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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 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
Lennox International Inc.
 
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
 
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
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o   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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  (4)   Date Filed:

 

 


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(LENNOX INTERNATIONAL LOGO)
2140 Lake Park Blvd.
Richardson, Texas 75080
 
April 11, 2011
 
Dear Stockholders:
 
It is my pleasure to invite you to the 2011 Annual Meeting of Stockholders of Lennox International Inc. The meeting will be held at 1:00 p.m., local time, on Thursday, May 12, 2011, at the Lennox International Inc. Corporate Headquarters, 2140 Lake Park Blvd., Richardson, Texas 75080.
 
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.
 
It is important that you vote your shares whether or not you plan to attend the meeting. To be sure your vote is counted, we urge you to carefully review these proxy materials and to vote as soon as possible. We encourage you to vote via the Internet. It is convenient and saves the Company postage and other costs. You may also vote by telephone, by returning the enclosed Proxy Card by mail, or in person at the meeting.
 
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 2011.
 
Sincerely,
 
-s- Richard L. Thompson
Richard L. Thompson
Chairman of the Board


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(LENNOX INTERNATIONAL LOGO)
2140 Lake Park Blvd.
Richardson, Texas 75080
 
April 11, 2011
 
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
TO BE HELD ON MAY 12, 2011
 
 
To Our Stockholders:
 
Notice is hereby given that the 2011 Annual Meeting of Stockholders of Lennox International Inc. will be held on Thursday, May 12, 2011 at 1:00 p.m., local time, at the Lennox International Inc. Corporate Headquarters, 2140 Lake Park Blvd., Richardson, Texas 75080, to:
 
  •  elect three Class I directors to hold office for a three-year term expiring at the 2014 Annual Meeting of Stockholders;
 
  •  ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2011 fiscal year;
 
  •  conduct an advisory vote on the compensation of the named executive officers as disclosed in this Proxy Statement;
 
  •  conduct an advisory vote on the frequency of future advisory votes on the compensation of the named executive officers; 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.
 
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, 2010, accompany this Notice.
 
The Board of Directors has determined that our stockholders of record at the close of business on March 21, 2011 are entitled to notice of, and to vote at, the Annual Meeting of Stockholders.
 
By Order of the Board of Directors,
 
-s- John D. Torres, Jr
John D. Torres
Corporate Secretary
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 2011:
 
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 www.proxyvote.com
 
Your Vote Is Important
 
 
To be sure your shares are represented at the Annual Meeting of Stockholders, please vote (1) by calling the toll-free number (800) 690-6903 and following the prompts; (2) by Internet at http://www.proxyvote.com; or (3) by completing, dating, signing, and returning your Proxy Card in the enclosed postage-paid envelope as soon as possible. You may vote in person at the Annual Meeting of Stockholders even if you send in your Proxy Card, vote by telephone or vote by Internet. The ballot you submit at the meeting will supersede any prior vote.
 


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PROXY STATEMENT
 
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GENERAL INFORMATION REGARDING THE 2011
ANNUAL MEETING OF STOCKHOLDERS
 
Meeting Date and Location
 
The 2011 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 12, 2011 at 1:00 p.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 11, 2011 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 four proposals:
 
  •  Proposal 1:  Election of three Class I directors to hold office for a three-year term expiring at the 2014 Annual Meeting of Stockholders.
 
  •  Proposal 2:  Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2011 fiscal year.
 
  •  Proposal 3:  Advisory vote on the compensation of the named executive officers as disclosed in this Proxy Statement.
 
  •  Proposal 4:  Advisory vote on the frequency of the advisory vote on executive compensation.
 
Our Board recommends you vote “for” each of our Board nominees, “for” proposals 2 and 3, and vote “one year” for proposal 4.
 
Record Versus Beneficial Ownership of Shares
 
If your shares are registered directly in your name with our transfer agent, BNY Mellon Shareowner Services, you are considered, with respect to those shares, the “stockholder of record.” If you are a stockholder of record, we sent our Notice of Annual Meeting of Stockholders, Proxy Statement, Proxy Card and Annual Report to Stockholders 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 Notice of Annual Meeting of Stockholders, Proxy Statement, Proxy Card, and Annual Report to Stockholders 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 21, 2011. 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 53,319,689 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 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


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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.
 
To be elected, our nominees for director must receive a plurality of the votes cast. This means that the three director nominees with the most “for” votes will be elected, regardless of whether any nominee received a majority of the votes cast. 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 case in favor of these proposals exceed the votes cast against proposals. With respect to the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers, the alternative receiving the greatest number of votes — one year, two years, or three years — will be the frequency the Stockholders approve.
 
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), Proposal 3 (advisory vote on the compensation of named executive officers) and Proposal 4 (advisory vote on the frequency of future advisory votes 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.
 
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
 
To be sure your shares are represented at the Annual Meeting, please vote as soon as possible. If you are a stockholder of record, you may vote using any of the following methods:
 
  •    By Internet or Telephone:  The Internet and telephone voting procedures established by our Company and administered by Broadridge Financial Solutions, Inc. (“Broadridge”) are available to our stockholders of record only. If you are a stockholder of record, you can vote using the Internet at http://www.proxyvote.com, or by calling the toll-free number (800) 690-6903 and following the prompts. You should have your Proxy Card containing your control number in hand when you access the website or call. Internet and telephone voting for stockholders of record will be available 24 hours a day and will close at 11:59 p.m., Eastern Time, on May 11, 2011.
 
  •    By Mail:  You may complete, date, sign and return your Proxy Card in the enclosed postage-paid envelope. If you sign and return your Proxy Card but do not give voting instructions, your shares will be voted as recommended by our Board.
 
  •    In Person at the Annual Meeting of Stockholders:  You may vote in person at the meeting even if you have already voted your shares. The ballot you submit at the meeting will supersede any prior vote. If you attend the Annual Meeting in person and want to vote shares you beneficially hold in street name, you must bring a written proxy from your broker or bank that identifies you as the sole representative entitled to vote the shares indicated.
 
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. Internet and telephone voting also will be offered to stockholders owning shares through most banks, brokers and nominees. A representative of


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Broadridge will tabulate the votes and act as inspector of election at the Annual Meeting. As discussed above, 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, 3, and 4.
 
Changing Your Vote
 
You can change your vote on a proposal at any time before the meeting for any reason by revoking your proxy. For stockholders of record, proxies may be revoked by filing a written notice of revocation, bearing a later date than your proxy, with our Corporate Secretary at or before the meeting. Proxies may also be revoked by:
 
  •    submitting a new written proxy bearing a later date than the Proxy Card 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 11, 2011; 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.
 
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 Amended and Restated Bylaws (“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 11 members, divided into three classes, with each class serving a three-year term.
 
Under our Bylaws and our Restated Certificate of Incorporation, the Board classes are to be as nearly equal in number as the number of outstanding directors permits. Due to the anticipated retirement of Mr. Byrne at the 2011 Annual Meeting, Class I will be reduced by one director. Mr. Byrne will have reached the mandatory retirement age of 75 (set forth in our Corporate Governance Guidelines) by that date. In order to balance the number of directors in each class caused by Mr. Byrne’s retirement, the Board has nominated Ms. Cooper (currently a Class III director) this year as a Class I director.
 
Upon the recommendation of the Board Governance Committee, the Board has nominated three Class I directors for re-election to our Board to hold office for a three-year term expiring at the 2014 Annual Meeting of Stockholders. All Class II and Class III directors will continue in office, in accordance with their previous election (with the exception of Ms. Cooper who will cease to be a Class III director upon her election this year as a Class I director), until the expiration of the terms of their classes at the 2012 and 2013 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 I 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 for the past five years or more. 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 I 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.


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Nominees
 
The Board has nominated the following individuals for re-election as Class I directors for a three-year term expiring at the 2014 Annual Meeting of Stockholders:
 
     
(Photo of Janet K. Cooper)  
Janet K. Cooper, 57, 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, as Chair of the Audit Committee and as a member of the Finance Committee of The TORO Company, a manufacturer of equipment for lawn and turf care maintenance. Ms. Cooper also serves on the Board of Directors, and as a member of the Audit Committee and the Capital Advisory Committee of MWH, 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)  
John W. Norris, III, 53, has served as a director of our Company since 2001. He is the Chair of the Public Policy committee and a member of the Board Governance 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.


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(Photo of Paul W. Schmidt)  
Paul W. Schmidt, 66, has served as a director of our Company since 2005. He is the Chair 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.
 
THE BOARD RECOMMENDS A VOTE “FOR”
EACH OF THE ABOVE NOMINEES

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The following Class II directors’ terms will continue until the 2012 Annual Meeting of Stockholders:
 
     
(Photo of John E. Major)  
John E. Major, 65, has served as a director of our Company since 1993. He is a member of the Audit Committee and the Compensation and Human Resources 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 Chairman of the Board, Chair of the Compensation Committee, and a member of the Nominating and Corporate Governance Committee of Broadcom Corporation, a semiconductor manufacturing company. He also serves on the Board of Directors, as Chair of the Nominating and Corporate Governance Committee, and as a member of the Technology Committee and the Audit Committee of Littelfuse, Inc., a manufacturer of circuit protection devices. Mr. Major also serves on the Board of Directors, as Chair of the Nominating and Corporate Governance Committee, and as a member of the Compensation Committee of 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 Jeffrey D. Storey)  
Jeffrey D. Storey, M.D., 45, has served as a director of our Company since 2006. He is a member of the Compensation and Human Resources Committee and the Public Policy Committee. He is a founding partner and President of Cheyenne Women’s Clinic in Cheyenne, Wyoming, a position he has held since 2004. Dr. Storey graduated from Dartmouth Medical School in 1993 and has been a practicing obstetrician/gynecologist since 1997. He is also a Colonel in the U.S. Air Force and the State Air Surgeon for the Wyoming National Guard. He is a veteran of Operation Enduring Freedom. Dr. Storey also serves on the Wyoming Board of Medicine. Dr. Storey is a Fellow in the American College of Obstetricians and Gynecologists and serves as an Adjunct Clinical Faculty Member for the University of Wyoming, Department of Family Practice.

Dr. Storey contributes substantial experience in organizational and leadership development, and significant knowledge of health care management, public health and industrial safety issues in his service as a director.


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(Photo of Gregory T. Swienton)  
Gregory T. Swienton, 61, 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 Chairman of Ryder System, Inc. in May 2002 having been named Chief Executive Officer in 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.

Mr. Swienton serves on the Board of Directors, as the Chair of the Finance Committee and as a member of the Audit Committee of Harris Corporation, an international communications and information technology company. He also serves on the Board of Trustees of St. Thomas University in Miami.

As an active CEO, 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.

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The following Class III directors’ terms will continue until the 2013 Annual Meeting of Stockholders:
 
     
(Photo of Todd M. Bluedorn)  
Todd M. Bluedorn, 48, became Chief Executive Officer (“CEO”) and was elected as a director of our Company in April 2007. 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, the Governance Committee and the Compensation and Organization Committee 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, 69, has served as a director of our Company since 2000. He is a member of the Audit Committee and the Board Governance 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, as Chair of the Audit Committee and as a member of the Compensation Committee of MWH, 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.


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(Photo of Terry D. Stinson)  
Terry D. Stinson, 69, has served as a director of our Company since 1998. He is the Chair of the Board Governance Committee and a member of 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.

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, 71, has served as a director of our Company since 1993. He served as Vice Chairman of the Board from February 2005 to July 2006 and was appointed Chairman of the Board in July 2006. 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 on the Board of Directors, as Chair of the Management Development and Compensation Committee and as a member of the Nominating and Corporate Governance Committee of Gardner Denver, Inc., a manufacturer of air compressors, blowers and petroleum pumps. He also serves on the Board of Directors, as Chair of the Finance Committee, as a member of the Audit Committee and as a member of the Corporate Governance Committee 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.

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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 2011 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 2011 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
2011 FISCAL YEAR.
 
Independent Registered Public Accountants
 
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).
 
                 
    2010     2009  
 
Audit Fees(1)
  $ 3,299     $ 3,330  
Audit-Related Fees(2)
    367       51  
Tax Fees(3)
    264       142  
All Other Fees
    0       0  
                 
TOTAL
  $ 3,930     $ 3,523  
                 
 
 
(1) Represents fees billed for the audit of our annual financial statements included in our Annual Reports 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 normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements. The 2009 audit fees differ from the amounts shown in our 2010 Proxy Statement due to the finalization of billings during 2010.
 
(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 2010 consisted of providing a comfort letter in support of a bond offering, and due-diligence work relating to a business acquisition. Services in 2009 consisted of inventory observation and valuation services in support of the sale of an entity in the Czech Republic.
 
(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


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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 Chair. 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 Chair’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 2010 were pre-approved by the Audit Committee.


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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 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 financial statements and expressing an opinion as to their conformity with 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 financial statements for the year ended December 31, 2010 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, 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 financial statements have been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with 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 financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
Submitted by the Audit Committee of the Board:
 
     
Paul W. Schmidt (Chairperson)
  Janet K. Cooper
C. L. (Jerry) Henry
  John E. Major


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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 relationships:
 
  •  Mr. Swienton serves as the Chairman and CEO of Ryder System Inc., which provides transportation and logistics services to the Company in the ordinary course of business.
 
  •  An immediate family member of Ms. Cooper is employed as a non-executive employee of a global consulting and services firm. The Company engaged the firm to provide certain consulting services to the Company in the ordinary course of business.
 
Board Meetings and Leadership Structure
 
The Board considers and evaluates the effectiveness of our Board leadership structure from time to time as part of its self-evaluation process. Currently, the roles of Chairman of the Board and CEO are held separately by Mr. Thompson and Mr. Bluedorn, respectively. We believe this leadership structure is best for our Company and our stockholders at this time. Our Chairman of the Board’s responsibility is to lead the Board, and our CEO’s responsibility is to manage the Company. The Board does not have a lead independent director because the Chairman of the Board is an independent director and the Board therefore believes such a position would be redundant.
 
Our Chairman of the Board provides leadership to the Board, plans and chairs Board meetings, presides over meetings of the independent directors and facilitates the Board’s strategic planning for our Company. The Chairman of the Board also serves as a standing invitee of each of the Board committees.
 
Our CEO is responsible for driving the performance of our Company in accordance with our overall strategy, building and maintaining a high performance management team, managing Company operations, and representing our Company to customers, employees and other stakeholders. Our CEO has served in his role since April 2007.
 
The Board met 8 times in 2010. 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. The Board does not currently have a policy with regard to attendance of Board members at the annual meeting of stockholders. All of the individuals serving as directors at the time of our 2010 Annual Meeting of Stockholders attended the meeting, including the three Class I 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


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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.
 
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 balanced 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 Company employees who are not executives, we use a variety of incentive compensation programs to incentivize 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 in 2010) our Board determined are independent.
 
                                         
                      Compensation
       
                Board
    and Human
    Public
 
Name
  Independent     Audit     Governance     Resources     Policy  
 
Richard L. Thompson
    X                          
Linda Alvarado**
    X                          
Todd M. Bluedorn
                             
Steve Booth**
    X                          
James J. Byrne***
    X                   X *     X  
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        
Jeffrey D. Storey, M.D. 
    X                   X       X  
Gregory T. Swienton
    X                   X       X  
 
 
* Committee Chairperson
 
** Departed from the Board during 2010
 
*** Expected to retire at the 2011 Annual Meeting of Stockholders
 
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


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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 11 times in 2010.
 
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 codes 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 five times in 2010.
 
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 executive succession plans. The Committee also reviews the funding requirements and investment policies of 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. 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 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 Committee met five times in 2010.
 
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. as its executive compensation consultant to provide objective analysis, advice and recommendations regarding the compensation of our executives and non-employee directors. 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 & Co., Inc.
 
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 2010.
 
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


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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.
 
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 of Stockholders.
 
Stockholder Nominations for Director
 
The Board Governance Committee considers nominees for election to the Board recommended by stockholders. 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 of Stockholders date, the notice of nomination


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must be received within 10 days following the date on which notice of the date of the Annual Meeting of Stockholders 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.
 
Stockholder Communications with Directors
 
The following is the process for stockholders to send communications to our Board. 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 Chair 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 and Code of Ethical 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, from 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 Chairman of the Board 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.


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PROPOSAL 3:
ADVISORY VOTE ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
 
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010 (the “Dodd-Frank Act”) and recently adopted SEC regulations, the stockholders of the Company are entitled to vote at the Annual Meeting to approve the compensation of the Company’s NEOs, as disclosed in this Proxy Statement. The stockholder vote on NEO compensation 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 incentive awards are comprised of (i) SARs, which are designed to incentivize NEOs to grow our business and deliver increased returns to our stockholders, (ii) RSUs, which are designed to support our retention efforts, and (iii) 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 2010, the Company continued to drive performance and stockholder value through its focus on innovation, productivity and disciplined use of free cash flow. In this regard, fiscal 2010 accomplishments include, among other things, the following:
 
  •  achieved three-year total stockholder return of 20% and one-year total stockholder return of 23%;
 
  •  achieved GAAP earnings per share (“EPS”) from continuing operations of $2.10, up 93% from 2009;
 
  •  achieved adjusted EPS from continuing operations of $2.40 up 36% from 2009;*
 
  •  increased return on sales (EBIT / sales) to 7.0%, up 120 basis points from 5.8% in 2009.*
 
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 advisory vote regarding the compensation of the NEOs 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.
 
 
* Adjusted EPS and EBIT (Earnings Before Interest and Taxes) are considered non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see “GAAP Reconciliation” which appears as Appendix A to this Proxy Statement. “GAAP” refers to accounting principles generally accepted in the United States of America.


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PROPOSAL 4:
ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION
 
Under the Dodd-Frank Act and SEC regulations, the stockholders also are entitled to vote on how frequently we should seek an advisory vote on the compensation of the NEOs (as described in this Proxy Statement). By voting on this proposal, stockholders may indicate whether they prefer to vote on an advisory resolution on NEO compensation every one, two or three years. Pursuant to the Dodd-Frank Act, the stockholder vote on the frequency of the stockholder vote to approve executive compensation is an advisory vote only, 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 determining the frequency of the stockholder vote on executive compensation.
 
The Board has determined that an advisory stockholder vote on NEO compensation every year is currently the most appropriate approach for the Company and its stockholders. In formulating its recommendation, our Board considered that an annual advisory vote on NEO compensation will allow our stockholders to provide us with direct and timely input on our compensation principles, policies and practices.
 
If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote FOR ONE YEAR for the frequency of the stockholder vote on NEO compensation. The alternative receiving the greatest number of votes — ONE YEAR, TWO YEARS or THREE YEARS — will be the frequency that stockholders approve.
 
The Board recommends a vote FOR ONE YEAR on Proposal 4 regarding the frequency of the stockholder vote to approve the compensation of the NEOs.


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EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
Overview
 
This Compensation Discussion and Analysis (“CD&A”) describes the philosophy and objectives of the compensation programs for our named executive officers (“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.
 
In 2010, the Company continued to drive performance and stockholder value through its focus on innovation, productivity and disciplined use of free cash flow. In this regard, the Company’s fiscal 2010 accomplishments include, among other things, the following:
 
  •  achieved three-year total stockholder return of 20% and one-year total stockholder return of 23%;
 
  •  achieved GAAP EPS from continuing operations of $2.10, up 93% from 2009;
 
  •  achieved adjusted EPS from continuing operations of $2.40 up 36% from 2009;*
 
  •  increased return on sales (EBIT/sales) to 7.0%, up 120 basis points from 5.8% in 2009.*
 
 
* Adjusted EPS and EBIT (Earnings Before Interest and Taxes) are considered non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see “GAAP Reconciliation” which appears as Appendix A to this Proxy Statement. “GAAP” refers to accounting principles generally accepted in the United States of America.
 
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 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- and long-term incentive plans demonstrate the strong link between Company performance and actual payments made to our executives under these programs. In 2010, Company performance exceeded expectations and, as a result, payments under our short-term incentive program exceeded target. While stockholder return has been strong over the past three years, the Company did not achieve the threshold levels of Return on Invested Capital and Company Core Net Income Growth for the 2008-2010 performance share unit (“PSU”) performance period, and accordingly, there was no payout. 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.
 
Key Strategic Objectives
 
The strategic objectives of our executive compensation programs are to:
 
  •  attract and retain top executive talent;


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  •  align executive compensation programs 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 link between pay and performance.
 
The following table lists each element of executive compensation and how the Committee believes it correlates to our compensation philosophy and key objectives.
 
                                                 
            Achieve
  Achieve
       
    Attract
  Retain
  Short-
  Long-
  Maintain
   
    Top
  Top
  Term
  Term
  Market
  Pay for
Executive Compensation Elements
  Talent   Talent   Goals   Goals   Competiveness   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 approved by the Committee, includes the following 15 companies (the “Compensation Peer Group”):
 
         
•   A. O. Smith Corporation 
  •   Flowserve Corporation   •   SPX Corporation
•   Acuity Brands, Inc. 
  •   Gardner Denver, Inc.   •   Stanley Black & Decker Inc.
•   Armstrong World Industries, Inc. 
  •   Kennametal Inc.   •   The Timken Company
•   Briggs & Stratton Corporation 
  •   Owens Corning   •   Universal Forest Products Inc.
•   Dover Corporation 
  •   Snap-On Incorporated   •   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.
 
In 2010, the Committee analyzed the membership of the Compensation Peer Group based on the criteria described above, and adjusted the peer group by adding The Timken Company and by removing Black & Decker Inc. (due to its merger with Stanley Works).
 
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”).


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Pay Positioning and Compensation Mix
 
For 2010, 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.
 
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 2010 target compensation mix for the Chief Executive Officer (“CEO”) and the average target compensation mix for the other NEOs (excluding Mr. Boxer, who retired from the Company effective June 30, 2010).
 
     
(the image wasn't included in the file)   (the image wasn't included in the file)
 
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 greater percentage of “at-risk” performance-based incentive compensation than the target compensation mix of the other NEOs. The Committee established a different compensation mix for our CEO due to his greater influence on Company performance.
 
Process for Determining Named Executive Officer Compensation
 
Role of Management
 
The Committee obtains input from 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 accompanied by 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.
 
Role of the Executive Compensation Consultant
 
In 2010, the Committee engaged Frederic W. Cook & Co., Inc. (“Frederic W. Cook”) to provide analysis, advice and recommendations on executive compensation to the Committee. Frederic W. Cook does not provide any other services for our Company. At the Committee’s request, Frederic W. Cook performed the following services for the Committee in 2010:
 
  •  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.


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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.
 
Components and Analysis of 2010 Executive Compensation
 
Base Salary
 
The Committee considered salary data for the Market, our annual merit budget, achievement of performance objectives, internal equity and recommendations provided by the CEO for his direct reports when determining each NEO’s base salary. The following table provides detail regarding 2009 and 2010 base salaries for each NEO.
 
                         
        2009
  Increase%
  2010
        Annualized
  Effective
  Annualized
NEO
 
Title
  Base Salary   April 1, 2010   Base Salary
 
Todd M. Bluedorn
  Chief Executive Officer   $ 828,000     6.3%   $ 880,000  
Robert W. Hau
  EVP, Chief Financial Officer     425,000     3.5     440,000  
Douglas L. Young
  EVP, President and Chief Operating Officer, Residential H&C     390,509     3.7     405,000  
Harry J. Bizios
  EVP, President and Chief Operating Officer, Commercial H&C     363,000     3.6     376,000  
Daniel M. Sessa
  EVP, Chief Human Resources Officer     377,775     3.8     392,000  
 
As discussed earlier, in setting NEO base salaries, the Committee used the 50th percentile of the Market as a guideline. After applying these increases, the 2010 base salary for each NEO, included in the Summary Compensation Table, is within a reasonable range of our guideline.
 
Short-Term Incentive Program
 
Our short-term incentive program is a cash-based program for our executive officers designed to reward the successful performance of our Company, our business units and each individual. 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 2010 short-term incentive program funded based on performance against the financial goals shown below. The final 2010 short-term incentive awards were based 85% on financial performance and 15% on each NEO’s individual performance.
 
Financial Performance.  The following table summarizes the performance goals and payout opportunities under our 2010 short-term incentive program, along with the actual Company and business unit performance for each metric.
 
2010 Short-Term Incentive Program Summary — Financial Performance
($ in millions)
 
                                         
NEO
 
Metric
  Weight   Threshold   Target   Maximum   Actual
 
All
  Company Core Net Income(2)   60%   $ 100.3     $ 115.7       $133.1     $ 134.5  
    Free Cash Flow(3)   40%   $ 75.6     $ 108.0       $140.4     $ 112.8  
Payout Opportunity as a % of Target
        50 %     100 %     225 %        
Mr. Young(1)
  Segment Profit(4)   70%   $ 133.0     $ 141.6       $170.0     $ 153.4  
    Segment Controllable Cash Flow(5)   30%   $ 81.5     $ 113.3       $133.5     $ 100.0  
Payout Opportunity as a % of Target
        50 %     100 %     225 %        
Mr. Bizios(1)
  Segment Profit(4)   70%   $ 41.3     $ 45.6       $50.5     $ 58.9  
    Segment Controllable Cash Flow(5)   30%   $ 29.2     $ 35.5       $41.8     $ 36.5  
Payout Opportunity as a % of Target
        50 %     100 %     225 %        


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(1) All NEOs except Mr. Young and Mr. Bizios are measured 100% on overall Company financial performance, which earned a 182.3% of target payout factor. Because Mr. Young is the President of LII Residential, his award is measured 50% on LII Residential’s financial performance and 50% on overall Company financial performance. LII Residential’s financial performance resulted in a 130.2% payout factor, which when blended with our Company financial performance factor of 182.3% resulted in an actual payout as a percentage of target of 156.3%. Because Mr. Bizios is the President of LII Commercial, his award is measured 50% on LII Commercial’s financial performance and 50% on overall Company financial performance. LII Commercial’s financial performance resulted in a 193.2% payout factor, which when blended with our Company financial performance factor of 182.3% resulted in an actual payout as a percentage of target of 187.8%.
 
(2) Company core net income is income from continuing operations, adjusted for 2010 (after-tax) restructuring charges, special legal contingency charge, acquisition expenses, special product quality adjustment, and unrealized gains on open futures contracts.
 
(3) Free cash flow is net cash provided by operating activities less capital spending, adjusted downward for timing of certain payables.
 
(4) Segment Profit is earnings from continuing operations before interest expense and income taxes, adjusted for 2010 (pre-tax) restructuring charges, special product quality adjustment, and unrealized gains on open futures contracts.
 
(5) Controllable cash flow is Segment Profit, defined above, less capital spending plus or minus changes in accounts receivable, inventory and accounts payable.
 
Individual Performance.  The Committee uses individual performance to supplement financial performance in order to further align pay with performance. After an NEO’s short-term incentive payout is calculated based exclusively on Company financial performance as described above, 15% of that result may be increased or decreased (0-225%) to recognize 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, including the CEO.
 
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 publicly available Market data for similar executive officer positions using the 50th - 65th percentiles as a guideline. The Committee increased the CEO’s 2010 short-term incentive target payout opportunity to 120% from 110%, effective for fiscal year 2010, in an effort to align with the 50th percentile of the Market data. After this increase, 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 2010. Based on actual financial and individual performance, the Committee approved the corresponding 2010 payouts for each NEO.
 
2010 Short-Term Incentive Targets and Payouts
 
                                 
    2010 Target as a
          2010 Payout as a
NEO
  % of Base Salary   2010 Target   2010 Payout   % of Target
 
Mr. Bluedorn
    120 %   $ 1,040,400     $ 1,897,065       182.3 %
Mr. Hau
    70       305,375       556,821       182.3  
Mr. Young
    70       280,964       462,500       164.6  
Mr. Bizios
    70       260,925       489,939       187.8  
Mr. Sessa
    70       271,911       495,802       182.3  


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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 2010.
 
We include the short-term incentive payments made to the NEOs for 2010, which were approved by the Committee and paid on March 15, 2011, 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 nature. The Committee allocated the mix of elements in our long-term incentive program in a manner designed to drive Company performance, help us to retain key talent, and align with Market practices.
 
For 2010, the long-term incentive allocations for our NEOs were as follows:
 
     
(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 an NEO in 2010. 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 2010, the Committee agreed to keep the target planning values relatively flat, as they fell between the 50th — 65th percentiles of the Market. When determining the actual award sizes for each NEO, the Committee considered the NEO’s 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 LII Incentive Plan.
 
Once the Committee determined the long-term incentive planning value for each NEO, 50% of the value was provided in PSUs, 30% in RSUs and 20% in SARs. The specific number of PSUs and RSUs granted was determined by dividing the corresponding planning value by the fair market value of our common stock on the NYSE five trading days prior to the date of grant (without reduction for dividends or for vesting restrictions), consistent with our standard process. The specific number of SARs granted was determined by dividing the corresponding planning value by the Black-Scholes value of our common stock five trading days prior to the date of grant (without reduction for vesting restrictions).


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Although we determine the number of awards five trading days prior to the date of grant for planning purposes, the grant date fair value and the SAR exercise price are determined on the actual date of grant.
 
The following table summarizes the planning values and number of awards granted for each NEO:
 
                                                                 
    December 2010 Planning Value   Number of Awards Granted
NEO
  PSUs   RSUs   SARs   Total   PSUs(1)   RSUs(1)   SARs(2)   Total
 
Mr. Bluedorn
  $ 1,850,000     $ 1,110,000     $ 740,000     $ 3,700,000       40,043       24,026       54,212       118,281  
Mr. Hau
    418,116       250,870       167,247       836,233       9,050       5,430       12,252       26,732  
Mr. Young
    418,116       250,870       167,247       836,233       9,050       5,430       12,252       26,732  
Mr. Bizios
    418,116       250,870       167,247       836,233       9,050       5,430       12,252       26,732  
Mr. Sessa
    418,116       250,870       167,247       836,233       9,050       5,430       12,252       26,732  
 
 
(1) The number of PSUs granted and the number of RSUs granted were determined based on the average of the high and low closing price of the Company’s common stock on the NYSE five trading days prior to the date of grant ($46.20).
 
(2) The number of SARs granted was determined based on the Black-Scholes value of the Company’s common stock five trading days prior to the date of grant ($13.65).
 
PSUs.  To maintain our strong focus on Company performance, we granted 50% of the planning value for the December 2010 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 then the Company distributes any earned shares.
 
The following table summarizes the key attributes of the PSUs granted in December 2007, which vested on December 31, 2010, and sets out financial performance goals and payout opportunities versus actual performance.
 
December 2007 PSU Grant
(for the January 1, 2008 — December 31, 2010 Performance Period)
 
                                             
Metric
  Weight  
Measurement Period
  Threshold   Target   Maximum   Actual
 
Return on Invested Capital (“ROIC”)     50%     3-year weighted average (20% lowest year, 40% other two years)     20.0%       21.5%       23.0%       16.88%  
Company Core Net Income Growth
    50%     3-year compound annual growth rate     10.0%       14.0%       17.0%       (8.4 )%
Payout as a % of Target Award
    50%       100%       200%       0%  
 
In 2010, NEOs did not earn a payout for the PSUs granted in December 2007. The zero value payout is reflected in the Fiscal 2010 Option Exercises and Stock Vested Table in the “Stock Awards — Value Realized on Vesting” column.
 
The following table summarizes the key attributes of the PSUs granted in December 2010. 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


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Company core net income growth performance goals based on historical results and projected outcomes of that measure as well as expected market conditions.
 
December 2010 PSU Grant
(for the January 1, 2011 — December 31, 2013 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
mid-teens ROIC is achieved
                                         
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 double
digit core net income compound annual
growth rate
Payout as a % of Target Award
    50 %     100 %     200 %
 
The PSUs granted to our NEOs in 2010 are included in the Fiscal 2010 Grants of Plan-Based Awards Table in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column.
 
RSUs.  To support our critical retention efforts, the Committee granted the NEOs 30% of the planning value for the December 2010 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 2010 is included in the Fiscal 2010 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 planning value for the December 2010 award in the form of SARs. SARs generally 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. SARs granted in 2010 expire seven years from the date of grant. The number of SARs granted to our NEOs in 2010 is included in the Fiscal 2010 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 each NEO more flexibility and choice. Our NEOs have full discretion on how these cash stipends are spent and they are not tracked by the Company after they are paid. In addition, we offer the installation of Company products and equipment at each NEO’s home to promote our brand to both business and personal guests.


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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 general employee population. The following table summarizes the additional benefit programs in place during 2010 and the purpose of each program.
 
Additional Benefit Programs Offered to NEOs in 2010
 
         
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 Internal Revenue Code (“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; and (4) preserve stockholder value by providing continuity of management during a transition period.
 
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 executive’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
 
Effective January 1, 2010, the Company adopted 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 unvested performance-based PSUs nor vested or unvested SARs.


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The following chart sets forth as of December 31, 2010, for each NEO other than Mr. Boxer, who retired from the Company effective June 30, 2010, 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:
 
                                 
    Current Level of Stock Ownership  
    Ownership
                Deadline for
 
    Requirement as
    Total
    Stock Ownership as
    Compliance with
 
    a % of
    Number of
    % of Base
    Stock Ownership
 
    Base Salary     Shares     Salary(1)     Guidelines  
 
Mr. Bluedorn
    500 %     156,003       771 %     December 31, 2014  
Mr. Hau
    300 %     22,140       219 %     December 31, 2014  
Mr. Young
    300 %     68,002       730 %     December 31, 2014  
Mr. Bizios
    300 %     83,284       963 %     December 31, 2014  
Mr. Sessa
    300 %     39,923       443 %     December 31, 2014  
 
 
(1) Based on the average daily closing price for 2010 of $43.47.
 
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
 
Effective January 1, 2010, our Company adopted 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.
 
No Hedging Policy
 
Our Company has an Insider Trading Policy that 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.
 
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.


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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 recommends to the Board that the CD&A be included in this Proxy Statement and Form 10-K for fiscal year 2010.
 
Submitted by the Compensation and Human Resources Committee of the Board:
 
     
James J. Byrne (Chairperson)
  Jeffrey D. Storey, M.D.
John E. Major
  Gregory T. Swienton
Terry D. Stinson
   


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Summary Compensation Table
 
The following table provides information regarding the total compensation of each of the Company’s named executive officers for the fiscal year ended December 31, 2010. The table also sets forth fiscal 2008 and fiscal 2009 compensation information for the Company’s named executive officers who were also named executive officers in fiscal 2008 and fiscal 2009.
 
                                                                         
                                        Change in
             
                                        Pension
             
                                        Value and
             
                                  Non-Equity
    Nonqualified
             
                      Stock
    Option
    Incentive Plan
    Deferred
    All Other
       
          Salary
    Bonus
    Awards
    Awards
    Compensation
    Compensation
    Compensation
    Total
 
Name and Principal Position
  Year     ($)     ($)     ($)(1)     ($)(2)     ($)     Earnings ($)(3)     ($)(4)     ($)  
 
Todd M. Bluedorn
    2010       867,000       0       2,873,155       745,475       1,897,065       485,880       47,545       6,916,120  
Chief Executive Officer
    2009       828,000       0       2,564,885       669,826       880,000       243,389       46,010       5,232,110  
      2008       828,000       0       2,661,446       708,524       734,419       373,646       481,402       5,787,437  
Robert W. Hau
    2010       436,250       0       649,351       168,478       556,821       0       555,450       2,366,350  
Executive Vice President
    2009       103,030       425,000       956,262       164,749       69,909       0       86,489       1,805,439  
and Chief Financial Officer
                                                                       
Douglas L. Young
    2010       401,377       0       649,351       168,478       462,500       463,459       45,407       2,190,573  
Executive Vice President
    2009       390,509       0       630,864       164,749       380,184       167,141       44,718       1,778,165  
and President and Chief
    2008       390,509       0       665,368       177,131       252,198       224,924       45,484       1,755,614  
Operating Officer, Residential H&C
                                                                       
Harry J. Bizios
    2010       372,750       0       649,351       168,478       489,939       214,209       47,347       1,942,075  
Executive Vice President
                                                                       
and President and Chief Operating Officer, Commercial H&C
                                                                       
Daniel M. Sessa
    2010       388,444       0       649,351       168,478       495,802       145,711       45,705       1,893,492  
Executive Vice President
    2009       377,775       0       630,864       164,749       247,998       80,257       45,060       1,546,703  
and Chief Human Resources
    2008       377,775       0       665,368       177,131       236,602       103,489       318,450       1,878,815  
Officer
                                                                       
Scott J. Boxer(5)
    2010       251,108       0       0       0       0       0       1,829,507       2,080,616  
Former Executive Vice President
    2009       502,217       0       630,864       164,749       337,282       370,471       48,101       2,053,684  
and President and Chief
    2008       502,217       0       665,368       177,131       179,537       719,148       57,155       2,300,556  
Operating Officer, Service Experts
                                                                       
 
 
(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 15 to our audited financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K filed with the SEC on February 18, 2011. Amounts for PSUs reflect the most probable outcome award value 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:
 


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        PSU Value at Maximum
Name
  Year   Performance Levels ($)
 
Todd M. Bluedorn
    2010       3,591,433  
      2009       3,206,114  
      2008       3,326,814  
Robert W. Hau
    2010       811,689  
      2009       788,572  
Douglas L. Young
    2010       811,689  
      2009       788,572  
      2008       831,704  
Harry J. Bizios
    2010       811,689  
Daniel M. Sessa
    2010       811,689  
      2009       788,572  
      2008       831,704  
Scott J. Boxer
    2009       788,572  
      2008       831,704  
 
(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 15 to our audited financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K filed with the SEC on February 18, 2011.
 
(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 as a result of one additional 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 2010 for each NEO.
 
                                                                         
    Perquisites     Other Compensation        
          Company
          Matching
    Term Life
    Relocation
                   
    Cash
    Equipment
    Relocation
    Charitable
    Insurance
    Tax-Gross-
    Retirement
             
Name
  Stipend     and Installation     Assistance     Contributions     Premiums     Ups     Contributions     Other     Total  
 
                                                                         
Todd M. Bluedorn
  $ 30,000                       $ 2,845           $ 14,700           $ 47,545  
                                                                         
Robert W. Hau
    30,000           $ 513,032             1,139     $ 1,729       9,550             555,450  
                                                                         
Douglas L. Young
    30,000                         707             14,700             45,407  
                                                                         
Harry J. Bizios
    30,000                 $ 1,000       984             14,700     $ 663       47,347  
                                                                         
Daniel M. Sessa
    30,000     $ 243                   762             14,700             45,705  
                                                                         
                                                                         
                                                                         
Scott J. Boxer
    15,000       129,875                   315             17,101       1,667,216       1,829,507  
 
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 our Company in 2010.
 
  •  Relocation Assistance — based on the incremental cost paid or incurred by us in 2010 for the relocation of Mr. Hau from Arizona to Texas, including home sale and home purchase assistance, shipment of household goods, duplicate housing costs and lump-sum relocation allowance.
 
  •  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 by us in 2010.
 
  •  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

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  or, in the case of Mr. Bluedorn, minimum coverage of $3 million. The amounts shown are based on the incremental cost paid by us in 2010 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.
 
  •  Relocation Tax Gross-Ups — based on the incremental cost paid by us in 2010 for certain taxable benefits related to relocation assistance.
 
  •  Retirement Contributions — based on contributions made under our qualified 401(k) Plan and, for Mr. Boxer, additional contributions made as a taxable retirement allowance in 2010.
 
  •  Other — for Mr. Boxer, based on the incremental cost paid or accrued by us in connection with his severance.
 
(5) The amount reported in the “All Other Compensation” column includes severance related payments when Mr. Boxer’s employment with our Company ended effective June 30, 2010, as described in “NEOs Whose Employment With Our Company Ended During 2010.”
 
Fiscal 2010 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 2010.
 
                                                                                                 
                                              All
    All
                   
                                              Other
    Other
                   
                                              Stock
    Option
                Grant
 
                                              Awards:
    Awards:
    Exercise
          Date Fair
 
          Estimated Possible Payouts
                      Number of
    Number of
    or Base
    Closing
    Value of
 
          Under
    Estimated Future
    Shares of
    Securities
    Price of
    Market
    Stock and
 
          Non-Equity Incentive Plan
    Payouts Under Equity Incentive Plan
    Stock or
    Underlying
    Option
    Price on
    Option
 
          Awards(1)     Awards(2)     Units
    Options
    Awards
    Date
    Awards
 
    Grant
    Threshold
    Target
    Max.
    Threshold
    Target
    Max.
    (#)
    (#)
    ($/Sh)
    of Grant
    ($)
 
Name
  Date     ($)     ($)     ($)     (#)     (#)     (#)     (3)     (4)     (5)     ($/Sh)     (6)  
 
Todd M. Bluedorn
          520,200       1,040,400       2,340,900                                                  
      12/9/10                         20,022       40,043       80,086                               1,795,716  
      12/9/10                                           24,026                         1,077,439  
      12/9/10                                                 54,212       46.780       46.790       745,475  
Robert W. Hau
          152,688       305,375       687.094                                                  
      12/9/10                         4,525       9,050       18,100                               405,845  
      12/9/10                                           5,430                         243,507  
      12/9/10                                                 12,252       46.780       46.790       168,478  
Douglas L. Young
          140,482       280,964       632,169                                                  
      12/9/10                         4,525       9,050       18,100                               405,845  
      12/9/10                                           5,430                         243,507  
      12/9/10                                                 12,252       46.780       46.790       168,478  
Harry J. Bizios
          130,463       260,925       587,081                                                  
      12/9/10                         4,525       9,050       18,100                               405,845  
      12/9/10                                           5,430                         243,507  
      12/9/10                                                 12,252       46.780       46.790       168,478  
Daniel M. Sessa
          135,956       271,911       611,800                                                  
      12/9/10                         4,525       9,050       18,100                               405,845  
      12/9/10                                           5,430                         243,507  
      12/9/10                                                 12,252       46.780       46.790       168,478  
Scott J. Boxer(7)
          87,888       175,776       395,496       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 2010. These awards were paid on March 15, 2011 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, 2013.
 
(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.


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(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.
 
                                                               
                                    FMV Based on
       
          Assumptions       Average High/
    Grant Date
 
                            Risk Free
      Low NYSE Trading
    Fair Value
 
          Volatility
    Expected Life
    Dividend Yield
    Interest Rate
      Prices on Date of
    Per Share
 
Grant Date
  Award     (%)     (Years)     (%)     (%)       Grant ($)     ($)  
 
 
12/9/2010
      RSU                   1.41               46.780       44.8447  
 
12/9/2010
      PSU                   1.41               46.780       44.8447  
 
12/9/2010
      SAR       39.93       4.04       1.46       1.46         46.780       13.7511  
 
(7) Mr. Boxer retired from the Company effective June 30, 2010. As a result, he did not earn a 2010 bonus, but rather received the enhanced severance benefits described below pursuant to the employment agreement he entered into when he joined the Company.


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Outstanding Equity Awards at Fiscal 2010 Year-End
 
The following table provides information regarding all outstanding equity awards held by our NEOs as of December 31, 2010.
 
                                                                 
    Option/SAR Awards(1)     Stock Awards  
                                              Equity
 
                                        Equity
    Incentive
 
                                        Incentive
    Plan
 
                                        Plan
    Awards:
 
                                        Awards:
    Market
 
                                        Number of
    or Payout
 
                                  Market
    Unearned
    Value of
 
                            Number of
    Value of
    Shares,
    Unearned
 
    Number of
    Number of
                Shares or
    Shares or
    Units or
    Shares,
 
    Securities
    Securities
                Units of
    Units of
    Other
    Units or
 
    Underlying
    Underlying
    Option/
          Stock
    Stock
    Rights
    Other Rights
 
    Unexercised
    Unexercised
    SAR
    Option/
    That Have
    That Have
    That Have
    That Have
 
    Options/
    Options/
    Exercise
    SAR
    Not
    Not
    Not
    Not
 
    SARs(#)
    SARs (#)
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
 
Name
  Exercisable(1)     Unexercisable(1)     ($/Sh)(2)     Date     (#)(3)     ($)(4)     (#)(5)     ($)(4)  
 
Todd M. Bluedorn
    48,025       0       35.820       12/08/13       88,861       4,202,237       193,569       9,153,878  
      81,437       0       34.520       12/06/14                                  
      69,317       34,659       28.240       12/11/15                                  
      20,365       40,731       36.935       12/10/16                                  
      0       54,212       46.780       12/09/17                                  
Robert W. Hau
    5,009       10,018       36.935       12/10/16       22,140       1,047,001       31,416       1,485,663  
      0       12,252       46.780       12/09/17                                  
Douglas L. Young
    3,635       0       29.355       12/09/12       23,747       1,122,996       47,064       2,225,657  
      17,062       0       30.845       12/08/13                                  
      20,359       0       34.520       12/06/14                                  
      17,329       8,665       28.240       12/11/15                                  
      5,009       10,018       36.935       12/10/16                                  
      0       12,252       46.780       12/09/17                                  
Harry J. Bizios
    5,452       0       29.355       12/09/12       23,747       1,122,996       47,064       2,225,657  
      17,062       0       30.845       12/08/13                                  
      20,359       0       34.520       12/06/14                                  
      17,329       8,665       28.240       12/11/15                                  
      5,009       10,018       36.935       12/10/16                                  
      0       12,252       46.780       12/09/17                                  
Daniel M. Sessa
    20,359       0       34.520       12/06/14       21,529       1,018,106       47,064       2,225,657  
      17,329       8,665       28.240       12/11/15                                  
      5,009       10,018       36.935       12/10/16                                  
      0       12,252       46.780       12/09/17                                  
Scott J. Boxer
    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 and stock options 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 and outstanding PSUs granted prior to 2003 held by the NEOs. Refer to column (a) of Table 1 below for the vesting dates of such awards. As of December 31, 2010, Mr. Bizios and Mr. Young were the only NEOs holding PSUs granted prior to 2003. To the extent these PSUs did not vest at target at the end of the original three-year performance period, the awards will vest at target and be distributed in shares of our common stock 10 years from the date of grant.
 
(4) The amounts shown are based on the NYSE closing price of our common stock on December 31, 2010, which price was $47.29.
 
(5) The amounts shown represent outstanding PSUs granted after January 1, 2003. Refer to column (b) of Table 1 below for the vesting dates of such awards and the performance assumptions used to calculate the number of unvested PSUs.


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Table 1
 
                                         
    (a)
    (b)
 
    Shares or Units of Stock
    Equity Incentive Plan Awards: Unearned
 
    That
    Shares,
 
    Have Not Vested     Units or Other Rights That Have Not Vested  
    Number of
          Number of
          Performance
 
Name
  Awards     Vesting Date     Awards     Vesting Date     Assumption  
 
Todd M. Bluedorn
    37,555       12/11/11       62,592       12/31/11       Target  
      27,280       12/10/12       90,934       12/31/12       Maximum  
      24,026       12/09/13       40,043       12/31/13       Target  
                                         
Total
    88,861               193,569                  
Robert W. Hau
    10,000       10/05/12       22,366       12/31/12       Maximum  
      6,710       12/10/12       9,050       12/31/13       Target  
                                         
      5,430       12/09/13                          
                                         
Total
    22,140               31,416                  
Douglas L. Young
    9,389       12/11/11       15,648       12/31/11       Target  
      2,218       05/17/12       22,366       12/31/12       Maximum  
      6,710       12/10/12       9,050       12/31/13       Target  
                                         
      5,430       12/09/13                          
                                         
Total
    23,747               47,064                  
Harry J. Bizios
    9,389       12/11/11       15,648       12/31/11       Target  
      2,218       05/17/12       22,366       12/31/12       Maximum  
      6,710       12/10/12       9,050       12/31/13       Target  
                                         
      5,430       12/09/13                          
                                         
Total
    23,747               47,064                  
Daniel M. Sessa
    9,389       12/11/11       15,648       12/31/11       Target  
      6,710       12/10/12       22,366       12/31/12       Maximum  
      5,430       12/09/13       9,050       12/31/13       Target  
                                         
Total
    21,529               47,064                  
Scott J. Boxer
    0       N/A       0       N/A       N/A  
 
Fiscal 2010 Option Exercises and Stock Vested
 
The following table provides information regarding each exercise of SARs by our NEOs and each vesting or distribution of RSUs and PSUs held by our NEOs in 2010.
 
                                     
    Options/SAR Awards     Stock Awards  
    Number of Shares
    Value Realized on
    Number of Shares
    Value Realized on
 
    Acquired on
    Exercise
    Acquired on
    Vesting
 
Name
  Exercise (#)     ($)(1)     Vesting (#)     ($)(2)  
 
Todd M. Bluedorn
    0       0     RSU     30,066       1,389,951  
                    PSU     0       0  
Robert W. Hau
    0       0     RSU     0       0  
                    PSU     0       0  
Douglas L. Young
    0       0     RSU     21,214       990,996  
                    PSU     0       0  
Harry J. Bizios
    16,580       487,369     RSU     21,214       990,996  
                    PSU     0       0  
Daniel M. Sessa
    0       0     RSU     7,517       347,511  
                    PSU     0       0  
Scott J. Boxer
    52,533       1,311,666     RSU     0       0  
                    PSU     0       0  
 
 
(1) The amounts shown are based on the difference between the exercise price of the SARs (the average of the high and low NYSE trading prices of our common stock on the date of the grant) and the NYSE trading price of our common stock at the time of exercise.
 
(2) The amounts shown for RSUs are based on the average of the high and low NYSE trading prices of our common stock on the day of vesting.


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Retirement Plans
 
Qualified Retirement Plans
 
Frozen Consolidated Pension Plan
 
Effective January 1, 2009, the Consolidated Pension Plan was frozen and as of that date benefits no longer increase with additional service and compensation. The monthly target benefit is based on 1.00% of final average annual pay, plus 0.60% 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 our frozen Profit Sharing Retirement Plan, with the difference, if any, provided by the frozen Consolidated Pension Plan. Participants become vested in their frozen Consolidated Pension Plan accrued benefits after five years of service and may commence unreduced benefits at age 65 (normal retirement age). 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 may commence earlier on an actuarially reduced basis. At the time of retirement, the participant will be paid in the form of an annuity payment. We do not grant extra years of service under the frozen Consolidated Pension Plan. Currently, Mr. Bizios is the only NEO who is eligible for early retirement under this plan.
 
Frozen Profit Sharing Retirement Plan
 
We froze the Profit Sharing Retirement Plan and discontinued contributions effective January 1, 2009. Participants are fully vested in the plan after six years of service. We direct 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
 
Effective January 1, 2009, as a replacement to the frozen Consolidated Pension Plan and frozen Profit Sharing Retirement Plan, we adopted a new 401(k) Salaried Retirement Plan. Salaried employees are eligible to participate in this plan, and all contributions are made on a pretax basis, subject to limitations for qualified plans under the Code. Participants can contribute up to 75% of their eligible earnings each pay period and receive a Company match of 50% on up to 6% of their eligible pay. The match fully vests after the participant completes two years of service with our Company. In addition, all participants (after completing one year of service) receive a base contribution equal to 3% of eligible pay each pay period. The base contribution is immediately fully vested.
 
Mr. Boxer participated in a separate 401(k) Salaried Retirement Plan for employees of Service Experts. Participants in that plan receive a Company match of 33% on up to 6% of their eligible pay. In addition, eligible employees receive a taxable retirement allowance each pay period equal to 5% of eligible pay, capped at the qualified plan limitations imposed by the Code.
 
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 Consolidated 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 Consolidated 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 for a total of 80 has been met), and provides lump-sum payments at the time of separation. Currently, Mr. Bizios is the only NEO who is eligible for early retirement under this plan.


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Any benefits provided under the Supplemental Retirement Plan are reduced by the benefits payable under our Company’s frozen Consolidated Pension Plan (as if such plan had not been frozen), frozen Profit Sharing Retirement 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 in the case of a change in control. Under such circumstances, up to three years of service and age would be granted to each NEO, not to exceed the 15 year maximum credited service cap. 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. Participants are fully vested in the plan after six years of service. 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 qualified frozen Profit Sharing Retirement Plan. We may change these investments at any time. The weighted average annual rate of return for the calendar year ended December 31, 2010, was 13.2%.
 
Fiscal 2010 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, 2010, as well as payments made to each NEO in 2010 under such plans. Currently, Mr. Bizios is the only NEO who is eligible for early retirement under these plans.
 
                             
        Number of
  Present
  Payments
        Years
  Value of
  During
        Credited
  Accumulated
  Last
        Service
  Benefit
  Fiscal Year
Name
  Plan Name   (#)   ($)(1)   ($)
 
Todd M. Bluedorn
  Consolidated Pension Plan (Frozen)     1.9       23,322       0  
    Supplemental Retirement Plan     3.9       1,079,593       0  
Robert W. Hau(2)
  Supplemental Retirement Plan     1.3       0       0  
Douglas L. Young
  Consolidated Pension Plan (Frozen)     9.6       47,656       0  
    Supplemental Retirement Plan     11.6       1,319,077       0  
Harry J. Bizios
  Consolidated Pension Plan (Frozen)     30.0       67,416       0  
    Supplemental Retirement Plan     15.0       1,948,034       0  
Daniel M. Sessa
  Consolidated Pension Plan (Frozen)     1.7       18,814       0  
    Supplemental Retirement Plan     3.7       310,644       0  
Scott J. Boxer(3)
  Consolidated Pension Plan (Frozen)     N/A       N/A       0  
    Supplemental Retirement Plan     N/A       N/A       943,370  
 
 
(1) The actuarial present value of the lump-sum accumulated benefit payable at December 31, 2010 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 5.28% interest (discount) rate as of December 31, 2010 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 12 to our audited financial statements for the fiscal year ended December 31, 2010 included in our Annual Report on Form 10-K filed with the SEC on February 18, 2011.


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(2) Mr. Hau is not eligible to participate in the frozen Consolidated Pension Plan due to his date of hire. Mr. Hau’s Supplemental Retirement Plan value is $0 since he does not have a complete year of eligible earnings.
 
(3) In accordance with Section 409A of the Code, Mr. Boxer was also paid a single lump-sum payment of $1,744,953 on January 3, 2011, six months and one day following his date of separation of service.
 
Fiscal 2010 Nonqualified Deferred Compensation
 
The following table provides information regarding contributions, earnings, withdrawals and distributions under our frozen Profit Sharing Restoration Plan in 2010 for each NEO, as well as each NEO’s aggregate balance in such plan at December 31, 2010.
 
                                     
    Executive
  Company
          Aggregate
    Contributions in
  Contributions in
  Aggregate Earnings
  Aggregate
  Balance
    Last Fiscal Year
  Last Fiscal Year
  in Last Fiscal Year
  Withdrawals/
  at Last Fiscal
Name
  ($)   ($)   ($)   Distributions ($)   Year-End ($)(1)
 
Todd M. Bluedorn(2)
  0     0       5,930       0       50,787  
Robert W. Hau(3)
  0     0       0       0       0  
Douglas L. Young
  0     0       30,245       0       259,042  
Harry J. Bizios
  0     0       49,211       0       421,482  
Daniel M. Sessa
  0     0       1,414       0       12,112  
Scott J. Boxer(4)
  0     0       34,107       258,446       307,385  
 
 
(1) Of these amounts, the amounts below were previously reported in prior Summary Compensation Tables in the “All Other Compensation” column:
 
                         
Name
  2008     2009     2010  
 
Todd M. Bluedorn
  $ 34,810       N/A       N/A  
Robert W. Hau
    N/A       N/A       N/A  
Douglas L. Young
    10,911       N/A       N/A  
Harry J. Bizios
    N/A       N/A       N/A  
Daniel M. Sessa
    8,302       N/A       N/A  
Scott J. Boxer
    22,622       N/A       N/A  
 
Aggregate earnings for each NEO under the frozen Profit Sharing Restoration Plan were not reported in the Summary Compensation Table for 2010 or previous years because such earnings were at the market rate.
 
(2) Mr. Bluedorn did not join our Company until 2007 and did not become eligible to participate in this plan until January 1, 2008.
 
(3) Mr. Hau is not eligible to participate in this plan.
 
(4) In accordance with Section 409A of the Code, Mr. Boxer was also paid his remaining balance in a single lump-sum payment of $307,385 January 3, 2011, six months and one day following his date of separation of service.
 
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


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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 assignments for each NEO and contain post-employment covenants, including protection of confidential information, prohibition on the diversion of employees, vendors and contractors and 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, 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, for a period of 24 months following termination of employment, not to induce our employees to terminate their employment with our Company.
 
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 stock options, 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 base salary through the last day of employment, a prorated payment under our short-term incentive program based on 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;
 
  •  for PSUs granted prior to January 2003, unvested awards will terminate on the NEO’s last day of employment; and
 
  •  for other 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.
 
Payments Made Upon Involuntary — Not for Cause Termination
 
If we terminate a NEO prior to the expiration of his employment agreement (including non-renewal of the NEO’s agreement) for any reason other than for cause, the NEO will generally be entitled to receive “normal severance compensation” or, in the NEO’s sole discretion, “enhanced severance benefits.” Under both severance packages:
 
  •  all outstanding, stock options and SARs that have vested as of the last day of employment will continue to be exercisable for 90 days following the NEO’s last day of employment; and


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  •  unvested equity awards (SARs, RSUs and PSUs) will generally terminate on the NEO’s last day of employment.
 
Normal Severance Compensation.  If the NEO elects to receive “normal severance compensation,” he will receive monthly payments equal to the greater of (1) his monthly base salary for the remainder of the employment agreement’s term, or (2) three months of his monthly base salary in addition to any other compensation or benefits applicable to an employee at the NEO’s level, including a lump-sum payment equal to unused, accrued vacation days.
 
Enhanced Severance Benefits.  If the NEO agrees to execute a written general release of any and all possible claims against us existing at the time of termination, we will provide the employee with “enhanced severance benefits.” Payments provided under this severance arrangement, which are dependent on years of service with our Company, generally include the following:
 
         
Component
 
Less than Three Years of Service
 
Three or More Years of Service
 
Base Salary
  One year of base salary   Two years of base salary
Short-Term Incentive
  Lump-sum payment equal to all payments under our short-term incentive programs received by the NEO in the previous 12 months   Lump-sum payment equal to all payments under our short-term incentive programs received by the NEO in the previous 24 months
Payment in Lieu of Outplacement Services
  Lump-sum payment equal to 10% of current base salary   Same
Payment in Lieu of Perquisites
  Lump-sum payment equal to 10% of current base salary   Same
Post-Employment Health Care Coverage
  Payment of COBRA premiums for up to 18 months while the NEO is unemployed and not eligible for other group health coverage and payment of the equivalent of such premium for up to an additional six months, should the NEO remain unemployed   Same
Death Benefit
  If the NEO dies during the enhanced severance period, a lump-sum death benefit equal to six months of the NEO’s base salary will be paid to the NEO’s beneficiary   Same
Accrued Vacation
  A lump-sum payment equal to unused, accrued vacation days   Same
 
Payments Made Upon Death or Disability
 
Generally, if a NEO dies during the term of his employment agreement, the NEO’s beneficiary will be entitled to receive “normal severance compensation,” as described above. If a NEO becomes permanently disabled during the agreement term, he will generally be entitled to, at the NEO’s option, either “normal severance compensation” or “enhanced severance benefits,” as described above. In the case of either death or disability, with respect to long-term incentive awards:
 
  •  all outstanding stock options and SARs will vest immediately and remain exercisable for the duration of the term;
 
  •  for RSUs, the NEO, or his beneficiary, will receive a prorated payment based upon the portion of the vesting period the NEO actually served as an employee of our Company payable at the time employment ceases;
 
  •  for PSUs granted prior to January 2003, unvested awards will terminate on the NEO’s last day of employment; and


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  •  for PSUs granted after January 2003, the NEO, or his beneficiary, will receive, to the extent earned based on achievement of specific performance measures, a prorated portion of shares based upon the portion of the performance period the NEO actually served as our employee, payable at the time employment ceases.
 
Payments Made to Mr. Bluedorn if he Terminates his Employment for “Good Reason,” Upon Involuntary — Not for Cause Termination, or Upon Death or Disability
 
Except as described below, Mr. Bluedorn will receive similar severance benefits as the other NEOs. Mr. Bluedorn’s employment agreement provides for certain severance benefits in the event he terminates his employment for “good reason.” “Good reason” includes:
 
  •  any change in Mr. Bluedorn’s position, authority, duties, or responsibilities inconsistent with the position of CEO (excluding de minimus changes and an isolated, insubstantial and inadvertent action not taken in bad faith and promptly remedied by us after notice);
 
  •  any failure by us to comply with any of the provisions of Mr. Bluedorn’s employment agreement (excluding an isolated, insubstantial and inadvertent action not taken in bad faith and promptly remedied by us after notice);
 
  •  any requirement for him to be based at any office or location other than our current headquarters in Richardson, Texas;
 
  •  any purported termination by us of Mr. Bluedorn’s employment otherwise than as expressly permitted by his employment agreement; or
 
  •  any failure by our Board to nominate him for election by the stockholders as a director.
 
Pursuant to his employment agreement, in the event (1) Mr. Bluedorn terminates his employment for “good reason,” (2) we terminate him prior to the expiration of his employment agreement (including non-renewal of his agreement) for any reason other than for cause, or (3) Mr. Bluedorn dies or becomes permanently disabled during the term of his employment agreement, he (or his beneficiary, as applicable) will be entitled to receive “enhanced severance benefits” as described above under “Payments Made Upon Involuntary — Not For Cause Termination,” provided he (or his personal representative, as applicable) agrees to execute a written general release of any and all possible claims against us existing at the time of termination.
 
In the case of either death or permanent disability, Mr. Bluedorn’s long-term incentive awards will vest, remain exercisable and be paid or distributed as described above under “Payments Made Upon Death or Disability.”
 
Payments Made Upon a Change in Control
 
Definition of Change in Control
 
A CIC generally includes the occurrence of any of the following events:
 
  •  an acquisition by a third party of 35% or more of our voting stock;
 
  •  a change in a majority of Board members without majority Board approval;
 
  •  stockholder approval of a merger, consolidation or reorganization;
 
  •  stockholder approval of the liquidation or dissolution of our Company; or
 
  •  stockholder approval of the sale of substantially all corporate assets.


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Definition of Good Reason
 
“Good reason,” under each CIC agreement, includes:
 
  •  any change in the NEO’s position, authority, duties, or responsibilities (excluding de minimus changes);
 
  •  any failure by us to comply with the NEO’s CIC agreement, including without limitation the provision regarding compensation and benefits;
 
  •  a required relocation to any office or location not within 35 miles of the NEO’s current office or location;
 
  •  any failure by any successor to adopt and comply with the NEO’s CIC agreement; or
 
  •  any failure to reelect to the Board any NEO serving as a member of the Board.
 
CIC Benefits
 
If a NEO’s employment is terminated by us without cause or by the NEO for “good reason” either (i) within two years following a CIC, or (ii) within six months prior to a CIC, we will provide the NEO with the following CIC benefits:
 
     
Component
 
CIC Benefit
 
Base Salary Severance
  Lump-sum payment equal to three times the NEO’s annual base salary
Prorated Bonus
  Lump-sum payment equal to the NEO’s target bonus, prorated based on the last day of employment
Bonus Severance
  Lump-sum payment equal to three times the NEO’s target bonus
Payment in Lieu of Outplacement Services
  Lump-sum payment equal to 15% of current base salary
Payment in Lieu of Perquisites
  Lump-sum payment equal to 45% of current base salary
Post-Employment Health Care Coverage
  Payment of COBRA premiums for up to 36 months while the NEO is unemployed and not eligible for other group health coverage
Supplemental Retirement Plan and Profit Sharing Restoration Plan
  Three years added to each of the service and age criteria
280G Tax Gross-up
  If CIC payments are subject to the excise tax imposed by Section 4999 of the Code, an additional “gross-up payment”
Accrued Vacation
  A lump-sum payment equal to unused, accrued vacation days
 
Upon a CIC, all outstanding stock options, SARs, RSUs and PSUs held by the NEO will immediately vest and become exercisable, with applicable performance measures for outstanding PSUs deemed to have been satisfied at the highest possible level (200% of target). Further, outstanding stock options and SARs may be exercised by the NEO up to 90 days after a NEO’s termination within one year following a CIC.


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Tables Illustrating Potential Payments Upon Termination or Change in Control
 
The following tables provide information regarding the benefits to which each NEO would be entitled in the event of termination of such individual’s employment with our Company under specified circumstances, including a CIC. Except as otherwise noted, the amounts shown (1) are estimates only and (2) assume that (A) termination was effective as of December 31, 2010, (B) in the case of disability, the NEO elects to receive “enhanced severance benefits,” (C) in the case of retirement, the NEO is eligible for retirement and (D) in the case of change in control, the NEO terminates for “good reason” or is involuntarily terminated without cause.
 
Todd M. Bluedorn
 
                                                                 
            Involuntary-Not For
               
            Cause Termination                
    Voluntary
      Normal
  Enhanced
          For Cause
  Change in
Component
  Termination   Retirement   Severance   Severance(1)   Death   Disability   Termination   Control
 
Base Salary
  $ 0     $ 0     $ 220,000     $ 1,760,000     $ 1,760,000     $ 1,760,000     $ 0     $ 2,640,000  
Prorated Bonus
    N/A       N/A       N/A       N/A       N/A       N/A       N/A       1,056,000  
Bonus
    0       0       0       1,614,419       1,614,419       1,614,419       0       3,168,000  
Payment in Lieu of Outplacement Services
    0       0       0       88,000       88,000       88,000       0       132,000  
Payment in Lieu of Perquisites
    0       0       0       88,000       88,000       88,000       0       396,000  
Post-Employment Health Care Coverage
    0       0       0       36,743       21,444       36,743       0       69,715  
Long-Term Equity Accelerated Vesting(2)
    0       5,207,865       0       0       6,317,537       6,317,537       0       19,316,230  
Incremental Payment Under Supplemental Retirement Plan and Frozen Profit Sharing Restoration Plan
    0       0       0       0       0       0       0       895,629  
280G Tax Gross-up
    0       0       0       0       0       0       0       9,975,134  
Unused, Accrued Vacation(3)
    84,615       84,615       84,615       84,615       84,615       84,615       84,615       84,615  
                                                                 
TOTAL
  $ 84,615     $ 5,292,481     $ 304,615     $ 3,671,778     $ 9,974,015     $ 9,989,315     $ 84,615     $ 37,733,323  
                                                                 
 
 
(1) The amounts shown reflect the same severance benefits that would be provided to Mr. Bluedorn if he terminated employment with our Company for “good reason” under his employment agreement.
 
(2) The amounts shown reflect unvested long-term incentive awards. Such amounts are based on the NYSE closing price of our common stock on December 31, 2010, which was $47.29.
 
(3) The amounts shown represent a lump-sum payment for five weeks of vacation in 2010 (assuming the NEO did not take any vacation days in 2010). Actual payouts may vary depending on the specific circumstances.


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Robert W. Hau
 
                                                                 
            Involuntary-Not For
               
            Cause Termination                
    Voluntary
      Normal
  Enhanced
          For Cause
  Change in
Component
  Termination   Retirement   Severance   Severance   Death   Disability   Termination   Control
 
Base Salary
  $ 0     $ 0     $ 110,000     $ 880,000     $ 110,000     $ 880,000     $ 0     $ 1,320,000  
Prorated Bonus
    N/A       N/A       N/A       N/A       N/A       N/A       N/A       308,000  
Bonus
    0       0       0       69,909       0       69,909       0       924,000  
Payment in Lieu of Outplacement Services
    0       0       0       44,000       0       44,000       0       66,000  
Payment in Lieu of Perquisites
    0       0       0       44,000       0       44,000       0       198,000  
Post-Employment Health Care Coverage
    0       0       0       37,056       0       0       0       82,132  
Long-Term Equity Accelerated Vesting(1)
    0       685,859       0       0       795,844       795,844       0       3,070,623  
Incremental Payment Under Supplemental Retirement Plan and Frozen Profit Sharing Restoration Plan
    0       0       0       0       0       0       0       0  
280G Tax Gross-up
    0       0       0       0       0       0       0       1,925,728  
Unused, Accrued Vacation(2)
    42,308       42,308       42,308       42,308       42,308       42,308       42,308       42,308  
                                                                 
TOTAL
  $ 42,308     $ 728,167     $ 152,308     $ 1,117,272     $ 948,152     $ 1,876,061     $ 42,308     $ 7,936,791  
                                                                 
 
 
(1) The amounts shown reflect unvested long-term incentive awards. Such amounts are based on the NYSE closing price of our common stock on December 31, 2010, which was $47.29.
 
(2) The amounts shown represent a lump-sum payment for five weeks of vacation in 2010 (assuming the NEO did not take any vacation days in 2010). Actual payouts may vary depending on the specific circumstances.


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Douglas L. Young
 
                                                                 
            Involuntary-Not For
               
            Cause Termination                
    Voluntary
      Normal
  Enhanced
          For Cause
  Change in
Component
  Termination   Retirement   Severance   Severance   Death   Disability   Termination   Control
 
Base Salary
  $ 0     $ 0     $ 101,250     $ 810,000     $ 101,250     $ 810,000     $ 0     $ 1,215,000  
Prorated Bonus
    N/A       N/A       N/A       N/A       N/A       N/A       N/A       283,500  
Bonus
    0       0       0       632,382       0       632,382       0       850,500  
Payment in Lieu of Outplacement Services
    0       0       0       40,500       0       40,500       0       60,750  
Payment in Lieu of Perquisites
    0       0       0       40,500       0       40,500       0       182,250  
Post-Employment Health Care Coverage
    0       0       0       36,743       0       0       0       61,917  
Long-Term Equity Accelerated Vesting(1)
    0       1,292,664       0       0       1,567,717       1,567,717       0       4,787,411  
Incremental Payment Under Supplemental Retirement Plan and Frozen Profit Sharing Restoration Plan
    0       0       0       0       0       0       0       436,757  
280G Tax Gross-up
    0       0       0       0       0       0       0       2,259,443  
Unused, Accrued Vacation(2)
    38,942       38,942       38,942       38,942       38,942       38,942       38,942       38,942  
                                                                 
TOTAL
  $ 38,942     $ 1,331,606     $ 140,192     $ 1,599,068     $ 1,707,909     $ 3,130,041     $ 38,942     $ 10,176,470  
                                                                 
 
 
(1) The amounts shown reflect unvested long-term incentive awards. Such amounts are based on the NYSE closing price of our common stock on December 31, 2010, which was $47.29.
 
(2) The amounts shown represent a lump-sum payment for five weeks of vacation in 2010 (assuming the NEO did not take any vacation days in 2010). Actual payouts may vary depending on the specific circumstances.


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Harry J. Bizios
 
                                                                 
            Involuntary-Not For
               
            Cause Termination                
    Voluntary
      Normal
  Enhanced
          For Cause
  Change in
Component
  Termination   Retirement   Severance   Severance   Death   Disability   Termination   Control
 
Base Salary
  $ 0     $ 0     $ 94,000     $ 752,000     $ 94,000     $ 752,000     $ 0     $ 1,128,000  
Prorated Bonus
    N/A       N/A       N/A       N/A       N/A       N/A       N/A       263,200  
Bonus
    0       0       0       322,075       0       322,075       0       789,600  
Payment in Lieu of Outplacement Services
    0       0       0       37,600       0       37,600       0       56,400  
Payment in Lieu of Perquisites
    0       0       0       37,600       0       37,600       0       169,200  
Post-Employment Health Care Coverage
    0       0       0       21,181       0       0       0       37,306  
Long-Term Equity Accelerated Vesting(1)
    0       1,292,664       0       0       1,567,717       1,567,717       0       4,648,732  
Incremental Payment Under Supplemental Retirement Plan and Frozen Profit Sharing Restoration Plan
    0       0       0       0       0       0       0       0  
280G Tax Gross-up
    0       0       0       0       0       0       0       2,009,449  
Unused, Accrued Vacation(2)
    36,154       36,154       36,154       36,154       36,154       36,154       36,154       36,154  
                                                                 
TOTAL
  $ 36,154     $ 1,328,818     $ 130,154     $ 1,206,609     $ 1,697,871     $ 2,753,145     $ 36,154     $ 9,138,041  
                                                                 
 
 
(1) The amounts shown reflect unvested long-term incentive awards. Such amounts are based on the NYSE closing price of our common stock on December 31, 2010, which was $47.29.
 
(2) The amounts shown represent a lump-sum payment for five weeks of vacation in 2010 (assuming the NEO did not take any vacation days in 2010). Actual payouts may vary depending on the specific circumstances.


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Daniel M. Sessa
 
                                                                 
            Involuntary-Not For
               
            Cause Termination                
    Voluntary
      Normal
  Enhanced
          For Cause
  Change in
Component
  Termination   Retirement   Severance   Severance   Death   Disability   Termination   Control
 
Base Salary
  $ 0     $ 0     $ 98,000     $ 784,000     $ 98,000     $ 784,000     $ 0     $ 1,176,000  
Prorated Bonus
    N/A       N/A       N/A       N/A       N/A       N/A       N/A       274,400  
Bonus
    0       0       0       484,599       0       484,599       0       823,200  
Payment in Lieu of Outplacement Services
    0       0       0       39,200       0       39,200       0       58,800  
Payment in Lieu of Perquisites
    0       0       0       39,200       0       39,200       0       176,400  
Post-Employment Health Care Coverage
    0       0       0       37,056       0       0       0       62,272  
Long-Term Equity Accelerated Vesting(1)
    0       1,292,664       0       0       1,567,717       1,567,717       0       4,648,732  
Incremental Payment Under Supplemental Retirement Plan and Frozen Profit Sharing Restoration Plan
    0       0       0       0       0       0       0       313,558  
280G Tax Gross-up
    0       0       0       0       0       0       0       2,719,821  
Unused, Accrued Vacation(2)
    37,692       37,692       37,692       37,692       37,692       37,692       37,692       37,692  
                                                                 
TOTAL
  $ 37,692     $ 1,330,356     $ 135,692     $ 1,421,747     $ 1,703,409     $ 2,952,408     $ 37,692     $ 10,290,875  
                                                                 
 
 
(1) The amounts shown reflect unvested long-term incentive awards. Such amounts are based on the NYSE closing price of our common stock on December 31, 2010, which was $47.29.
 
(2) The amounts shown represent a lump-sum payment for five weeks of vacation in 2010 (assuming the NEO did not take any vacation days in 2010). Actual payouts may vary depending on the specific circumstances.


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NEOs Whose Employment With Our Company Ended During 2010
 
Scott J. Boxer
 
As previously indicated, Mr. Boxer retired from the Company on June 30, 2010. Mr. Boxer was eligible to receive enhanced severance benefits, as described above under “Payments Made Upon Involuntary — Not for Cause Termination — Enhanced Severance Benefits,” pursuant to the employment agreement he entered into when he joined the Company, and the following table reflects actual severance related payments made, or to be made, pursuant to his employment agreement.
 
         
Component
  Payment  
 
Severance (Base Salary)
  $ 1,004,434  
Severance (Bonus)
    516,820  
Payment in Lieu of Outplacement Services
    50,222  
Payment in Lieu of Perquisites
    50,222  
Unused, Accrued Vacation
    6,761  
Post Employment Health Care Coverage
    38,758  
         
TOTAL
  $ 1,667,216  
         


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DIRECTOR COMPENSATION
 
We use a combination of cash, stock and long-term equity awards to compensate members of our Board. Directors who are also employees of our Company do not receive any additional compensation for serving on our Board.
 
2010 Annual Retainer
 
In 2010, we simplified our non-employee director compensation program, eliminating all individual meeting fees and perquisites and providing larger cash Board retainers as follows:
 
         
    Board
  Committee
    Retainer   Chair Retainer
 
Non-Employee
  $90,000, with up to $70,000  
•   Audit: $15,000
Directors, Other
  payable in cash and the remainder  
•   Compensation and Human Resources: $10,000
than the Chairman
  payable in Company common stock  
•   Board Governance: $10,000
of the Board:
     
•   Public Policy Committee: $6,000
         
Chairman of the
Board:
  $180,000, with up to $140,000
payable in cash and the remainder
payable in Company common stock
  $25,000 flat fee
 
The Board approved additional compensation for the Chairman of the Board because of the leadership responsibilities he has assumed in his role, such as attending Board committee meetings and presiding over executive session meetings. We also reimburse all non-employee directors for their reasonable expenses incurred in connection with attendance at Board or Board committee meetings. We pay directors’ fees on a quarterly basis.
 
Non-Employee Directors’ Compensation and Deferral Plan
 
Under the Non-Employee Directors’ Compensation and Deferral Plan, non-employee directors may receive all or a portion of their annual retainer for service on the Board in the form of Company common stock. The cash deferral component of the plan is frozen and, during 2010, Ms. Alvarado was the only director with an account balance. The account bears interest at an annual rate equal to the prime rate charged by our lenders plus 1%. Upon separation from service the value of her account ($249,177) was paid in a cash lump-sum.
 
2010 Long-Term Incentive Compensation
 
Non-employee directors receive 100% of their long-term incentive in the form of RSUs under the LII Incentive Plan. In 2010, we awarded each non-employee director, other than Ms. Alvarado, Mr. Booth, and the Chairman of the Board, 2,056 RSUs. We awarded the Chairman of the Board 4,113 RSUs in 2010. Ms. Alvarado and Mr. Booth both left the Board in 2010, and as a result did not receive an RSU grant in 2010. Generally, the RSUs vest three years following the date of grant provided that the director remains on our Board throughout the vesting period.
 
Retirement and Health and Welfare Plans
 
We provide a Directors’ Retirement Plan for non-employee directors who were active Board members prior to 1998 and allow such directors to participate in our health care programs under the same terms and provisions that we provide to our employees. The Directors’ Retirement Plan provides for partial continuation of the cash component of the director’s annual retainer at the time of retirement for life. During 2010, Ms. Alvarado (who retired as a director effective February 28, 2010), Mr. Byrne, Mr. Major, and Mr. Thompson were the only active Board members eligible for this plan. Mr. Byrne and Mr. Major are the only active Board members who participated in our health care programs.


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2010 Perquisites and Other Compensation
 
In 2010, we eliminated all perquisite benefits previously provided to our non-employee directors, except we continued to allow our non-employee directors to participate in our employee rebate program, which provides rebates on eligible residential heating and air conditioning equipment, hearth products, accessories, and supplies.
 
Stock Ownership Guidelines
 
Pursuant to our Corporate Governance Guidelines, all directors are required to own shares of our common stock having a value of at least:
 
  •  three times their annual retainer from the later of January 1, 2013 or within three years after their election; and
 
  •  four times their annual retainer from the later of January 1, 2015 or within five years after their election.
 
  •  All non-employee directors currently meet ours stock ownership guidelines, except Mr. Swienton who joined the Board in December 2010.
 
Fiscal 2010 Director Compensation
 
The following table provides information regarding compensation earned in 2010 by each non-employee member of our Board in 2010.
 
                                         
            Change in Pension Value
       
            and Nonqualified
       
    Fees Earned
  Stock
  Deferred Compensation
  All Other
   
Name
  ($)(1)   Awards ($)(2)   Earnings ($)(3)   Compensation ($)(4)   Total ($)
 
Richard L. Thompson
    205,000       185,206       39,636       0       429,842  
Linda G. Alvarado
    15,000       283,287       77,175       0       375,462  
Steven R. Booth
    90,000       198,122       N/A       0       288,122  
James J. Byrne
    100,000       92,581       12,542       0       205,123  
Janet K. Cooper
    90,000       92,581       N/A       0       182,581  
C.L. (Jerry) Henry
    90,000       92,581       N/A       0       182,581  
John E. Major
    90,000       92,581       29,939       0       212,520  
John W. Norris, III
    96,000       92,581       N/A       0       188,581  
Paul W. Schmidt
    105,000       92,581       N/A       0       197,581  
Terry D. Stinson
    100,000       92,581       N/A       0       192,581  
Jeffrey D. Storey, M.D. 
    90,000       92,581       N/A       0       182,581  
Gregory T. Swienton
    7,472       92,581       N/A       0       100,053  
 
 
(1) The table below identifies the allocation between cash and stock of the fees earned in 2010 by each non-employee director:
 


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Name
  Paid in Cash   Paid in Stock
 
Richard L. Thompson
    $135,114       $69,886  
Linda G. Alvarado
    11,676       3,324  
Steven R. Booth
    70,121       19,879  
James J. Byrne
    70,093       29,907  
Janet K. Cooper
    70,121       19,879  
C.L. (Jerry) Henry
    70,121       19,879  
John E. Major
    70,121       19,879  
John W. Norris, III
    76,121       19,879  
Paul W. Schmidt
    70,077       34,923  
Terry D. Stinson
    10,107       89,893  
Jeffrey D. Storey, M.D. 
    40,081       49,919  
Gregory T. Swienton
    0       7,472  
 
(2) For Ms. Alvarado and Mr. Booth, the amounts represent the incremental expense associated with the vesting of outstanding RSUs upon their departure from the Board on February 28, 2010 and December 7, 2010, respectively. For the other non-employee directors, the amounts shown represent the grant date fair value (prior to any assumed forfeitures related to service-based vesting conditions, where applicable) in accordance with FASB ASC Topic 718, in connection with RSUs granted under the LII Incentive Plan.
 
The grant date fair value of RSUs granted to non-employee directors in 2010, calculated in accordance with FASB ASC Topic 718, is as follows:
 
                                 
        RSUs Granted in
  Grant Date Fair Value
  Grant Date Fair
    Grant Date   2010 (#)   Per Share ($)(a)   Value ($)
 
Chairman of the Board
    December 10, 2010       4,113       $45.0295       $185,206  
All Other Non-Employee Directors
    December 10, 2010       2,056       $45.0295       $92,581  
 
 
(a) $45.0295 is the dividend discounted value, based on a dividend rate of 1.41%, of the average of the high and low NYSE trading prices of our common stock on the date of the grant, which was $46.9650.
 
(3) The amounts shown represent the change in the present value of accumulated pension benefits that accrued during 2010 under our Directors’ Retirement Plan as a result of one additional year of service and are based on a 5.28% discount rate.
 
(4) The aggregate value of all perquisites provided for each non-employee director was less than $10,000 for 2010.

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The following table provides information regarding the aggregate number of outstanding RSUs, stock options and SARs held by each non-employee director as of December 31, 2010. RSUs generally vest on the third anniversary of the date of grant and all stock options and SARs are now fully vested. Stock options and SARs expire seven years from the date of grant.
 
                 
        Aggregate Options/SARs
    Aggregate RSUs Outstanding as of
  Outstanding as of
Name
  December 31, 2010 (# of shares)   December 31, 2010 (# of shares)
 
Richard L. Thompson
    16,191       30,180  
Linda G. Alvarado
    0       9,798  
Steven R. Booth
    0       9,798  
James J. Byrne
    8,095       9,798  
Janet K. Cooper
    8,095       22,929  
C.L. (Jerry) Henry
    8,095       9,798  
John E. Major
    8,095       9,798  
John W. Norris, III
    8,095       22,929  
Paul W. Schmidt
    8,095       9,798  
Terry D. Stinson
    8,095       22,929  
Jeffrey D. Storey, M.D. 
    8,095       4,706  
Gregory T. Swienton
    2,056       0  


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EQUITY COMPENSATION PLAN INFORMATION
 
We currently administer two equity compensation plans: the LII Incentive Plan and the Non-Employee Directors’ Compensation and Deferral Plan. The following table provides information as of December 31, 2010 regarding shares of our common stock that may be issued under these equity compensation plans.
 
                         
    Number of Securities
       
    to be Issued Upon
  Weighted Average
  Number of Securities
    Exercise of
  Exercise Price of
  Remaining Available
    Outstanding
  Outstanding
  for Future Issuance
    Options, Warrants
  Options, Warrants
  Under Equity
Plan Category
  and Rights(1)   and Rights(2)   Compensation Plans(3)
 
Equity compensation plans approved by security holders
    3,939,889     $ 34.20       4,282,283  
Equity compensation plans not approved by security holders
                 
                         
TOTAL
    3,939,889     $ 34.20       4,282,283  
                         
 
 
(1) Includes the following:
 
  •    112,268 shares of common stock to be issued upon exercise of outstanding stock options granted under the LII Incentive Plan;
 
  •    2,522,593 stock appreciation rights granted under the LII Incentive Plan, which, upon exercise, will be settled in shares of our common stock;
 
  •    644,505 shares of common stock to be issued upon the vesting of restricted stock units outstanding under the LII Incentive Plan; and
 
  •    660,523 performance share units granted under the LII Incentive Plan, which, for performance share units granted after 2003, includes the number of shares of our common stock that will be issued assuming we meet the target performance goals for the applicable three-year performance period and, for performance share units granted prior to 2003, includes the number of shares of our common stock that will be issued at the end of the applicable ten-year vesting period.
 
The following table illustrates the number of shares of our common stock that may be issued pursuant to outstanding performance share units and the number of shares that may be available for future issuance under our equity compensation plans if our performance falls below or exceeds our target performance goals:
 
                                         
    Performance Level    
    Below Threshold   Threshold   Target   Maximum    
 
Shares to be Issued Pursuant to Outstanding Performance Share Units
    12,691       336,607       660,523       1,308,355          
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
    4,930,115       4,606,199       4,282,283       3,634,451          
 
(2) Excludes performance share unit and restricted stock unit awards because such awards have no exercise price.
 
(3) Assuming, with respect to outstanding performance share units, we meet target performance goals for the applicable three-year performance period, includes 3,945,769 shares of common stock available for issuance under the LII Incentive Plan, of which 3,125,596 shares are available for awards to employees and independent contractors and 820,173 shares are available for awards to non-employee directors; 277,012 shares of common stock available for issuance under the Non-Employee Directors’ Compensation and Deferral Plan, and 59,502 shares of common stock reserved for issuance under the Employee Stock Purchase Plan, which is no longer active.


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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
All related party transactions must be approved in accordance with the written Related Party Transactions Policy adopted by our Board. A related party transaction is a transaction or relationship since the beginning of the Company’s last fiscal year in which (i) the total amount involved will or may be expected to exceed $120,000, (ii) the Company or any of its subsidiaries is a participant, and (iii) any related party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an equity interest in another entity). A related party is any person who is or was since the beginning of the previous fiscal year an executive officer, director or nominee for election as a director; a stockholder owning more than 5% of the Company’s voting securities; or an immediate family member of any of these persons.
 
Our Board has considered certain limited types of transactions with related persons that meet specified criteria and determined that each of them is deemed to be pre-approved under the terms of the Related Party Transaction Policy. These include (i) transactions with companies and charitable contributions to organizations at which a related party’s only relationship is as an employee (other than an executive officer), if the amount of the transaction or contribution does not exceed the greater of $1,000,000 or 1% of that company’s total annual revenue; (ii) transactions involving competitive bids, (iii) regulated transactions; and (iv) certain routine banking services.
 
Our Audit Committee is generally responsible for approving all related party transactions, which must be on terms that are fair to our Company and comparable to those that could be obtained in arm’s length dealings with an unrelated third party. In the event a related party transaction involves one or more members of the Audit Committee, the transaction must be approved by an ad hoc committee appointed by the Board and composed entirely of independent and disinterested directors.
 
Thomas W. Booth, a non-executive officer employee of the Company, is the brother of Steven R. Booth, who served on our Board of Directors until December 8, 2010. Mr. Thomas Booth holds the title of Vice President, Open Innovation Leader. In this capacity, we paid Mr. Booth the following compensation in 2010: (i) a base salary of $190,000; (ii) a short-term incentive award payment of $110,564 (which was earned in 2010 and paid on March 15, 2011, (iii) long-term incentive awards consisting of 974 PSUs, 584 RSUs and 1,319 SARs, and (iv) perquisites and health and retirement benefits commensurate with those provided to other vice presidents of our Company.
 
Compensation Committee Interlocks and Insider Participation
 
During 2010, no member of the Compensation and Human Resources Committee was an officer or employee of our Company or any of our subsidiaries. In addition, none of our executive officers served on the board of directors or on the compensation committee of any other entity, for which any executive officers of such other entity served either on our Board or on our Compensation and Human Resources Committee.


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OWNERSHIP OF COMMON STOCK
 
The following table provides information regarding the beneficial ownership of our common stock as of February 5, 2011 by (i) each person known to own beneficially more than 5% of our common stock, (ii) each of our directors, (iii) each of our NEOs, and (iv) all directors and executive officers as a group.
 
For purposes of this table, “beneficial ownership” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934) takes into account shares as to which the individual has or shares voting or investment power as well as shares that may be acquired within 60 days (such as by exercising vested stock options or SARs, or the vesting of RSUs) and is different from beneficial ownership for purposes of Section 16 of the Exchange Act. As a result, the numbers below may differ from the numbers reported in forms filed pursuant to Section 16 (e.g. Forms 4).
 
To our knowledge and unless otherwise indicated, each stockholder listed below has sole voting and investment power over the shares listed as beneficially owned by such stockholder. Percentage of ownership is based on 53,719,233 shares of common stock outstanding as of February 5, 2011.
 
                                 
        Common Stock that
       
    Shares Beneficially
  may be Acquired
      Percent
Name of Beneficial Owner
  Owned (#)   Within 60 Days(#)   Total(#)   of Class(%)
 
5% Stockholders
                               
FMR LLC(1)
    7,394,770       0       7,394,770       13.76 %
Wellington Management Company, LLP(2)
    6,542,833       0       6,542,833       12.18 %
John W. Norris, Jr.(3)
    3,448,280       0       3,448,280       6.42 %
Directors and Executive Officers
                               
Harry J. Bizios
    72,317       65,211       137,528       *  
Todd M. Bluedorn
    67,142       219,144       286,286       *  
James J. Byrne
    49,047       9,798       58,845       *  
Janet Cooper
    20,874       22,929       43,803       *  
Robert J. Hau
          5,009       5,009       *  
C. L. (Jerry) Henry
    27,539       9,798       37,337       *  
John E. Major(4)
    32,490       9,798       42,288       *  
John W. Norris, III(5)
    342,279       22,929       365,208       *  
Paul W. Schmidt(6)
    18,314       9,798       28,112       *  
Daniel M. Sessa
    18,394       42,697       61,091       *  
Terry D. Stinson
    18,598       22,929       41,527       *  
Jeffrey D. Storey, M.D.(7)
    248,148       4,706       252,854       *  
Gregory T. Swienton
    158             158       *  
Richard L. Thompson(8)
    186,311       30,180       216,491       *  
Douglas L. Young
    26,230       63,394       89,624       *  
All executive officers and directors as a group (22 persons)
    1,496,998       679,060       2,175,848       4.05 %
 
 
Less than 1% of outstanding common stock
 
(1) As reported by FMR LLC, 82 Devonshire Street, Boston, MA 02109, on Amendment No. 1 to Schedule 13G filed with the Securities and Exchange Commission on February 14, 2011. FMR LLC reported sole dispositive power with respect to all of these shares and sole power to vote 767,570 of these shares.
 
(2) As reported by Wellington Management Company, LLP, on Amendment No. 3 to Schedule 13G filed with the Securities and Exchange Commission on February 14, 2011. Wellington Management Company, LLP, 280 Congress Street, Boston, MA 02210, reported shared voting power with respect to 4,892,208 shares and shared dispositive power with respect to 6,502,433 shares.


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(3) As reported by Mr. Norris, Jr. on Schedule 13D filed with the Securities and Exchange Commission on August 12, 1999, and as updated with information provided by Mr. Norris, Jr. to the Company on March 5, 2011, includes (a) 321,750 shares held by the John W. Norris, Jr. Trust A, for which Mr. Norris, Jr. is a co-trustee (Mr. Norris, Jr. disclaims beneficial ownership of such shares); (b) 2,545,105 shares held by the Norris Family Limited Partnership, of which Mr. Norris, Jr. is General Partner; (c) 481,425 shares held by the Norris Living Trust; and (d) 100,000 shares held by The Cabin Foundation, of which Mr. Norris, Jr. serves as President. Mr. Norris, Jr.’s address is 3831 Turtle Creek Blvd., Dallas, Texas 75219.
 
(4) Includes (a) 11,069 shares held by the John Major Children’s Trust dated 12/15/96 FBO John Blackston Major and (b) 12,068 shares held by the John Major Children’s Trust dated 12/15/96 FBO Barbara Marie Major. Mr. Major disclaims beneficial ownership of these shares.
 
(5) Includes (a) 12,225 shares held by the W.H. Norris Trust, 12,225 shares held by the B.W. Norris Trust and 11,301 shares held by the L.C. Norris Trust, for each of which Mr. Norris is a trustee; (b) 15,823 shares held by spouse, Catherine Norris of which Mr. Norris disclaims beneficial ownership and (b) 26,694 shares held by Mr. Norris’s minor children.
 
(6) Includes 18,314 shares held by the Mary T. Schmidt Trust U/A/D 10-9-85 of which Mr. Schmidt is a co-trustee and a beneficiary.
 
(7) Includes (a) 182,139 shares held by the Jeffrey D. Storey Revocable Trust, 14,997 shares held by the Kasey Storey Revocable Trust and 14,997 shares held by the Kendra Storey Revocable Trust, for each of which Dr. Storey is a trustee; (b) 6,314 shares held by the Kasey L. Storey Irrevocable Trust and 6,314 shares held by the Kendra S. Storey Irrevocable Trust, for each of which Dr. Storey has sole voting power only; and (c) 9,564 shares held by the Jeffrey D. Storey Children’s Trust and 9,476 shares held by the Kelly Storey Trust, for each of which Dr. Storey is a trustee.
 
(8) Includes 186,311 shares held by the R&B Thompson 2005 Family Trust, of which Mr. Thompson is a co-trustee.


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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than 10% of our common stock to timely file with the SEC and the NYSE initial reports of ownership and reports of changes in their ownership of our common stock. SEC regulations require our directors, executive officers and greater than 10% stockholders to furnish us with copies of these reports. Based solely upon a review of such reports and related information furnished to us, we believe that, during the 2010 fiscal year, other than with respect to the transactions described below, each person who served as a director or executive officer of our Company or held more than 10% of our common stock complied with the Section 16(a) filing requirements.
 
  •    The Company filed a Form 4 seven days late on behalf of each of Harry J. Bizios, Michael J. Blatz, Todd M. Bluedorn, Scott J. Boxer, David M. Moon, Roy A. Rumbough, Jr., Daniel M. Sessa and Douglas L. Young related to the vesting of a PSU grant and the withholding of an amount of related PSUs by the Company to cover taxes.
 
OTHER INFORMATION
 
Proxy Solicitation
 
We will pay for the cost of this proxy solicitation. In addition to solicitation by mail, our directors, officers and employees may solicit proxies from stockholders by telephone, facsimile, email or in person. They will not be paid for soliciting proxies but may be reimbursed for out-of-pocket expenses related to the proxy solicitation. We have retained Georgeson Inc. to assist in the solicitation of proxies for a fee of $12,000 plus reimbursement of expenses. We will also make arrangements with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners of our common stock. Upon request, we will reimburse the brokerage houses and custodians for their reasonable expenses in so doing.
 
Multiple Stockholders Sharing the Same Address
 
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders who have the same address and last name will receive only one copy of our Notice of Annual Meeting of Stockholders, Proxy Statement, Annual Report to Stockholders and Annual Report on Form 10-K, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure helps reduce our printing costs and postage fees.
 
Stockholders who participate in householding will continue to receive separate Proxy Cards. Also, householding will not in any way affect dividend check mailings.
 
If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the Notice of Annual Meeting of Stockholders, Proxy Statement, Annual Report to Stockholders and Annual Report on Form 10-K, or if you hold stock in more than one account, and, in either case, you wish to receive only a single copy of each of these documents for your household, please contact our Investor Relations department by telephone at (972) 497-5000 or in writing at 2140 Lake Park Blvd., Richardson, Texas 75080, Attention: Investor Relations.
 
If you participate in householding and wish to receive a separate copy of these documents, please contact our Investor Relations department as indicated above.
 
Form 10-K
 
Our Annual Report on Form 10-K (excluding exhibits) is a part of our 2011 Annual Report to Stockholders, which is being sent with this Proxy Statement. If you are entitled to vote at the Annual Meeting of Stockholders, you may obtain a copy of our Annual Report on Form 10-K for


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the fiscal year ended December 31, 2010, including the financial statements required to be filed with the SEC, without charge, by contacting our Investor Relations department by telephone at (972) 497-5000 or in writing at 2140 Lake Park Blvd., Richardson, Texas 75080, Attention: Investor Relations.
 
Stockholder Proposals for the 2012 Annual Meeting of Stockholders
 
Proposals for Inclusion in the Proxy Statement
 
If you wish to submit a proposal for possible inclusion in our 2012 Proxy Statement, we must receive your notice, in accordance with the rules of the SEC, on or before December 13, 2012. The proposal should be sent in writing to 2140 Lake Park Blvd., Richardson, Texas 75080, Attention: Corporate Secretary.
 
Proposals to be Offered at an Annual Meeting
 
If you wish to introduce a proposal at the 2012 Annual Meeting of Stockholders but do not intend for your proposal to be considered for inclusion in our 2012 proxy materials, our Bylaws, as permitted by the rules of the SEC, require that you follow certain procedures. Specifically, you must give written notice to our Corporate Secretary of your intention to introduce a proposal. We must receive such notice 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 of Stockholders date, the notice must be received within 10 days following the date on which notice of the date of the Annual Meeting of Stockholders was mailed or such public disclosure was made to our stockholders. In the case of a special meeting of stockholders, we must receive notice of your intention to introduce a proposal within 10 days following the date on which notice of such meeting is first given to stockholders. Pursuant to our Bylaws, a stockholder’s notice must include certain information regarding the proposal and the stockholder making the proposal. Depending on the nature of the proposal, additional information may be required (see “Corporate Governance — Stockholder Nominations for Director”).
 
By Order of the Board of Directors,
 
-s- John D. Torres
John D. Torres
Corporate Secretary
 
Richardson, Texas
April 11, 2011


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APPENDIX A
 
GAAP RECONCILIATION
 
Below are reconciliations of the non-GAAP measures referred to in this Proxy Statement to the most directly comparable GAAP measures.
 
Reconciliation of GAAP Income Per Share From Continuing Operations to Adjusted Earnings Per Share From Continuing Operations
 
                 
    For the Twelve Months Ended December 31,  
    2010     2009  
 
Income per share from continuing operations — diluted, a GAAP measure
  $ 2.10     $ 1.09  
Restructuring charges
    0.18       0.53  
Special legal contingency charge(a)
    0.08        
Net change in unrealized gains on open future contracts(a)
    (0.01 )     (0.08 )
Acquisition expenses(a)
    0.05        
Loss (gain) on sale of entity(a)
          (0.05 )
Impairment of assets
          0.08  
Special product quality adjustment(b)
          0.20  
Other items, net(a)
           
                 
Adjusted earnings per share from continuing operations — diluted, a non-GAAP measure
  $ 2.40     $ 1.77  
                 
 
 
(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations
 
(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations
 
         
    Trailing Twelve
 
    Months to
 
    December 31, 2010  
    2010  
 
Reconciliation of Earnings before interest and taxes to Income from continuing operations before income taxes:
       
Earnings before interest and taxes, a non-GAAP measure
    217.0  
Special product quality adjustment
    (0.2 )
Items in Losses (gains) and other expenses, net that are excluded from segment profit
    11.2  
Restructuring charges
    15.6  
Other expense, net
    1.0  
Interest expense, net
    12.8  
         
Income from continuing operations before income taxes, a GAAP measure
  $ 176.6