Inc., a wholly-owned subsidiary of Caterpillar and manufacturer of gas turbines. From 1990 to 1995, he served as Vice President of Caterpillar, with responsibility for its worldwide engine business. Previously, he held the positions of Vice President of Marketing and Vice President and General Manager, Components Operations of RTE Corporation, a manufacturer of electrical distribution products.

Mr. Thompson serves as a director of Gardner Denver, Inc., a manufacturer of air compressors, blowers and petroleum pumps, and of NiSource Inc., a natural gas and electric utility. In addition, he is a former Director of the National Association of Manufacturers, the nation’s largest industrial trade association.

As a former senior executive at a Fortune 50 company, Mr. Thompson contributes extensive experience leading international business units, engineering and product development, and a substantial knowledge of marketing and channel management, in his service as a director.
     
THE BOARD RECOMMENDS A VOTE “FOR”
EACH OF THE ABOVE NOMINEES
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Continuing Directors

     
The following Class I directors’ terms will continue until the 2014 Annual Meeting of Stockholders:
     
(PHOTO OF JANET K. COOPER)   Janet K. Cooper, 59, has served as a director of our Company since 1999. She is a member of the Audit Committee and the Public Policy Committee. From 2002 to 2008, Ms. Cooper served as Senior Vice President and Treasurer of Qwest Communications International Inc. From 2001 to 2002, she served as Chief Financial Officer (“CFO”) and Senior Vice President of McDATA Corporation, a global leader in open storage networking solutions. From 2000 to 2001, she served as Senior Vice President, Finance of Qwest. From 1998 to 2000, she served in various senior level finance positions at US West Inc., a regional Bell operating company, including Vice President, Finance and Controller and Vice President and Treasurer. From 1978 to 1998, Ms. Cooper served in various capacities with the Quaker Oats Company, including Vice President, Treasurer and Tax from 1997 to 1998 and Vice President, Treasurer from 1992 to 1997.

Ms. Cooper serves on the Board of Directors of The TORO Company, a manufacturer of equipment for lawn and turf care maintenance, and MWH Global, Inc., a firm providing water, wastewater, energy, natural resource, program management, consulting, and construction services to clients around the world.

Ms. Cooper contributes a substantial financial background and extensive experience in capital markets, tax, accounting matters, and pension plan investments in her service as a director.
     
(PHOTO OF JOHN W. NORRIS, III)   John W. Norris, III, 55, has served as a director of our Company since 2001. He is the Chairman of the Public Policy committee and a member of the Compensation and Human Resources Committee. Mr. Norris is a co-founder of Maine Network Partners and is the founding Chairman of the Environmental Funders Network. From 2000 to 2005, he served as the Associate Director of Philanthropy for the Maine Chapter of The Nature Conservancy. Mr. Norris was Co-Founder and President of Borealis, Inc., an outdoor products manufacturer, from 1988 to 2000 and served as an economic development Peace Corps Volunteer in Jamaica, West Indies from 1985 to 1987. Before joining the Peace Corps, Mr. Norris completed a graduate school internship at Lennox Industries Inc., a subsidiary of the Company, in 1983.

Mr. Norris contributes substantial experience and knowledge on environmental issues, non-governmental organizations, and organizational development in his service as a director.
     
(PHOTO OF PAUL W. SCHMIDT)  

Paul W. Schmidt, 68, has served as a director of our Company since 2005. He is the Chairman of the Audit Committee and a member of the Board Governance Committee. In early 2007, Mr. Schmidt retired from his position as Corporate Controller of General Motors Corporation, a position he held since 2002. He began his career in 1969 as an analyst with the Chevrolet Motor Division of General Motors and subsequently served in a wide variety of senior leadership roles for General Motors, including financial, product and factory management, business planning, investor relations and international operations. Mr. Schmidt also served as Director of Capital, Performance and Overseas Analysis in General Motors’s New York Treasurer’s Office. 

Mr. Schmidt contributes a thorough knowledge of U.S. GAAP and extensive experience in financial statement preparation, accounting matters, and risk management, as well as manufacturing expertise, in his service as a director.

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The following Class II directors’ terms will continue until the 2015 Annual Meeting of Stockholders:

     
(PHOTO OF JOHN E. MAJOR)   John E. Major, 67, has served as a director of our Company since 1993. He is the Chairman of the Compensation and Human Resources Committee and a member of the Board Governance Committee. Mr. Major is President of MTSG, a company that provides consulting, management and governance services, which he formed in 2003. From 2003 to 2006, he served as CEO of Apacheta Corporation, a mobile wireless software company whose products are used to manage inventory and deliveries. From 2000 to 2003, he served as Chairman and CEO of Novatel Wireless, Inc., a leading provider of wireless Internet solutions. Prior to joining Novatel Wireless, Mr. Major served as President and CEO of Wireless Knowledge, Inc., a joint venture between Microsoft Corporation and QUALCOMM Inc., from 1998 through 1999. From 1997 to 1998, he served as Executive Vice President of QUALCOMM and President of its Wireless Infrastructure Division. Prior to joining QUALCOMM, Mr. Major served as Senior Vice President and Chief Technology Officer at Motorola, Inc., a manufacturer of telecommunications equipment. Prior to that he served as Senior Vice President and General Manager for Motorola’s Worldwide Systems Group of the Land Mobile Products Sector.

Mr. Major currently serves as the lead independent director of the Board of Directors of Broadcom Corporation, a semiconductor manufacturing company; and on the Board of Directors of Littelfuse, Inc., a manufacturer of circuit protection devices, and ORBCOMM Inc., a satellite communications service provider.

Mr. Major previously served on the Board of Directors of Verilink Corporation, a manufacturer of microwave communications products, from June 1996 to January 2007.

Mr. Major contributes substantial experience in product innovation, compensation programs, and mergers and acquisitions in his service as a director.
     
(PHOTO OF GREGORY T. SWIENTON)   Gregory T. Swienton, 63, has served as a director of our Company since 2010. He is a member of the Compensation and Human Resources Committee and the Public Policy Committee. Mr. Swienton was appointed Executive Chairman of Ryder System, Inc., a supplier of transportation, logistics and supply chain management, in January, 2013 after having been Chairman of Ryder System, Inc. since May 2002 and Chief Executive Officer since November 2000. Mr. Swienton joined Ryder as President and Chief Operating Officer in June 1999. Before joining Ryder, Mr. Swienton was Senior Vice President-Growth Initiatives of Burlington Northern Santa Fe Corporation (BNSF). Prior to that he was BNSF’s Senior Vice President-Coal and Agricultural Commodities Business Unit, and previously had been Senior Vice President of its Industrial and Consumer Units. He joined the former Burlington Northern Railroad in June 1994 as Executive Vice President-Intermodal Business Unit. Prior to joining Burlington Northern, Mr. Swienton was Executive Director-Europe and Africa of DHL Worldwide Express in Brussels, Belgium from 1991 to 1994, and prior to that, he was DHL’s Managing Director-Western and Eastern Europe from 1988 to 1990, also located in Brussels. For the five years prior to these assignments, Mr. Swienton was Regional Vice President of DHL Airways, Inc. in the United States. From 1971 to 1982, Mr. Swienton held various national account, sales and marketing positions with AT&T and Illinois Bell Telephone Company.
8
 

 

    Mr. Swienton serves on the Board of Directors of Ryder System, Inc and Harris Corporation, an international communications and information technology company. He also serves on the Board of Trustees of St. Thomas University in Miami.
     
    Mr. Swienton’s contributes extensive international business experience, deep expertise in global distribution and supply chain innovations, as well as experience in growth initiatives, in his service as a director.
     
(PHOTO OF TODD J. TASKE)   Todd J. Teske, 48, has served as a director of our company since 2011. He is a member of the Audit Committee and the Public Policy Committee. In 2010, Mr. Teske became the Chairman, President and Chief Executive Officer of Briggs & Stratton Corporation, a world leader in gasoline engines for outdoor power equipment, portable generators, and lawn and garden powered equipment and related accessories. Before becoming CEO of Briggs & Stratton in January 2010, he served as the company’s President and Chief Operating Officer, President of its power products business, head of corporate development and Controller.
   
  Mr. Teske serves as the Chairman of the Board of Briggs & Stratton. He also serves on the Board of Directors and as a member of the Audit and Compliance Committee and the Compensation and Corporate Governance Committee of Badger Meter, Inc., a leading innovator, manufacturer and marketer of flow measurement and control products.
   
  As an active CEO and former corporate controller, Mr. Teske contributes extensive expertise in the areas of management, finance, accounting, manufacturing, and corporate governance in his service as a director.
9
 

PROPOSAL 2:
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Audit Committee of the Board has appointed KPMG LLP to continue as our independent registered public accounting firm for the 2013 fiscal year. We are asking our stockholders to ratify the appointment of KPMG LLP as our independent registered public accounting firm. If our stockholders do not ratify the appointment, the Audit Committee will consider the reasons for such rejection and whether it should select a different firm; however, it is not required to do so. Even if the appointment is ratified, the Audit Committee, in its discretion, may select 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 our stockholders.

A representative of KPMG LLP will be present at the 2013 Annual Meeting of Stockholders and will be available to respond to appropriate questions. The representative will also have an opportunity to make a statement at the meeting if he or she desires to do so.

THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF
KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE
2013 FISCAL YEAR.

Audit and Non-Audit Fees

The following table sets forth information as to the fees services rendered by KPMG LLP for each of the last two fiscal years (in thousands).

             
    2012   2011
Audit Fees(1)   $ 3,007   $ 3,166
Audit-Related Fees(2)     78     45
Tax Fees(3)     259     196
All Other Fees     0     0
TOTAL   $ 3,344   $ 3,407

 

   
(1)Represents fees billed for the audit of our financial statements included in our Annual Report on Form 10-K and review of financial statements included in our Quarterly Reports on Form 10-Q, the audit of our internal control over financial reporting and for services that are provided by KPMG LLP in connection with statutory regulatory filings or engagements.
(2)Represents fees billed for assurance and related services reasonably related to the performance of the audit or review of our financial statements and internal control over financial reporting. Such services in 2012 and 2011 consisted of due diligence work relating to potential business acquisition.
(3)Represents fees billed for tax compliance, including review of tax returns, tax advice, and tax planning.

Audit Committee Approval of Audit and Non-Audit Services

The Audit Committee pre-approves all audit services provided by our independent registered public accountants. In addition, all non-audit services provided by KPMG LLP are pre-approved in accordance with our policy entitled “Use of External Audit Firm for Non-Attest Services.” The policy identifies services that are specifically prohibited by Securities and Exchange Commission (“SEC”) rules and states that these services may not be performed by our independent registered public accountants. For permissible non-audit services, the Audit Committee has delegated pre-approval authority to the Audit Committee Chairman. In addition, the Audit Committee has approved annual maximum amounts for tax advisory and tax return services. No engagements are commenced until the Audit Committee Chairman’s approval has been received. All approved services are reported to the full Audit Committee at each quarterly meeting. In accordance with the foregoing, all services provided by KPMG LLP in 2012 were pre-approved by the Audit Committee.

10
 

AUDIT COMMITTEE REPORT

The Audit Committee maintains effective working relationships with the Board, management, the Company’s internal auditors and KPMG, LLP, the Company’s independent registered public accounting firm (the “Independent Accountants”). As set forth in the Audit Committee Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that our Company’s consolidated financial statements and disclosures are complete and accurate and in accordance with generally accepted accounting principles and applicable rules and regulations. The Independent Accountants are responsible for auditing the Company’s consolidated financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles and on the Company’s internal control over financial reporting.

The Audit Committee (1) has reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2012 with the Company’s management and with the Independent Accountants; (2) has discussed with the Independent Accountants the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and (3) has received the written disclosures and the letter from the Independent Accountants required by applicable requirements of the Public Company Accounting Oversight Board regarding the Independent Accountants’ communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the Independent Accountants the Independent Accountants’ independence and considered whether the provision of non-audit services by the Independent Accountants to the Company is compatible with Independent Accountants’ independence.

Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by management and the Independent Accountants. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audits of the Company’s consolidated financial statements have been carried out in accordance with generally accepted auditing standards, that the consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles or that the Company’s Independent Accountants are in fact “independent.”

Based upon the reviews and discussions described above, and subject to the limitations on the role and responsibilities of the Audit Committee referred to in this report and in the Audit Committee Charter, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Submitted by the Audit Committee of the Board:

   
Paul W. Schmidt (Chairperson) Janet K. Cooper
C. L. (Jerry) Henry Todd J. Teske
11
 

CORPORATE GOVERNANCE

Director Independence

Our Corporate Governance Guidelines require that a majority of our directors be “independent,” and that the Compensation & Human Resources, Board Governance and Audit Committees consist exclusively of independent directors as independence is defined under the NYSE listing standards, the Securities and Exchange Act of 1934 and any other applicable laws or regulations regarding independence. No director qualifies as “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with the Company.

Applying these standards, the Board has determined that a majority of our Board is independent and that all of the members of the Board’s standing committees consist exclusively of independent directors (see table below).

In making its determination as to the independence of our directors, the Board Governance Committee and the Board considered the following relationship:

Mr. Swienton served as the Chairman and Chief Executive Officer of Ryder System Inc., which provides transportation and logistics services to the Company in the ordinary course of business.

Board Meetings and Leadership Structure

The Board currently is comprised of 10 members, including 9 independent directors. Mr. Bluedorn serves as the Chairman of the Board and Chief Executive Officer (“CEO”). The Board has determined that Mr. Bluedorn’s position as Chairman aligns well with the role he serves between management and the Board of Directors, providing the Board with the benefit of management’s perspective on our business strategy and all other aspects of the business as the Board performs its oversight role. In March 2012, the Board amended our Corporate Governance Guidelines to create a Lead Director position, and elected Richard L. Thompson, the past Chairman, as Lead Director effective at the conclusion of the 2012 Annual Meeting. The Board believes the Lead Director position provides helpful guidance to the independent directors in their oversight of management. The Lead Director, among other things, presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, serves as liaison between the Chairman and the independent directors, assists the Chairman in planning agendas for Board meetings and advises on the quality of the information provided to the Board. The Lead Director also has the authority to call meetings of the independent directors, and, if requested by major shareholders, is available for consultation and direct communication.

The Board met six times in 2012. All directors attended in excess of 75% of the total number of meetings of the Board and committees of the Board on which they served. Our Corporate Governance Guidelines include a policy that Board members are expected to attend the annual meeting of stockholders. All of the individuals serving as directors at the time of our 2012 Annual Meeting of Stockholders attended the meeting, including each of the four Class III director nominees.

Risk Oversight and Compensation Risk Analysis

The Board oversees the Company’s processes to manage risk at the Board and senior management levels. The Audit Committee oversees the guidelines and policies that govern the Company’s processes to assess and manage significant enterprise risk exposure. While the Board and Audit Committee oversee the Company’s risk management, our management is responsible for the development, implementation, and maintenance of our risk management processes. Management provides periodic reports to the Board and Board committees, as appropriate, on its assessment of strategic, operational, legal and compliance, and financial reporting risks to the Company. The Board and Board committees, as appropriate, review and consider the management reports provided on the Company’s enterprise risk and risk management strategy.

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We have reviewed the Company’s compensation policies and practices to determine if risks arising from those policies and practices are reasonably likely to have a material adverse effect on the Company. Based on such review, we have not identified any risks arising from our compensation policies and practices that are reasonably likely to have a material adverse effect on the Company. For our executive compensation programs, we incorporate short-term and long-term incentive programs for cash and equity awards that are designed to reward successful execution of our business strategy and achievement of desired business results. Additionally, we have stock ownership requirements and clawback provisions to align the interests of our executive officers with the interests of our stockholders. For non-executive employees, we use a variety of incentive compensation programs to motivate our employees to attain individual goals and support the financial performance of the Company. All of our incentive compensation plans are reviewed at least annually by senior management.

Board Committees

The standing committees of the Board are as follows: Audit, Board Governance, Compensation and Human Resources, and Public Policy. The Board has adopted charters for each of these committees which are available on our website at http://www.lennoxinternational.com by following the links “About Us — Corporate Governance — Committee Charters.” Each of these Board committees is led by a different independent director and the members of each Board committee are all independent directors.

The following table provides current membership information for each of the Board committees and indicates which directors (who served during 2012) our Board determined are independent, as independence for directors is defined by the NYSE.

                     
Name   Independent   Audit   Board
Governance
  Compensation
and Human
Resources
  Public
Policy
Richard L. Thompson   X     X   X  
Todd M. Bluedorn          
Janet K. Cooper   X   X       X
C.L. (Jerry) Henry   X   X     X*    
John E. Major   X     X     X*  
John W. Norris, III   X       X     X*
Paul W. Schmidt   X     X*   X    
Terry D. Stinson   X     X   X  
Gregory T. Swienton   X       X   X
Todd J. Teske   X   X       X

 

   
*Committee Chairperson

Audit Committee

The Audit Committee acts pursuant to its written charter adopted by our Board. The Audit Committee assists the Board in fulfilling its oversight responsibilities relating to the integrity of our financial statements and related systems of internal controls, our compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance and the performance of our internal audit function. The Audit Committee also has the direct responsibility for the appointment, compensation, retention and oversight of our Independent Accountants.

The Board has determined that each Audit Committee member is independent, as independence for audit committee members is defined by the SEC and the NYSE, is “financially literate” as defined by the NYSE and has accounting or related financial management expertise. The Board has determined that Mr. Schmidt, Chairperson of the Audit Committee, is an audit committee financial expert as defined by the SEC. The Audit Committee met nine times in 2012.

Board Governance Committee

The Board Governance Committee assists the Board by identifying individuals qualified to become Board members, developing qualification criteria for Board membership, making recommendations to the Board regarding the appropriate size of the Board and appointment of members to the Board’s committees, developing and recommending to the Board the Corporate Governance Guidelines and code of conduct applicable to our Company, developing our Company’s director education programs, and overseeing the evaluation of our Board. The Board has determined that each member of the Board Governance Committee is independent as independence for directors is defined by the NYSE. The Board Governance Committee met four times in 2012.

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Compensation and Human Resources Committee

The Compensation and Human Resources Committee determines our compensation philosophy and oversees our compensation programs for our executive officers and the non-employee members of our Board. The Committee’s responsibilities include oversight of our short- and long-term incentive plans and our senior management succession plans. The Committee also reviews the funding requirements and investment policies for our defined benefit and defined contribution retirement plans, and the performance of investment funds, investment advisors and investment managers under those plans.

The Committee reports to the full Board on a regular basis and seeks Board approval for actions relating to Board compensation and independent director approval for the compensation of our CEO. Our CEO makes recommendations to the Committee with respect to various elements of executive compensation. See “Executive Compensation — Compensation Discussion and Analysis” for information concerning the Committee’s philosophy and objectives in overseeing executive compensation. The Board has affirmatively determined that each member of the Committee is independent as independence for compensation committee members is defined by the NYSE. The Board has also determined that each member of the Committee is a “non-employee director” for purposes of Section 16b-3 of the Exchange Act and is an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Committee met six times in 2012.

The Committee’s charter authorizes the Committee to retain third-party compensation consultants and to obtain advice and assistance from internal or external legal, accounting or other advisors. The Committee retains Frederic W. Cook & Co., Inc. (“Frederic W. Cook”) as its executive compensation consultant to provide objective analysis, advice and recommendations regarding the compensation of our executives and non-employee directors. Frederic W. Cook does not otherwise provide any other services for the Company. See “Executive Compensation — Compensation Discussion and Analysis” for further information regarding our executive compensation programs and the scope of services provided by Frederic W. Cook. The Committee has concluded that Frederic W. Cook’s work raises no conflicts of interest that require disclosure under Item 407(e)(3)(iv) of Regulation S-K.

Public Policy Committee

The Public Policy Committee is responsible for overseeing our Company’s environmental, health and safety issues, and our position on corporate social responsibility and public issues of significance that affect our stakeholders. The Board has determined that each Public Policy Committee member is independent, as independence for directors is defined by the NYSE. The Public Policy Committee met twice in 2012.

Director Nomination Process and Nominee Criteria

The Board is responsible for approving candidates for Board membership. The Board has delegated the director screening and recruitment process to the Board Governance Committee. In this capacity, the Board Governance Committee develops and periodically reviews the qualification criteria for Board membership, identifies new director candidates, and makes recommendations to the Board regarding the appropriate size of the Board and appointment of members to the Board’s committees. The Board Governance Committee typically retains a third-party search firm to assist in identifying and evaluating potential new director candidates. Qualifications required of individuals for consideration for Board membership will vary according to the particular areas of expertise, experience and skills being sought as a complement to the existing Board composition at the time of any vacancy.

Neither our Board nor our Board Governance Committee has a formal diversity policy. However, our Corporate Governance Guidelines provide that, when nominating new members to the Board, the Board will seek the best qualified candidates with consideration for diversity. This consideration may include diversity of experience, functional expertise and industry knowledge. Our Board of Director Qualification Guidelines further provide that the Board Governance Committee consider a candidate’s diversity of viewpoints in determining the particular qualifications desired for any new Board member.

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According to our Board of Director Qualification Guidelines, the Board Governance Committee considers the following factors in evaluating directors, in addition to such other factors that the Board Governance Committee deems relevant:

Personal Characteristics: leadership, integrity, interpersonal skills and effectiveness, accountability and high performance standards;
Business Attributes: high levels of leadership experience in business, substantial knowledge of issues faced by publicly-traded companies, experience in positions demonstrating expertise, including on other boards of directors, financial acumen, industry and Company knowledge, diversity of viewpoints and experience in international markets and strategic planning;
Independence: independence based on the standards established by the NYSE, the SEC and any other applicable laws or regulations;
Professional Responsibilities: willingness to commit the time required to fully discharge his or her responsibilities, commitment to attend meetings, ability and willingness to represent the stockholders’ long and short-term interests, awareness of our responsibilities to our customers, employees, suppliers, regulatory bodies and the communities in which we operate and willingness to advance his or her opinions while supporting the majority Board decision, assuming questions of ethics or propriety are not involved;
Governance Responsibility: ability to understand, and distinguish between, the roles of governance and management; and
Availability and Commitment: availability based on the number of commitments to other entities existing or contemplated by the candidate.

The full text of our qualification guidelines can be found on our website at http://www.lennoxinternational.com by following the links “About Us — Corporate Governance — Board of Director Qualification Guidelines.”

When a vacancy occurs on the Board, the Board Governance Committee may recommend to the Board a nominee to fill the vacancy, or alternatively may recommend that the vacancy remain. The Board Governance Committee also evaluates and recommends to the Board nominees for election to our Board at our Annual Meeting.

Stockholder Nominations for Director

The Board Governance Committee considers nominees for election to the Board recommended by stockholders in the same manner as other candidates. A stockholder wishing to nominate a candidate for election to the Board at a meeting of the stockholders is required to give written notice to our Corporate Secretary of his or her intention to make a nomination in accordance with the terms of our Bylaws. We must receive the notice of nomination at least 60 days but no more than 90 days prior to the Annual Meeting of Stockholders, or if we give less than 70 days’ notice of the Annual Meeting date, the notice of nomination must be received within 10 days following the date on which notice of the date of the Annual Meeting was mailed or such public disclosure was made to our stockholders.

Pursuant to our Bylaws, the notice of nomination is required to contain certain information about both the nominee and the stockholder making the nomination, including information sufficient to allow the Board Governance Committee to determine if the candidate meets our qualification criteria for Board membership. The Board Governance Committee may require that the proposed nominee furnish additional information in order to determine that person’s eligibility to serve as a director. A nomination that does not comply with the above procedure will be disregarded. Stockholder nominees whose nominations comply with the foregoing procedure and who meet the criteria described above under the heading “Director Nomination Process and Nominee Criteria” and in our Corporate Governance Guidelines will be evaluated by the Board Governance Committee in the same manner as the Board Governance Committee’s nominees.

15
 

Stockholder Communications with Directors

Stockholders may send written communications to the Board by email to directors@lennoxintl.com, or by regular mail to 2140 Lake Park Blvd., Richardson, Texas 75080, Attention: Board of Directors, c/o Corporate Secretary.

Stockholder communications received by the Corporate Secretary will be delivered to one or more members of the Board or management, as determined by the Corporate Secretary. Any allegations of accounting, internal controls or auditing-related complaints or concerns will be directed to the Chairman of the Audit Committee.

Interested parties may communicate with non-management directors of the Board by sending written communications to the addresses listed above to the attention of the Chairman of the Board.

Other Corporate Governance Policies and Practices

Code of Conduct

We have adopted a Code of Conduct that applies to all our directors and employees, including our senior financial and principal executive officers. Amendments to and waivers, if any, of our Code of Conduct as it pertains to our executive officers, will be disclosed on our website. Our Code of Conduct is available on our website at http://www.lennoxinternational.com by following the links “About Us — Corporate Governance — Code of Conduct.”

Corporate Governance Guidelines

We have adopted Corporate Governance Guidelines that are available on our website at http://www.lennoxinternational.com by following the links “About Us — Corporate Governance — Corporate Governance Guidelines.”

Executive Session Meetings

In accordance with our Corporate Governance Guidelines, the independent members of our Board, all of whom are non-management directors, meet regularly in executive session without the presence of management. The Lead Director chairs the executive session meetings of our independent directors.

Whistleblower Procedures

The Audit Committee has established procedures for the handling of complaints regarding accounting, internal accounting controls, or auditing matters, including procedures for confidential and anonymous submission by our employees of concerns regarding such matters.

Sustainability Report

The Company issued its first Sustainability Report this year.

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PROPOSAL 3:
ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS

The Company’s stockholders are entitled to vote at the Annual Meeting to approve the compensation of the Company’s named executive officers, or NEOs (“Say-on-Pay”), as disclosed in this Proxy Statement. The Say-on-Pay vote is a vote on the advisory resolution below, and it is not binding on the Company or the Board. Although the vote is non-binding, the Compensation and Human Resources Committee and the Board value the opinions of the stockholders and will consider the outcome of the vote when making future compensation decisions.

As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, the Company has designed its NEO compensation program to reward successful execution of our business strategy and achievement of desired business results, with a focus on creating alignment with the interests of our stockholders. Our program seeks to achieve these goals on an annual and long-term basis through a balanced combination of base pay, annual incentives and long-term incentives.

The annual incentive payout is based on Company financial performance metrics, and for NEOs that are business segment leaders, a combination of Company and business segment metrics. In addition, long-term incentives currently include: (i) stock appreciation rights (SARs), which are designed to incentivize NEOs to grow our business and deliver increased returns to our stockholders, (ii) restricted stock units (RSUs), which are designed to support our retention efforts, and (iii) performance shares units (PSUs), which are designed to link compensation to the Company’s financial performance as measured by Return on Invested Capital (a three-year weighted average) and Net Income (three-year compound annual growth rate).

The Company also has several governance programs in place to align executive compensation with stockholder interests and mitigate risks in its plans. These programs include: stock ownership guidelines, prohibition of employee hedging of Company stock, and a clawback policy. These programs are discussed in detail in the Compensation Discussion and Analysis section of this Proxy Statement.

In 2012, the Company continued to drive performance and stockholder value through its focus on innovation, productivity and disciplined use of cash. In this regard, some highlights of our 2012 performance are outlined below and are described in more detail in our Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ending December 31, 2012. These results have been adjusted for discontinued operations related to the divestiture of the Hearth business and the planned divestiture of the Service Experts business.

Diluted GAAP EPS from continuing operations of $2.63, up 26% from 2011; and
One-year stockholder return of 58% and three-year total stockholder return of 41% (in both cases, assuming reinvestment of dividends).

We are asking stockholders to approve the following advisory resolution at the Annual Meeting:

RESOLVED, that the compensation of the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.

The Say-on-Pay vote shall be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions will not be counted as either votes cast for or against the proposal. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote FOR the approval of the compensation of the NEOs.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
COMPENSATION OF THE NEOS AS DISCLOSED IN THIS PROXY STATEMENT.

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EXECUTIVE COMPENSATION

Compensation Discussion And Analysis

Executive Summary

LII’s executive compensation program is designed to attract, retain and motivate leadership talent, align executive compensation with short- and long-term business goals, maintain market competitiveness and drive increased stockholder value. Set forth below are highlights of our 2012 financial performance and how our executive compensation program is linked directly to our performance.

2012 Financial Highlights

In 2012, the Company continued to drive performance and shareholder value through its focus on innovation, productivity and a disciplined use of cash. These results have been adjusted for discontinued operations related to the divestiture of the Hearth business and the planned divestiture of the Service Experts business as described in more detail in our Form 10-K for the year ending December 31, 2012.

Net sales up 4% from 2011 to approximately $2.95 billion
Diluted GAAP EPS from continuing operations of $2.63, up 26% from 2011
One-year stockholder return of 58% and three-year total stockholder return of 41% (in each case, assuming reinvestment of dividends)
Cash generated from operations of $221 million, up from $76 million in 2011

Pay for Performance Linkage

LII’s pay for performance linkage is demonstrated through both our annual incentive compensation program and our long-term incentive program. As such, we did not implement any major changes to our executive compensation program in 2012. Highlights of our short-term and long-term incentive programs and how they are linked to our pay-for-performance philosophy include:

85% of our CEO’s compensation is designed as variable – either tied to annual or long-term incentive compensation
70% of our NEOs’ long-term incentive compensation is performance-based, with the remainder provided as RSUs for retention purposes
CEO compensation (as shown in the Summary Compensation Table) was up approximately 39% in 2012, following an 18% decrease in 2011. The 2012 compensation increase was driven mostly by higher variable compensation – and is supported by our one-year stockholder return of 58% and our three-year stockholder return of 41%
Actual payouts under our Performance Share Unit (“PSU”) Program have ranged from 0% to 86.9% of target over the last three completed performance cycles (each spanning three years) while stockholder return over that same five-year period has increased almost 38% (assuming reinvestment of dividends)

Overview

This Compensation Discussion and Analysis (“CD&A”) describes the philosophy and objectives of the compensation programs for our NEOs. The Compensation and Human Resources Committee of the Board (the “Committee”) establishes and administers our executive compensation programs, practices and policies. The Committee receives input from management and its executive compensation consultant, and considers competitive practices, our business objectives, stockholder interests, regulatory requirements and other relevant factors to develop our executive compensation programs. The Committee reviews, modifies and approves, as appropriate, our executive compensation programs in an effort to provide market-competitive compensation for our executive officers.

18
 

The Committee also monitors the results of the Say-on-Pay vote and considers those results in determining compensation policies and decisions. At our 2012 Annual Meeting, over 80% of votes cast on the Say-on-Pay resolution approved the compensation program described in our 2012 proxy statement. Our Say-on-Pay approval declined slightly from the prior year’s results, and management responded by initiating discussions with proxy advisors and investors to better understand investors’ issues and views concerning executive compensation.

Executive Compensation Philosophy and Key Objectives

Pay-for-Performance

We maintain a pay-for-performance compensation philosophy designed to reward successful execution of our business strategy and achievement of desired business results, with a focus on aligning compensation with the interests of our stockholders. When our financial results exceed expected performance, monetary rewards to our executive officers generally pay out at higher levels. When our financial results fall below expected performance, monetary awards to our executive officers generally pay out at lower levels.

Recent payouts under our short-term incentive program demonstrate the strong link between Company performance and actual payments made to our executive officers. In 2012, overall Company performance exceeded expectations and, as a result, our NEOs experienced above target annual incentive compensation payouts. In 2011, when the Company performed below expectations, annual incentive compensation payouts were less than 15% of those in 2012. These results are consistent with our pay-for-performance approach, which we believe motivates the type of results-oriented culture we strive to achieve at the Company. The graph below further depicts our adherence to a pay-for-performance philosophy by showing changes in annual CEO compensation (using Summary Compensation Table totals) versus changes in total shareholder return (“TSR”) over the last several years.

     
(BAR CHART)   $ amounts are in thousands. TSR represents the
change in a $100 investment from the end of fiscal
year 2007, assuming reinvestment of dividends.

Key Strategic Objectives

The strategic objectives of our executive compensation programs are to:

attract, retain and motivate top executive talent;
align with the achievement of short-term and long-term business goals;
maintain market-competitive executive compensation programs; and
drive increased stockholder value by maintaining a strong alignment between pay and performance.
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The following table lists each element of executive compensation and how the Committee believes it correlates to our compensation philosophy and key objectives.

                         
Executive Compensation Elements   Attract
Top
Talent
  Retain &
Motivate
Top
Talent
  Achieve
Short-
Term
Goals
  Achieve
Long-
Term
Goals
  Maintain
Market
Competiveness
  Pay for
Performance
Base Salary   ü   ü           ü    
Short-Term Incentive Program   ü   ü   ü       ü   ü
Long-Term Incentive Program                        
Performance Share Units   ü   ü       ü   ü   ü
Restricted Stock Units   ü   ü           ü    
Stock Appreciation Rights   ü   ü   ü   ü   ü   ü
Perquisites   ü   ü           ü    
Benefit Programs   ü   ü           ü    

Competitive Compensation

Market Analysis

To maintain a market-competitive program, the Committee uses benchmarking data when establishing executive compensation. Benchmarking against a representative peer group assists us in assessing the competitiveness of our executive compensation programs.

Our Company’s compensation peer group, as reviewed and approved by the Committee, includes the following 15 companies and is unchanged from the prior year (the “Compensation Peer Group”):

               
A. O. Smith Corporation   Flowserve Corporation   Rockwell Automation, Inc.
Acuity Brands, Inc.   Gardner Denver, Inc.   Snap-On Incorporated
Armstrong World Industries, Inc.   Kennametal Inc.   SPX Corporation
Briggs & Stratton Corporation   Owens Corning   The Timken Company
Dover Corporation   Pentair, Inc.   USG Corporation

The Committee selected the members of our Compensation Peer Group using the following criteria:

industry—building products, electrical components/equipment, household appliances and industrial machinery;
revenues of approximately 0.5 to 2.0 times our revenues;
business and product mix similar to ours; and
international presence and operations.

Although other potential peer companies fit these selection criteria, the Committee has a strong preference for year-over-year consistency, when possible, for our Compensation Peer Group.

In addition to comparing our executive officer compensation to the compensation provided by our Compensation Peer Group, we also reference published compensation data from compensation databases and other studies of compensation trends and practices (with all such data and practices, including our Compensation Peer Group, collectively referred to as the “Market”).

Pay Positioning and Compensation Mix

For 2012, the Committee targeted base salary for our NEOs at the 50th percentile of the Market. The Committee set short-term incentive opportunities and long-term incentive planning values between the 50th – 65th percentiles of the Market and included stretch performance goals, allowing us to maintain a strong pay-for-performance link while attracting and retaining leadership talent.

20
 

The Committee granted a majority of total compensation to our NEOs in the form of non-cash long-term incentive awards. The graphs below illustrate the 2012 target compensation mix for the CEO and the average target compensation mix for the other NEOs.

     
CEO - Target Compensation Mix   Other NEOs - Target Compensation Mix
     
(PIE CHART)   (PIE CHART)

We apply similar methodologies in setting compensation and determining the compensation mix for our CEO as we apply for our other NEOs, but our CEO’s target compensation mix has a slightly greater percentage of “at-risk” performance-based incentive compensation, largely due to his broad influence on Company performance.

Process for Determining Named Executive Officer Compensation

Role of Management

The Committee obtains input from various members of management when making executive compensation decisions. The CEO makes recommendations to the Committee with respect to all of the elements of compensation to be offered to each of the other executive officers. Recommendations are developed in consultation with the Chief Human Resources Officer and the Committee’s compensation consultant, and are considered with relevant Market data. The Committee then determines and approves the final compensation elements and amounts to be provided to the Company’s executive officers. The CEO does not make any recommendations regarding his own compensation.

In March 2012, the Board changed the process for approving CEO compensation. As a result of this change, the independent members of the Board (rather than the Committee) have direct responsibility for approving CEO compensation. The Committee reviews and recommends proposed changes to CEO compensation to the independent members of the Board for approval.

Role of the Executive Compensation Consultant

In 2012, the Committee engaged Frederic W. Cook to provide analysis, advice and recommendations on executive compensation to the Committee. Frederic W. Cook does not otherwise provide any other services for our Company. At the Committee’s request, Frederic W. Cook performed the following services for the Committee in 2012:

reviewed and opined on our executive compensation philosophy;
reviewed and opined on our Compensation Peer Group;
provided and analyzed data for various elements of executive compensation;
reviewed and opined on our executive and Board compensation programs; and
presented executive compensation trends and regulatory updates to the Committee.

The Committee analyzed and considered the information provided by management and Frederic W. Cook to determine the appropriate program design and the level and mix of each compensation element for the NEOs.

21
 

Components and Analysis of 2012 Executive Compensation

Base Salary

In establishing each NEO’s annual base salary, the Committee considered salary data for the Market, each individual’s experience and responsibilities, our annual merit budget, achievement of performance objectives, internal equity and recommendations provided by the CEO for his direct reports.

The following table provides detail regarding 2012 and 2013 base salaries for each NEO:

Name  Title  2012
Annualized
Base Salary
   Increase
Effective
April 1, 2013
   2013
Annualized
Base Salary
 
Todd M. Bluedorn  Chairman and Chief Executive Officer  $980,000    2.0 %   $1,000,000 
Joseph Reitmeier  EVP, Chief Financial Officer   370,000    4.1      385,000 
Douglas L. Young  EVP, President and Chief Operating Officer, Residential Heating and Cooling   430,000    11.6      480,000 
David W. Moon  EVP, President and Chief Operating Officer, Worldwide Refrigeration   395,000    13.9      450,000 
Daniel M. Sessa  EVP, Chief Human Resources Officer   420,000    3.6      435,000 

In setting NEO base salaries, the Committee used the 50th percentile of the Market as a guideline. The base salary was set within a reasonable range of this guideline for each NEO.

Mr. Moon’s and Mr. Young’s base salaries were increased more than the other NEOs 1) in an effort to better align with the Market, and 2) in recognition of the scope and complexity of their roles.

Short-Term Incentive Program

Our short-term incentive program is an annual cash-based program for our executive officers designed to reward the successful performance of our Company, our business units and each individual. Early each year, the CEO proposes to the Committee, for review and approval, the financial metrics and performance goals that must be achieved for any payouts to be made under our short-term incentive program. The 2012 short-term incentive program is funded based on performance against the financial goals, which follow. The 2012 short-term incentive awards were based 75% on financial performance and 25% on each NEO’s individual performance.

Financial Performance.   The following table summarizes the performance goals and payout opportunities under our 2012 short-term incentive program, along with the actual Company and business unit performance for each metric.

2012 Short-Term Incentive Program Summary — Financial Performance
($ in millions)

Name(1)  Metric  Weight  Threshold   Target   Maximum   Actual 
All  Company Core Net Income(2)  60%  $96,239   $120,299   $138,344   $121,102 
   Free Cash Flow(3)  40%   72,100    103,000    133,900    171,200 
Payout Opportunity as a % of Target    50%   100%   225%     
Mr. Young  Segment Profit(4)  70%  $78,065   $93,157   $98,982   $108,998 
    Segment Controllable Cash Flow(5)  30%   65,368    81,710    98,052    106,461 
Payout Opportunity as a % of Target     50%     100%   225%    
Mr. Moon  Segment Profit(4)  70%  $83,173   $95,908   $105,459   $83,877 
    Segment Controllable Cash Flow(5)  30%   68,504    85,630    102,756    72,476 
Payout Opportunity as a % of Target      50%   100%   225%     

 

   
(1)All NEOs except Mr. Young and Mr. Moon were measured 100% on overall Company financial performance, which earned a 153% of target payout factor. Because Mr. Young is the President of our Residential Heating and Cooling segment, his award was measured 50% on Residential Heating and Cooling’s financial performance and 50% on overall Company financial performance. Residential Heating and Cooling’s financial performance resulted in a 225% payout, which when blended with our Company financial performance of 153% resulted in a payout as a percentage of target of 189%. Because Mr. Moon is the President of our Refrigeration segment, his award is measured 50% on Refrigeration’s financial performance and 50% on overall Company financial performance. Refrigeration’s financial performance resulted in a 55% payout, which when blended with our Company financial performance of 153% resulted in a payout as a percentage of target of 104%.
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(2)We calculate Company core net income, which is a non-GAAP financial measure used only for incentive compensation purposes, as income from continuing operations, adjusted for 2012 restructuring charges, certain product quality adjustments, certain legal contingency adjustments, unrealized gains on open futures contracts, and certain other items. The operating losses attributable to the planned Service Experts business divestiture were included in Company core net income.
(3)We calculate free cash flow, which is a non-GAAP financial measure used only for incentive compensation purposes, as net cash provided by operating activities less purchases of property, plant and equipment.
(4)We calculate segment profit, which is a non-GAAP financial measure used only for incentive compensation purposes, as earnings from continuing operations for the applicable segment before interest expense, other expenses, net and income taxes, adjusted for 2012 restructuring charges, certain product quality adjustments, certain legal contingency adjustments, unrealized gains on open futures contracts, and certain other items.
(5)We calculate controllable cash flow, which is a non-GAAP financial measure used only for incentive compensation purposes, as segment profit, defined above, less purchases of property, plant and equipment, plus or minus changes in accounts receivable, inventory and accounts payable.

Individual Performance.   The Committee considers individual performance in addition to financial performance in order to further align pay with performance. After an NEO’s short-term incentive payout is calculated, based on Company and segment financial performance as described above, that result may be decreased by as much as 25%, or increased by up to 56.25% to account for individual performance. The individual performance component is measured against specific financial, operational, strategic, and leadership objectives established for each NEO in advance of the performance measurement period as part of our performance management process. After the end of the fiscal year, the CEO reviews with the Committee the extent of achievement of these objectives by each NEO. The Committee then determines and approves the individual performance component for each executive officer. Based on the Committee’s review of the CEO’s performance, the Committee recommended to the independent members of the Board and the Board approved an increase in Mr. Bluedorn’s short-term incentive payout to 170% of target. Mr. Moon and Mr. Sessa also received payout adjustments based on their individual performance, resulting in an actual payout for Mr. Moon of 148% and Mr. Sessa of 170%.

Targets and Payouts.   Under the short-term incentive program, target payout opportunities are determined as a percentage of base salary. The target payout opportunities are based on Market data using the 50th – 65th percentiles as a guideline. Each NEO’s target percentage fits within this guideline.

Based on analysis of the Market data and internal equity considerations, the Committee set the following short-term incentive targets for 2012. Based on actual financial and individual performance, the Committee approved the following 2012 payouts for each NEO:

2012 Short-Term Incentive Targets and Payouts

 

Name  2012 STI Target as a
% of Base Salary
   2012 STI Target   2012 STI Payout   2012 STI Payout as a
% of Target
 
Mr. Bluedorn   125 %   $1,202,582   $2,044,039    170 % 
Mr. Reitmeier (1)   40 / 70      168,130    286,143    170   
Mr. Young   70      298,725    565,098    189   
Mr. Moon   70      272,125    404,017    148   
Mr. Sessa   70      291,375    495,337    170   

 

   
(1)Mr. Reitmeier was promoted to CFO in July 2012 and previously served as the finance leader for our Commercial Heating and Cooling segment. His 2012 STI payout was pro-rated to reflect the two roles he held in 2012.
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The Committee may, in its discretion, modify the short-term incentive program to account for unusual events or revised business objectives that occur during the performance period. The Committee did not make any such modifications in 2012.

We include the short-term incentive payments made to the NEOs for 2012, which were approved by the Committee on February 28, 2013 and paid on March 15, 2013, in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.”

Long-Term Incentive Program

We have a long-term incentive program designed to incent those employees who have principal responsibility for our long-term profitability. We believe participation in our long-term incentive program helps align the interests of our NEOs with the interests of our stockholders.

We use a mix of PSUs, restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) in our long-term incentive program. PSUs and SARs reward performance, as measured by achievement of specified financial objectives for PSUs and stock price growth for SARs. RSUs help us to retain key members of management because of their time-based vesting. The Committee allocated the mix of elements in our long-term incentive program in a manner designed to drive Company performance, retain key talent, and provide competitive compensation.

For 2012, the long-term incentive allocations for our NEOs were as follows:

     
Award Vehicle   Performance vs. Time-Based Allocation
     
(PIE CHART)   (PIE CHART)

The Committee determines the grant date for all long-term incentive awards. The Committee generally grants awards on an annual basis at its regularly scheduled December meeting. Although awards may be granted in special circumstances or upon hire for certain executives, no out-of-cycle grants were made to any NEO in 2012. The Committee does not coordinate the grant date for any award with the release of material non-public information. The Committee sets the exercise price of our SARs at 100% of fair market value, which is defined as the average of the high and low NYSE trading prices of our common stock on the date of grant.

The target planning values under our long-term incentive program are based on publicly available Market data for similar executive officer positions using the 50th – 65th percentiles as a guideline. In December 2012, the Committee established the target planning values between the 50th – 65th percentiles of the Market, which reflected an increase of approximately 10% from prior year planning values – the first program increase since 2005. When determining the actual award sizes for each NEO, the Committee considered the NEO’s time in position, individual performance and potential, the NEO’s impact on the financial performance of our Company, internal equity, and the number of shares available for grant under the Lennox International Inc. 2010 Incentive Plan, as amended and restated (the “LII Incentive Plan”).

Once the Committee determined the actual long-term incentive planning value for each NEO for the 2012 grants, 50% of the value was provided as PSUs, 30% as RSUs and 20% as SARs.

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The following table summarizes the planning values and number of awards granted for each NEO:

 

   December 2012 Planning Value   Number of Awards Granted 
Name  PSUs   RSUs   SARs   Total   PSUs(1)   RSUs(1)   SARs(2)   Total 
Mr. Bluedorn  $2,037,500   $1,222,500   $815,000   $4,075,000    39,995    23,997    56,014    120,006 
Mr. Reitmeier (3)   350,000    210,000    140,000    700,000    6,870    4,122    9,621    20,613 
Mr. Young   550,000    330,000    220,000    1,100,000    10,796    6,477    15,120    32,393 
Mr. Moon   550,000    330,000    220,000    1,100,000    10,796    6,477    15,120    32,393 
Mr. Sessa   500,000    300,000    200,000    1,000,000    9,814    5,888    13,745    29,447 

 

   
(1)The specific number of PSUs and RSUs granted were determined by dividing the corresponding planning value by the fair market value of our common stock on the NYSE averaged over the 30 calendar days ending on November 28, 2012 ($50.944).
(2)The specific number of SARs granted was determined by dividing the corresponding planning value by the Black-Scholes value of our common stock based on the 30 calendar day average of our common stock as of November 28, 2012 ($14.550).
(3)Mr. Reitmeier’s planning value and number of awards granted reflect his recent promotion to CFO in July 2012.

PSUs.   To maintain our strong focus on long-term Company performance, we granted 50% of the December 2012 long-term incentive award in the form of PSUs. PSUs generally vest at the end of a three-year performance period. If the threshold performance level has been achieved at the end of the performance period, the PSUs, to the extent earned, are distributed in the form of Company common stock. Dividends are not earned or paid on PSU awards during the three-year performance period. The Committee determines the measurement criteria annually, in consultation with the CEO, and in consideration of the financial metrics selected for the short-term incentive program as well as other metrics that enhance stockholder value. The Committee certifies the financial performance levels following the end of the performance period and the Company distributes any earned shares. We believe that the degree of difficulty in achieving these metrics is challenging.

The following table summarizes the key attributes of the PSUs granted in December 2009, which vested on December 31, 2012, and sets out the financial performance goals and payout opportunities versus actual performance.

December 2009 PSU Grant
(for the January 1, 2010 — December 31, 2012 Performance Period)

                                 
Metric (1)   Weight   Measurement Period   Threshold   Target   Maximum   Actual
Return on Invested Capital (“ROIC”)   50%   3-year weighted average (20% lowest year, 40% other two years)   15 %   19 %   23 %   16.5 %
Company Core Net Income   50%   3-year compound annual growth rate   -10 %   6 %   12 %   6.3 %
Payout as a % of Target Award           50 %   100 %   200 %   86.9 %

 

   
(1)We calculate net operating profit after tax (NOPAT), which is a component of ROIC and a non-GAAP financial measure used only for incentive compensation purposes, as income from continuing operations, adjusted for restructuring charges, certain product quality adjustments, certain legal contingency adjustments, unrealized gains on open futures contracts and certain other items. The operating losses attributable to the Hearth business divestiture and the planned Service Experts divestiture were included in both Company core net income and NOPAT. The earnings and acquisition-related costs attributable to the Kysor/Warren acquisition, which occurred after the performance period began, were excluded from Company core net income and NOPAT.

In 2012, NEOs earned an 86.9% of target payout for the PSUs granted in December 2009. The payout value is reflected in the Fiscal 2012 Option Exercises and Stock Vested Table in the “Stock Awards — Value Realized on Vesting” column.

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The following table summarizes the key attributes of the PSUs granted in December 2012. The Committee established the ROIC performance goals based on its assessment of desired return relative to the cost of capital as well as historical and projected ROIC outcomes. Similarly, the Committee set our Company core net income growth performance goals based on historical results, projected outcomes of that measure, and expected market conditions. While specific forward-looking performance goals are not included in the table below in light of competitive sensitivities, the performance standards are similar to those disclosed for prior completed cycles.

December 2012 PSU Grant
(for the January 1, 2013 — December 31, 2015 Performance Period)

                           
Metric   Weight   Rationale for
Selection
  Measurement Period   Threshold   Target   Maximum
ROIC   50%   Measures
efficient use of
capital; higher
ROIC correlates
to greater cash
flow
  Three-year weighted
average (20% lowest year, 40% other two years)
  No payout occurs unless ROIC exceeds LII’s estimated cost of capital
Company Core
Net Income
Growth
  50%   Measures
profitability;
higher Company
core net income
correlates with
higher earnings
per share
  Three-year compound
annual growth rate
  Maximum payout requires mid-teens core net income
compound annual growth rate
Payout as a % of Target Award       50%   100%   200%

The PSUs granted to our NEOs in 2012 are included in the Fiscal 2012 Grants of Plan-Based Awards Table in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column.

RSUs.   To support our retention efforts, the Committee granted the NEOs 30% of the December 2012 long-term incentive award in the form of RSUs. RSUs generally vest and are distributed in shares of our common stock three years following the date of grant if the recipient remains an employee of the Company and all other conditions of the award are met. Dividends are not earned or paid on RSUs during the three-year vesting period. The number of shares underlying RSUs granted to our NEOs in 2012 is included in the Fiscal 2012 Grants of Plan-Based Awards Table in the “All Other Stock Awards: Number of Shares of Stock or Units” column.

SARs.   To incentivize NEOs to grow our business and deliver increased returns to our stockholders, the Committee granted the NEOs 20% of the December 2012 award in the form of SARs. SARs vest in one-third increments on each anniversary of the date of grant. Upon the exercise of vested SARs, the increase, if any, between the fair market value of our common stock on the date of grant and the fair market value on the date the SAR is exercised is paid in Company common stock. The grant date fair value and the SAR exercise price are determined on the actual date of grant. SARs granted in 2012 expire seven years from the date of grant. The number of SARs granted to our NEOs in 2012 is included in the Fiscal 2012 Grants of Plan-Based Awards Table in the “All Other Option Awards: Number of Securities Underlying Options” column.

Perquisites

We believe providing reasonable perquisites is a market-competitive practice to attract and retain top executive talent. However, rather than offering individual perquisites, we provide a monthly cash stipend to allow our executive officers more flexibility and choice. Our executive officers have full discretion on how the cash stipend is spent and it is not tracked by the Company after the money is paid. In addition, we offer the installation of Company products and equipment at each executive officer’s home to promote our brand to both business and personal guests.

Benefit Programs

To attract and retain top executive talent and as a market-competitive practice, we provide certain benefit programs to our NEOs that are in addition to those provided to our employees generally. The following table summarizes the additional benefit programs in place during 2012 and the purpose of each program. The aggregate change in the actuarial present value of accumulated pension benefits (as shown in the Summary Compensation Table) that accrued during 2012 under our Supplemental Retirement Plan is mostly due to changes in the valuation discount rate.

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Additional Benefit Programs Offered to NEOs in 2012

         
Plan   Type   Purpose
Supplemental Retirement Plan   Non-Qualified Defined Benefit   Provide market-competitive executive level retirement benefit opportunity by providing higher accruals and permitting accruals that otherwise could not occur because of the Code limitations on compensation.
Life Insurance Plan   Company-Sponsored Life Insurance   Provide market-competitive executive level life insurance benefits; minimum of $3 million in coverage for CEO and minimum of $1 million for other NEOs.

Additional Information Regarding Executive Compensation

Following are descriptions of other agreements and policies that are important to a stockholder’s understanding of the Company’s overall executive compensation program structure.

Employment Agreements and Change in Control Agreements

We have employment agreements and change in control (“CIC”) agreements with each NEO that have been reviewed and approved by the Committee. We believe employment agreements are necessary to attract and retain top executive talent and for financial and business planning purposes. We believe CIC agreements are necessary to (1) retain key executives during periods of uncertainty; (2) enable executives to evaluate, negotiate and execute a CIC transaction more objectively; (3) encourage executives to remain focused on running the business rather than seeking other employment in the event of a possible CIC; (4) preserve stockholder value by providing continuity of management during a transition period; and (5) provide benefit to the Company in the form of restrictive covenants, such as non-competes and non-solicitation provisions.

Since we pay compensation under our CIC agreements only if defined triggering events occur, we evaluate compensation to be provided under these agreements in isolation from the rest of the NEO’s compensation package. Our employment agreements and CIC agreements, and the potential costs associated with each, are discussed in detail under “Potential Payments Upon Termination or Change in Control.”

Stock Ownership Guidelines

The Company has stock ownership guidelines for the CEO and other executive officers. We believe stock ownership by executives helps align the interests of the executives with the interests of our stockholders and motivates the executives to build long-term stockholder value. For purposes of the guidelines, ownership includes shares of Company common stock and RSUs that have not yet vested, but does not include PSUs or SARs.

The following chart sets forth, as of December 31, 2012, for each NEO, the stock ownership requirements as a percentage of base salary, the total number of shares counted toward the stock ownership requirements, the value of the shares counted toward the stock ownership requirements as a percentage of base salary and the deadline for compliance with the stock ownership requirements. All NEOs currently meet our stock ownership guidelines, except for Mr. Reitmeier who was subject to these guidelines for the first time when he was promoted in July 2012.

               
             Current Level of Stock Ownership     
Name  Ownership
Requirement as a % of
Base Salary
      Total Number of
Shares
     Stock Ownership as % of
Base Salary (1)
      Deadline for
Compliance with Stock
Ownership Guidelines
Mr. Bluedorn   500 %   214,294     970 %   December 31, 2014
Mr. Reitmeier   300     7,322     88     July 17, 2017
Mr. Young   300     81,789     844     December 31, 2014
Mr. Moon   300     73,970     831     December 31, 2014
Mr. Sessa   300     54,949     581     December 31, 2014
                 

 

   
(1)Based on the average daily closing price for 2012 of $44.38.
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The Committee oversees and administers the stock ownership guidelines. In the event an executive officer fails to meet the guidelines by the compliance deadline, the Committee will determine any appropriate action or corrective measures to be taken.

Clawback Policy

Our Company has a formal incentive compensation clawback policy for the CEO and other executive officers. Under this policy, in the event of any fraud or misconduct that results in a restatement of our Company’s financial results within three years of the filing of the original financial results, the Committee has the right to recoup and cancel cash and equity-based incentive compensation of each person involved in such fraud or misconduct.

Prohibition on Hedging Policy

The Company’s Insider Trading Policy prohibits directors, executive officers and all other employees from trading in any interest, security or position relating to the future price of Company securities, such as a put, call, swap, short sale, hedge or any other type of derivative security. It also prohibits directors, executive officers and all other employees from pledging Company securities as collateral for a loan, which would include the purchases of Company securities on margin.

Tax and Accounting Implications

Section 162(m) Compliance

The Committee carefully considers the income tax consequences to our Company when analyzing our executive compensation programs. Section 162(m) of the Code limits a Company’s ability to deduct compensation paid in excess of $1 million to certain NEOs, unless the compensation meets certain stockholder-approved performance requirements. The Committee has designed several elements of our executive compensation programs to qualify for the “performance-based” exemption. For example, our short-term incentive program, PSUs and SARs are performance-based and exempt from the limitations imposed by Section 162(m) of the Code. If granting awards or providing other executive compensation is consistent with Market data, our compensation philosophy or our strategic business goals, the Committee may provide executive compensation that is not fully deductible. For example, our awards of RSUs meet our objective of key talent retention, but do not meet the performance-based exemption.

Nonqualified Deferred Compensation

In addition to the non-qualified Supplemental Retirement Plan discussed previously, our Company also maintains a frozen non-qualified Profit Sharing Restoration Plan. Both of these deferred compensation plans are administered in compliance with Section 409A of the Code.

Accounting for Stock-Based Awards

When developing each element of NEO compensation, the Committee considered the accounting consequences (in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”)) of the program design and award levels. The Committee reviewed accounting cost models and structured our executive compensation programs in a manner that considered the cost and benefits of the various program elements.

Compensation Committee Report

The Compensation and Human Resources Committee has reviewed and discussed the foregoing CD&A with management. Based on this review and discussion, the Committee recommended to the Board that the CD&A be included in this Proxy Statement and incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the SEC on February 15, 2013.

Submitted by the Compensation and Human Resources Committee of the Board:

   
John E. Major (Chairperson) John W. Norris, III
Terry D. Stinson Gregory T. Swienton
  Richard L. Thompson
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Summary Compensation Table

The following table provides information regarding the total compensation of each of the Company’s NEOs for the fiscal years ended December 31, 2012, 2011 and 2010.

                                                         
Name and Principal Position     Year   Salary
($)
  Bonus
($)
  Stock
Awards
($)(1)
  Option
Awards
($)(2)
  Non-Equity
Incentive Plan
Compensation
($)
  Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(3)
  All
Other
Compensation
($)(4)
  Total
($)
Todd M. Bluedorn   2012   962,065     0     3,126,329     808,618     2,044,039     914,960     45,227     7,901,238
Chairman and Chief Executive Officer   2011   861,700     107,713     2,960,377     781,107     0     917,728     46,335     5,674,960
    2010   867,000     0     2,873,155     745,475     1,897,065     485,880     47,545     6,916,120
Joseph W. Reitmeier (5)   2012   293,137     0     533,892     137,869     286,143     14,192     38,489     1,303,722
Executive Vice President                                                  
and Chief Financial Officer                                                  
Douglas L. Young   2012   426,750     0     838,967     216,670     565,098     754,410     47,904     2,849,799
Executive Vice President and Chief   2011   397,320     27,812     680,091     179,442     0     578,270     46,082     1,909,017
Operating Officer, Residential H&C   2010   401,377     0     649,351     168,478     462,500     463,459     45,407     2,190,573
David W. Moon   2012   388,750     0     838,967     216,670     404,017     305,328     45,228     2,198,960
Executive Vice President,   2011   350,200     0     680,091     179,442     148,083     394,464     45,316     1,797,597
President and Chief Operating Officer,                                                  
Worldwide Refrigeration                                                  
Daniel M. Sessa   2012   416,250     0     762,662     196,966     495,337     294,238     45,444     2,210,897
Executive Vice President   2011   385,550     53,977     680,091     179,442     0     256,989     45,380     1,601,430
and Chief Human Resources Officer   2010   388,444     0     649,351     168,478     495,802     145,711     45,705     1,893,492
Robert W. Hau (6)   2012   270,417     0     0     0     0     0     32,500     302,917
Former Executive Vice President   2011   433,050     60,627     680,091     179,442     0     454,977     45,347     1,853,535
and Chief Financial Officer   2010   436,250     0     649,351     168,478     556,821     0     555,450     2,366,350
                                                                       

 

   

 

(1)The amounts shown represent the grant date fair value of the aggregate amount of all stock awards (prior to any assumed forfeitures related to service-based vesting conditions, where applicable) for each year, in accordance with FASB ASC Topic 718, in connection with RSUs and PSUs granted under the LII Incentive Plan. Assumptions used in calculating these amounts are described in Note 14 of the Consolidated Financial Statements for the year ended December 31, 2012, included in our Form 10-K for that year filed with the SEC on February 15, 2013. Amounts for 2012 PSUs reflect the most probable outcome for the awards at December 31, 2012 valued at the date of grant in accordance with FASB ASC Topic 718. If the PSUs were valued at maximum performance levels, the total PSU value at grant date would equal:
               
Name   Year   PSU Value at Maximum
Performance Levels ($)
Todd M. Bluedorn   2012     3,907,911  
    2011     3,700,495  
    2010     3,591,433  
Joseph W. Reitmeier   2012     667,366  
Douglas L. Young   2012     1,048,745  
    2011     850,098  
    2010     811,689  
David W. Moon   2012     1,048,745  
    2011     850,098  
Daniel M. Sessa   2012     953,352  
    2011     850,098  
    2010     811,689  
Robert W. Hau   2012     0  
    2011     850,098  
    2010     811,689  

 

(2)The amounts shown represent the grant date fair value of the aggregate amount of all SAR awards (prior to any assumed forfeitures related to service-based vesting conditions, where applicable) for each year, in accordance with FASB ASC Topic 718, in connection with SARs granted under the LII Incentive Plan. Assumptions used in calculating these amounts are included in Note 14 of the Consolidated Financial Statements for the year ended December 31, 2012, included in our Form 10-K for that year filed with the SEC on February 15, 2013.
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(3)The amounts shown represent the aggregate change in the actuarial present value of accumulated pension benefits that accrued during the applicable year under our Supplemental Retirement Plan and frozen Consolidated Pension Plan, each as discussed below, as a result of changes in the valuation discount rate, changes in compensation, and an additional one year of service. No above-market interest on nonqualified deferred compensation was earned.
(4)The amounts shown include perquisites and other compensation. The following table identifies the separate amounts attributable to each category of perquisites and other compensation in 2012 for each NEO.
                                                     
      Perquisites   Other Compensation  
Name   Cash
Stipend
  Company
Equipment
and Installation
  Matching
Charitable
Contributions
  Term Life
Insurance
Premiums
  Retirement
Contributions
  Total
Todd M. Bluedorn     $ 30,000                 $ 227       $ 15,000     $ 45,227
Joseph W. Reitmeier       22,417           $500         821         14,751       38,489
Douglas L. Young       30,000     $2,746               158         15,000       47,904
David W. Moon       30,000                   228         15,000       45,228
Daniel M. Sessa       30,000     313               131         15,000       45,444
Robert W. Hau       17,500                   0         15,000       32,500

The values attributable to each item listed above are calculated as follows:

Cash Stipend — based on actual cash paid to each NEO in lieu of individual perquisites.
Company Equipment and Installation — Company equipment is based on the purchase price of the equipment, adjusted in accordance with our employee rebate program, and installation of such equipment is based on the incremental cost for installation paid by the Company in 2012.
Matching Charitable Contributions — we offer an employee matching charitable contribution program to all employees to promote our community values by matching gifts up to $1,000 per year. The value for this table is based on contributions made on the NEO’s behalf and accrued in 2012.
Term Life Insurance Premiums — our NEOs participate in the same life insurance programs as our general employee population; however, all are guaranteed minimum coverage of $1 million or, in the case of Mr. Bluedorn, minimum coverage of $3 million. The amounts shown are based on the incremental cost paid in 2012 on behalf of each NEO for Basic Life and Basic Accidental Death and Dismemberment over and above the premiums we would otherwise pay under our life insurance programs for other employees.
Retirement Contributions — based on Company contributions made under our qualified 401(k) Plan in 2012.
(5)Mr. Reitmeier was appointed Executive Vice President and Chief Financial Officer in July 2012.
(6)Mr. Hau served as Executive Vice President and Chief Financial Officer until he resigned in July 2012. In connection with his resignation, Mr. Hau repaid the Company $545,000, which represented his cash sign-on bonus and a portion of his relocation payment he received in connection with his employment with the Company. These repayments are not reflected in the Summary Compensation Table.
30
 

Fiscal 2012 Grants of Plan-Based Awards

The following table provides information regarding short-term incentive awards and long-term incentive awards (PSUs, RSUs and SARs) granted under the LII Incentive Plan to our NEOs in 2012.

                                                                           
          Estimated Possible Payouts Under
Non-Equity Incentive Plan
Awards(1)
  Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
  All Other Stock
Awards: Number
of Shares of
Stock or Units
(#)
(3)
  All Other Option
Awards: Number
of Securities
Underlying
Options
(#)
(4)
  Exercise or
Base Price of
Option
Awards
($/Sh)
(5)
  Closing
Market
Price on
Date of
Grant
($/Sh)
  Grant Date Fair
Value of Stock
and Option
Awards
($)
(6)
Name   Grant
Date
  Threshold
($)
  Target
($)
  Max.
($)
  Threshold (#)   Target
(#)
  Max.
(#)
                             
Todd M. Bluedorn       601,291     1,202,582     2,705,808                                
    12/7/12                 19,998     39,995     79,990                     1,953,956
    12/7/12                             23,997                 1,172,373
    12/7/12                                 56,014     51.395     51.08     808,618
Joseph W. Reitmeier       84,065     168,130     378,292                                
    12/6/12                 3,435     6,870     13,740                     333,683
    12/6/12                             4,122                 200,210
    12/6/12                                 9,621     51.11     51.07     137,869
Douglas L. Young       149,363     298,725     672,131                                
    12/6/12                 5,398     10,796     21,592                     524,373
    12/6/12                             6,477                 314,594
    12/6/12                                 15,120     51.11     51.07     216,670
David W. Moon       136,063     272,125     612,281                                
    12/6/12                 5,398     10,796     21,592                     524,373
    12/6/12                             6,477                 314,594
    12/6/12                                 15,120     51.11     51.07     216,670
Daniel M. Sessa       145,688     291,375     655,594                                
    12/6/12                 4,907     9,814     19,628                     476,676
    12/6/12                             5,888                 285,986
    12/6/12                                 13,745     51.11     51.07     196,966
Robert W. Hau       94,646     189,292     425,907     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A

 

   
(1)The amounts shown represent award opportunities under our short-term incentive program for 2012. The actual awards were paid March 15, 2013 in the amounts included in the Summary Compensation Table.
(2)The amounts shown represent the number of PSUs granted, which to the extent earned, will vest and be distributed in shares of our common stock at the end of the three-year performance period ending December 31, 2015.
(3)The amounts shown represent the number of RSUs granted, which vest and will be distributed in shares of our common stock on the third anniversary of the date of grant.
(4)The amounts shown represent the number of SARs granted, which vest in one-third increments on each anniversary of the date of grant and expire seven years from the date of grant.
(5)The amounts shown reflect the exercise price of SARs granted, based on the average of the high and low NYSE trading prices of our common stock on the date of grant.
(6)The amounts shown represent the grant date fair values of PSUs, RSUs and SARs, calculated in accordance with FASB ASC Topic 718. The grant date fair value for SARs was determined using the Black-Scholes valuation model. The grant date fair value for the RSU and PSU awards equals the dividend-discounted value of our common stock on the date of grant. The assumptions used to calculate the grant date fair values of such awards are set forth below.
                                             
          Assumptions   FMV Based on
Average High/
Low NYSE Trading
Prices on Date of
Grant ($)
       
                                    Grant Date
Fair Value
Per Share
($)
                            Risk Free
Interest Rate
(%)
   
          Volatility
(%)
  Expected Life
(Years)
  Dividend Yield
(%)
     
Grant Date          Award                                    
12/6/2012   RSU       1.70       51.110     48.571    
12/6/2012   PSU       1.70       51.110     48.571  
12/6/2012   SAR   40.42   4.14   1.75   0.48     51.110     14.330    
12/7/2012   RSU       1.69       51.395     48.855    
12/7/2012   PSU       1.69       51.395     48.855    
12/7/2012   SAR   40.42   4.14   1.74   0.50     51.395     14.436    
                                               
31
 

Outstanding Equity Awards at Fiscal 2012 Year-End

The following table provides information regarding all outstanding equity awards held by our NEOs as of December 31, 2012.

                                     
    Option/SAR Awards(1)   Stock Awards
Name   Number of
Securities
Underlying
Unexercised
Options/
SARs(#)
Exercisable(1)
  Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Unexercisable(1)
  Option/
SAR
Exercise
Price
($/Sh)(2)
  Option/
SAR
Expiration
Date
  Number of
Shares or
Units of
Stock
That Have
Not
Vested
(#)(3)
  Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)(4)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)(5)
  Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested
($)(4)
Todd M. Bluedorn   48,025       0       35.820   12/08/13   82,958     4,356,954   196,490     10,319,655  
    81,437       0       34.520   12/06/14                      
    103,976       0       28.240   12/11/15                      
    61,096       0       36.935   12/10/16                      
    36,141       18,071       46.780   12/09/17                      
    27,715       55,431       34.060   12/08/18                      
    0       56,014       51.395   12/07/19                      
Joseph W. Reitmeier   2,651       0       28.240   12/11/15   6,467     339,647   13,138     690,008  
    869       0       36.935   12/10/16                      
    1,397       699       46.780   12/09/17                      
    1,123       2,248       34.060   12/08/18                      
    0       9,621       51.110   12/06/19                      
Douglas L. Young   5,009       0       36.935   12/10/16   19,933     1,046,881   46,598     2,447,327  
    8,168       4,084       46.780   12/09/17                      
    6,367       12,734       34.060   12/08/18                      
    0       15,120       51.110   12/06/19                      
David W. Moon   17,062       0       30.845   12/08/13   19,933     1,046,881   46,598     2,447,327  
    20,359       0       34.520   12/06/14                      
    25,994       0       28.240   12/11/15                      
    15,027       0       36.935   12/10/16                      
    8,168       4,084       46.780   12/09/17                      
    6,367       12,734       34.060   12/08/18                      
    0       15,120       51.110   12/06/19                      
Daniel M. Sessa   15,027       0       36.935   12/10/16   19,344     1,015,947   45,616     2,395,752  
    8,168       4,084       46.780   12/09/17                      
    6,367       12,734       34.060   12/08/18                      
    0       13,745       51.110   12/06/19                      
Robert W. Hau   0       0       N/A   N/A   0     0   0     0  

 

   
(1)Outstanding SARs vest in one-third increments on each anniversary of the date of grant, with the first anniversary date occurring six years prior to the expiration date for each grant.
(2)Pursuant to the LII Incentive Plan, the exercise price for all outstanding SARs is based on the grant date fair market value, which is the average of the high and low NYSE trading prices of our common stock on the date of grant.
(3)The amounts shown represent all outstanding RSUs held by the NEOs. Refer to column (a) of Table 1 which follows for the vesting dates of such awards.
(4)The amounts shown are based on the NYSE closing price of our common stock on December 31, 2012, which price was $52.52.
(5)The amounts shown represent outstanding PSUs held by the NEOs. Refer to column (b) of Table 1 which follows for the vesting dates of such awards and the performance assumptions used to calculate the number of unvested PSUs.
32
 

Table 1

                
   (a)
Shares or Units of Stock
That
Have Not Vested
  (b)
Equity Incentive Plan Awards: Unearned
Shares,
Units or Other Rights That Have Not Vested
Name  Number of
Awards
  Vesting Date  Number of
Awards
  Vesting
Date
  Performance
Assumption
Todd M. Bluedorn  24,026    12/09/13  40,043    12/31/13  Target
   34,935    12/08/14  116,452    12/31/14  Maximum
       23,997    12/07/15       39,995    12/31/15  Target
Total  82,958       196,490        
Joseph W. Reitmeier  929    12/09/13  1,548    12/31/13  Target
   1,416    12/08/14  4,720    12/31/14  Maximum
     4,122    12/06/15    6,870    12/31/15  Target
Total  6,467       13,138        
Douglas L. Young  5,430    12/09/13  9,050    12/31/13  Target
   8,026    12/08/14  26,752    12/31/14  Maximum
     6,477    12/06/15    10,796    12/31/15  Target
Total  19,933       46,598        
David W. Moon  5,430    12/09/13  9,050    12/31/13  Target
   8,026    12/08/14  26,752    12/31/14  Maximum
     6,477    12/06/15    10,796    12/31/15  Target
Total  19,933       46,598        
Daniel M. Sessa  5,430    12/09/13  9,050    12/31/13  Target
   8,026    12/08/14  26,752    12/31/14  Maximum
     5,888    12/06/15    9,814    12/31/15  Target
Total  19,344       45,616        
Robert W. Hau  0    N/A  0    N/A  N/A
                
33
 

Fiscal 2012 Option Exercises and Stock Vested

The following table provides information regarding each exercise of SARs by our NEOs and each distribution of RSUs and PSUs held by our NEOs in 2012.

  Options/SAR Awards  Stock Awards
Name  Number of Shares
Acquired on
Exercise (#)
  Value Realized on
Exercise
($)
  Number of Shares
Acquired on
Vesting (#)
  Value Realized on
Vesting
($)(1)
Todd M. Bluedorn  0    0    RSU  27,280  1,401,101  
PSU  39,510    2,503,354           
Joseph W. Reitmeier  2,640    13,897    RSU  1,163  59,732  
PSU  1,684    106,698           
Douglas L. Young  77,068    1,480,271    RSU  8,928  437,462  
PSU  9,718    615,732           
David W. Moon  2,717    56,704    RSU  7,286  368,727  
PSU  9,718    615,732           
Daniel M. Sessa  46,353    906,281    RSU  6,710  344,626  
PSU  9,718    615,732           
Robert W. Hau  10,018    74,584    RSU  0  0  
PSU  0    0           

 

   
(1)The amounts shown for RSUs and PSUs are based on the average of the high and low NYSE trading prices of our common stock on the day of distribution.
34
 

Retirement Plans

Qualified Retirement Plans

Frozen Consolidated Pension and Profit Sharing Retirement Plans

Effective January 1, 2009, the Company’s Consolidated Pension Plan and Profit Sharing Retirement Plan were frozen. As of that date, benefits under the frozen Pension Plan stopped increasing with additional service and compensation, and additional contributions to the Profit Sharing Plan were discontinued.

The monthly target benefit under the frozen Pension Plan is based on 1.0% of final average annual pay, plus 0.6% of final average annual pay above Social Security covered compensation, multiplied by the number of years of credited service (not to exceed 30 years). The target benefit is reduced by the value of the participant’s defined contribution profit sharing account under the frozen Profit Sharing Plan, with the difference, if any, provided by the frozen Pension Plan. Participants become vested in their frozen Pension Plan accrued benefits after five years of service and may commence unreduced benefits at age 65 (normal retirement age) or actuarially reduced benefits at younger ages if age and service requirements are met (generally the attainment of age 62 and 10 years of service or if age plus years of service total 80). Benefits are generally paid in the form of an annuity. We do not grant extra years of service under the Consolidated Pension Plan. Participants in the frozen Profit Sharing Plan are fully vested in the plan after six years of service and the Company directs the investment funds. Distributions may occur at separation from service and are eligible for roll-over into another qualified retirement plan.

401(k) Salaried Retirement Plan

Salaried employees are eligible to participate in this plan, and contributions can be made on a pre-tax or Roth post-tax basis, subject to limitations for qualified plans under the Code. Participants can contribute up to 75% of their eligible earnings and receive a Company match of 50% on up to 6% of their eligible pay. In addition, all participants (after completing one year of service) receive a base contribution equal to 3% of eligible pay. The match vests after the participant completes two years of service and the base contribution is fully vested.

Non-Qualified Retirement Plans

Supplemental Retirement Plan

Our Supplemental Retirement Plan, the purpose of which is to provide market-competitive executive level retirement benefit opportunities, permits income above Code limitations to be considered in determining final average annual pay, doubles the rate of benefit accrual available under the frozen Pension Plan (2.0% of final average annual pay, plus 1.2% of final average annual pay above Social Security covered compensation), limits credited service to 15 years, generally permits early retirement on more favorable terms than the frozen Pension Plan (for example, unreduced benefits at age 62 with 10 years of service or unreduced benefits at age 60 if age plus years of service total 80), and pays benefits in the form of a lump-sum. Any benefits provided under the Supplemental Retirement Plan are reduced by the benefits payable under our Company’s frozen Pension Plan (as if such plan had not been frozen), frozen Profit Sharing Plan, and frozen Profit Sharing Restoration Plan. Participants become vested in their Supplemental Retirement Plan benefit after five years of service. Extra years of credited service are not provided to participants except for up to an additional three years of service and age (subject to the 15 year service limit) in the case of a change in control. The incremental effects of additional years of service are reflected in the tables included in “Potential Payments Upon Termination or Change in Control.”

Frozen Profit Sharing Restoration Plan

We froze the Profit Sharing Restoration Plan and discontinued contributions effective January 1, 2009. Distributions may occur at separation from service and may be paid as a lump-sum or in equal annual installments over either a five- or ten-year period. We direct the investment funds for the frozen Profit Sharing Restoration Plan, which mirror the investments and returns under the frozen Profit Sharing Retirement Plan. The weighted average annual rate of return for the calendar year ended December 31, 2012, was 14.19%.

35
 

Fiscal 2012 Pension Benefits

The following table provides information regarding the number of years of service credited to each NEO and the present value of accumulated benefits payable to each NEO under our frozen Consolidated Pension Plan and our Supplemental Retirement Plan as of December 31, 2012, as well as payments made to each NEO in 2012 under such plans.

                       
Name   Plan Name   Number of
Years
Credited
Service
(#)
     Present
Value of
Accumulated
Benefit
($) (1)
     Payments
During
Last
Fiscal Year
($)
Todd M. Bluedorn   Consolidated Pension Plan (Frozen)   1.9     37,512     0
    Supplemental Retirement Plan   5.9     2,898,091     0
Joseph W. Reitmeier   Consolidated Pension Plan (Frozen)   3.3     51,972     0
    Supplemental Retirement Plan   0.6     0     0
Douglas L. Young   Consolidated Pension Plan (Frozen)   9.6     98,207     0
    Supplemental Retirement Plan   13.6     2,601,205     0
David W. Moon   Consolidated Pension Plan (Frozen)   11.0     102,576     0
    Supplemental Retirement Plan   6.5     769,735     0
Daniel M. Sessa   Consolidated Pension Plan (Frozen)   1.7     31,113     0
    Supplemental Retirement Plan   5.7     849,572     0

 

   
(1)The actuarial present value of the lump-sum accumulated benefit payable at December 31, 2012 is equal to the annualized present value factor, multiplied by the monthly benefit. The amounts shown are calculated in accordance with FASB ASC Topic 715, using a 3.46% interest (discount) rate for the Supplemental Retirement Plan and 4.02% for the Consolidated Pension Plan as of December 31, 2012 and the RP-2000 mortality table for males and females without collar adjustment. The calculations assume payments are deferred until age 65 for all participants under our frozen Consolidated Pension Plan and until the earliest unreduced retirement age for each participant under our Supplemental Retirement Plan. Additional assumptions are included in Note 13 to our audited financial statements for the fiscal year ended December 31, 2012 included in our Form 10-K for that year filed with the SEC on February 15, 2013.
36
 

Fiscal 2012 Nonqualified Deferred Compensation

The following table provides information regarding contributions, earnings, withdrawals and distributions under our frozen Profit Sharing Restoration Plan in 2012 for each NEO, as well as each NEO’s aggregate balance in such plan at December 31, 2012.

                             
Name   Executive
Contributions in
Last Fiscal Year
($)
     Company
Contributions in
Last Fiscal Year
($)
     Aggregate Earnings
in Last Fiscal Year
($)
     Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance
at Last
Fiscal
Year-End
($)
Todd M. Bluedorn   0   0   7,189     0   57,853  
Joseph W. Reitmeier(1)   0   0   0     0   0  
Douglas L. Young   0   0   36,670     0   295,085  
David W. Moon   0   0   9,401     0   75,652  
Daniel M. Sessa   0   0   1,715     0   13,797  

 

   
(1)Mr. Reitmeier was not eligible to participate in this plan prior to the plan being frozen.
37
 

Potential Payments Upon Termination or Change in Control

Employment Agreements and Change in Control Agreements

We are party to employment agreements and CIC agreements with each NEO who is currently employed by us. These agreements serve as the basis for the payments and benefits to which each NEO would be entitled in the event of termination of such individual’s employment with our Company under the various circumstances described below.

Employment Agreements

The employment agreements with our NEOs establish the basis of compensation and responsibilities for each NEO and contain post-employment covenants, including confidentiality, prohibition against the diversion of employees, vendors and contractors and prohibition against the solicitation of customers, for a period of 24 months following termination of employment. On January 1 of each year, the agreements automatically renew for an additional year, unless either party notifies the other in writing at least 30 days prior to such date of a decision not to renew the agreement. Except as otherwise provided below, the terms and conditions of our employment agreement with each NEO are substantially similar.

Change in Control Agreements

Our CIC agreements with our NEOs, the terms and conditions of which are substantially similar except as noted below, provide for certain benefits under specified circumstances if a NEO’s employment is terminated in connection with a CIC transaction involving our Company. The agreements require the NEO to maintain the confidentiality of our information and not to induce our employees to terminate their employment with our Company, for a period of 24 months following termination of employment.

No CIC agreement or employment agreement entered into after 2009 includes a 280G Tax Gross-Up provision.

Payments Made Upon Voluntary Termination or Upon For Cause Termination

If a NEO voluntarily terminates his employment with our Company or we terminate a NEO for cause, he will be entitled to receive base salary through the last day of employment and a lump-sum payment equal to unused, accrued vacation days. All of the NEO’s outstanding SARs, RSUs and PSUs will terminate on the NEO’s last day of employment.

Payments Made Upon Retirement

If a NEO retires, he will be entitled to receive his base salary through the last day of employment, a payment under our short-term incentive program based on actual company performance (prorated through the NEO’s last day of employment) and a lump-sum payment equal to unused, accrued vacation days. In addition, with respect to long-term incentive awards:

unvested SARs will terminate on the NEO’s last day of employment and vested awards will remain exercisable for the remainder of the term of the award;
for RSUs, the NEO will receive a prorated portion of shares based on the date of retirement at the end of the applicable vesting period; and
for PSUs, the NEO will receive, to the extent earned based on achievement of specific performance measures, a prorated portion of shares based on the date of retirement at the end of the applicable performance period.

38
 

Payments Made Upon Involuntary — Not for Cause Termination