Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation Plans [Abstract]

Stock-Based Compensation Plans

17.     Stock-Based Compensation Plans:

Stock-Based Compensation expense is included in Selling, General and Administrative expenses in the accompanying Consolidated Statements of Operations as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Compensation expense (1)	$	13.7	$	15.4	$	12.8

(1) Stock-Based Compensation expense is recorded in our Corporate and other business segment.

Excess tax benefits classified as a financing cash inflow in the accompanying Consolidated Statements of Cash Flows were as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Excess tax benefits	$	1.4	$	5.3	$	4.9

Incentive Plan

Under the Lennox International Inc. 2010 Incentive Plan, as amended and restated (the “2010 Incentive Plan”), we are authorized to issue awards for 24,254,706 shares of common stock. As of December 31, 2011, awards for 21,106,551 shares of common stock had been granted, net of cancellations and repurchases. Consequently, as of December 31, 2011, there were 3,148,155 shares available for future issuance.

The 2010 Incentive Plan provides for various long-term incentive awards, which include stock options, performance share units, restricted stock units and stock appreciation rights. A description of these long-term incentive awards and related activity within each award category is provided below.

Performance Share Units

Under the 2010 Incentive Plan, performance share units are granted to certain employees at the discretion of the Board of Directors with a three-year performance period beginning January 1^st of each year. Upon meeting the performance and vesting criteria, performance share units are converted to an equal number of shares of our common stock. Outstanding awards granted prior to 2003 vest after ten years of service at the target amount.

Performance share units vest if, at the end of the three-year performance period, at least the threshold performance level has been attained. To the extent that the payout level attained is less than 100%, the difference between 100% and the units earned and distributed will be forfeited. Eligible participants may also earn additional units of our common stock, which would increase the potential payout from 101% to 200% of the units granted, depending on LII’s performance over the three-year performance period.

Performance share units under the 2010 Incentive Plan are classified as equity awards, with the fair value of each unit equal to the average of the high and low market price of the stock on the date of grant for units granted prior to December 2007. The fair value of units granted after December 2007 is the average of the high and low market price of the stock on the date of grant discounted by the expected dividend rate over the service period. Units are amortized to expense ratably over the service period. The compensation expense for any additional units which may be earned is estimated each reporting period based on the fair value of the stock at the date of grant. The number of units expected to be earned will be adjusted, as necessary, to reflect the actual number of units awarded.

The following table provides information on our performance share units (dollars in millions, except weighted-average grant date fair value):

	For the Years Ended December 31,
	2011			2010			2009
Performance Share Units:
Compensation expense	$	1.7		$	4.1		$	1.8
Weighted-average grant date fair value		31.78			44.85			35.26
Payout levels for shares paid		0.0	%		127.7	%		200.0	%

A summary of the status of our undistributed performance share units as of December 31, 2011, and changes during the year then ended, is presented below (in millions, except per share data):

	Year Ended December 31, 2011
	Shares			Weighted-Average Grant  Date Fair Value per Share
Undistributed performance share units:
Undistributed as of December 31, 2010		0.8		$	33.90
Granted		0.3			31.78
Additional shares earned		(0.2	)		32.92
Distributed		—			—
Forfeited		—			35.45
Undistributed as of December 31, 2011(1)		0.9			33.40

(1) Undistributed performance share units as of December 31, 2011 include approximately 0.7 million units with a weighted-average grant date fair value of $36.01 per share that had not yet vested.

As of December 31, 2011, we had $13.3 million of total unrecognized compensation cost related to nonvested performance share units. Such cost is expected to be recognized over a weighted-average period of 2.3 years. Our estimated forfeiture rate for performance share units was 19.4% as of December 31, 2011.

The total fair value of performance share units distributed and the resulting tax deductions to realize tax benefits were as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Fair value of performance share units distributed	$	—	$	13.2	$	9.6
Realized tax benefits from tax deductions		—		5.0		3.7

Our practice is to issue new shares of common stock to satisfy performance share unit distributions.

Restricted Stock Units

Under the 2010 Incentive Plan, restricted stock units are issued to attract and retain key employees. Generally, at the end of a three-year retention period, the units will vest and be distributed in shares of our common stock to the participant.

Restricted stock units under the 2010 Incentive Plan are classified as equity awards, with the fair value of each unit equal to the average of the high and low market price of the stock on the date of grant for units granted prior to December 2007. The fair value of units granted after December 2007 is the average of the high and low market price of the stock on the date of grant discounted by the expected dividend rate over the service period. Units are amortized to compensation expense ratably over the service period. The following table provides information on our restricted stock units (dollars in millions, except weighted-average grant date fair value):

	For the Years Ended December 31,
	2011		2010		2009
Restricted Stock Units:
Compensation expense	$	6.6	$	6.6	$	6.6
Weighted-average grant date fair value		32.34		44.80		35.09

A summary of the status of our nonvested restricted stock units as of December 31, 2011 and changes during the year then ended is presented below (in millions, except per share data):

	Year Ended December 31, 2011
	Shares			Weighted-Average Grant  Date Fair Value per Share
Nonvested restricted stock units:
Nonvested as of December 31, 2010		0.6		$	34.44
Granted		0.3			32.34
Vested		(0.3	)		26.91
Forfeited		—			35.80
Nonvested as of December 31, 2011		0.6			36.51

As of December 31, 2011, we had $12.7 million of total unrecognized compensation cost related to nonvested restricted stock units. Such cost is expected to be recognized over a weighted-average period of 2.3 years. Our estimated forfeiture rate for restricted stock units was 19.7% as of December 31, 2011.

The total fair value of restricted stock units vested and the resulting tax deductions to realize tax benefits were as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Fair value of restricted stock units vested	$	8.8	$	9.4	$	8.3
Realized tax benefits from tax deductions		3.4		3.6		3.2

Our practice is to issue new shares of common stock to satisfy restricted stock unit vestings.

Stock Appreciation Rights

In 2003, we began awarding stock appreciation rights. Each recipient is given the “right” to receive a value equal to the future appreciation of our common stock price. The value is paid in shares of our common stock. Stock appreciation rights generally vest in one-third increments beginning on the first anniversary date after the grant date, and expire after seven years.

	For the Years Ended December 31,
	2011		2010		2009
Stock Appreciation Rights:
Compensation expense	$	5.4	$	4.7	$	4.4
Weighted-average grant date fair value		9.39		13.75		10.96

Compensation expense for stock appreciation rights granted is based on the fair value on the date of grant and is recognized over the service period. The fair value for these awards is estimated using the Black-Scholes-Merton valuation model. We use historical stock price data and other pertinent information to estimate the expected volatility and the outstanding period of the award for separate groups of employees that have similar historical exercise behavior to estimate expected life. The risk-free interest rate was based on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected life of the stock appreciation right at the time of grant.

The fair value of each stock appreciation right granted in 2011, 2010 and 2009 is estimated on the date of grant using the following assumptions:

	For the Years Ended December 31,
	2011			2010			2009
Expected dividend yield		2.39	%		1.46	%		1.57	%
Risk-free interest rate		0.62	%		1.46	%		1.78	%
Expected volatility		41.94	%		39.93	%		39.81	%
Expected life (in years)		4.07			4.04			4.12

A summary of stock appreciation rights activity is as follows (in millions, except per share data):

	For the Years Ended December 31,
	2011					2010					2009
	Shares			Weighted- Average Exercise Price per Share		Shares			Weighted- Average Exercise Price per Share		Shares			Weighted- Average Exercise Price per Share
Outstanding at beginning of year		2.5		$	34.89		2.9		$	31.06		2.7		$	29.59
Granted		0.7			34.06		0.5			46.78		0.6			36.94
Exercised		(0.2	)		31.67		(0.7	)		27.20		(0.2	)		28.31
Forfeited		(0.1	)		39.39		(0.2	)		31.97		(0.2	)		30.59
Outstanding at end of year		2.9		$	34.85		2.5		$	34.89		2.9		$	31.06
Exercisable at end of year		1.8		$	33.05		1.5		$	31.81		1.6		$	29.58

The following table summarizes information about stock appreciation rights outstanding as of December 31, 2011 (in millions, except per share data and years):

	Stock Appreciation Rights Outstanding				Stock Appreciation Rights Exercisable
Range of Exercise Prices per Share	Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
$28.24 – $46.78		4.7		4.5		3.6		4.5

As of December 31, 2011, we had $10.4 million of unrecognized compensation cost related to nonvested stock appreciation rights. Such cost is expected to be recognized over a weighted-average period of 2.4 years. Our estimated forfeiture rate for stock appreciation rights was 18.6% as of December 31, 2011.

The total intrinsic value of stock appreciation rights exercised and the resulting tax deductions to realize tax benefits were as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Intrinsic value of stock appreciation rights exercised	$	4.2	$	10.1	$	1.5
Realized tax benefits from tax deductions		1.6		3.9		0.6

Our practice is to issue new shares of common stock to satisfy the exercise of stock appreciation rights.