LENNOX INTERNATIONAL INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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. )
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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
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. | |
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| 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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Table of Contents
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,
Richard L. Thompson
Chairman of the Board
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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,
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:
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
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
TABLE OF
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Table of Contents
GENERAL
INFORMATION REGARDING THE 2011
ANNUAL MEETING OF STOCKHOLDERS
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:
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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. |
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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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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
EACH OF THE ABOVE NOMINEES
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The following Class II directors’ terms will
continue until the 2012 Annual Meeting of Stockholders:
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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. |
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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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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:
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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. |
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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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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. |
|
|
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
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.
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
14
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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
15
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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
17
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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
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
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.
20
Table of Contents
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; |
21
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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”).
22
Table of Contents
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).
|
|
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. |
23
Table of Contents
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)
($ 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 | % | ||||||||||||||
24
Table of Contents
| (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:
|
|
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).
26
Table of Contents
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)
(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
27
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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)
(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.
28
Table of Contents
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.
29
Table of Contents
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.
30
Table of Contents
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
|
31
Table of Contents
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: |
32
Table of Contents
|
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 |
33
Table of Contents
| 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. |
34
Table of Contents
| (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 ($) | ($) | ||||||||||||||||||||||||
|
12/9/2010
|
RSU | — | — | 1.41 | — | 46.780 | 44.8447 | ||||||||||||||||||||||||
|
12/9/2010
|
PSU | — | — | 1.41 | — | 46.780 | 44.8447 | ||||||||||||||||||||||||
|
12/9/2010
|
SAR | 39.93 | 4.04 | 1.46 | 1.46 | 46.780 | 13.7511 | ||||||||||||||||||||||||
| (7) | Mr. Boxer retired from the Company effective June 30, 2010. As a result, he did not earn a 2010 bonus, but rather received the enhanced severance benefits described below pursuant to the employment agreement he entered into when he joined the Company. |
35
Table of Contents
Outstanding
Equity Awards at Fiscal 2010 Year-End
The following table provides information regarding all
outstanding equity awards held by our NEOs as of
December 31, 2010.
| Option/SAR Awards(1) | Stock Awards | |||||||||||||||||||||||||||||||
|
Equity |
||||||||||||||||||||||||||||||||
|
Equity |
Incentive |
|||||||||||||||||||||||||||||||
|
Incentive |
Plan |
|||||||||||||||||||||||||||||||
|
Plan |
Awards: |
|||||||||||||||||||||||||||||||
|
Awards: |
Market |
|||||||||||||||||||||||||||||||
|
Number of |
or Payout |
|||||||||||||||||||||||||||||||
|
Market |
Unearned |
Value of |
||||||||||||||||||||||||||||||
|
Number of |
Value of |
Shares, |
Unearned |
|||||||||||||||||||||||||||||
|
Number of |
Number of |
Shares or |
Shares or |
Units or |
Shares, |
|||||||||||||||||||||||||||
|
Securities |
Securities |
Units of |
Units of |
Other |
Units or |
|||||||||||||||||||||||||||
|
Underlying |
Underlying |
Option/ |
Stock |
Stock |
Rights |
Other Rights |
||||||||||||||||||||||||||
|
Unexercised |
Unexercised |
SAR |
Option/ |
That Have |
That Have |
That Have |
That Have |
|||||||||||||||||||||||||
|
Options/ |
Options/ |
Exercise |
SAR |
Not |
Not |
Not |
Not |
|||||||||||||||||||||||||
|
SARs(#) |
SARs (#) |
Price |
Expiration |
Vested |
Vested |
Vested |
Vested |
|||||||||||||||||||||||||
|
Name
|
Exercisable(1) | Unexercisable(1) | ($/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. |
36
Table of Contents
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. |
37
Table of Contents
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.
38
Table of Contents
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. |
39
Table of Contents
| (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
40
Table of Contents
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 |
41
Table of Contents
| • | 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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Table of Contents
| • | 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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Table of Contents
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.
44
Table of Contents
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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Table of Contents
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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Table of Contents
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. |
47
Table of Contents
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. |
48
Table of Contents
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. |
49
Table of Contents
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 | ||
50
Table of Contents
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.
51
Table of Contents
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: |
52
Table of Contents
|
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. |
53
Table of Contents
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 | ||||||
54
Table of Contents
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. |
55
Table of Contents
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.
56
Table of Contents
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. |
57
Table of Contents
| (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. |
58
Table of Contents
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
59
Table of Contents
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,
John D. Torres
Corporate Secretary
Richardson, Texas
April 11, 2011
60
Table of Contents
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 | ||
Table of Contents
LENNOX INTERNATIONAL INC.
P.O. BOX 799900
DALLAS, TX 75379-9900
VOTE BY
INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by Lennox International Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
If you would like to reduce the costs incurred by Lennox International Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY
PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| KEEP THIS PORTION FOR YOUR RECORDS | ||
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |
| The Board of Directors recommends you vote FOR the following: | |||||||
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| 1. | Election of Directors | For | Against | Abstain | |||
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Janet K. Cooper
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John W. Norris, III
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Paul W. Schmidt
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The Board of Directors recommends you vote FOR
proposals 2 and 3. |
For | Against | Abstain | ||||
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Ratification of the appointment of KPMG LLP as our Independent Registered Public Accounting
Firm for the 2011 Fiscal Year.
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Advisory vote on the compensation of the named executive officers as disclosed in our proxy
statement.
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For address change/comments, mark here.
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(see reverse for instructions)
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Please indicate if you plan to attend this meeting
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Please sign your name exactly as it appears hereon. When signing as attorney, executor,
administrator, trustee, guardian, or other fiduciary, please give full title as such. Joint owners
should each sign personally. All holders must sign. If a corporation or partnership, please sign in
full corporate or partnership name, by authorized officer.
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The Board of Directors recommends you vote 1 YEAR on the following proposal: |
1 year | 2 years | 3 years | Abstain | ||||||
4 |
Advisory vote on the frequency of future advisory votes on the compensation of our named
executive officers. |
o | o | o | o | |||||
NOTE: In their discretion, John D. Torres and Richard Thompson, the proxies named in this card,
are authored to vote upon such business as may properly come before the Annual Meeting in
accordance with the terms of our Amended and Restated By laws.
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| Signature [PLEASE SIGN WITHIN BOX] | Date | ||||
| Signature (Joint Owners) | Date | ||||
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice & Proxy Statement, 10K Wrap is/are available at www.proxyvote.com.
LENNOX INTERNATIONAL INC.
Annual Meeting of Stockholders
May 12, 2011 1:00 PM
This proxy is solicited by the Board of Directors
Annual Meeting of Stockholders
May 12, 2011 1:00 PM
This proxy is solicited by the Board of Directors
The signatory of this Proxy, by execution on the reverse side of this Proxy,
hereby appoints and constitutes Richard L. Thompson and John D. Torres, and each of them,
with full power of substitution, with the powers the signatory of this Proxy would possess
if personally present, to vote all shares of Lennox International Inc. Common Stock entitled
to be voted by the signatory at the Annual Meeting of Stockholders to be held at 1:00 p.m.,
local time, on May 12, 2011, at the Company’s Corporate Headquarters, 2140 Lake Park Blvd.,
Richardson, Texas 75080, or at any reconvened meeting after any adjournment or postponement thereof,
on the matters set forth on the reverse side in accordance with any directions given by the signatory
and, in their discretion, on all other matters that may properly come before the Annual Meeting or any
reconvened meeting after any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES LISTED IN PROPOSAL 1, “FOR”
PROPOSALS 2 AND 3 AND “1 YEAR” ON PROPOSAL 4, AND IN THE NAMED
PROXIES’ DISCRETION ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Address change/comments:
(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
TABLE OF CONTENTS
General Information Regarding the 2011 Annual Meeting of StockholdersMeeting Date and LocationMatters to be Voted OnRecord Versus Beneficial Ownership of SharesRecord Date and Number of VotesQuorum and Vote RequiredAbstentions and Broker Non-VotesVoting ProceduresChanging Your VoteOther Business; AdjournmentsProposal 1: Election of DirectorsNomineesProposal 2: Ratification of the Appointment of Independent Registered Public Accounting FirmAudit Committee ReportCorporate GovernanceDirector IndependenceBoard Meetings and Leadership StructureRisk Oversight and Compensation Risk AnalysisBoard CommitteesDirector Nomination Process and Nominee CriteriaStockholder Nominations for DirectorStockholder Communications with DirectorsOther Corporate Governance Policies and PracticesProposal 3: Advisory Vote on the Compensation of the Named Executive OfficersProposal 4: Advisory Vote on the Frequency of the Advisory Vote on Executive CompensationExecutive CompensationOverviewExecutive Compensation Philosophy and Key ObjectivesCompetitive CompensationProcess for Determining Named Executive Officer CompensationComponents and Analysis of 2010 Executive CompensationBenefit ProgramsAdditional Information Regarding Executive CompensationTax and Accounting ImplicationsCompensation Committee ReportSummary Compensation TableFiscal 2010 Grants of Plan-Based AwardsOutstanding Equity Awards at Fiscal 2010 Year-EndFiscal 2010 Option Exercises and Stock VestedRetirement PlansFiscal 2010 Pension BenefitsFiscal 2010 Nonqualified Deferred CompensationPotential Payments Upon Termination or Change in ControlNEOs Whose Employment with Our Company Ended During 2010